CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2019 and 2018
(Expressed in Canadian Dollars)
|
|
Deloitte LLP
2800 - 1055 Dunsmuir Street
4 Bentall Centre
P.O. Box 49279
Vancouver BC V7X 1P4
Canada
Tel: 604-669-4466
Fax: 778-374-0496
www.deloitte.ca
|
Independent Auditor’s Report
To the Shareholders of
New Pacific Metals Corp.
Opinion
We have audited the consolidated financial statements of New Pacific Metals Corp. (the “Company”), which comprise the consolidated statements of financial position as at June 30, 2019 and 2018, and the consolidated statements of loss, comprehensive loss, change in equity and cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies (collectively referred to as the “financial statements”).
In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as at June 30, 2019 and 2018, and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”).
Basis for Opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards (“Canadian GAAS”). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Other Information
Management is responsible for the other information. The other information comprises:
● Management’s Discussion and Analysis
Our opinion on the financial statements does not cover the other information and we do not and will not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.
We obtained Management’s Discussion and Analysis prior to the date of this auditor’s report. If, based on the work we have performed on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact in this auditor’s report. We have nothing to report in this regard.
Responsibilities of Management and Those Charged with Governance for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with IFRS, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting process.
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian GAAS will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
As part of an audit in accordance with Canadian GAAS, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
● Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
● Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.
● Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
● Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern.
● Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
● Obtain sufficient appropriate audit evidence regarding the financial information of th e entities or business activities within the Company to express an opinion on the financial statements. We are responsible for the direction , supervision an d perfor mance of the group audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statem ent that we h ave complied with relevant ethical requirements regarding independence, and to communicate with them all relatio nships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
The engagement partner on the audit resulting in this independent auditor’s report is Beverley Pao.
Chartered Professional Accountants
Vancouver, British Columbia
September 10, 2019
New Pacific Metals Corp.
Consolidated Statements of Financial Position
(Expressed in Canadian dollars)
|
|
Notes
|
|
June 30, 2019
|
|
|
June 30, 2018
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
4
|
$
|
27,849,961
|
|
$
|
14,604,113
|
|
|
Bonds
|
5
|
|
10,942,898
|
|
|
18,114,026
|
|
|
Accounts receivables
|
|
|
259,600
|
|
|
181,884
|
|
|
Deposits and prepayments
|
|
|
142,370
|
|
|
72,540
|
|
|
|
|
|
39,194,829
|
|
|
32,972,563
|
|
|
Non‐current Assets
|
|
|
|
|
|
|
|
|
Reclamation deposits
|
|
|
15,075
|
|
|
15,075
|
|
|
Other tax receivable
|
6
|
|
1,800,713
|
|
|
727,585
|
|
|
Equity investments
|
7
|
|
5,110,893
|
|
|
5,758,627
|
|
|
Plant and equipment
|
8
|
|
1,310,803
|
|
|
345,586
|
|
|
Mineral property interests
|
9
|
|
76,816,082
|
|
|
64,862,764
|
|
|
TOTAL ASSETS
|
|
$
|
124,248,395
|
|
$
|
104,682,200
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Trade and other payables
|
10
|
$
|
1,621,403
|
|
$
|
1,827,350
|
|
|
Payable for mineral property acquisition
|
9
|
|
394,680
|
|
|
‐
|
|
|
Due to a related party
|
11
|
|
89,189
|
|
|
24,417
|
|
|
|
|
|
2,105,272
|
|
|
1,851,767
|
|
|
Non‐current liabilities
|
|
|
|
|
|
|
|
|
Payable for mineral property acquisition
|
9
|
|
263,120
|
|
|
‐
|
|
|
Total Liabilities
|
|
|
2,368,392
|
|
|
1,851,767
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
Share capital
|
|
|
150,005,738
|
|
|
124,164,312
|
|
|
Share‐based payment reserve
|
|
|
19,978,062
|
|
|
23,440,856
|
|
|
Accumulated other comprehensive income
|
|
|
3,264,901
|
|
|
3,987,952
|
|
|
Deficit
|
|
|
(51,331,013
|
)
|
|
(48,910,109
|
)
|
|
Total equity attributable to the equity holders of the Company
|
|
|
121,917,688
|
|
|
102,683,011
|
|
|
|
|
|
|
|
|
|
|
|
Non‐controlling interests
|
13
|
|
(37,685
|
)
|
|
147,422
|
|
|
Total Equity
|
|
|
121,880,003
|
|
|
102,830,433
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND EQUITY
|
|
$
|
124,248,395
|
|
$
|
104,682,200
|
|
Approved on behalf of the Board:
(Signed) David Kong
Director
(Signed) Rui Feng
Director
See accompanying notes to the consolidated financial statements
Page | 1
New Pacific Metals Corp.
Consolidated Statements of Loss
(Expressed in Canadian dollars)
|
|
|
|
Years ended June 30,
|
|
|
|
Notes
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from investments
|
|
|
|
|
|
|
|
|
Gain (loss) on equity investments
|
7
|
$
|
(77,173
|
)
|
$
|
(1,081,767
|
)
|
|
Fair value change and interest earned on bonds
|
5
|
|
1,514,769
|
|
|
(472,432
|
)
|
|
Dividend income
|
|
|
53,902
|
|
|
197
|
|
|
Interest income
|
|
|
40,893
|
|
|
14,243
|
|
|
|
|
|
1,532,391
|
|
|
(1,539,759
|
)
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
Consulting
|
|
|
38,935
|
|
|
33,899
|
|
|
Depreciation
|
|
|
11,999
|
|
|
17,982
|
|
|
Filing and listing
|
|
|
124,904
|
|
|
301,950
|
|
|
Investor relations
|
|
|
772,245
|
|
|
472,149
|
|
|
Professional fees
|
|
|
178,200
|
|
|
154,812
|
|
|
Salaries and benefits
|
|
|
930,962
|
|
|
907,030
|
|
|
Office and administration
|
|
|
287,964
|
|
|
334,329
|
|
|
Share‐based compensation
|
12(b)
|
|
922,498
|
|
|
881,561
|
|
|
Loss before other income and expenses
|
|
|
(1,735,316
|
)
|
|
(4,643,471
|
)
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
Impairment of mineral property interests
|
9
|
|
(779,823
|
)
|
|
‐
|
|
|
Foreign exchange gain (loss)
|
|
|
(64,491
|
)
|
|
470,966
|
|
|
Other income
|
|
|
6,875
|
|
|
50,320
|
|
|
|
|
|
(837,439
|
)
|
|
521,286
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,572,755
|
)
|
$
|
(4,122,185
|
)
|
|
|
|
|
|
|
|
|
|
|
Attributable to:
|
|
|
|
|
|
|
|
|
Equity holders of the Company
|
|
$
|
(2,420,904
|
)
|
$
|
(4,106,450
|
)
|
|
Non‐controlling interests
|
13
|
|
(151,851
|
)
|
|
(15,735
|
)
|
|
|
|
$
|
(2,572,755
|
)
|
$
|
(4,122,185
|
)
|
|
|
|
|
|
|
|
|
|
|
Loss per share attributable to the equity holders of the Company
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share
|
|
$
|
(0.02
|
)
|
$
|
(0.03
|
)
|
|
Weighted average number of common shares ‐ basic and diluted
|
|
|
133,795,963
|
|
|
122,101,284
|
|
See accompanying notes to the consolidated financial statements
Page | 2
New Pacific Metals Corp.
Consolidated Statements of Comprehensive Loss
(Expressed in Canadian dollars)
|
|
|
|
Years ended June 30,
|
|
|
|
Notes
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,572,755
|
)
|
$
|
(4,122,185
|
)
|
|
Other comprehensive income (loss), net of taxes:
|
|
|
|
|
|
|
|
|
Items that may subsequently be reclassified to net income or loss:
|
|
|
|
|
|
|
|
|
Currency translation adjustment, net of tax of $nil
|
|
|
(756,307
|
)
|
|
2,885,902
|
|
|
Other comprehensive income (loss), net of taxes
|
|
$
|
(756,307
|
)
|
$
|
2,885,902
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to:
|
|
|
|
|
|
|
|
|
Equity holders of the Company
|
|
$
|
(723,051
|
)
|
$
|
2,853,168
|
|
|
Non‐controlling interests
|
13
|
|
(33,256
|
)
|
|
32,734
|
|
|
|
|
$
|
(756,307
|
)
|
$
|
2,885,902
|
|
|
Total comprehensive loss, net of taxes
|
|
$
|
(3,329,062
|
)
|
$
|
(1,236,283
|
)
|
|
|
|
|
|
|
|
|
|
|
Attributable to:
|
|
|
|
|
|
|
|
|
Equity holders of the Company
|
|
$
|
(3,143,955
|
)
|
$
|
(1,253,282
|
)
|
|
Non‐controlling interests
|
|
|
(185,107
|
)
|
|
16,999
|
|
|
|
|
$
|
(3,329,062
|
)
|
$
|
(1,236,283
|
)
|
See accompanying notes to the consolidated financial statements
Page | 3
New Pacific Metals Corp.
Consolidated Statements of Cash Flows
(Expressed in Canadian dollars)
|
|
|
|
Years ended June 30,
|
|
|
|
Notes
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,572,755
|
)
|
$
|
(4,122,185
|
)
|
|
Add (deduct) items not affecting cash:
|
|
|
|
|
|
|
|
|
Loss on equity investments
|
7
|
|
77,173
|
|
|
1,081,767
|
|
|
Fair value change and interest earned on bonds
|
5
|
|
(1,514,769
|
)
|
|
472,432
|
|
|
Interest income
|
|
|
(40,893
|
)
|
|
(14,243
|
)
|
|
Depreciation
|
|
|
11,999
|
|
|
17,982
|
|
|
Impairment of mineral property interest
|
9
|
|
779,823
|
|
|
‐
|
|
|
Share‐based compensation
|
12(b)
|
|
922,498
|
|
|
881,561
|
|
|
Unrealized foreign exchange loss (gain)
|
|
|
64,491
|
|
|
(470,966
|
)
|
|
Interest received
|
|
|
40,893
|
|
|
14,243
|
|
|
Changes in non‐cash operating working capital
|
18
|
|
(287,152
|
)
|
|
1,313,755
|
|
|
Net cash used in operating activities
|
|
|
(2,518,692
|
)
|
|
(825,654
|
)
|
|
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
Mineral property interest
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(10,681,816
|
)
|
|
(6,553,301
|
)
|
|
Acquisition of mineral concession
|
9
|
|
(657,800
|
)
|
|
‐
|
|
|
Plant and equipment
|
|
|
|
|
|
|
|
|
Additions
|
|
|
(1,061,414
|
)
|
|
(302,548
|
)
|
|
Bonds
|
|
|
|
|
|
|
|
|
Acquisition
|
5
|
|
‐
|
|
|
(9,895,490
|
)
|
|
Proceeds on disposals
|
5
|
|
7,700,006
|
|
|
3,268,298
|
|
|
Coupon payments
|
5
|
|
853,076
|
|
|
726,721
|
|
|
Equity investments
|
|
|
|
|
|
|
|
|
Proceeds on disposals
|
7
|
|
570,561
|
|
|
‐
|
|
|
Payment for Alcira acquisition
|
|
|
‐
|
|
|
(45,858,200
|
)
|
|
Changes in other tax receivable
|
|
|
(1,089,956
|
)
|
|
(702,546
|
)
|
|
Net cash used in investing activities
|
|
|
(4,367,343
|
)
|
|
(59,317,066
|
)
|
|
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common shares
|
|
|
20,140,534
|
|
|
71,609,470
|
|
|
Net cash provided by financing activities
|
|
|
20,140,534
|
|
|
71,609,470
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(8,651
|
)
|
|
(672,997
|
)
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents
|
|
|
13,245,848
|
|
|
10,793,753
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of the year
|
|
|
14,604,113
|
|
|
3,810,360
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of the year
|
|
$
|
27,849,961
|
|
$
|
14,604,113
|
|
|
Supplementary cash flow information
|
18
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements
Page | 4
New Pacific Metals Corp.
Consolidated Statements of Change in Equity
(Expressed in Canadian dollars, except for share figures)
|
|
|
|
Share capital
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Share‐based
|
|
|
Accumulated other
|
|
|
|
|
|
attributable to the
|
|
|
Non‐
|
|
|
|
|
|
|
|
|
common
|
|
|
|
|
|
payment
|
|
|
comprehensive
|
|
|
|
|
|
equity holders of
|
|
|
controlling
|
|
|
|
|
|
|
Notes
|
|
shares issued
|
|
|
Amount
|
|
|
reserve
|
|
|
income
|
|
|
Deficit
|
|
|
the Company
|
|
|
interests
|
|
|
Total equity
|
|
|
Balance, July 1, 2017
|
|
|
67,063,229
|
|
$
|
57,268,757
|
|
$
|
17,845,380
|
|
|
1,134,788
|
|
$
|
(44,803,659
|
)
|
$
|
31,445,266
|
|
$
|
130,423
|
|
$
|
31,575,689
|
|
|
Options exercised
|
|
|
1,515,000
|
|
|
1,424,520
|
|
|
(499,371
|
)
|
|
‐
|
|
|
‐
|
|
|
925,149
|
|
|
‐
|
|
|
925,149
|
|
|
Share‐based compensation
|
|
|
‐
|
|
|
‐
|
|
|
881,561
|
|
|
‐
|
|
|
‐
|
|
|
881,561
|
|
|
‐
|
|
|
881,561
|
|
|
Common shares issued through private placement
|
|
|
63,771,250
|
|
|
65,471,035
|
|
|
5,213,286
|
|
|
‐
|
|
|
‐
|
|
|
70,684,321
|
|
|
‐
|
|
|
70,684,321
|
|
|
Net loss
|
|
|
‐
|
|
|
‐
|
|
|
‐
|
|
|
‐
|
|
|
(4,106,450
|
)
|
|
(4,106,450
|
)
|
|
(15,735
|
)
|
|
(4,122,185
|
)
|
|
Currency translation adjustment
|
|
|
‐
|
|
|
‐
|
|
|
‐
|
|
|
2,853,164
|
|
|
‐
|
|
|
2,853,164
|
|
|
32,734
|
|
|
2,885,898
|
|
|
Balance, June 30, 2018
|
|
|
132,349,479
|
|
$
|
124,164,312
|
|
$
|
23,440,856
|
|
$
|
3,987,952
|
|
$
|
(48,910,109
|
)
|
$
|
102,683,011
|
|
$
|
147,422
|
|
$
|
102,830,433
|
|
|
Options exercised
|
12(b)
|
|
333,333
|
|
|
282,827
|
|
|
(92,293
|
)
|
|
‐
|
|
|
‐
|
|
|
190,534
|
|
|
‐
|
|
|
190,534
|
|
|
Warrants exercised
|
12(e)
|
|
9,500,000
|
|
|
25,163,286
|
|
|
(5,213,286
|
)
|
|
‐
|
|
|
‐
|
|
|
19,950,000
|
|
|
‐
|
|
|
19,950,000
|
|
|
Share‐based compensation
|
12(b)
|
|
‐
|
|
|
‐
|
|
|
922,498
|
|
|
‐
|
|
|
‐
|
|
|
922,498
|
|
|
‐
|
|
|
922,498
|
|
|
Common shares issued to acquire mineral property interest
|
12(d)
|
|
250,000
|
|
|
395,313
|
|
|
920,287
|
|
|
‐
|
|
|
‐
|
|
|
1,315,600
|
|
|
‐
|
|
|
1,315,600
|
|
|
Net loss
|
|
|
‐
|
|
|
‐
|
|
|
‐
|
|
|
‐
|
|
|
(2,420,904
|
)
|
|
(2,420,904
|
)
|
|
(151,851
|
)
|
|
(2,572,755
|
)
|
|
Currency translation adjustment
|
|
|
‐
|
|
|
‐
|
|
|
‐
|
|
|
(723,051
|
)
|
|
‐
|
|
|
(723,051
|
)
|
|
(33,256
|
)
|
|
(756,307
|
)
|
|
Balance, June 30, 2019
|
|
|
142,432,812
|
|
$
|
150,005,738
|
|
$
|
19,978,062
|
|
$
|
3,264,901
|
|
$
|
$(51,331,013
|
)
|
$
|
121,917,688
|
|
$
|
(37,685
|
)
|
$
|
121,880,003
|
|
See accompanying notes to the consolidated financial statements
Page | 5
1. CORPORATE INFORMATION
New Pacific Metals Corp. along with its subsidiaries (collectively, the “Company” or “New Pacific”) is a Canadian mining issuer engaged in exploring and developing mineral properties in Bolivia, Canada and China. The Company is in the stage of exploring and developing its mineral properties and has not yet determined whether its mineral property interests contain economically recoverable mineral reserves. The underlying value and the recoverability of the amounts shown for mineral property interests are entirely dependent upon the existence of economically recoverable mineral reserves, the ability of the Company to obtain the necessary financing to complete the exploration and development of the mineral property interests, and future profitable production or proceeds from the disposition of the mineral property interests.
The Company is publicly listed on the TSX Venture Exchange (“TSX‐V”) under the symbol “NUAG” and on the OTCQX Best Market in the United States under the symbol “NUPMF”. The head office, registered address and records office of the Company are located at 1066 Hastings Street, Suite 1750, Vancouver, British Columbia, Canada, V6E 3X1.
2. SIGNIFICANT ACCOUNTING POLICIES
(a) Statement of Compliance
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”). The policies applied in these consolidated financial statements are based on IFRS in effect as of June 30, 2019.
These consolidated financial statements have been prepared on a going concern basis.
The consolidated financial statements of the Company as at and for the year ended June 30, 2019 were authorized for issue in accordance with a resolution of the Board of Directors (the “Board”) dated on September 9, 2019.
(b) Basis of Consolidation
These consolidated financial statements include the accounts of the Company and its wholly or partially owned subsidiaries.
Subsidiaries are consolidated from the date on which the Company obtains control up to the date of the disposition of control. Control is achieved when the Company has power over the subsidiary, is exposed or has rights to variable returns from its involvement with the subsidiary; and has the ability to use its power to affect its returns. For non‐wholly‐owned subsidiaries over which the Company has control, the net assets attributable to outside equity shareholders are presented as “non‐controlling interests” in the equity section of the consolidated statements of financial position. Net income for the period that is attributable to the non‐controlling interests is calculated based on the ownership of the non‐controlling interest shareholders in the subsidiary.
Balances, transactions, income and expenses between the Company and its subsidiaries are eliminated on consolidation.
Page | 6
Details of the Company’s significant subsidiaries which are consolidated are as follows:
|
|
|
|
Proportion of ownership interest held
|
|
|
|
|
Place of
|
June 30,
|
June 30,
|
Mineral
|
|
Name of subsidiaries
|
Principal activity
|
incorporation
|
2019
|
2018
|
properties
|
|
New Pacific Offshore Inc.
|
Holding company
|
BVI (i)
|
100%
|
100%
|
|
|
SKN Nickel & Platinum Ltd.
|
Holding company
|
BVI
|
100%
|
100%
|
|
|
Glory Metals Investment Corp. Limited
|
Holding company
|
Hong Kong
|
100%
|
100%
|
|
|
New Pacific Investment Corp. Limited
|
Holding company
|
Hong Kong
|
100%
|
100%
|
|
|
New Pacific Andes Corp. Limited
|
Holding company
|
Hong Kong
|
100%
|
100%
|
|
|
Fortress Mining Inc.
|
Holding company
|
BVI
|
100%
|
100%
|
|
|
Minera Alcira S.A.
|
Mining company
|
Bolivia
|
100%
|
100%
|
Silver Sand
|
|
NPM Minerales S.A.
|
Mining company
|
Bolivia
|
100%
|
100%
|
|
|
Colquehuasi S.R.L.
|
Mining company
|
Bolivia
|
100%
|
N/A
|
|
|
Qinghai Found Mining Co., Ltd.
|
Mining company
|
China
|
82%
|
82%
|
RZY
|
|
Tagish Lake Gold Corp.
|
Mining company
|
Canada
|
100%
|
100%
|
TLG
|
|
(i) British Virgin Islands ("BVI")
|
(c) Foreign Currency Translation
The functional currency for each subsidiary of the Company is the currency of the primary economic environment in which the entity operates. The functional currency of the head office, Canadian subsidiaries and all intermediate holding companies is the Canadian dollar (“CAD”). The functional currency of all Bolivian subsidiaries is the US dollar (“USD”). The functional currency of all Chinese subsidiaries is the Chinese Renminbi (“RMB”).
Foreign currency monetary assets and liabilities are translated into the functional currency using exchange rates prevailing at the balance sheet date. Foreign currency non‐monetary assets are translated using exchange rates prevailing at the transaction date. Foreign exchange gains and losses are included in the determination of net income.
The consolidated financial statements are presented in CAD. The financial position and results of the Company’s entities are translated from functional currencies to CAD as follows:
- assets and liabilities are translated using exchange rates prevailing at the balance sheet date;
- income and expenses are translated using average exchange rates prevailing during the period; and
- all resulting exchange gains and losses are included in other comprehensive income.
The Company treats inter‐company loan balances, which are not intended to be repaid in the foreseeable future, as part of its net investment. When a foreign entity is sold, the historical exchange differences plus the foreign exchange impact that arises on the transaction are recognized in the consolidated statement of income as part of the gain or loss on sale.
(d) Cash and Cash Equivalents
Cash and cash equivalents include cash, and short‐term money market instruments that are readily convertible to cash with original terms of three months or less.
(e) Plant and Equipment
Plant and equipment are initially recorded at cost, including all directly attributable costs to bring the assets to the location and condition necessary for it to be capable of operating in the manner intended by management. Plant and equipment are subsequently measured at cost less accumulated depreciation and
Page | 7
applicable impairment losses. Depreciation is computed using the straight‐line method based on the nature and estimated useful lives as follows:
|
Buildings
|
20 Years
|
|
Machinery
|
5 Years
|
|
Motor vehicles
|
5 Years
|
|
Office equipment and furniture
|
5 Years
|
|
Computer software
|
5 Years
|
Subsequent costs that meet the asset recognition criteria are capitalized while costs incurred that do not extend the economic useful life of an asset are considered repair and maintenance, which are accounted for as an expense recognized during the period. The Company conducts an annual assessment of the residual balances, useful lives, and depreciation methods being used for plant and equipment and any changes are applied prospectively.
Assets under construction are capitalized as construction‐in‐progress. The cost of construction‐in‐ progress comprises of its purchase price and any costs directly attributable to bringing it into working condition for its intended use. Construction‐in‐progress assets are not depreciated until it is completed and available for use.
(f) Mineral Property Interests
The cost of acquiring mineral rights and properties either as an individual asset purchase or as part of a business combination is capitalized and represents the property’s fair value at the date of acquisition. Fair value is determined by estimating the value of the property’s reserves, resources and exploration potential.
Exploration and evaluation costs, incurred associated with specific mineral rights and properties prior to demonstrable technical feasibility and commercial viability of extracting a mineral resource, are capitalized.
The Company determines that a property is in the development stage when it has completed a positive economic analysis of the mineral deposit. Costs incurred in the development stage prior to commercial production are capitalized and included in the carrying amount of the related property in the period incurred. Proceeds from sales during this period, if any, are offset against costs capitalized.
(g) Impairment of Long‐lived Assets
Long‐lived assets, including mineral property interests, plant and equipment are reviewed and tested for impairment when indicators of impairment are considered to exist. Impairment assessments are conducted at the level of cash‐generating units (“CGU”) or at the individual asset level, whichever is the lowest level for which identifiable cash inflows are largely independent of the cash flows of other assets. An impairment loss is recognized for any excess of carrying amount of a CGU over its recoverable amount, which is the greater of its fair value less costs to sell and value in use. For mineral properties and processing facilities, the recoverable amount is estimated as the discounted future net cash inflows expected to be derived from expected future production, metal prices, and net proceeds from the disposition of assets on retirement, less operating and capital costs. Impairment losses are recognized in the period they are incurred.
Page | 8
For exploration and evaluation assets, indication of impairment includes but is not limited to expiration of the right to explore, substantive expenditures in the specific area is neither budgeted nor planned, and exploration for and evaluation of mineral resources in the specific area have not led to the discovery of commercially viable quantities of mineral resources.
Impairment losses are reversed if the conditions that gave rise to the impairment are no longer present and it has been determined that the asset is no longer impaired as a result. This reversal is recognized in net income in the period the reversal occurs limited by the carrying value that would have been determined, net of any depreciation, had no impairment charge been recognized in prior years.
(h) Share‐based Payments
The Company recognizes share‐based compensation expense for all stock options awarded to employees, officers, and directors based on the fair values of the stock options at the date of grant. The fair values of the stock options at the date of grant are expensed over the vesting periods of the stock options with a corresponding increase to equity. The fair value of stock options granted to employees, officers, and directors is determined using the Black‐Scholes option pricing model with market related inputs as of the date of grant. The fair value of stock options granted to consultants is measured at the fair value of the services delivered unless fair value cannot be estimated reliably, in which case, fair value is determined using the Black‐Scholes option pricing model. Stock options with graded vesting schedules are accounted for as separate grants with different vesting periods and fair values. Forfeitures are accounted for using estimates based on historical actual forfeiture data. Share‐based compensation expense related to exploration is capitalized in mineral properties interests.
Upon the exercise of the stock option, consideration received and the related amount transferred from reserves are recorded as share capital.
(i) Income Taxes
Current tax for each taxable entity is based on the local taxable income at the local substantively enacted statutory tax rate at the balance sheet date and includes adjustments to taxes payable or recoverable in respect to previous periods.
Current tax assets and current tax liabilities are only offset if a legally enforceable right exists to set off the amounts, and the Company intends to settle on a net basis, or to realize the asset and settle the liability simultaneously.
Deferred tax is recognized using the liability method on temporary differences at the reporting date between the tax bases of assets and liabilities, and their carrying amounts for financial reporting purposes. Deferred tax assets are recognized for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses, can be utilized, except:
- where the deferred tax asset or liability relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
- in respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are recognized only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized.
Page | 9
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at the end of each reporting period and are recognized to the extent that it has become probable that future taxable profit will be available to allow the deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realized or the liability is settled, based on tax rates and tax laws that have been substantively enacted by the end of the reporting period.
Deferred tax relating to items recognized outside profit or loss is recognized in other comprehensive income or directly in equity.
Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.
(j) Earnings (loss) per Share
Earnings (loss) per share is computed by dividing net income (loss) attributable to equity holders of the Company by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution that could occur if additional common shares are assumed to be issued under securities that entitle their holders to obtain common shares in the future. For stock options, the number of additional shares for inclusion in diluted earnings per share calculations is determined when the exercise price is less than the average market price of the Company’s common shares; the stock options are assumed to be exercised and the proceeds are used to repurchase common shares at the average market price for the period. The incremental number of common shares issued under stock options and repurchased from proceeds is included in the calculation of diluted earnings per share.
(k) Financial Instruments
Initial recognition:
On initial recognition, all financial assets and financial liabilities are recorded at fair value adjusted for directly attributable transaction costs except for financial assets and liabilities classified as fair value through profit or loss (“FVTPL”), in which case transaction costs are expensed as incurred.
Subsequent measurement of financial assets:
Subsequent measurement of financial assets depends on the classification of such assets.
I. Non‐equity instruments:
IFRS 9 includes a single model that has only two classification categories for financial instruments other than equity instruments: amortized cost and fair value. To qualify for amortized cost accounting, the instrument must meet two criteria:
i. The objective of the business model is to hold the financial asset for the collection of the cash flows; and
ii. All contractual cash flows represent only principal and interest on that principal.
Page | 10
New Pacific Metals Corp.
Notes to the Consolidated Financial Statements
(Expressed in Canadian dollars, except for share figures)
All other instruments are mandatorily measured at fair value.
II. Equity instruments:
At initial recognition, for equity instruments other than held for trading, the Company may make an irrevocable election to designate it as either FVTPL or fair value through other comprehensive income (“FVTOCI”).
Financial assets classified as amortized cost are measured using the effective interest method. Amortized cost is calculated by taking into account any discount or premiums on acquisition and fees that are an integral part of the effective interest method. Amortization from the effective interest method is included in finance income.
Financial assets classified as FVTPL are measured at fair value with changes in fair values recognized in profit or loss. Equity investments designated as FVTOCI are measured at fair value with changes in fair values recognized in other comprehensive income (“OCI”). Dividends from that investment are recorded in profit or loss when the Company's right to receive payment of the dividend is established unless they represent a recovery of part of the cost of the investment.
Impairment of financial assets carried at amortized cost:
The Company assesses at the end of each reporting period whether there is objective evidence that financial assets or group of financial assets measured at amortized cost are impaired. Impairment losses and reversal of impairment losses, if any, are recognized in profit or loss in the period they are incurred.
Subsequent measurement of financial liabilities:
Financial liabilities classified as amortized cost are measured using the effective interest method. Amortized cost is calculated by taking into account any discount or premiums on acquisition and fees that are an integral part of the effective interest method. Amortization using the effective interest method is included in finance costs.
Financial liabilities classified as FVTPL are measured at fair value with gains and losses recognized in profit or loss.
The Company classifies its financial instruments as follows:
- Financial assets classified as FVTPL: cash and cash equivalents, bonds and equity investments;
- Financial assets classified as amortized cost: receivables; and
- Financial liabilities classified as amortized cost: trade and other payables, provisions and due to related parties.
Bonds:
The Company acquired bonds issued by other companies from various industries through the open market. These bonds are held to receive coupon interest payments and to realize potential gains. The bonds may also be disposed on demand through the open market should the Company require funds for other operational or investment needs. Bonds are classified as FVTPL and are measured at fair value on initial recognition and subsequent measurement.
Equity investments:
Equity investments represent equity interests of other publicly‐trading or privately‐held companies that the Company has acquired through the open market or through private placements. These equity interests consist of common shares and warrants. Equity investments are classified as FVTPL and are measured at fair value on initial recognition and subsequent measurement. The fair value of warrants was determined using the Black‐Scholes pricing model as at the acquisition date as well as at each period end.
Page | 11
Derecognition of financial assets and financial liabilities:
A financial asset is derecognized when:
- The rights to receive cash flows from the asset have expired; or
- The Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass‐ through’ arrangement; and either (a) the Company has transferred substantially all the risks and rewards of the asset, or (b) the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
Gains and losses on derecognition of financial assets and liabilities classified as amortized cost are recognized in profit or loss when the instrument is derecognized or impaired, as well as through the amortization process.
Gains and losses on derecognition of equity investments designated as FVTOCI (including any related foreign exchange component) are recognized in OCI. Amounts presented in OCI are not subsequently transferred to profit or loss, although the cumulative gain or loss may be transferred within equity.
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability. In this case, a new liability is recognized, and the difference in the respective carrying amounts is recognized in the consolidated statement of income.
Offsetting of financial instruments:
Financial assets and liabilities are offset and the net amount is reported in the consolidated statement of financial position if and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the assets and settle liabilities simultaneously.
Fair value of financial instruments:
The fair value of financial instruments that are traded in active markets at each reporting date is determined by reference to quoted market prices, without deduction for transaction costs. For financial instruments that are not traded in active markets, the fair value is determined using appropriate valuation techniques, such as using a recent arm’s length market transaction between knowledgeable and willing parties, discounted cash flow analysis, reference to the current fair value of another instrument that is substantially the same, or other valuation models.
(l) Significant Judgments and Estimation Uncertainties
Many amounts included in the consolidated financial statements require management to make judgments and/or estimates. These judgments and estimates are continuously evaluated and are based on management’s experience and knowledge of relevant facts and circumstances. Actual results may differ from the amounts included in the consolidated statement of financial position.
Areas of significant judgment include:
- Determination of functional currency.
Page | 12
- The assessments of impairment indicators.
- Determination of CGUs.
- Accounting assessment and classification for equity investments and bonds.
- Determination of asset acquisition or business combination.
Areas of significant estimates include:
- Estimates of the quantities of proven and probable mineral reserves and the portion of resources considered to be probable of economic extraction.
- The estimated fair values of CGUs for impairment tests, including estimates of future costs to produce proven and probable reserves, future commodity prices, discount rates, probabilities of expected cash flows from disposal and salvage value of plant and equipment.
- Valuation input and forfeiture rates used in calculation of share‐based compensation.
- Valuation of securities that do not have a quoted market price.
The Company estimates its ore reserves and mineral resources based on information compiled by qualified persons as defined in accordance with the National Instrument 43‐101.
(m) Accounting Standards Issued But Not Yet Effective
IFRS 16 – Leases (“IFRS 16”) was issued by the IASB and will replace IAS 17 – Leases and IFIRC 4 – Determining whether an arrangement contains a lease. IFRS 16 applies a control model to the identification of leases, distinguishing between a lease and a non‐lease component on the basis of whether the customer controls the specific asset. For those contracts that are or contain a lease, IFRS 16 introduces significant changes to the accounting for contracts that are or contain a lease, introducing a single, on‐balance sheet accounting model that is similar to current finance lease accounting, with limited exceptions for short‐term leases or leases of low value assets. Lessor accounting remains similar to current accounting practice. The standard is effective for annual periods beginning on or after January 1, 2019, with early application permitted for entities that apply IFRS 15. The Company has reviewed its existing contracts and determined that the application of IFRS 16 will have no material impact on its financial statements.
3. ALCIRA ACQUISITION
On July 20, 2017, the Company, through its wholly‐owned subsidiary New Pacific Investment Corp. Limited, completed its previously announced acquisition of 100% interest in Empresa Minera Alcira S.A. (“Alcira”), a private Bolivian company from its three shareholders (the “Vendors”) pursuant to the terms of a share purchase agreement (the “Agreement”) dated March 28, 2017. Alcira owns seven silver‐ polymetallic mineral properties or ATEs (Temporary Special Authorization) in Bolivia. The most significant property is the Silver Sand property, located in the Potosi Department, which has been subjected to some small‐scale, historic mining and was drilled from 2012 to 2015 by Alcira. The other six are early‐stage exploration projects, which have either been subjected to limited small‐scale mining or historical drilling.
The Company acquired Alcira for total cash consideration of $57,070,675 (US$45,000,000). As of June 30, 2018, total payments of $50,724,575 (US$40,000,000) were paid to the Vendors. Pursuant to the Agreement, the remaining balance of $6,240,000 (US$5,000,000) is to be paid to the Vendors once Alcira has received certain specified permits and licenses from the Bolivian authorities necessary for mining and milling operations, or once Alcira has commenced commercial production.
The transaction was entered into based on normal market conditions at the amount agreed on by the parties. The transaction did not meet the criteria of a business combination since Alcira lacks the necessary inputs, process, and outputs of being a business; therefore it has been accounted for as an acquisition of assets by the Company. The purchase consideration was allocated to the assets acquired based on their fair values at the date of the acquisition net of any associated liabilities. The only material asset acquired was the mineral property interest of the Silver Sand Property.
Page | 13
4. CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of:
|
|
|
June 30, 2019
|
|
|
June 30, 2018
|
|
|
Cash in bank
|
$
|
27,849,961
|
|
$
|
14,604,113
|
|
Cash and cash equivalents include Canadian dollar denominated deposits of $22,276,768 (June 30, 2018 – $12,385,604). The remaining funds are held in US dollars, Bolivianos and Chinese Renminbi.
5. BONDS
The Company acquired bonds issued by other companies from various industries through the open market. These bonds were held to receive coupon interest payments and to realize potential gains. The bonds may also be disposed on demand through the open market should the Company require funds for operational or investment needs. The Company accounts for the bonds at fair value at each reporting date.
The continuity of bonds is summarized as follows:
|
|
|
Amount
|
|
|
Balance, July 1, 2017
|
$
|
11,404,266
|
|
|
Acquisition
|
|
9,895,490
|
|
|
Interest earned
|
|
760,195
|
|
|
Loss on fair value change
|
|
(1,232,627
|
)
|
|
Coupon payment
|
|
(726,721
|
)
|
|
Disposition
|
|
(3,268,298
|
)
|
|
Foreign currency translation impact
|
|
1,281,721
|
|
|
Balance, June 30, 2018
|
$
|
18,114,026
|
|
|
Interest earned
|
|
882,960
|
|
|
Gain on fair value change
|
|
631,809
|
|
|
Coupon payment
|
|
(853,076
|
)
|
|
Disposition
|
|
(7,700,006
|
)
|
|
Foreign currency translation impact
|
|
(132,815
|
)
|
|
Balance, June 30, 2019
|
$
|
10,942,898
|
|
6. OTHER TAX RECEIVABLE
Other tax receivable is composed of value‐added tax (“VAT”) imposed by the Bolivian government. The Company had VAT outputs through its exploration costs and general expenses incurred in Bolivia. These VAT outputs are deductible against future VAT inputs that will be generated through sales.
Page | 14
7. EQUITY INVESTMENTS
Equity investments represent equity interests of other publicly‐trading or privately‐held companies that the Company has acquired through the open market or through private placements. These equity interests consist of common shares and warrants. Equity investments are classified as FVTPL and are measured at fair value on initial recognition and subsequent measurement. The fair value of warrants was determined using the Black‐Scholes pricing model as at the acquisition date as well as at each period end.
The equity investments are summarized as follows:
|
|
|
June 30, 2019
|
|
|
June 30, 2018
|
|
|
Common shares
|
|
|
|
|
|
|
|
Public companies
|
$
|
4,443,963
|
|
$
|
5,028,397
|
|
|
Private companies
|
|
327,175
|
|
|
329,200
|
|
|
Warrants
|
|
339,755
|
|
|
|
|
|
Public companies
|
|
401,030
|
|
|
|
$
|
5,110,893
|
|
$
|
5,758,627
|
|
The fair values of the warrants were estimated using the Black Scholes options pricing model with the following assumptions:
|
|
|
June 30, 2019
|
|
|
June 30, 2018
|
|
|
Risk free interest rate
|
|
1.39%
|
|
|
2.06%
|
|
|
Expected volatility
|
|
130%
|
|
|
141%
|
|
|
Expected life of warrants in years
|
|
2.19
|
|
|
3.19
|
|
The continuity of equity investments is summarized as follows:
|
|
|
|
|
|
Accumulated mark‐to‐
|
|
|
|
|
|
|
|
market gain included in net
|
|
|
|
|
Fair value
|
|
|
income
|
|
|
Balance, July 1, 2017
|
$
|
6,840,394
|
|
$
|
4,194,423
|
|
|
Change in fair value
|
|
(1,081,767
|
)
|
|
(1,081,767
|
)
|
|
Balance, June 30, 2018
|
$
|
5,758,627
|
|
$
|
3,112,656
|
|
|
Proceeds on disposal
|
|
(570,561
|
)
|
|
‐
|
|
|
Change in fair value
|
|
(77,173
|
)
|
|
(77,173
|
)
|
|
Balance, June 30, 2019
|
$
|
5,110,893
|
|
$
|
3,035,483
|
|
Subsequent to June 30, 2019, certain common shares of public companies were disposed for proceeds of $3,879,976 and gain of $1,579,576.
Page | 15
8. PLANT AND EQUIPMENT
|
|
|
|
|
|
|
|
|
|
|
|
Office
|
|
|
|
|
|
|
|
|
|
|
Land and
|
|
|
|
|
|
Motor
|
|
|
equipment and
|
|
|
Computer
|
|
|
|
|
|
Cost
|
|
building
|
|
|
Machinery
|
|
|
vehicles
|
|
|
furniture
|
|
|
software
|
|
|
Total
|
|
|
Balance, July 1, 2017
|
$
|
890,754
|
|
$
|
1,178,477
|
|
$
|
90,453
|
|
$
|
158,360
|
|
$
|
126,259
|
|
$
|
2,444,303
|
|
|
Additions
|
|
‐
|
|
|
133,275
|
|
|
142,638
|
|
|
26,635
|
|
|
‐
|
|
|
302,548
|
|
|
Foreign currency translation impact
|
|
‐
|
|
|
5,029
|
|
|
5,736
|
|
|
3,347
|
|
|
13
|
|
|
14,125
|
|
|
Balance, June 30, 2018
|
$
|
890,754
|
|
$
|
1,316,781
|
|
$
|
238,827
|
|
$
|
188,342
|
|
$
|
126,272
|
|
$
|
2,760,976
|
|
|
Additions
|
|
833,931
|
|
|
68,060
|
|
|
115,041
|
|
|
44,382
|
|
|
‐
|
|
|
1,061,414
|
|
|
Foreign currency translation impact
|
|
(9,450
|
)
|
|
(3,573
|
)
|
|
(2,934
|
)
|
|
(3,358
|
)
|
|
(15
|
)
|
|
(19,330
|
)
|
|
Balance, June 30, 2019
|
$
|
1,715,235
|
|
$
|
1,381,268
|
|
$
|
350,934
|
|
$
|
229,366
|
|
$
|
126,257
|
|
$
|
3,803,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation and amortization
|
|
|
Balance as at July 1, 2017
|
$
|
(890,754
|
)
|
$
|
(1,120,078
|
)
|
$
|
(81,043
|
)
|
$
|
(137,391
|
)
|
$
|
(124,944
|
)
|
$
|
(2,354,210
|
)
|
|
Depreciation and amortization
|
|
‐
|
|
|
(11,657
|
)
|
|
(22,300
|
)
|
|
(22,191
|
)
|
|
(1,268
|
)
|
|
(57,416
|
)
|
|
Foreign currency translation impact
|
|
‐
|
|
|
(529
|
)
|
|
(1,047
|
)
|
|
(2,177
|
)
|
|
(11
|
)
|
|
(3,764
|
)
|
|
Balance, June 30, 2018
|
$
|
(890,754
|
)
|
$
|
(1,132,264
|
)
|
$
|
(104,390
|
)
|
$
|
(161,759
|
)
|
$
|
(126,223
|
)
|
$
|
(2,415,390
|
)
|
|
Depreciation and amortization
|
|
‐
|
|
|
(17,400
|
)
|
|
(37,728
|
)
|
|
(25,465
|
)
|
|
‐
|
|
|
(80,593
|
)
|
|
Foreign currency translation impact
|
|
‐
|
|
|
409
|
|
|
880
|
|
|
2,424
|
|
|
13
|
|
|
3,726
|
|
|
Balance, June 30, 2019
|
$
|
(890,754
|
)
|
$
|
(1,149,255
|
)
|
$
|
(141,238
|
)
|
$
|
(184,800
|
)
|
$
|
(126,210
|
)
|
$
|
(2,492,257
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2018
|
$
|
‐
|
|
$
|
184,517
|
|
$
|
134,437
|
|
$
|
26,583
|
|
$
|
49
|
|
$
|
345,586
|
|
|
Balance, June 30, 2019
|
$
|
824,481
|
|
$
|
232,013
|
|
$
|
209,696
|
|
$
|
44,566
|
|
$
|
47
|
|
$
|
1,310,803
|
|
9. MINERAL PROPERTY INTERESTS
(a) Silver Sand Property
On July 20, 2017, the Company acquired the Silver Sand Property. The Silver Sand Property is located in the Potosí Department, Bolivia. The property consists of 17 contiguous concessions totalling 3.15 square kilometres in size.
The Company started the preparation work for the planned exploration program after the acquisition of the Silver Sand Property. In October 2017, the Company successfully received exploration permits required by the relevant Bolivian government authorities and immediately commenced its 2018 drill program on the property. By mid‐December 2018, a total of 55,010 metres in 195 HQ size diamond core drill holes had been completed. In April 2019, the Company commenced the 2019 drill program at the Silver Sand Property. The total budgeted metreage for 2019 drill program is approximately 55,000 metres of diamond core drilling.
For the year ended June 30, 2019, total expenditures of $10,725,924 (year ended June 30, 2018 ‐ $6,553,301) were capitalized under the property for expenditures related to the 2018 and 2019 drill program, site and camp preparation, maintaining a regional office in La Paz, and building a management team and workforce for the property.
As part of the Silver Sand Property’s expansion plan, the Company entered into a mining production contract (the “MPC”) in January 2019 with COMIBOL to explore and mine the area adjoining the Silver Sand Property. The MPC remains subject to ratification by the Plurinational Legislative Assembly of Bolivia. In addition, in July 2018, the Company entered into an agreement with private owners to acquire their 100% interest in certain mineral concessions located adjacent to the Silver Sand Property. For the year ended June 30, 2019, the Company acquired total mineral concessions valued at $2,631,200
Page | 16
(US$2,000,000) by cash payments of $1,315,600 (US$1,000,000) and issuance of 832,000 of its common shares (see note 10 (c)). For the cash payments, $657,800 (US$500,000) was advanced during the period. Future payments of $657,800 (US$500,000) were accrued as payable for mineral property acquisition as at June 30, 2019. Subsequent to June 30, 2019, cash payment of $394,680 (US$300,000) was advanced.
(b) Tagish Lake Gold Property
The Tagish Lake Gold Property, covering an area of 254 square kilometres, is located in Yukon Territory, Canada, and consists of 1,510 mining claims with three identified gold and gold‐silver mineral deposits: Skukum Creek, Goddell Gully and Mount Skukum.
(c) RZY Project
The RZY Project, located in Qinghai, China is an early stage silver‐lead‐zinc exploration project, situated on a high plateau with an average elevation of 5,000 metres above sea level. The RZY Project is located approximately 237 kilometres via paved and gravel roads from the city of Yushu Tibetan Autonomous Prefecture, or 820 kilometres via paved highway from Qinghai Province’s capital city of Xining. In 2016, the Qinghai Government issued a moratorium which suspended exploration for twenty six mining projects including the Company’s RZY project in the region and classified the region as a National Nature Reserve Area.
Subsequent to June 30, 2019, the Company’s subsidiary, Qinghai Found, reached a compensation agreement (the “Agreement”) with the Qinghai Government for the RZY project. Pursuant to the Agreement, Qinghai Found will surrender its title of the RZY project to the Qinghai Government for one‐ time cash compensation of $3.8 million (RMB ¥20 million). The process is expected to be completed in Fiscal 2020.
As at June 30, 2019, the carrying amount of the RZY Project was remeasured to its recoverable amount, being its fair value less costs of disposal (“FVLCD”), based on the expected proceeds from the compensation less certain estimated costs prior to the closing of the transaction. As a result, the Company recorded an impairment of $779,823 during the year ended June 30, 2019.
Page | 17
The continuity schedule of mineral property acquisition costs and deferred exploration and development costs is summarized as follows:
|
Cost
|
|
Silver Sand
|
|
|
Tagish Lake
|
|
|
RZY Project
|
|
|
Total
|
|
|
Balance, July 1, 2017
|
$
|
466,972
|
|
$
|
‐
|
|
$
|
4,318,872
|
|
$
|
4,785,844
|
|
|
Capitalized exploration expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reporting and assessment
|
|
12,555
|
|
|
‐
|
|
|
‐
|
|
|
12,555
|
|
|
Drilling and assaying
|
|
4,273,826
|
|
|
‐
|
|
|
‐
|
|
|
4,273,826
|
|
|
Project management and support
|
|
1,646,948
|
|
|
‐
|
|
|
‐
|
|
|
1,646,948
|
|
|
Camp preparation and service
|
|
558,177
|
|
|
‐
|
|
|
‐
|
|
|
558,177
|
|
|
Geological surveys
|
|
58,336
|
|
|
‐
|
|
|
‐
|
|
|
58,336
|
|
|
Permitting
|
|
3,459
|
|
|
‐
|
|
|
‐
|
|
|
3,459
|
|
|
Acquisition premium
|
|
50,526,164
|
|
|
‐
|
|
|
‐
|
|
|
50,526,164
|
|
|
Foreign currency impact
|
|
2,828,219
|
|
|
‐
|
|
|
169,236
|
|
|
2,997,455
|
|
|
Balance, June 30, 2018
|
$
|
60,374,656
|
|
$
|
‐
|
|
$
|
4,488,108
|
|
$
|
64,862,764
|
|
|
Capitalized exploration expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Drilling and assaying
|
|
6,978,112
|
|
|
‐
|
|
|
‐
|
|
|
6,978,112
|
|
|
Project management and support
|
|
2,980,841
|
|
|
‐
|
|
|
‐
|
|
|
2,980,841
|
|
|
Camp preparation and service
|
|
742,163
|
|
|
‐
|
|
|
‐
|
|
|
742,163
|
|
|
Geological surveys
|
|
4,170
|
|
|
‐
|
|
|
‐
|
|
|
4,170
|
|
|
Permitting
|
|
7,401
|
|
|
‐
|
|
|
‐
|
|
|
7,401
|
|
|
Acquisition of mineral concessions
|
|
2,631,200
|
|
|
‐
|
|
|
‐
|
|
|
2,631,200
|
|
|
Other
|
|
13,237
|
|
|
‐
|
|
|
‐
|
|
|
13,237
|
|
|
Impairment
|
|
‐
|
|
|
‐
|
|
|
(779,823
|
)
|
|
(779,823
|
)
|
|
Foreign currency impact
|
|
(450,362
|
)
|
|
‐
|
|
|
(173,621
|
)
|
|
(623,983
|
)
|
|
Balance, June 30, 2019
|
$
|
73,281,418
|
|
$
|
‐
|
|
$
|
3,534,664
|
|
$
|
76,816,082
|
|
10. TRADE AND OTHER PAYABLES
Trade and other payables consist of:
|
|
|
June 30, 2019
|
|
|
June 30, 2018
|
|
|
Trade payable
|
$
|
1,410,832
|
|
$
|
1,598,215
|
|
|
Accrued liabilities
|
|
210,571
|
|
|
229,135
|
|
|
|
$
|
1,621,403
|
|
$
|
1,827,350
|
|
11. RELATED PARTY TRANSACTIONS
Related party transactions are made on terms agreed upon by the related parties. The balances with related parties are unsecured, non‐interest bearing, and due on demand. Related party transactions not disclosed elsewhere in the consolidated financial statements are as follows:
|
Due to a related party
|
|
June 30, 2019
|
|
|
June 30, 2018
|
|
|
Silvercorp Metals Inc.
|
$
|
89,189
|
|
$
|
24,417
|
|
(a) Silvercorp Metals Inc. (“Silvercorp”) has two common directors and two officers with the Company and shares office space and provides various general and administrative services to the Company. For the year ended June 30, 2019, the Company recorded total expenses of $304,561 (year ended June 30, 2018 ‐ $351,280) for services rendered and expenses incurred by Silvercorp on behalf of the Company.
Page | 18
(b) Compensation of key management personnel
The remuneration of directors and other members of key management personnel for the years ended June 30, 2019 and 2018 are as follows:
|
|
|
Years ended June 30,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Directors' compensation
|
$
|
532,445
|
|
$
|
580,625
|
|
|
Key management compensation
|
|
1,421,211
|
|
|
1,118,442
|
|
|
|
$
|
1,953,655
|
|
$
|
1,699,067
|
|
12. SHARE CAPITAL
(a) Share Capital ‐ authorized share capital
Unlimited number of common shares without par value.
Unlimited number of Class A preferred shares without par value.
(b) Stock Options
The continuity schedule of stock options, as at June 30, 2019, is as follows:
|
|
|
|
|
|
Weighted average
|
|
|
|
|
Number of options
|
|
|
exercise price
|
|
|
Balance, July 1, 2017
|
|
3,685,000
|
|
|
0.58
|
|
|
Options granted
|
|
2,165,000
|
|
|
1.19
|
|
|
Options exercised
|
|
(1,515,000
|
)
|
|
0.61
|
|
|
Options cancelled
|
|
(75,000
|
)
|
|
1.15
|
|
|
Options expired
|
|
(115,000
|
)
|
|
0.62
|
|
|
Balance, June 30, 2018
|
|
4,145,000
|
|
|
0.87
|
|
|
Options granted
|
|
2,155,000
|
|
|
2.16
|
|
|
Options exercised
|
|
(333,333
|
)
|
|
0.57
|
|
|
Options cancelled
|
|
(11,667
|
)
|
|
0.89
|
|
|
Options expired
|
|
(50,000
|
)
|
|
0.57
|
|
|
Balance, June 30, 2019
|
|
5,905,000
|
|
|
1.36
|
|
Option pricing models require the input of subjective assumptions including the expected volatility. Changes in the assumptions can materially affect the fair value estimate and therefore, the existing models do not necessarily provide a reliable estimate of the fair value of the Company’s stock options. The Company’s expected volatility is based on the historical volatility of the Company’s share price on the TSX‐V.
Page | 19
The fair value of the options granted were estimated using the Black Scholes options pricing model with the following assumptions:
|
|
|
Years ended June 30,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Risk free interest rate
|
|
1.76%
|
|
|
1.34%
|
|
|
Expected volatility
|
|
64.37%
|
|
|
91.43%
|
|
|
Expected life of options in years
|
|
2.75
|
|
|
2.75
|
|
|
Estimated forfeiture rate
|
|
14.52%
|
|
|
16.93%
|
|
During the year ended June 30, 2019, 1,955,000 options at an exercise price of $2.15 per share and 200,000 options at an exercise price of $2.30 per share were granted to directors, officers and employees. These options have a life of five years and are subject to a vesting schedule over a three‐year term with 1/6 of the options vesting every six months from the date of grant.
For the year ended June 30, 2019, a total of $922,498 (year ended June 30, 2018 ‐ $881,561) was recorded as share‐based compensation expense.
The following table summarizes information about stock options outstanding as at June 30, 2019:
|
|
|
Number of options
|
Weighted
|
Number of options
|
Weighted
|
|
|
Exercise
|
outstanding as at
|
average remaining
|
exercisable as at
|
average
|
|
|
prices
|
2019‐06‐30
|
contractual life (years)
|
2019‐06‐30
|
exercise price
|
|
$
|
0.55
|
1,670,000
|
2.34
|
1,381,669
|
$0.55
|
|
|
1.15
|
1,880,000
|
3.09
|
940,000
|
$1.15
|
|
|
1.57
|
200,000
|
3.44
|
100,000
|
$1.57
|
|
|
2.15
|
1,955,000
|
4.65
|
‐
|
‐
|
|
|
2.30
|
200,000
|
4.82
|
‐
|
‐
|
|
|
0.55 ‐ 2.30
|
5,905,000
|
3.46
|
2,421,669
|
$0.83
|
Subsequent to June 30, 2019, a total of 100,000 options with exercise price of $2.30 were cancelled and a total of 185,833 options with exercise prices of $0.55 and $1.15 were exercised.
(c) Private Placements
To facilitate the funding of its acquisition and development of the Silver Sand Property, the Company successfully completed three private placements during the year ended June 30, 2018, raising gross proceeds of $72,334,356 as follows:
On July 17, 2017, the Company closed a private placement to issue a total of 43,521,250 common shares at a price of $1.01 (US$0.80) per share for gross proceeds of $44,099,456.
On July 28, 2017, the Company closed a private placement to issue a total of 1,250,000 common shares at a price of $1.00 (US$0.80) per share for gross proceeds of $1,254,900.
On November 27, 2017, the Company closed its strategic private placement of units with Pan American Silver Corp. for 16,000,000 units and Silvercorp Metals Inc. for 3,000,000 units, at a price of $1.42 per unit for gross proceeds of $26,980,000. Each unit is comprised of one common share of the Company and one half of common share purchase warrant. Each whole warrant is exercisable into one common share for a period of 18 months at an exercise price of $2.10 per common share.
Page | 20
Total share issuance costs for the above transactions were $1,650,035.
(d) Common Shares issued for mineral property interest
As part of the consideration given to acquire certain mineral concessions located adjacent to the Silver Sand Property (see note 9), the Company agreed to issue a total of 832,000 common shares to the vendors valued at $1,315,600 (US$1,000,000). During the year ended June 30, 2019, 250,000 common shares valued at $395,313 were issued and recorded under share capital. Future issuance of 582,000 shares valued at $920,287 was recorded under share‐based payment reserve. Subsequent to June 30, 2019, 291,000 common shares valued at $460,143 were issued.
(e) Warrants
On May 22, 2019, warrants of 9,500,000 were exercised by Pan American Silver Corp. (8,000,000 warrants) and Silvercorp Metals Inc. (1,500,000 warrants) for total proceeds of $19,950,000. There were no warrants outstanding as at June 30, 2019.
13. NON‐CONTROLLING INTEREST
|
|
|
Qinghai Found
|
|
|
Balance, July 1, 2017
|
$
|
130,423
|
|
|
Share of net loss
|
|
(15,735
|
)
|
|
Share of other comprehensive income
|
$
|
32,734
|
|
|
Balance, June 30, 2018
|
$
|
147,422
|
|
|
Share of net loss
|
|
(151,851
|
)
|
|
Share of other comprehensive loss
|
|
(33,256
|
)
|
|
Balance, June 30, 2019
|
$
|
(37,685
|
)
|
As at June 30, 2019 and 2018, the non‐controlling interest in the Company’s subsidiary Qinghai Found was 18%.
14. FINANCIAL INSTRUMENTS
The Company manages its exposure to financial risks, including liquidity risk, foreign exchange rate risk, interest rate risk, credit risk and equity price risk in accordance with its risk management framework. The Company’s Board has overall responsibility for the establishment and oversight of the Company’s risk management framework and reviews the Company’s policies on an ongoing basis.
(a) Fair Value
The Company classifies its fair value measurements within a fair value hierarchy, which reflects the significance of the inputs used in making the measurements as defined in IFRS 13, Fair Value Measurement (“IFRS 13”).
Level 1 – Unadjusted quoted prices at the measurement date for identical assets or liabilities in active markets.
Page | 21
Level 2 – Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3 – Unobservable inputs which are supported by little or no market activity.
The following table sets forth the Company’s financial assets that are measured at fair value on a recurring basis by level within the fair value hierarchy at June 30, 2019 and June 30, 2018 that are not otherwise disclosed. As required by IFRS 13, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
|
|
|
Fair value as at June 30, 2019
|
|
|
Recurring measurements
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
27,849,961
|
|
$
|
‐
|
|
$
|
‐
|
|
$
|
27,849,961
|
|
|
Bonds
|
|
10,942,898
|
|
|
‐
|
|
|
‐
|
|
|
10,942,898
|
|
|
Common shares(1)
|
|
4,443,963
|
|
|
‐
|
|
|
327,175
|
|
|
4,771,138
|
|
|
Warrants
|
|
‐
|
|
|
339,755
|
|
|
‐
|
|
|
339,755
|
|
(1) Common shares in private companies are Level 3 financial instruments
|
|
|
Fair value as at June 30, 2018
|
|
|
Recurring measurements
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
14,604,113
|
|
$
|
‐
|
|
$
|
‐
|
|
$
|
14,604,113
|
|
|
Bonds
|
|
18,114,026
|
|
|
‐
|
|
|
‐
|
|
|
18,114,026
|
|
|
Common shares(1)
|
|
5,028,397
|
|
|
‐
|
|
|
329,200
|
|
|
5,357,597
|
|
|
Warrants
|
|
‐
|
|
|
401,030
|
|
|
‐
|
|
|
401,030
|
|
(1) Common shares in private companies are Level 3 financial instruments
Fair value of other financial instruments excluded from the table above approximates their carrying amount as of June 30, 2019 and June 30, 2018, respectively.
There were no transfers into or out of Level 3 during the year ended June 30, 2019.
(b) Liquidity Risk
The Company has a history of losses and no operating revenues from its operations. Liquidity risk is the risk that the Company will not be able to meet its short term business requirements. As at June 30, 2019, the Company had a working capital position of $37,089,557 and sufficient cash resources to meet the Company’s short‐term financial liabilities and its planned exploration expenditures on the Silver Sand Property for, but not limited to, the next 12 months.
Page | 22
In the normal course of business, the Company enters into contracts that give rise to commitments for future minimum payments. The following summarizes the remaining contractual maturities of the Company’s financial liabilities:
|
|
|
June 30, 2019
|
|
|
June 30, 2018
|
|
|
|
|
Due within a year
|
|
|
2 years
|
|
|
Total
|
|
|
Total
|
|
|
Trade and other payables
|
$
|
1,621,403
|
|
$
|
‐
|
|
$
|
1,621,403
|
|
$
|
1,827,350
|
|
|
Due to a related party
|
|
89,189
|
|
|
‐
|
|
|
89,189
|
|
|
24,417
|
|
|
Payable for mineral property acquisition
|
|
394,680
|
|
|
263,120
|
|
|
657,800
|
|
|
‐
|
|
|
|
$
|
2,105,272
|
|
$
|
263,120
|
|
$
|
2,368,392
|
|
$
|
1,851,767
|
|
(c) Foreign Exchange Risk
The Company is exposed to foreign exchange risk when it undertakes transactions and holds assets and liabilities denominated in foreign currencies other than its functional currencies. The Company currently does not engage in foreign exchange currency hedging. The Company’s exposure to foreign exchange risk is summarized as follows:
|
The amounts are expressed in CAD equivalents
|
|
June 30, 2019
|
|
|
June 30, 2018
|
|
|
United States dollars
|
$
|
17,615,304
|
|
$
|
21,339,583
|
|
|
Bolivianos
|
|
191,204
|
|
|
935,163
|
|
|
Chinese RMB
|
|
191,645
|
|
|
211,474
|
|
|
Financial assets in foreign currency
|
$
|
17,998,153
|
|
$
|
22,486,220
|
|
|
United States dollars
|
$
|
1,330,481
|
|
$
|
‐
|
|
|
Bolivianos
|
|
‐
|
|
|
1,493,607
|
|
|
Chinese RMB
|
|
4,258
|
|
|
84,939
|
|
|
Financial liabilities in foreign currency
|
$
|
1,334,739
|
|
$
|
1,578,546
|
|
As at June 30, 2019, with other variables unchanged, a 1% strengthening (weakening) of the U.S. Dollar against the CAD would have increased (decreased) net income by approximately $163,000.
As at June 30, 2019, with other variables unchanged, a 1% strengthening (weakening) of the Bolivianos against the CAD would have increased (decreased) net income by approximately $1,900.
As at June 30, 2019, with other variables unchanged, a 1% strengthening (weakening) of the Chinese RMB against the CAD would have increased (decreased) net income by approximately $1,900.
(d) Interest Rate Risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market interest rates. The Company’s cash and cash equivalents primarily include highly liquid investments that earn interest at market rates that are fixed to maturity. The Company also holds a portion of cash and cash equivalents in bank accounts that earn variable interest rates. Due to the short‐ term nature of these financial instruments, fluctuations in market rates do not have significant impact on the fair values of the financial instruments as of June 30, 2019. The Company also owns bonds that earn coupon payments at fixed rates to maturity. Fluctuation in market interest rates usually will have an impact on bond’s fair value. An increase in market interest rates will generally reduce bond’s fair value
Page | 23
while a decrease in market interest rates will generally increase it. The Company monitors market interest rate fluctuations closely and adjusts the investment portfolio accordingly.
(e) Credit Risk
Credit risk is the risk of financial loss to the Company if the counterparty to a financial instrument fails to meets its contractual obligations. The Company is exposed to credit risk primarily associated with cash and cash equivalents, bonds, and receivables. The carrying amount of financial assets included on the statement of financial position represents the maximum credit exposure.
The Company has deposits of cash equivalents that meet minimum requirements for quality and liquidity as stipulated by the Board. Management believes the risk of loss to be remote, as majority of its cash and cash equivalents are held with major financial institutions. Bonds by nature are exposed to more credit risk than cash. The Company manages its risk associated with bonds by only investing in large globally recognized corporations from diversified industries. As at June 30, 2019, the Company had a receivables balance of $259,600 (June 30, 2018 ‐ $181,884).
(f) Equity Price Risk
The Company holds certain marketable securities that will fluctuate in value as a result of trading on global financial markets. As the Company’s marketable securities holdings are mainly in mining companies, the value will also fluctuate based on commodity prices. Based upon the Company’s portfolio at June 30, 2019, a 10% increase (decrease) in the market price of the securities held, ignoring any foreign exchange effects would have resulted in an increase (decrease) to net income of approximately $510,000.
15. CAPITAL MANAGEMENT
The Company’s objectives of capital management are intended to safeguard the entity’s ability to support the Company’s normal investing and operating requirement on an ongoing basis, continue the investment in high quality assets along with safeguarding the value of its development and exploration mineral properties, and support any expansionary plans.
The capital of the Company consists of the items included in equity. The Board does not establish a quantitative return on capital criteria for management. The Company manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets.
The Company’s overall strategy with respect to capital risk management remained unchanged during the period. The Company is not subject to any externally imposed capital requirement as at June 30, 2019.
Page | 24
16. INCOME TAXES
The provision for income taxes differs from the amount computed by applying the cumulative Canadian federal and provincial income tax rates to the loss before income tax provision due to the following:
|
|
|
Years ended June 30,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Canadian statutory tax rate
|
|
27.00%
|
|
|
26.50%
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
$
|
(2,572,755
|
)
|
$
|
(4,122,185
|
)
|
|
|
|
|
|
|
|
|
|
Income tax recovery computed at Canadian statutory rates
|
|
(694,645
|
)
|
|
(1,092,377
|
)
|
|
Foreign tax rates different from statutory rate
|
|
(476,213
|
)
|
|
78,720
|
|
|
Temporary differences changes due to change in tax rates
|
|
‐
|
|
|
1,161,292
|
|
|
Permanent items and other
|
|
810,670
|
|
|
508,136
|
|
|
Change in unrecognized deferred tax assets
|
|
356,402
|
|
|
(658,880
|
)
|
|
Adjustments in respect of prior years
|
|
309
|
|
|
8,445
|
|
|
Change in future tax rates
|
|
‐
|
|
|
(29,569
|
)
|
|
Other
|
|
3,477
|
|
|
24,233
|
|
|
|
$
|
‐
|
|
$
|
‐
|
|
Deferred tax assets are recognized to the extent that the realization of the related tax benefit through future taxable profit is probable. The ability to realize the tax benefits is dependent upon numerous factors, including the future profitability of operations in the jurisdiction in which the tax benefit arise. Deductible temporary differences and unused tax losses for which no deferred tax assets have been recognized are attributable to the following:
|
|
|
June 30, 2019
|
|
|
June 30, 2018
|
|
|
Non‐capital loss carry forward
|
$
|
14,521,402
|
|
$
|
12,750,028
|
|
|
Plant and equipment
|
|
3,103,400
|
|
|
3,091,401
|
|
|
Mineral property interests
|
|
34,516,152
|
|
|
33,956,772
|
|
|
Investment tax credit
|
|
1,624,391
|
|
|
1,624,391
|
|
|
|
$
|
53,765,345
|
|
$
|
51,422,592
|
|
Page | 25
As of June 30, 2019, the Company has the following net operating losses, expiring various years to 2039 and available to offset future taxable income in Canada, Bolivia and China, respectively:
|
|
|
Canada
|
|
|
Bolivia
|
|
|
China
|
|
|
2023
|
|
‐
|
|
|
‐
|
|
|
371,705
|
|
|
2024
|
|
‐
|
|
|
‐
|
|
|
184,386
|
|
|
2025
|
|
‐
|
|
|
‐
|
|
|
47,437
|
|
|
2027
|
|
‐
|
|
|
‐
|
|
|
59,496
|
|
|
2028
|
|
‐
|
|
|
‐
|
|
|
107,403
|
|
|
2030
|
|
1,108,972
|
|
|
‐
|
|
|
‐
|
|
|
2031
|
|
1,644,970
|
|
|
‐
|
|
|
‐
|
|
|
2032
|
|
1,321,934
|
|
|
‐
|
|
|
‐
|
|
|
2033
|
|
1,173,305
|
|
|
‐
|
|
|
‐
|
|
|
2034
|
|
1,337,753
|
|
|
‐
|
|
|
‐
|
|
|
2035
|
|
1,339,406
|
|
|
‐
|
|
|
‐
|
|
|
2036
|
|
3,369,436
|
|
|
‐
|
|
|
‐
|
|
|
2037
|
|
123,118
|
|
|
58,694
|
|
|
‐
|
|
|
2038
|
|
1,520,985
|
|
|
29,539
|
|
|
‐
|
|
|
2039
|
|
722,863
|
|
|
‐
|
|
|
‐
|
|
|
|
$
|
13,662,742
|
|
$
|
88,233
|
|
$
|
770,427
|
|
As at June 30, 2019, the Company had tax credits of $1.6 million (June 30, 2018 ‐$1.6 million) that have not been recognized, expiring between 2028 and 2035.
Page | 26
17. SEGMENTED INFORMATION
The Company operates in four reportable operating segments, one being the corporate segment; the others being the mining segments focused on safeguarding the value of its exploration and development mineral properties. These reporting segments are components of the Company where separate financial information is available that is evaluated regularly by the Company’s Chief Executive Officer, the chief operating decision maker.
(a) Segment information for assets and liabilities are as follows:
|
|
|
|
June 30, 2019
|
|
|
|
|
|
Corporate
|
|
|
Mining
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada and BVI
|
|
|
Bolivia
|
|
|
Canada
|
|
|
China
|
|
|
|
Total
|
|
|
Cash and cash equivalents
|
|
$
|
27,372,635
|
|
$
|
384,332
|
|
$
|
29,886
|
|
$
|
63,108
|
|
|
$
|
27,849,961
|
|
|
Bonds
|
|
|
10,942,898
|
|
|
‐
|
|
|
‐
|
|
|
‐
|
|
|
|
10,942,898
|
|
|
Equity investments
|
|
|
5,110,893
|
|
|
‐
|
|
|
‐
|
|
|
‐
|
|
|
|
5,110,893
|
|
|
Plant and equipment
|
|
|
32,714
|
|
|
1,255,631
|
|
|
‐
|
|
|
22,458
|
|
|
|
1,310,803
|
|
|
Mineral property interests
|
|
|
‐
|
|
|
73,281,417
|
|
|
‐
|
|
|
3,534,665
|
|
|
|
76,816,082
|
|
|
Other assets
|
|
|
66,138
|
|
|
1,999,715
|
|
|
15,199
|
|
|
136,706
|
|
|
|
2,217,758
|
|
|
Total Assets
|
|
$
|
43,525,278
|
|
$
|
76,921,095
|
|
$
|
45,085
|
|
$
|
3,756,937
|
|
|
$
|
124,248,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
$
|
(921,806
|
)
|
$
|
(1,330,481
|
)
|
$
|
(111,847
|
)
|
$
|
(4,258
|
)
|
|
$
|
(2,368,392
|
)
|
|
|
|
|
|
|
|
June 30, 2018
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
Mining
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada and BVI
|
|
|
Bolivia
|
|
|
Canada
|
|
|
China
|
|
|
|
Total
|
|
|
Cash and cash equivalents
|
|
$
|
14,045,679
|
|
$
|
340,179
|
|
$
|
17,774
|
|
$
|
200,481
|
|
|
$
|
14,604,113
|
|
|
Bonds
|
|
|
18,114,026
|
|
|
‐
|
|
|
‐
|
|
|
‐
|
|
|
|
18,114,026
|
|
|
Equity investments
|
|
|
5,758,627
|
|
|
‐
|
|
|
‐
|
|
|
‐
|
|
|
|
5,758,627
|
|
|
Plant and equipment
|
|
|
44,713
|
|
|
280,818
|
|
|
‐
|
|
|
20,055
|
|
|
|
345,586
|
|
|
Mineral property interests
|
|
|
‐
|
|
|
60,374,657
|
|
|
‐
|
|
|
4,488,107
|
|
|
|
64,862,764
|
|
|
Other assets
|
|
|
20,708
|
|
|
809,602
|
|
|
15,125
|
|
|
151,649
|
|
|
|
997,084
|
|
|
Total Assets
|
|
$
|
37,983,753
|
|
$
|
61,805,256
|
|
$
|
32,899
|
|
$
|
4,860,292
|
|
|
$
|
104,682,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
$
|
(161,174
|
)
|
$
|
(1,493,607
|
)
|
$
|
(112,047
|
)
|
$
|
(84,939
|
)
|
|
$
|
(1,851,767
|
)
|
Page | 27
(b) Segment information for operating results are as follows:
|
|
|
|
|
|
Year ended June 30, 2019
|
|
|
|
|
|
|
|
Corporate
|
|
|
Mining
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
Canada and BVI
|
|
|
Bolivia
|
|
|
Canada
|
|
|
China
|
|
|
|
|
|
Loss on equity investments
|
$
|
(77,173
|
)
|
$
|
‐
|
|
$
|
‐
|
|
$
|
‐
|
|
$
|
(77,173
|
)
|
|
Fair value change and interest earned on bonds
|
|
1,514,769
|
|
|
‐
|
|
|
‐
|
|
|
‐
|
|
|
1,514,769
|
|
|
Dividend income
|
|
53,902
|
|
|
‐
|
|
|
‐
|
|
|
‐
|
|
|
53,902
|
|
|
Interest income
|
|
40,653
|
|
|
‐
|
|
|
‐
|
|
|
240
|
|
|
40,893
|
|
|
|
|
1,532,151
|
|
|
‐
|
|
|
‐
|
|
|
240
|
|
|
1,532,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
862,613
|
|
|
‐
|
|
|
‐
|
|
|
68,349
|
|
|
930,962
|
|
|
Share‐based compensation
|
|
922,498
|
|
|
‐
|
|
|
‐
|
|
|
‐
|
|
|
922,498
|
|
|
Other operating expenses (income)
|
|
1,235,860
|
|
|
35,372
|
|
|
143,549
|
|
|
(534
|
)
|
|
1,414,247
|
|
|
Loss before other income and expenses
|
|
(1,488,820
|
)
|
|
(35,372
|
)
|
|
(143,549
|
)
|
|
(67,575
|
)
|
|
(1,735,316
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of mineral property interests
|
|
‐
|
|
|
‐
|
|
|
‐
|
|
|
(779,823
|
)
|
|
(779,823
|
)
|
|
Foreign exchange gain (loss)
|
|
(68,271
|
)
|
|
‐
|
|
|
‐
|
|
|
3,780
|
|
|
(64,491
|
)
|
|
Other income (expense)
|
|
60,000
|
|
|
5,494
|
|
|
(58,619
|
)
|
|
‐
|
|
|
6,875
|
|
|
Net loss
|
$
|
(1,497,091
|
)
|
$
|
(29,878
|
)
|
$
|
(202,168
|
)
|
$
|
(843,618
|
)
|
$
|
(2,572,755
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributed to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity holders of the Company
|
$
|
(1,497,091
|
)
|
$
|
(29,878
|
)
|
$
|
(202,168
|
)
|
$
|
(691,767
|
)
|
$
|
(2,420,904
|
)
|
|
Non‐controlling interests
|
|
‐
|
|
|
‐
|
|
|
‐
|
|
|
(151,851
|
)
|
|
(151,851
|
)
|
|
Net loss
|
$
|
(1,497,091
|
)
|
$
|
(29,878
|
)
|
$
|
(202,168
|
)
|
$
|
(843,618
|
)
|
$
|
(2,572,755
|
)
|
|
|
|
|
|
|
Year ended June 30, 2018
|
|
|
|
|
|
|
|
Corporate
|
|
|
Mining
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
Canada
|
|
|
Bolivia
|
|
|
Canada
|
|
|
China
|
|
|
|
|
|
Loss on equity investments
|
$
|
(1,081,767
|
)
|
$
|
‐
|
|
$
|
‐
|
|
$
|
‐
|
|
$
|
(1,081,767
|
)
|
|
Fair value change and interest earned on bonds
|
|
(472,432
|
)
|
|
‐
|
|
|
‐
|
|
|
‐
|
|
|
(472,432
|
)
|
|
Dividend income
|
|
197
|
|
|
‐
|
|
|
‐
|
|
|
‐
|
|
|
197
|
|
|
Interest income
|
|
14,012
|
|
|
‐
|
|
|
‐
|
|
|
231
|
|
|
14,243
|
|
|
|
|
(1,539,990
|
)
|
|
‐
|
|
|
‐
|
|
|
231
|
|
|
(1,539,759
|
)
|
|
Salaries and benefits
|
|
862,395
|
|
|
‐
|
|
|
‐
|
|
|
44,635
|
|
|
907,030
|
|
|
Share‐based compensation
|
|
881,561
|
|
|
‐
|
|
|
‐
|
|
|
‐
|
|
|
881,561
|
|
|
Other operating expenses
|
|
1,138,335
|
|
|
31,621
|
|
|
112,923
|
|
|
32,242
|
|
|
1,315,121
|
|
|
Loss before other income and expenses
|
|
(4,422,281
|
)
|
|
(31,621
|
)
|
|
(112,923
|
)
|
|
(76,646
|
)
|
|
(4,643,471
|
)
|
|
Foreign exchange gain (loss)
|
|
482,102
|
|
|
(367
|
)
|
|
‐
|
|
|
(10,769
|
)
|
|
470,966
|
|
|
Other income (expense)
|
|
106,120
|
|
|
‐
|
|
|
(55,800
|
)
|
|
‐
|
|
|
50,320
|
|
|
Net loss
|
$
|
(3,834,059
|
)
|
$
|
(31,988
|
)
|
$
|
(168,723
|
)
|
$
|
(87,415
|
)
|
$
|
(4,122,185
|
)
|
|
Attributed to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity holders of the Company
|
$
|
(3,834,059
|
)
|
$
|
(31,988
|
)
|
$
|
(168,723
|
)
|
$
|
(71,680
|
)
|
$
|
(4,106,450
|
)
|
|
Non‐controlling interests
|
|
‐
|
|
|
‐
|
|
|
‐
|
|
|
(15,735
|
)
|
|
(15,735
|
)
|
|
Net loss
|
$
|
(3,834,059
|
)
|
$
|
(31,988
|
)
|
$
|
(168,723
|
)
|
$
|
(87,415
|
)
|
$
|
(4,122,185
|
)
|
Page | 28
18. SUPPLEMENTARY CASH FLOW INFORMATION
|
Changes in non‐cash operating working capital:
|
|
Years ended June 30,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Receivables
|
$
|
(85,020
|
)
|
$
|
(27,137
|
)
|
|
Deposits and prepayments
|
|
(70,551
|
)
|
|
(49,545
|
)
|
|
Accounts payable and accrued liabilities
|
|
(196,353
|
)
|
|
1,416,948
|
|
|
Due to related parties
|
|
64,772
|
|
|
(26,511
|
)
|
|
|
$
|
(287,152
|
)
|
$
|
1,313,755
|
|
Page | 29
EXECUTION VERSION
UNDERWRITING AGREEMENT
October 8, 2019
New Pacific Metals Corp.
Suite 1750 – 1066 West Hastings Street
Vancouver, BC V6E 3X1
Attention: Dr. Rui Feng
Chief Executive Officer
Gordon Neal
President
The undersigned, BMO Nesbitt Burns Inc. (the “Underwriter”), understands that New Pacific Metals Corp., a company organized under the laws of the Province of British Columbia (the “Company”), proposes to issue and sell an aggregate of 3,750,000 common shares (the “Common Shares”) to the Underwriter. The Underwriter hereby offers to purchase from the Company all but not less than all of the Common Shares on a “bought deal” basis, at the purchase price of $4.00 per Common Share (the “Purchase Price”) for aggregate gross proceeds of $15,000,000.
The Company hereby grants to the Underwriter an option (the “Over-Allotment Option”), entitling the Underwriter to purchase 562,500 Common Shares (the “Over-Allotment Common Shares”) at the Purchase Price for additional aggregate gross proceeds of up to $2,250,000 for the purpose of covering the Underwriter’s over-allocation position and for market stabilization purposes. The Over-Allotment Option shall be non-assignable and shall be exercisable, in whole or in part, at any time and from time to time for up to 30 days after the Closing Date (as hereinafter defined). The offering of the Common Shares and any Over-Allotment Common Shares by the Company described in this Agreement are hereinafter referred to as the “Offering”.
The net proceeds of the Offering are intended to be used as set forth in the Preliminary Prospectus (as hereinafter defined) under the heading “Use of Proceeds”. In consideration of the Underwriter’s agreement to purchase the Common Shares and Over-Allotment Common Shares (if applicable) and the other services to be rendered in connection with the Offering, the Company shall pay to the Underwriter a cash fee (the “Underwriting Fee”) in an amount equal to 6.0% of the gross proceeds received by the Company from the issue and sale of the Common Shares and any Over- Allotment Common Shares. The Underwriting Fee shall be payable on the Closing Date and any Over-Allotment Closing Date.
The Offering shall take place in the Qualifying Jurisdictions (as hereinafter defined) and in the United States, provided, however, that offers and sales of Common Shares in the United States by the Underwriter acting through its U.S. Affiliate (as hereinafter defined), shall be made only to persons who the Underwriter and its U.S. Affiliate reasonably believe to be Qualified Institutional Buyers (as hereinafter defined) in reliance on the exemption from the registration requirements of the U.S. Securities Act provided by Rule 144A and similar exemptions under applicable U.S. state securities laws, and in each case in accordance with the provisions of Schedule “A” to this Agreement. The Underwriter and the Company acknowledge that Schedule “A” forms part of this Agreement.
The additional terms and conditions of this underwriting agreement (the “Agreement”) are set forth below.
1. DEFINITIONS
1.1 In this Agreement, including any schedules forming a part of this Agreement:
(a) “Acts” means the Securities Acts or equivalent securities regulatory legislation of the Qualifying Jurisdictions and “Act” means the Securities Act or equivalent securities regulatory legislation of a specified Qualifying Jurisdiction;
(b) “Agreement” means this agreement and includes the schedules hereto;
(c) “Ancillary Documents” means all agreements, certificates (including any certificates representing the Common Shares and officer’s certificates), notices and other documents executed and delivered, or to be executed and delivered, by the Company in connection with the Offering and pursuant to this Agreement;
(d) “Applicable Securities Laws” means, collectively, and, as the context may require, the securities laws of the Qualifying Jurisdictions and the Acts and Regulations and the rules, policies, instruments, notices and orders issued by the applicable Regulatory Authorities;
(e) “Closing” and “Closing Date” have the meanings given to those terms in Section 9.1;
(f) “Closing Time” means 5:30 a.m. (Vancouver time) or such other time as may be agreed to by the Company and the Underwriter on the Closing Date, or in the case of the Option Closing, 5:30 a.m. (Vancouver time) or such other time as many be agreed to by the Company and the Underwriter on the Over-Allotment Closing Date;
(g) “Comfort Letter” has the meaning given to that term in subsection 6.1(k)(i) hereto;
(h) “Commissions” means the securities regulatory bodies (other than stock exchanges) of the Qualifying Jurisdictions and “Commission” means the securities regulatory body of a specified Qualifying Jurisdiction;
(i) “Common Shareholders” has the meaning given to that term in subsection 5.1(cc);
(j) “Common Shares” means the common shares of the Company to be sold under the Offering and includes any common shares issued pursuant to the Over- Allotment Option;
(k) “Company” has the meaning given to that term on page 1 of this Agreement;
(l) “Company’s Financial Statements” has the meaning given to that term in subsection 5.1(aa);
(m) “Continuous Disclosure Materials” has the meaning given to that term in subsection 5.1(i) hereto;
(n) “Distribution” (or “distribute” as derived therefrom) has the meaning given to that term in the Securities Act (British Columbia);
(o) “environmental laws” has the meaning given to that term in subsection 5.1(oo);
(p) “Exchange” means the TSX Venture Exchange;
(q) “Final Prospectus” means the final short form prospectus of the Company to be dated on or about October 18, 2019 and filed with the Commissions for the purpose of qualifying the distribution of the Common Shares, the Over-Allotment Option and the Over-Allotment Common Shares in the Qualifying Jurisdictions, including all documents incorporated therein by reference and any Supplementary Material;
(r) “Final Receipt” means the receipt issued by the British Columbia Securities Commission, as principal regulator under NP 11-202, evidencing that a receipt has been, or has been deemed to be, issued for the Final Prospectus in each of the Qualifying Jurisdictions;
(s) “Final U.S. Private Placement Memorandum” means the U.S. private placement memorandum, in a form satisfactory to the Underwriter and the Company, to which will be attached the Final Prospectus, to be delivered to any offerees and purchasers of the Common Shares in the United States in accordance with Schedule “A” hereto;
(t) “IFRS” means International Financial Reporting Standards, as the same may be amended or supplemented from time to time;
(u) “Indemnified Party” and “Indemnified Parties” have the meanings given to those terms in Section 11.1 hereto;
(v) “Legal Opinions” has the meaning given to that term in subsection 6.1(k)(ii) hereto;
(w) “material adverse effect” means any effect, change, event or occurrence that, alone or in conjunction with any other effect, change, event or occurrence: (i) is materially adverse to the results of operations, condition (financial or otherwise), assets, properties, capital, liabilities (contingent or otherwise), or business operations of the Company; or (ii) would result in an Offering Document containing a misrepresentation;
(x) “material change” has the meaning given to that term in the Securities Act (British Columbia);
(y) “Material Contracts” has the meaning given to that term in subsection 5.1(jj) hereto;
(z) “material fact” has the meaning given to that term in the Securities Act (British Columbia);
(aa) “misrepresentation” has the meaning given to that term in the Securities Act (British Columbia);
(bb) “Material Subsidiary” means Empresa Minera Alcira SA;
(cc) “Named Executive Officers” means as of the date of this Agreement, the Chief Executive Officer, the Chief Financial Officer and each of the three most highly compensated executive officers, other than the Chief Executive Officer and Chief Financial Officer, who were serving as executive officers of the Company at the end of the most recently completed financial year and whose total salary and bonus exceeds $150,000 as well as any additional individuals for whom disclosure would have been provided except that the individual was not serving as an officer of the Company at the end of the most recently completed financial year end;
(dd) “NI 43-101” has the meaning given to that term in subsection 5.1(o) hereto;
(ee) “NI 44-101” has the meaning given to that term in subsection 5.1(d) hereto;
(ff) “NP 11-202” means National Policy 11-202 – Process for Prospectus Reviews in Multiple Jurisdictions;
(gg) “OFAC” has the meaning given to that term in subsection 5.1(zz);
(hh) “Offering” has the meaning given to that term on page 1 of this Agreement;
(ii) “Offering Documents” means, collectively, the Prospectuses, any Supplementary Material and the U.S. Memorandum;
(jj) “Officers’ Certificate” has the meaning given to that term in subsection 6.1(k)(iv) hereto;
(kk) “Option Closing” means the closing of the transactions contemplated upon the exercise of the Over-Allotment Option;
(ll) “Over-Allotment Closing Date” means the closing date for the Over-Allotment Option which shall be not more than three business days after the notice of exercise of such option has been delivered in accordance with the terms of the Over- Allotment Option;
(mm) “Over-Allotment Common Shares” has the meaning given to that term on page 1 of this Agreement;
(nn) “Over-Allotment Option” means the option to purchase the Over-Allotment Common Shares granted to the Underwriter as set out on page 1 hereof;
(oo) “Preliminary Prospectus” means the preliminary short form prospectus of the Company dated October 8, 2019 and filed with the Commissions for the purpose of allowing the Underwriter to solicit expressions of interest for the Offering, including all documents incorporated therein by reference and any Supplementary Material;
(pp) “Preliminary Receipt” means the receipt issued by the British Columbia Commission, as principal regulator under NP 11-202, evidencing that a receipt has been, or has been deemed to be, issued for the Preliminary Prospectus in each of the Qualifying Jurisdictions;
(qq) “Preliminary U.S. Private Placement Memorandum” means the preliminaryU.S. private placement memorandum, in a form satisfactory to the Underwriter and the Company, to which will be attached a copy of the Preliminary Prospectus, to be delivered to offerees and purchasers of the Common Shares and Over-Allotment Common Shares, if any, in the United States in accordance with Schedule “A” hereto;
(rr) “Principals” has the meaning given to that term in subsection 5.1(cc);
(ss) “Property Rights” has the meaning given to that term in subsection 5.1(l);
(tt) “Prospectuses” means, collectively, the Preliminary Prospectus and the Final Prospectus;
(uu) “Purchase Price” has the meaning given to that term on page 1 of this Agreement;
(vv) “Qualified Institutional Buyer” means a “qualified institutional buyer” as such term is defined in Rule 144A;
(ww) “Qualifying Jurisdictions” means all the provinces of Canada other than Québec, and “Qualifying Jurisdiction” means any one of them;
(xx) “Regulation D” means Regulation D under the U.S. Securities Act;
(yy) “Regulation S” means Regulation S under the U.S. Securities Act;
(zz) “Regulations” means the securities rules or regulations proclaimed under the Acts and “Regulation” means the securities rules or regulations proclaimed under a specified Act;
(aaa) “Regulatory Authorities” means collectively the Commissions and the Exchange;
(bbb) “Rule 144A” means Rule 144A under the U.S. Securities Act;
(ccc) “Silver Sand Technical Report” means the technical report titled “Silver Sand Project, Potosi Department, Bolivia – Updated Technical Report for: New Pacific Metals Corp.”, dated August 15, 2017;
(ddd) “Standard Listing Conditions” has the meaning given to that term in Section 6.1(n) hereto;
(eee) “Subsidiaries” means Tagish Lake Gold Corp., New Pacific Offshore Inc., SKN Nickel & Platinum Ltd., Glory Metals Investment Corp. Limited, New Pacific Investment Corp. Limited, New Pacific Andes Corp. Limited, Fortress Mining Inc., Empresa Minera Alcira SA, NPM Minerals S.A., and Qinghai Found Mining Co. Ltd.;
(fff) “Substituted Purchasers” has the meaning given to that term in Section 4.2;
(ggg) “Supplementary Material” means any documents supplemental to the Prospectuses including any amending or supplementary prospectus or other supplemental documents (including documents incorporated by reference after the date of the Prospectuses) or similar documents;
(hhh) “Title Opinion” has the meaning given to that term in Section 6.1(k)(v);
(iii) “trade” has the meaning given to that term in the Securities Act (British Columbia);
(jjj) “Underwriter” has the meaning given to that term on page 1 of this Agreement;
(kkk) “Underwriting Fee” has the meaning given to that term on page 1 of this Agreement;
(lll) “United States” or “U.S.” means the United States of America, its territories and possessions, any state of the United States and the District of Columbia;
(mmm) “U.S. Affiliate” means the U.S. registered broker-dealer affiliate of the Underwriter;
(nnn) “U.S. Legal Opinion” has the meaning given to that term in subsection 6.1(k)(iii);
(ooo) “U.S. Memorandum” means, together, the Preliminary U.S. Private Placement Memorandum and Final U.S. Private Placement Memorandum; and
(ppp) “U.S. Securities Act” means the United States Securities Act of 1933, as amended, and the rules and regulations made thereunder.
(qqq) “U.S. Securities Laws” means all applicable United States securities laws, including, without limitation, the U.S. Securities Act, the United States Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
1.2 All references to dollar figures in this Agreement are to Canadian dollars.
1.3 Certain terms applicable solely to Schedule “A” are defined in Schedule “A”.
1.4 Where any representation or warranty contained in this Agreement is expressly qualified by reference to the “knowledge” of the Company, or where any other reference is made herein to the “knowledge” of the Company, it shall be deemed to refer to the actual knowledge of Dr. Rui Feng, Gordon Neal and Jalen Yuan, after having made due enquiry of appropriate and relevant persons and after reviewing relevant documentation.
2. FILING OF PROSPECTUS
2.1 The Company shall:
(a) file the Preliminary Prospectus by no later than 2:00 p.m. (Vancouver time) on October 8, 2019 and shall use its commercially reasonable efforts to, no later than 4:00 p.m. (Vancouver time) on October 8, 2019 obtain the Preliminary Receipt with respect to the Preliminary Prospectus; and
(b) use commercially reasonable efforts to promptly resolve all comments received or deficiencies raised by the Commissions and file the Final Prospectus and obtain a Final Receipt for the Final Prospectus as soon as possible after such regulatory comments and deficiencies have been resolved and in any event no later than 4:00 p.m. (Vancouver time) on October 18, 2019.
2.2 Prior to the delivery or filing of the Offering Documents and thereafter, during the period of distribution of the Common Shares, the Company shall have allowed the Underwriter to participate fully in the preparation of, and to approve the form and content of, such Offering Documents and shall have allowed the Underwriter to conduct all due diligence investigations which it may reasonably require in order to fulfill its obligations as underwriter and in order to enable it to execute the certificate required to be executed by it at the end of the Prospectuses.
3. OVER-ALLOTMENT OPTION
3.1 The Company hereby grants to the Underwriter the option to purchase and to offer for sale to the public pursuant hereto the Over-Allotment Common Shares at the Purchase Price upon the terms and conditions set forth herein.
3.2 The Over-Allotment Option shall be non-assignable and shall be exercisable, in whole or in part, at any time and from time to time up to 30 days after the Closing Date by the Underwriter giving written notice to the Company not less than three business days in advance of such date, specifying the number of Over-Allotment Common Shares to be purchased and the Over-Allotment Closing Date.
3.3 The Over-Allotment Common Shares shall be qualified for Distribution under the Prospectuses.
4. DISTRIBUTION AND CERTAIN OBLIGATIONS OF THE UNDERWRITER AND THE COMPANY
4.1 Subject to the terms and conditions of this Agreement, the Underwriter’s offer to purchase the Common Shares, and by acceptance of this Agreement, the Company agrees to sell to the Underwriter, and the Underwriter agrees to purchase at the Closing Time on the Closing Date, all, but not less than all, of the Common Shares. In the event the Underwriter exercises its right pursuant to the Over-Allotment Option to purchase the Over-Allotment Common Shares in whole, or in part, from time to time, up to 30 days after the Closing Date, the Company hereby agrees to issue and sell to the Underwriter and the Underwriter agrees to purchase at the Closing Time on an Over-Allotment Closing Date that number of Over-Allotment Common Shares requested in the notice of exercise of the Over-Allotment Option.
4.2 The Company understands that although this Agreement is presented on behalf of the Underwriter as purchaser, the Underwriter may arrange for substituted purchasers for the Common Shares and Over-Allotment Common Shares (“Substituted Purchasers”) outside the United States. It is further understood that the Underwriter agrees to purchase or cause to be purchased the Common Shares, and if the Over-Allotment Option is exercised, the Over-Allotment Common Shares being issued by the Company, and that this commitment is not subject to the Underwriter being able to arrange Substituted Purchasers. Each Substituted Purchaser shall purchase the Common Shares and Over-Allotment Common Shares, as applicable, at the Purchase Price, and to the extent that Substituted Purchasers purchase such Common Shares and Over-Allotment Common Shares, the obligations of the Underwriter to do so will be reduced by the number of such shares purchased by the Substituted Purchasers from the Company. Any reference in this
Agreement hereafter to “purchasers” shall be taken to be a reference to the Underwriter, as the initial committed purchaser, and to the Substituted Purchasers, if any.
4.3 The distribution of the Common Shares, the Over-Allotment Option and any Over-Allotment Common Shares shall be qualified by the Prospectuses under Applicable Securities Laws in the Qualifying Jurisdictions. Common Shares and/or Over-Allotment Common Shares may also be offered and sold:
(a) in the United States only in accordance with the terms, conditions, representations, warranties and covenants of the parties contained in Schedule “A” hereto, the provisions of which are agreed to by the Company, the Underwriter and its U.S. Affiliate, and which are hereby incorporated by reference; and
(b) in such other jurisdictions as the Company and the Underwriter may agree, provided the distribution of Common Shares and/or Over-Allotment Common Shares in such other jurisdictions are completed in accordance with the applicable laws of such other jurisdictions and will not result in the Company inheriting any reporting obligation in such jurisdictions as a result of such transaction.
4.4 Until the date on which the distribution of the Common Shares and Over-Allotment Common Shares is completed or this Agreement is terminated, the Company shall promptly take, or cause to be taken, all additional steps and proceedings that may from time to time be required under Applicable Securities Laws to continue to qualify the distribution of the Common Shares and the Over-Allotment Common Shares, or in the event that the Common Shares and the Over-Allotment Common Shares have, for any reason ceased to so qualify, to so qualify again the Common Shares and the Over-Allotment Common Shares for distribution.
4.5 The Company agrees that the Underwriter will be permitted to appoint other registered dealers (or other dealers duly licensed in their respective jurisdictions) as its agents to assist in the Offering and that the Underwriter may determine the remuneration payable to such other dealers appointed by it. Such remuneration shall be payable by the Underwriter and be paid out of, and not in addition to, the Underwriting Fee. The Underwriter shall require and shall use its commercially reasonable efforts to ensure that such other dealers, if any, comply with the terms of this Agreement as applicable to the Underwriter and shall be responsible for the actions of such other dealers.
4.6 The Underwriter covenants, represents and warrants to the Company that it will comply with the Applicable Securities Laws of each Qualifying Jurisdiction or other jurisdiction in which it acts as Underwriter of the Company in connection with the Offering, including any registration obligation. The Underwriter is also responsible for the actions of its U.S. Affiliate under this Agreement.
5. REPRESENTATIONS AND WARRANTIES
5.1 The Company represents and warrants to the Underwriter, and acknowledges that the Underwriter is relying upon such representations and warranties in entering into this Agreement, that:
(a) the Company is a duly constituted company and validly existing and in good standing under the laws of its jurisdiction of incorporation and no proceedings have been instituted or, to the knowledge of the Company, are pending for the dissolution or liquidation or winding-up of the Company;
(b) the Company has no subsidiaries or affiliates other than the Subsidiaries and each of the Subsidiaries is duly incorporated and validly existing and in good standing under the laws of their jurisdiction of incorporation and no proceedings have been instituted or are pending for the dissolution or liquidation or winding-up of the Subsidiaries;
(c) the Company’s direct or indirect percentage ownership of the shares of the Subsidiaries is correctly disclosed on page 5 of the Company’s Annual Information
Form dated as at September 20, 2019, and all such shares are legally or beneficially owned directly or indirectly by the Company, free and clear of all liens, charges and encumbrances of any kind whatsoever;
(d) the Company: (i) is a reporting issuer (within the meaning of Applicable Securities Laws) or the equivalent in British Columbia, Alberta, Manitoba, Ontario and Québec; (ii) will at the Closing Time be a reporting issuer (within the meaning of Applicable Securities Laws) or the equivalent in all the Qualifying Jurisdictions; and (iii) is not in default of any of the requirements of the Applicable Securities Laws of the Qualifying Jurisdictions; and (iii) is eligible under National Instrument 44-101 – Short Form Prospectus Distributions (“NI 44-101”) to file the Preliminary Prospectus and the Final Prospectus;
(e) the common shares of the Company are listed for trading on the Exchange and the Company is not in default of any material listing requirement of the Exchange applicable to the Company including any requirement that shareholder approval be obtained for the Offering or the issuance of the Common Shares, the Over- Allotment or the Over-Allotment Common Shares;
(f) the authorized capital of the Company consists of an unlimited number of common shares without par value of which 142,924,618 common shares were issued and outstanding as of the date of this Agreement as fully paid and non-assessable shares in the capital of the Company;
(g) other than as set out in Schedule “B”, no person, firm or corporation has any agreement, option, right or privilege, whether pre-emptive, contractual or otherwise, capable of becoming an agreement for the purchase, acquisition, subscription for or issuance of any of the unissued shares of the Company or the Subsidiaries, or other securities convertible, exchangeable or exercisable for shares of the Company or the Subsidiaries;
(h) no confidential material change report has been filed that remains confidential as of the date hereof;
(i) all documents previously published or filed by the Company since July 1, 2018 with the Regulatory Authorities (the “Continuous Disclosure Materials”) contain no untrue statement of a material fact as at the date thereof nor do they omit to state a material fact which, at the date thereof, was required to have been stated or was necessary to prevent a statement that was made from being false or misleading in the circumstances in which it was made and were prepared in accordance with and complied with Applicable Securities Laws in all material respects, and the Company is not in default of its filings under, nor has it failed to file or publish any document required to be filed or published under, Applicable Securities Laws;
(j) each of the Company and the Subsidiaries hold all licences and permits that are required for carrying on its business in the manner in which such business has been carried on except as would not have a material adverse effect and is duly qualified to carry on business in all jurisdictions in which it carries on business;
(k) each of the Company and the Subsidiaries has good title to its respective material assets as disclosed in the Prospectuses, free and clear of all liens, charges and encumbrances of any kind whatsoever except as disclosed in the Prospectuses;
(l) all property, options, leases, concessions, claims or other interests in natural resource properties and surface rights for exploration and exploitation, extraction and other mineral property rights in which the Company or the Material Subsidiary holds an interest or right, which is considered material to the Company (collectively, the “Property Rights”) are completely and accurately described in the Prospectuses and Schedule “D” and except as set forth in the Prospectuses or Schedule “D”, the Company or the Material Subsidiary are the legal and beneficial owner of such Property Rights and the Property Rights are in good standing and are valid and enforceable and free and clear of any liens, charges or encumbrances and no royalty is payable in respect of any of them;
(m) no property rights other than the Property Rights are necessary for the conduct of the business of the Company or the Material Subsidiary as currently being conducted and there are no material restrictions on the ability of the Company or the Material Subsidiaries to use or otherwise exploit any such Property Rights, and the Company does not know of any claim or basis for a claim that may adversely affect such rights;
(n) other than as disclosed in the Continuous Disclosure Materials, none of the Company nor the Subsidiaries has any responsibility or obligation to pay or have paid on its behalf any commission, royalty or similar payment to any person with respect to its Property Rights as of the Closing Date;
(o) the Silver Sand Technical Report filed by the Company with Regulatory Authorities has been prepared in accordance with National Instrument 43-101 – Standards of Disclosure for Mineral Projects (“NI 43-101”);
(p) the Silver Sand Project is the only material property to the Company for the purposes of NI 43-101;
(q) (i) the information provided by the Company on the Silver Sand Project set forth in the Prospectuses was, at the time of delivery thereof, complete and accurate in all material respects and there has been no new material scientific or technical information that is not included in the Silver Sand Technical Report since the date of delivery or preparation thereof; (ii) the scientific and technical information contained in the Prospectuses has been disclosed in all material respects in accordance with NI 43-101 and is based upon information prepared by or under the supervision of a qualified person, as defined in NI 43-101, or has been approved by a qualified person; and (iii) the Company has filed all technical reports required to be filed pursuant to NI 43-101;
(r) each of the Company and the Material Subsidiary has conducted and is conducting its business in compliance with generally accepted mining industry practices, all applicable laws, rules and regulations of each jurisdiction in which its business is carried on, is in compliance with all terms and provisions of all contracts, agreements, indentures, leases, policies, instruments and licences that are material to the conduct of its business and all such contracts, agreements, indentures, leases, policies, instruments and licences are valid and binding in accordance with their terms and in full force and effect, in each case in all material respects, and no breach or default by the Company, or the Subsidiaries or event which, with notice or lapse or both, could constitute a material breach or material default by the Company, or the Material Subsidiary, exists with respect thereto;
(s) each of the Subsidiaries (other than the Material Subsidiary) has conducted and is conducting its business in material compliance with all applicable laws, rules and regulations of each jurisdiction in which its business is carried on, is in compliance with all terms and provisions of all contracts, agreements, indentures, leases, policies, instruments and licences that are material to the conduct of its business and all such contracts, agreements, indentures, leases, policies, instruments and licences are valid and binding in accordance with their terms and in full force and effect, in each case in all material respects, and no breach or default by the Company, or the Subsidiaries or event which, with notice or lapse or both, could constitute a material breach or material default by the Company, or the Subsidiaries, exists with respect thereto;
(t) the Company has all requisite corporate power and capacity to enter into this Agreement and to perform the transactions contemplated hereby and the granting of the Over-Allotment Option and the issuance and sale by the Company of the Common Shares and Over-Allotment Common Shares have been duly authorized by all necessary corporate action of the Company, and this Agreement has been duly executed and delivered by the Company and is a valid and binding obligation of the Company enforceable against the Company in accordance with its terms, subject to bankruptcy, insolvency, moratorium or similar laws affecting creditors’ rights generally and except as limited by the application of equitable remedies which may be granted in the discretion of a court of competent jurisdiction and that enforcement of the rights to indemnity and contribution set out in this Agreement may be limited by applicable law;
(u) upon their issuance, the Common Shares will be validly allotted, issued and outstanding as fully paid and non-assessable, and registered in the name of the Underwriter or as directed by the Underwriter, as the case may be, or a permitted transferee thereof, in each case free and clear of all resale or trade restrictions (except control person restrictions and restrictions under applicable U.S. securities laws) and liens, charges or encumbrances of any kind whatsoever under Canadian law;
(v) when issued and sold by the Company in accordance with the terms hereof, the terms of the Common Shares shall have the rights, privileges, restrictions and conditions that conform to the rights, privileges, restrictions and conditions attaching to common shares in the capital of the Company set forth in the Prospectuses;
(w) upon satisfaction of the Standard Listing Conditions, the Common Shares will be qualified investments under the Income Tax Act (Canada) for a trust governed by a registered retirement savings plan, a registered retirement income fund, a deferred profit sharing plan, a registered education savings plan, a registered disability savings plan and for a tax-free savings account;
(x) Computershare Trust Company of Canada at its principal office in the City of Vancouver, British Columbia has been duly appointed as registrar and transfer agent for the common shares of the Company;
(y) the minute books and records of the Company and the Material Subsidiary made available to counsel for the Underwriter in connection with its due diligence investigation of the Company and the Material Subsidiary are all of the minute books and records of the Company and to the knowledge of the Company, the Material Subsidiary, from incorporation, as the case may be, to present and contain copies of all material proceedings (or certified copies thereof or drafts thereof pending approval) of the shareholders, the directors and all committees of directors of the Company and the Material Subsidiary to the date of review of such corporate records and minute books and there have been no other meetings, resolutions or proceedings of the shareholders, directors or any committees of the directors of the Company or the Material Subsidiary to the date of this Agreement not reflected in such minute books and other records, other than those which have been disclosed to the Underwriter;
(z) each of the Company and the Material Subsidiary maintain insurance against loss of, or damage to, its material assets including property and casualty insurance for all of its operations; and all of the policies in respect of such insurance are in amounts and on terms that in the view of Company’s management are reasonable for operations such as these, and are in good standing and not in default it being understood that the Company does not maintain title insurance over any of its material properties;
(aa) the audited financial statements of the Company for its fiscal year ended June 30, 2019, and notes thereto (the “Company’s Financial Statements”) incorporated by reference in the Prospectuses, are true and correct in every material respect and present fairly and accurately reflect the consolidated financial position and results of the operations of the Company for the periods then ended and such financial statements have been prepared in accordance with IFRS applied on a consistent basis;
(bb) there has been no change in any material respect in accounting policies or practices of the Company or the Subsidiaries since June 30, 2019;
(cc) none of the Company nor the Subsidiaries is indebted to any of its directors or officers (collectively the “Principals”), other than on account of directors fees or expenses accrued but not paid, or to any of its shareholders (the “Common Shareholders”);
(dd) the Company does not owe any monetary amount to any Principal or Common Shareholder on any account whatsoever, other than for (i) payment of salary, bonus and other employment or consulting compensation, (ii) reimbursement for expenses duly incurred in connection with the business of the Company or its Subsidiaries, and (iii) for other standard employee benefits made generally available to all employees;
(ee) none of the Company nor the Subsidiaries has guaranteed or agreed to guarantee any debt, liability or other obligation of any kind whatsoever of any person, firm or corporation whatsoever;
(ff) there are no material liabilities of the Company or the Subsidiaries, whether direct, indirect, absolute, contingent or otherwise which are not disclosed or reflected in the Company’s Financial Statements except those incurred in the ordinary course of its business since June 30, 2019;
(gg) since June 30, 2019, there has not been any adverse material change of any kind whatsoever in the financial position or condition of the Company, or the Subsidiaries or any damage, loss or other change of any kind whatsoever in circumstances materially affecting their respective business, affairs, capital, prospects or assets, or the right or capacity of the Company or the Subsidiaries to carry on their business, such business having been carried on in the ordinary course except as disclosed in the Prospectuses or otherwise disclosed to the Underwriter;
(hh) the directors, officers and key employees of the Company are as disclosed in the Prospectuses and the compensation arrangements with respect to the Company’s Named Executive Officers are as disclosed in the information circular for the Company’s annual general meeting held on December 10, 2018, and except as disclosed therein, there are no pensions, profit sharing, group insurance or similar plans or other deferred compensation plans of any kind whatsoever affecting the Company;
(ii) there are no “significant acquisitions”, “significant dispositions” or “significant probable acquisitions” for which the Company is required, pursuant to Applicable Securities Laws to include additional financial disclosure in the Prospectuses;
(jj) all contracts and agreements material to the Company and the Subsidiaries, collectively, other than those entered into in the ordinary course of its business as presently conducted (collectively the “Material Contracts”) have been disclosed in the Prospectuses and neither the Company nor the Subsidiaries has approved, entered into any binding agreement in respect of, or has any knowledge of, the purchase of any material property or assets or any interest therein or the sale, transfer or other disposition of any material property or assets or any interest therein currently owned, directly or indirectly, by the Company or a Subsidiary, whether by asset sale, transfer of shares or otherwise;
(kk) there are no amendments to the Material Contracts that have been proposed to be, or are required to be, made other than have been disclosed in the Prospectuses;
(ll) all tax returns, reports, elections, remittances, filings, withholdings and payments of the Company and the Subsidiaries required by law to have been filed or made, have been filed or made (as the case may be) and are substantially true, complete and correct and all taxes owing of the Company as at June 30, 2019 have been paid or accrued in the Company’s Financial Statements;
(mm) the Company and each of its Subsidiaries have been assessed for all applicable taxes and have received all appropriate refunds, made adequate provision for taxes payable for all subsequent periods and the Company is not aware of any material contingent tax liability of the Company or any of its Subsidiaries not adequately reflected in the Company’s Financial Statements;
(nn) other than as disclosed in the Continuous Disclosure Materials, there are no material actions, suits, judgments, investigations or proceedings of any kind whatsoever outstanding or, to the Company’s knowledge, pending, threatened against or affecting the Company or the Subsidiaries, at law or in equity or before or by any federal, provincial, state, municipal or other governmental department, commission, board, bureau or agency of any kind whatsoever and, to the Company’s knowledge, there is no basis therefor;
(oo) other than as disclosed in writing to the Underwriter, none of the Company nor the Subsidiaries has been, in any material respect, in violation of, in connection with the ownership, use, maintenance or operation of its property and assets, any applicable federal, provincial, state, municipal or local laws, by-laws, regulations, orders, policies, permits, licences, certificates or approvals having the force of law, domestic or foreign, relating to environmental, health or safety matters or hazardous or toxic substances or wastes, pollutants or contaminants (collectively, “environmental laws”) and, without limiting the generality of the foregoing:
(i) the Company and the Subsidiaries have occupied their respective properties and have received, handled, used, stored, treated, shipped and disposed of all pollutants, contaminants, hazardous or toxic materials, controlled or dangerous substances or wastes in material compliance with all applicable environmental laws and have received all permits, licenses or other approvals required of them under applicable environmental laws to conduct their respective businesses; and
(ii) there are no orders, rulings or directives issued against the Company or the Subsidiaries, and there are no orders, rulings or directives pending or, to the knowledge of the Company, threatened against the Company or the Subsidiaries under or pursuant to any environmental laws requiring any material work, repairs, construction or capital expenditures with respect to any property or assets of the Company or its Subsidiaries;
(pp) no notice with respect to any of the matters referred to in the immediately preceding paragraph, including any alleged violations by the Company or the Subsidiaries with respect thereto has been received by the Company or the Subsidiaries, and, to the knowledge of the Company, no writ, injunction, order or judgement is outstanding, and no legal proceeding under or pursuant to any environmental laws or relating to the ownership, use, maintenance or operation of the property and assets of the Company or the Subsidiaries is in progress, threatened or, to the best of the Company’s knowledge, pending, and, to the best of the Company’s knowledge, there are no grounds or conditions which exist, on or under any property now or previously owned, operated or leased by the Company or the Subsidiaries, on which any such legal proceeding might be commenced with any reasonable likelihood of success or with the passage of time, or the giving of notice or both, would give rise;
(qq) none of the Company nor the Subsidiaries and to the best of the Company's knowledge their respective directors or officers are in breach of any law, ordinance, statute, regulation, by-law, order or decree of any kind whatsoever, except as would not have a material adverse effect on the Company and the Subsidiaries, taken as a whole;
(rr) the Company’s auditors who audited the Company’s Financial Statements and who provided their audit report thereon were, as at the date of their audit report, independent public accountants as required under Applicable Securities Laws and there has never been a reportable event (within the meaning of National Instrument 51-102 – Continuous Disclosure Obligations) between the Company and such auditors nor has there been any event which has led the Company’s current auditors to threaten to resign as auditors;
(ss) the Prospectuses will be prepared and filed in compliance with the Applicable Securities Laws, and, at the time of delivery of the Common Shares and Over-Allotment Common Shares to the Underwriter, the Final Prospectus will comply with the Applicable Securities Laws and the Company shall fulfill and comply with the necessary requirements of the Applicable Securities Laws in order to enable the Common Shares, the Over-Allotment Option and any Over-Allotment Common Shares to be lawfully distributed in the Qualifying Jurisdictions through the Underwriter or any other investment dealers or brokers registered as such in the Qualifying Jurisdictions and acting in accordance with the terms of their registrations and the Applicable Securities Laws;
(tt) the Prospectuses, including any and all amendments thereto, will contain no untrue statement of a material fact and will not omit to state a material fact that is required to be stated or that is necessary to prevent a statement that is made from being false or misleading in the circumstances in which it is made and, together with all of the information incorporated by reference in the Prospectuses, will constitute full, true and plain disclosure of all material facts relating to the Company and the securities to be issued pursuant to the Offering and comply with Applicable Securities Laws;
(uu) neither the Company, the Subsidiaries nor, to the knowledge of the Company, any of their respective employees or agents have, in connection with the affairs of the Company, made any unlawful contribution or other payment to any official of, or candidate for, any federal, state, provincial or foreign office, or failed to disclose fully any contribution, in violation of any law, or made any payment to any foreign, Canadian, Bolivian, Chinese or provincial or state governmental officer or official, or other person charged with similar public or quasi-public duties, other than payments required or permitted by applicable laws;
(vv) no labour dispute with the employees of the Company or any Subsidiary currently exists or, to the knowledge of the Company and the Subsidiaries, is imminent. Neither the Company nor any Subsidiary is a party to any collective bargaining agreement and, to the knowledge of the Company and the Subsidiaries no action has been taken or is contemplated to organize any employees of the Company or any Subsidiary;
(ww) the form of the certificate representing the Common Shares has been duly approved by the Company and complies with the provisions of the Business Corporations Act (British Columbia);
(xx) no filing with, or authorization, approval, consent, license, order, registration, qualification or decree of any court or governmental authority or agency in Canada is necessary or required for the performance by the Company of its obligations hereunder, in connection with the Offering in the Qualifying Jurisdictions, or the consummation of the transactions contemplated by this Agreement, except such as have been already obtained, or as may be required, under Applicable Securities Laws;
(yy) all information and documentation concerning the Company and the Subsidiaries (including but not limited to the Property Rights and Material Contracts), the Common Shares, Over-Allotment Option, Over-Allotment Common Shares, and the Offering, that has been provided in writing to the Underwriter on its request by the Company in connection with this Agreement is accurate and complete in all material respects and not misleading and will not omit to state any fact or information which would be material to an underwriter performing the services contemplated herein;
(zz) the operations of the Company and its Subsidiaries are and have been conducted at all times in compliance with applicable financial recordkeeping and reporting requirements of the money laundering statutes of all applicable jurisdictions, including the rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any governmental agency to which they are subject (collectively, the “Anti-Money Laundering Laws”) and no action, suit or proceeding by or before any Governmental Authority or any arbitrator involving the Company or any of its Subsidiaries with respect to the Anti-Money Laundering Laws is pending or, to the knowledge of the Company, threatened.
(aaa) neither the Company nor, to the knowledge of the Company, any director, officer, agent, employee, affiliate or person acting on behalf of the Company or any of its Subsidiaries is currently subject to any United States sanctions administered by the Office of Foreign Assets Control of the United States Treasury Department
(“OFAC”); and the Company will not knowingly, directly or indirectly, use the proceeds of the Offering, or knowingly lend, contribute or otherwise make available such proceeds to any Subsidiary, joint venture partner or other person or entity, for the purpose of financing the activities of any person currently subject to any United States sanctions administered by OFAC;
(bbb) the Company is not a “related issuer” or “connected issuer” (as those terms are defined in Section 1.1 of National Instrument 33-105 – Underwriting Conflicts) of any registrant involved in a trade of the Common Shares;
(ccc) other than as disclosed to the Underwriter in writing, none of the Company’s insiders (as defined in the Securities Act (British Columbia)) has sold any securities issued by the Company or otherwise taken steps to reduce its, his, or her financial exposure to the price or value of the common shares of the Company from September 17, 2019 to the date hereof;
(ddd) to the knowledge of the Company, Silvercorp Metals Inc. intends to participate in the Offering at its pro rata share ownership of the Company, representing 28.93% of the issued and outstanding common shares of the Company; and
(eee) the Company makes the representations, warranties and covenants applicable to it in Schedule “A” hereto and acknowledges that the terms and conditions of the representations, warranties and covenants of the parties contained in Schedule “A” form part of this Agreement.
5.2 The Underwriter represents and warrants to the Company and acknowledges that the Company is relying upon such representations and warranties in entering into this Agreement, that:
(a) it is, and will remain so, until the completion of the Offering, appropriately registered under Applicable Securities Laws, or equivalent securities laws applicable thereto, so as to permit it to lawfully fulfill its obligations hereunder;
(b) it is a valid and subsisting corporation under the laws of the jurisdiction in which it was incorporated, continued or amalgamated; and
(c) it has good and sufficient right and authority to enter into this Agreement and complete the transactions contemplated under this Agreement on the terms and conditions set forth herein.
5.3 The representations and warranties of the Company and the Underwriter contained in this Agreement shall be true at the Closing Time as though they were made at the Closing Time and they shall survive the completion of the transactions contemplated under this Agreement in accordance with Section 14.5.
6. ADDITIONAL COVENANTS
6.1 The Company covenants and agrees with the Underwriter that it shall:
(a) file with the Exchange all required documents and pay all required filing fees, and do all things required by the rules and policies of the Exchange, in order to obtain prior to the Closing Date the requisite acceptance or approval of the Exchange for:
(i) the Offering; and
(ii) the conditional listing of the Common Shares and Over-Allotment Common Shares, subject only to Standard Listing Conditions, which the Company agrees to fully satisfy in a timely manner forthwith after the Closing;
(b) with respect to the filing of the Prospectuses as contemplated herein, fulfill all legal requirements required to be fulfilled by the Company in connection therewith, in each case in form and substance satisfactory to the Underwriter (acting reasonably) as evidenced by the Underwriter’s execution of the certificates attached thereto;
(c) prior to the completion of the Offering, allow the Underwriter to review the Offering Documents and conduct all due diligence which the Underwriter may reasonably require in order to fulfill its statutory obligations as Underwriter and in order to enable it to execute, acting prudently and responsibly, the certificates required to be executed by the Underwriter in such documents, including, without limitation, corporate and operating records, documentation with respect to Property Rights, technical information, financial information (including budgets), copies of the financial statements to be incorporated by reference in the Prospectuses and access to key officers of the Company;
(d) during the period prior to the completion of the Offering, promptly notify the Underwriter in writing of any material change (actual or proposed) in the business, affairs, operations, assets or liabilities (contingent or otherwise) prospects, financial position or capital of the Company, or of any change which is of such a nature as to result in a misrepresentation in either of the Prospectuses or any amendment thereto and:
(i) the Company shall, within any applicable time limitation, comply with all filing and other requirements under the Applicable Securities Laws of the Qualifying Jurisdictions, and with the rules of the Exchange, applicable to the Company as a result of any such change;
(ii) however, notwithstanding the foregoing, the Company shall not file any amendment to the Prospectuses or any other material supplementary to the Prospectuses (all such amendments and material being Supplementary Material) without first obtaining the approval of the Underwriter as to the form and content thereof, which approval shall be provided on a timely basis;
and, in addition to the foregoing, the Company shall, in good faith, discuss with the Underwriter any material change in circumstances (actual or proposed) which is of such a nature that there is or ought to be consideration given by the Company as to whether notice in writing of such change need be given to the Underwriter pursuant to this subparagraph;
(e) deliver to the Underwriter duly executed copies of any Supplementary Material required to be filed by the Company in accordance with subsection (d) above and, if any financial or accounting information is contained in any of the Supplementary Material, an additional Comfort Letter to that required by subsection (k) below;
(f) cause commercial copies of the Prospectuses, the U.S. Memorandum and Supplementary Material to be delivered to the Underwriter without charge, in such quantities and in such cities as the Underwriter may request, as soon as possible after the filing of the Preliminary Prospectus, Final Prospectus or Supplementary Material, as the case may be, but in any event on or before 9:00 (a.m.) (Vancouver time) on the business day after obtaining the receipt therefor, as applicable, and such delivery will constitute the Company’s consent to the Underwriter’s use of such documents in connection with the Offering;
(g) by the act of having delivered each of the Prospectuses and any amendments thereto to the Underwriter, have represented and warranted to the Underwriter that all material information and statements (except information and statements relating solely to the Underwriter and provided by the Underwriter to the Company in writing) contained in such documents, at the respective dates of initial delivery thereof, comply with the Applicable Securities Laws of the Qualifying Jurisdictions and are true and correct in all material respects, and that such documents, at such dates, contain no misrepresentation and together constitute full, true and plain disclosure of all material facts relating to the Company, its Subsidiaries, the Common Shares, the Over-Allotment, and Over-Allotment Common Shares as required by the Applicable Securities Laws of the Qualifying Jurisdictions;
(h) prior to the Closing Time, fulfill to the satisfaction of the Underwriter all legal requirements (including, without limitation, compliance with Applicable Securities Laws) to be fulfilled by the Company to enable the Common Shares to be distributed free of resale restrictions in the Qualifying Jurisdictions;
(i) use commercially reasonable efforts to maintain its status as a “reporting issuer” or the equivalent not in default in each of the Qualifying Jurisdictions for a period of two years from the Closing Date, other than in connection with a merger, amalgamation, arrangement, take-over bid, going private transaction or other similar transaction involving the purchase of all of the outstanding common shares of the Company;
(j) use commercially reasonable efforts to maintain its listing of its common shares on the Exchange (or a similar stock exchange or quotation system) for a period of two years from the Closing Date, other than in connection with a merger, amalgamation, arrangement, take-over bid, going private transaction or other similar transaction involving the purchase of all of the outstanding common shares of the Company;
(k) deliver to the Underwriter and its legal counsel, as applicable:
(i) at the time of execution of the Final Prospectus by the Underwriter, a long form Comfort Letter (the “Comfort Letter”) from the Company’s auditors addressed to the Underwriter and dated as of the date of the Final Prospectus and based on procedures performed within two business days of the Final Prospectus, in form and content acceptable to the Underwriter, acting reasonably, relating to the verification of the financial information and accounting data contained in the Final Prospectus and to such other matters as the Underwriter may reasonably require;
(ii) at the Closing Time, such legal opinions (the “Legal Opinions”) of Bennett Jones LLP, the Company’s legal counsel (excluding U.S. legal counsel), and other legal counsel in the Qualifying Jurisdictions addressed to the Underwriter and dated as of the Closing Date, in form and content acceptable to the Underwriter, acting reasonably, relating to the matters set forth in Schedule “C”;
(iii) at the Closing Time, if any Common Shares and/or Over-Allotment Common Shares are being sold in the United States, in accordance with Schedule “A” hereto, a legal opinion of, the Company’s U.S. legal counsel (the “U.S. Legal Opinion”) addressed to the Underwriter and dated as of the Closing Date, in form and content acceptable to the Underwriter, acting reasonably, to the effect that such offer and sale of the Common Shares and/or Over-Allotment Common Shares, if applicable, is not required to be registered under the U.S. Securities Act, it being understood that no opinion is expressed as to any subsequent resale of any Common Shares or Over- Allotment Common Shares;
(iv) at the Closing Time, a certificate (the “Officers’ Certificate”) of the Company signed by its Chief Executive Officer and Chief Financial Officer, addressed to the Underwriter and dated as of the Closing Date, in form and content acceptable to the Underwriter, acting reasonably, certifying for and on behalf of the Company and not in their personal capacities that, to the actual knowledge of the persons signing such certificate, after having made due and relevant inquiry:
(A) the Company has complied, in all material respects, with all covenants and satisfied all terms and conditions of this Agreement on its part to be complied with and satisfied at or prior to the Closing Time on the Closing Date;
(B) no order, ruling or determination having the effect of ceasing or suspending trading in any securities of the Company or prohibiting the sale of the Common Shares and Over-Allotment Common Shares or any of the Company’s issued securities has been issued and no proceeding for such purpose is pending or, to the knowledge of such officers, threatened;
(C) the Company is a “reporting issuer” or its equivalent under the securities laws of each of the Qualifying Jurisdictions and eligible to use the Short Form Prospectus System established under NI 44-101, and no material change relating to the Company has occurred since the date of this Agreement with respect to which the requisite material change report has not been filed and no such disclosure has been made on a confidential basis that remains subject to confidentiality; and
(D) all of the representations and warranties made by the Company in this Agreement are true and correct as of the Closing Time in all material respects (except those representations and warranties which are qualified by materiality which shall be true and correct in all respects) with the same force and effect as if made at and as of the Closing Time after giving effect to the transactions contemplated hereby;
(v) at the Closing Time, such legal opinion (the “Title Opinion”) of the Company’s legal counsel, addressed to the Underwriter and its legal counsel, dated as of the Closing Date, in the form and content acceptable to the Underwriter acting reasonably, with respect to title to and ownership rights in the Silver Sand Project;
(vi) certificates dated the Closing Date signed by the CEO of the Company or another officer acceptable to the Underwriter, acting reasonably, in form and content satisfactory to the Underwriter, acting reasonably, with respect to the constating documents of the Company and the Material Subsidiary; the resolutions of the directors of the Company relevant to the Offering, including the allotment, issue (or reservation for issue) and sale of the Common Shares and Over-Allotment Common Shares, the grant of the Over-Allotment Option, the authorization of this Agreement, listing on the Exchange and transactions contemplated by this Agreement; and the incumbency and signatures of signing officers of the Company;
(vii) at the Closing Time, certificates of good standing (or equivalent) for the Company, the Material Subsidiary, New Pacific Offshore Inc., and New Pacific Investment Corp. Limited, each dated within one business day (or such earlier or later date as the Underwriter may accept) of the Closing Date;
(viii) at the Closing Time, a certificate of the registrar and transfer agent of the common shares of the Company, which certifies the number of common shares of the Company issued and outstanding on the date prior to the Closing Date;
(ix) at the Closing Time, the Comfort Letter, dated the Closing Date, in form and substance satisfactory to the Underwriter, acting reasonably, bringing forward to the date which is one business day prior to the Closing Date, the information contained in the Comfort Letter; and
(x) at the Closing Time, such other materials (the “Closing Materials”) as the Underwriter may reasonably require and as are customary in a transaction of this nature, and the Closing Materials will be addressed to the Underwriter and to such parties as may be reasonably directed by the Underwriter and will be dated as of the Closing Date or such other date as the Underwriter may reasonably require;
(l) from and including the date of this Agreement through to and including the Closing Time, do all such acts and things necessary to ensure that all of the representations and warranties of the Company contained in this Agreement or any certificates or documents delivered by it pursuant to this Agreement remain materially true and correct and not do any such act or thing that would render any representation or warranty of the Company contained in this Agreement or any certificates or documents delivered by it pursuant to this Agreement materially untrue or incorrect;
(m) not to directly or indirectly issue any common shares of the Company or securities or other financial instruments convertible into or having the right to acquire common shares of the Company (other than pursuant to rights or obligations under securities or instruments outstanding or in accordance with the Company’s option plan) or enter into any agreement or arrangement under which the Company acquires or transfers to another, in whole or in part, any of the economic consequences of ownership of common shares of the Company, whether that agreement or arrangement may be settled by the delivery of common shares of the Company or other securities or cash, or agree to become bound to do so, or disclose to the public any intention to do so, for a period from October 2, 2019 until 90 days following the Closing Date without the Underwriter’s prior written consent, which consent will not be unreasonably withheld.
(n) deliver lock-up agreements executed by each of the Company’s executive officers and directors pursuant to which they agree, prior to the Closing Date, not to sell, or agree to sell (or announce any intention to do so), any common shares of the Company or securities exchangeable or convertible into common shares of the Company for a period from October 2, 2019 until 90 days following the Closing Date without the Underwriter’s prior written consent, which consent will not be unreasonably withheld.
(o) prior to the filing of the Final Prospectus, provide evidence satisfactory to the Underwriter of the conditional approval of the Exchange of the listing and posting for trading on the Exchange of the Common Shares, subject only to satisfaction by the Company of customary post-closing conditions imposed by the Exchange in similar circumstances (the “Standard Listing Conditions”);
(p) advise the Underwriter, promptly after receiving notice or obtaining knowledge thereof; of: (i) the issuance by any Commission of any order suspending or preventing the use of the Preliminary Prospectus, the Final Prospectus or any Supplementary Material; (ii) the suspension of the qualification of the Common Shares, Over-Allotment Option or Over-Allotment Common Shares for offering or sale in any of the Qualifying Jurisdictions; (iii) the institution, threatening or contemplation of any proceeding for any such purposes; or (iv) any requests made by any Commission for amending or supplementing the Preliminary Prospectus or the Final Prospectus or any Supplementary Material or for additional information, and will use its commercially reasonable efforts to prevent the issuance of any order referred to in (i) or (ii) above and, if any such order is issued, to obtain the withdrawal thereof as promptly as possible;
(q) not reproduce, disseminate, quote from or refer to any written or oral opinions, advice, analysis and materials provided by the Underwriter to the Company in connection with the Offering in whole or in part at any time, in any manner or for any purpose, without the Underwriter’s prior written consent in each specific instance, and the Company shall and shall cause its affiliates, officers, directors, shareholders, agents and advisors (including those shareholders who have an advisory relationship with the Company and the directors, officers, and employees of such shareholders) to keep confidential the opinions, advice, analysis and materials furnished to the Company by the Underwriter and its counsel in connection with the Offering;
(r) during the period commencing on the date hereof and until completion of the distribution of any Over-Allotment Common Shares, promptly provide to the Underwriter drafts of any press releases of the Company for review by the Underwriter and the Underwriter’s counsel prior to issuance, provided that any such review will be completed in a timely manner;
(s) forthwith notify the Underwriter of any breach of any covenant of this Agreement or any Ancillary Documents by any party thereto, or upon it becoming aware that any representation or warranty of the Company contained in this Agreement or any Ancillary Document is or has become untrue or inaccurate in any material respect;
(t) ensure that any news release announcing this Offering and naming the Underwriter will include substantially the following legend: “NOT FOR DISTRIBUTION TO THE UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES.”, and news releases announcing this transaction will include substantially the following statements: “This news release does not constitute an offer to sell or a solicitation of an offer to buy any of the securities in the United States. The securities have not been registered under the United States Securities Act of 1933, as amended (the “1933 Act”), or any state securities laws and may not be offered or sold within the United States, absent such registration or an applicable exemption from such registration requirements.”;
(u) use the net proceeds of the Offering substantially in the manner set out in the Final Prospectus under the heading “Use of Proceeds”; and
(v) make management of the Company available to provide such assistance in marketing the Offering as the Underwriter may reasonably request.
7. UNDERWRITER’S FEES AND EXPENSES
7.1 In consideration of the services to be rendered by the Underwriter to the Company under this Agreement, the Company agrees to pay to the Underwriter, at the time and in the manner specified in this Agreement, the Underwriting Fee.
7.2 Whether or not the purchase and sale of the Common Shares shall be completed, all costs and expenses of or incidental to the sale and delivery of the Common Shares and of or incidental to all matters in connection with the transactions herein shall be borne by the Company including the Underwriter’s “out-of-pocket” expenses. The Company also agrees to pay the reasonable fees and disbursements of the Underwriter’s legal counsel, up to a maximum of $100,000 (exclusive of taxes and disbursements).
8. CONDITIONS PRECEDENT
8.1 The following are conditions to the obligations of the Underwriter to complete the transactions contemplated in this Agreement, which conditions may be waived in writing in whole or in part by the Underwriter in its sole discretion:
(a) all actions required to be taken by or on behalf of the Company, including without limitation the passing of all requisite resolutions of directors of the Company approving the transaction contemplated hereunder, will have been taken so as to approve the Prospectuses, to obtain the requisite approval of the Exchange to the Offering and to validly offer, sell and distribute the Common Shares and the Over- Allotment Common Shares, and to grant the Over-Allotment Option;
(b) the Company will have made all necessary filings with and obtained all necessary approvals, consents and acceptances of the Regulatory Authorities for the Offering and the Prospectuses, including without limitation a receipt from the Commissions pursuant to NP 11-202 in respect of the Prospectuses, to permit the Company to complete its obligations hereunder;
(c) the Company will have, within the required time set out hereunder, delivered or caused the delivery of the required Comfort Letter, Legal Opinions, U.S. Legal Opinion, Officer’s Certificate, the Title Opinion and other Closing Materials as the Underwriter may reasonably require in form and substance satisfactory to the Underwriter and its counsel, acting reasonably;
(d) no order ceasing or suspending trading in any securities of the Company, or ceasing or suspending trading by the directors, officers or promoters of the Company, or any one of them, or prohibiting the trade or distribution of any of the securities referred to herein will have been issued and no proceedings for such purpose, to the knowledge of the Company, will be pending or threatened;
(e) as of the Closing Time, there shall be: no reports or information that in accordance with the requirements of Regulatory Authorities in Canada must be made publicly available in connection with the sale of the Common Shares and the Over- Allotment Common Shares that have not been made publicly available as required; no contracts, documents or other materials required to be filed with Regulatory Authorities in connection with the Prospectuses that have not been filed as required and delivered to the Underwriter; no contracts, documents or other materials required to be described or referred to in the Prospectuses or the U.S. Memorandum that are not described or referred to as required and delivered to the Underwriter;
(f) the Underwriter shall have received at the Closing Time a letter from the transfer agent of the Company dated the date of Closing and signed by an authorized officer of such transfer agent confirming the number of issued and outstanding common shares of the Company;
(g) the Underwriter not having exercised any rights of termination set forth in this Agreement;
(h) there shall not have occurred between June 30, 2019 and the Closing Time, any adverse material change (actual, anticipated, contemplated or, to the knowledge of the Company, threatened, whether financial or otherwise) in the business, affairs, operations, assets, liabilities (contingent or otherwise), financial position or capital of the Company not disclosed in the Continuous Disclosure Materials;
(i) the Company will have, as of the Closing Time, complied in all material respects with all of its covenants and agreements contained in this Agreement, including without limitation all requirements for approval of the Offering and the listing and posting for trading of the Common Shares on the Exchange as required to be provided prior to the Closing Time;
(j) the representations and warranties of the Company contained in this Agreement will be true and correct as of the Closing Time in all material respects (except those representations and warranties which are qualified by materiality which shall be true and correct in all respects) as if such representations and warranties had been made as of the Closing Time; and
(k) the Underwriter shall have received a legal opinion of Borden Ladner Gervais LLP, in form and content acceptable to the Underwriter, acting reasonably, as to certain matters related to the Offering.
9. CLOSING
9.1 The closing of the transactions contemplated under this Agreement (the “Closing”) shall be completed at the offices of Bennett Jones LLP, legal counsel to the Company, at the Closing Time on October 25, 2019 or such other time and date as may be agreed to by the
Company and the Underwriter (the “Closing Date”).
9.2 On the Closing, the Company shall provide electronic evidence of issuance of the Common Shares and, subject to receipt of the notice in accordance with the Over-Allotment Option, any Over-Allotment Common Shares specified in such notice, in the names and denominations reasonably requested by the Underwriter.
9.3 At the Closing Time, the Company shall deliver to the Underwriter such documents set forth in Section 6.1(k).
9.4 If the Company has satisfied all of its obligations under this Agreement, at the Closing the Underwriter shall pay to the Company the aggregate gross proceeds of the sale of the Common Shares, less the Underwriting Fee and expenses as provided in Article 7 hereof.
10. OPTION CLOSING
10.1 In the event the Over-Allotment Option is exercised, at the Option Closing, subject to the terms and conditions contained in this Agreement, the Company shall issue and deliver to the Underwriter in such locations that the Underwriter advises the Company the certificates (in physical or electronic form as the Underwriter may advise in the notice) representing the Common Shares to be issued at the Option Closing in the names and denominations reasonably requested by the Underwriter.
10.2 The Option Closing shall occur not more than three business days after the date that the notice of exercise of the Over-Allotment Option has been given in accordance with the terms of the Over-Allotment Option.
10.3 At the Option Closing, the Company shall deliver to the Underwriter such documents set forth in Section 6.1(k) as the Underwriter may request.
10.4 If the Company has satisfied all of its obligations under this Agreement, on the Over-Allotment Closing Date the Underwriter shall pay to the Company the gross proceeds of the sale of the Over-Allotment Common Shares, less the Underwriting Fee and expenses as provided in Section 7 hereof that have not already been paid in accordance with Section 9.4.
11. INDEMNITY
11.1 The Company shall indemnify and save harmless the Underwriter and its affiliates, and their respective directors, officers, employees and agents (collectively, the “Indemnified Parties” and individually an “Indemnified Party”) from and against all losses (other than losses of profits), claims, actions, suits, proceedings, damages, liabilities, costs and expenses, (including the reasonable fees and expenses of the Indemnified Parties’ counsel that may be incurred in advising with respect to or defending such claim), in any capacity under any statute or common law or otherwise insofar as such expenses, losses, claims, damages, liabilities, suits, proceedings, costs or actions arise out of or are based, directly or indirectly, upon the performance of professional services rendered to the Company by the Indemnified Parties or otherwise in connection with the matters referred to in this Agreement, including, whether performed before or after the execution of this Agreement by the Company without limitation, in any way caused by, or arising directly or indirectly from, or in consequence of:
(a) (i) any information or statement contained in any Offering Document, which at the time and in the light of the circumstances under which it was made contains or is alleged to contain a misrepresentation, (ii) any untrue statement or alleged untrue statement of a material fact contained (A) in an Offering Document or (B) in any other materials or information provided to investors by, or with the approval of, the Company in connection with the Offering, or (iii) the omission or alleged omission to state in any Offering Document a material fact required to be stated therein or necessary to make the statements therein (in the light of the circumstances under which they were made, in the case of any prospectus) not misleading;
(b) the breach of, or default under, any term, condition, covenant or agreement of the Company made or contained herein or in any other document of the Company delivered pursuant hereto or made by the Company in connection with the sale of the Common Shares or the breach of any representation or warranty of the Company made or contained herein or in any other document of the Company delivered pursuant hereto or in connection with the sale of the Common Shares being or being alleged to be untrue, false or misleading;
(c) any order made or inquiry, investigation or proceeding commenced or threatened by any securities regulatory authority, stock exchange or by any other competent authority or any change of law or the interpretation or administration thereof which prevents or restricts the trading in or the sale of the Company’s securities or the distribution of the Common Shares in any jurisdiction; or
(d) the non-compliance or alleged non-compliance by the Company with any of the Applicable Securities Laws or U.S. Securities Laws relating to or connected with the distribution of the Common Shares, including the Company’s non-compliance with any statutory requirement to make any document available for inspection;
provided that, if and to the extent that a court of competent jurisdiction in a final judgment from which no appeal can be made or a regulatory authority in a final ruling from which no appeal can be made shall determine that the liabilities, claims, actions, suits, proceedings, losses, costs, damages or expenses resulted from the gross negligence, fraud or wilful misconduct of an Indemnified Party claiming indemnity, such Indemnified Party shall promptly reimburse to the Company any funds advanced to the Indemnified Party in respect of such claim and the indemnity provided for in this Article 11 shall cease to apply to such Indemnified Party in respect of such claim.
11.2 If any claim contemplated by this Article 11 shall be asserted against any of the Indemnified Parties, or if any potential claim contemplated by this Article 11 shall come to the knowledge of any of the Indemnified Parties, the Indemnified Party concerned shall notify in writing the Company as soon as possible of the nature of such claim (provided that any failure to so notify in respect of any potential claim shall affect the liability of the Company under this Article 11 only to the extent that the Company is materially prejudiced by such failure). The Company shall, subject as hereinafter provided, be entitled (but not required) to assume the defence on behalf of the Indemnified Party of any suit brought to enforce such claim; provided that the defence shall be through legal counsel selected by the Company and acceptable to the Indemnified Party, acting reasonably, and no admission of liability shall be made by the Company or the Indemnified Party without, in each case, the prior written consent of all the Indemnified Parties affected and the Company. An Indemnified Party shall have the right to employ separate counsel in any such suit and participate in the defence thereof but the fees and expenses of such counsel shall be at the expense of the Indemnified Party unless:
(a) the Company fails to assume the defence of such suit on behalf of the Indemnified Party within a reasonable time after receiving notice of such suit;
(b) the employment of such counsel has been authorized by the Company; or
(c) the named parties to any such suit (including any added or third parties) include the Indemnified Party and the Company and the Indemnified Party and the Company shall have been advised in writing by counsel that representation of the Indemnified Party by counsel for the Company is inappropriate as a result of the potential or actual conflicting interests of those represented;
in each of cases (a), (b) or (c), the Company shall not have the right to assume the defence of such suit on behalf of the Indemnified Party, but the Company shall only be liable to pay the reasonable fees and disbursements of one firm of separate counsel (in addition to local counsel) for all Indemnified Parties in any jurisdiction. In no event shall the Company be required to pay the fees and disbursements of more than one set of counsel (in addition to local counsel) for all Indemnified Parties in respect of any particular claim or set of claims in one jurisdiction. No settlement may be made by an Indemnified Party without the prior written consent of the Company, which consent will not be unreasonably withheld.
11.3 To the extent that any Indemnified Party is not a party to this Agreement, the Underwriter holds the right and benefit of this Article 11 in trust for and on behalf of such Indemnified Party.
11.4 The Company shall not, without the prior written consent of the Indemnified Parties, effect any settlement or compromise of, or consent to the entry of judgment with respect to, any pending or threatened claim, investigation, action or proceeding in respect of which indemnity or contribution may be or could have been sought by an Indemnified Party hereunder unless such settlement, compromise or judgment (i) includes an unconditional release of the Indemnified Parties from all liability arising out of such claim, investigation, action or proceeding and (ii) does not include a statement as to or an admission of fault, culpability or any failure to act, by or on behalf of any Indemnified Party.
12. CONTRIBUTION
12.1 In order to provide for just and equitable contribution in circumstances in which the indemnity provided in Article 11 hereof would otherwise be available in accordance with its terms but is, for any reason not solely attributable to any one or more of the Indemnified Parties, held to be unavailable to or unenforceable by the Indemnified Parties or enforceable otherwise than in accordance with its terms, the Underwriter and the Company shall contribute to the aggregate of all claims, damages, liabilities, costs and expenses and all losses (other than losses of profits or consequential damages) of the nature contemplated in Article 11 hereof and suffered or incurred by the Indemnified Parties in proportions as is appropriate to reflect: (i) as between the Company and the Underwriter, the relative benefits received by the Underwriter, on the one hand (being the Underwriting Fee), and the relative benefits received by the Company, on the other hand (being the net proceeds of the Offering, before expenses) from the Offering; and (ii) as between the Company and the Underwriter, the relative fault of the Company, on the one hand, and the Underwriter, on the other hand; provided that the Underwriter shall not in any event be liable to contribute, in the aggregate, any amount in excess of the Underwriting Fee or any portion thereof actually received. However, no party who has been determined by a court of competent jurisdiction in a final, non-appealable judgement to have engaged in any fraud, fraudulent misrepresentation or gross negligence shall be entitled to claim contribution from any person who has not been so determined to have engaged in such fraud, fraudulent misrepresentation, gross negligence or wilful misconduct.
12.2 The rights to contribution provided in this Article 12 shall be in addition to and not in derogation of any other right to contribution which the Indemnified Parties may have by statute or otherwise at law provided that Section 12.1 hereof shall apply, mutatis mutandis, in respect of such other right.
12.3 Any party entitled to contribution will, promptly after receiving notice of commencement of any claim, action, suit or proceeding against such party in respect of which a claim for contribution may be made against the other party under this section, notify such party from whom contribution may be sought. In no case shall such party from whom contribution may be sought be liable under this Agreement unless such notice has been provided, but the omission to so notify such party shall not relieve the party from whom contribution may be sought from any other obligation it may have otherwise than under this Article 12. except to the extent such party is materially prejudiced by the failure to receive such notice. The right to contribution provided in this Article 12 shall be in addition to, and not in derogation of, any other right to contribution that the Underwriter or the Company may have by statute or otherwise by law.
13. TERMINATION OF AGREEMENT
13.1 Except as otherwise provided herein, all terms and conditions set out herein shall be construed as conditions and any breach or failure by the Company to comply with any material conditions in favour of the Underwriter shall entitle the Underwriter to terminate in accordance with Section 13.2(d) its obligation to purchase the Common Shares and any Over-Allotment Common Shares by written notice to that effect given to the Company prior to the Closing Time on the Closing Date or Option Closing (as applicable). The Company shall use its reasonable commercial efforts to cause all conditions in this Agreement to be satisfied. It is understood that the Underwriter may waive in whole or in part, or extend the time for compliance with, any of such terms and conditions without prejudice to its rights in respect of any subsequent breach or non-compliance, provided that to be binding on the Underwriter, any such waiver or extension must be in writing.
13.2 In addition to the completion of satisfactory due diligence by the Closing Date, and any other remedies which may be available to the Underwriter, this Agreement and any obligation of the Underwriter to purchase Common Shares and any Over-Allotment Common Shares may be terminated by the Underwriter upon delivery of written notice to the Company at any time up to the Closing Time if at any time prior to the Closing Time:
(a) there shall have occurred any material change in the business, affairs, operations, assets, liabilities (contingent or otherwise), or capital of the Company, or, change in any material fact, or have arisen or been discovered any new material fact or the Underwriter shall have become aware of any undisclosed material fact, that would be expected to in the opinion of the Underwriter, acting reasonably have a material adverse effect on the market price or value of the common shares of the Company; or
(b) any order to cease or suspend trading in any securities of the Company or prohibiting or restricting the distribution of any securities of the Company is made, or proceedings are announced, commenced or threatened for the making of any such order, by any securities commission or similar regulatory authority, the Exchange or any other competent authority, and has not been rescinded, revoked or withdrawn; or
(c) any inquiry, action, suit, investigation or other proceeding (formal or informal) is made, announced or threatened, or any order is issued, or any law or regulation is promulgated, changed or announced, by any domestic or foreign federal, provincial, state, municipal or other domestic or foreign government department, commission, board, bureau, agency or instrumentality, including without limitation, the Exchange or any securities regulatory authority, which, in the opinion of the Underwriter, acting reasonably, prevents or restricts trading of the securities of the Company or adversely affects or will adversely affect the financial markets or the business, operations or affairs of the Company; or
(d) if there should develop, occur or come into effect or existence any event, action, state, condition or major financial occurrence of national or international consequence or any law or regulation which, in the opinion of the Underwriter materially adversely affects or involves, or would reasonably be expected to materially adversely affect or involve, the financial markets or the business, operations or affairs of the Company and the Subsidiaries, taken as a whole; or
(e) the Company is in breach of any material term, condition or covenant of this Agreement or any material representation or warranty given by the Company in this Agreement is or becomes false.
13.3 The Underwriter shall make reasonable best efforts to give notice to the Company (in writing or by other means) of the occurrence of any of the events referred to in Section 13.2 provided that neither the giving nor the failure to give such notice shall in any way affect the entitlement of the Underwriter to exercise its rights under Section 13.2 at any time prior to or at the Closing Time on the Closing Date or the Over-Allotment Closing Date (as the case may be).
13.4 The rights of termination contained in this Article 13 as may be exercised by the Underwriter are in addition to any other rights or remedies the Underwriter may have in respect of any default, act or failure to act or non-compliance by the Company in respect of any of the matters contemplated by this Agreement.
13.5 If the obligations of the Underwriter are terminated under this Agreement pursuant to these termination rights, the Company’s liabilities to the Underwriter shall be limited to the
Company’s obligations under subsection 6.1(r), Article 7, Article 11, Article 12 and Article 13.
14. GENERAL
14.1 Any notice to be given hereunder shall be in writing and may be given by electronic mail (email) or by hand delivery and shall, in the case of notice to the Company, be addressed and e-mailed or delivered to:
New Pacific Metals Corp.
Suite 1750 – 1066 West Hastings Street
Vancouver, BC V6E 3X1
Attention: Yong-Jae Kim
Email: [REDACTED]
with a copy to:
Bennett Jones LLP
666 Burrard Street, Suite 2500
Vancouver, British Columbia
V6C 2X8 Canada
Attention: Kwang Lim
Email: limk@bennettjones.com
and in the case of the Underwriter, be addressed and emailed or delivered to:
BMO Nesbitt Burns Inc.
Suite 1700 – 885 West Georgia Street
Vancouver, BC V6C 3E8
Attention: Carter Hohmann
Email: [REDACTED]
with a copy to:
Borden Ladner Gervais LLP
1200 Waterfront Centre, 200 Burrard Street
Vancouver, BC V7X 1T2
Attention: Graeme D. Martindale
Email: gmartindale@blg.com
The Company and the Underwriter may change their respective addresses for notice by notice given in the manner referred to above.
14.2 Time and each of the terms and conditions of this Agreement shall be of the essence of this Agreement and any waiver by the parties of this Section 14.2 or any failure by them to exercise any of their rights under this Agreement shall be limited to the particular instance and shall not extend to any other instance or matter in this Agreement or otherwise affect any of their rights or remedies under this Agreement.
14.3 This Agreement constitutes the entire agreement between the parties hereto in respect of the matters referred to herein and there are no representations, warranties, covenants or agreements, expressed or implied, collateral hereto other than as expressly set forth or referred to herein and this Agreement supersedes any previous agreements, arrangements or understandings among the parties, including the “bought deal” offering letter dated
October 2, 2019.
14.4 The headings in this Agreement are for reference only and do not constitute terms of the Agreement.
14.5 Except as expressly provided for in this Agreement, all warranties, representations, covenants and agreements of the Company herein contained, or contained in, documents submitted or required to be submitted pursuant to this Agreement, shall survive the purchase by the Underwriter of the Common Shares and any Over-Allotment Common Shares and shall continue in full force and effect, regardless of the closing of the sale of the Common Shares and any Over-Allotment Common Shares and regardless of any investigation which may be carried on by the Underwriter, or on its behalf, subject only to the applicable limitation period prescribed by law. For greater certainty, the provisions contained in this Agreement in any way related to the indemnification or the contribution obligations, including those provided for in Article 11, shall survive and continue in full force and effect, subject only to the applicable limitation period prescribed by law.
14.6 No alteration, amendment, modification or interpretation of this Agreement or any provision of this Agreement shall be valid and binding upon the parties hereto unless such alteration, amendment, modification or interpretation is in written form executed by the parties directly affected by such alteration, amendment, modification or interpretation.
14.7 The parties hereto shall execute and deliver all such further documents and instruments and do all such acts and things as any party may, either before or after the Closing Date, reasonably require in order to carry out the full intent and meaning of this Agreement.
14.8 This Agreement may not be assigned by any party hereto without the prior written consent of all of the parties hereto.
14.9 This Agreement shall be subject to, governed by, and construed in accordance with the laws of the Province of British Columbia and the Canadian federal laws applicable therein (excluding any conflict of law rule or principle of such laws that might refer such interpretation or enforcement to the laws of another jurisdiction). Each of the Company and the Underwriter irrevocably submits to the exclusive jurisdiction of the courts of the Province of British Columbia with respect to any matter arising hereunder or relating hereto.
14.10 The invalidity or unenforceability of any particular provision of this Agreement shall not affect or limit the validity or enforceability of the remaining provisions of this Agreement.
14.11 The parties may sign this Agreement in as many counterparts as may be deemed necessary and may be delivered by facsimile, all of which so signed and delivered shall be deemed to be an original and together shall constitute one and the same instrument.
If the foregoing is in accordance with your understanding and agreed to by you, please signify your acceptance on the accompanying signature page of this Agreement and return same to the Underwriter whereupon this Agreement as so accepted shall constitute an agreement between the Company and the Underwriter enforceable in accordance with its terms.
[Signature Page Follows]
Yours truly,
BMO NESBITT BURNS INC.
By: (signed) "Carter Hohmann"
Name: Carter Hohmann
Title: Managing Director
The foregoing is accepted and agreed to effective as of the date appearing on the first page of this Agreement.
NEW PACIFIC METALS CORP.
By: (signed) "Gordon Neal"
Name: Gordon Neal
Title: President
[Signature Page to Underwriting Agreement]
SCHEDULE “A”
UNITED STATES OFFERS AND SALES
As used in this Schedule “A”, the following terms have the following meanings:
“affiliate” means “affiliate” as that term is defined in Rule 405 under the U.S. Securities Act;
“Directed Selling Efforts” means directed selling efforts as that term is defined in Rule 902(c) of Regulation S. Without limiting the foregoing, but for greater clarity in this Schedule “A”, it means, subject to the exclusions from the definition of directed selling efforts contained in Regulation S, any activity undertaken for the purpose of, or that could reasonably be expected to have the effect of, conditioning the market in the United States for any of the Offered Shares and shall include, without limitation, the placement of any advertisement in a publication with a general circulation in the United States that refers to the offering of any of the Offered Shares;
“Foreign Issuer” means “foreign issuer” as that term is defined in Rule 902(e) of Regulation S;
“General Solicitation” and “General Advertising” means “general solicitation” and “general advertising”, respectively, as used in Rule 502(c) of Regulation D, including, without limitation, advertisements, articles, notices or other communications published in any newspaper, magazine or similar media or broadcast over television, radio or the Internet, or any seminar or meeting whose attendees had been invited by general solicitation or general advertising;
“Offered Shares” means the Common Shares and Over-Allotment Common Shares, if any, to be sold in the Offering;
“Offshore Transactions” means “offshore transactions” as that term is defined in Rule 902(h) of Regulation S;
“QIB Certificate” means the Qualified Institutional Buyer Letter in the form attached as Exhibit I to the Final U.S. Private Placement Memorandum;
“Substantial U.S. Market Interest” means “substantial U.S. market interest” as that term is defined in Rule 902(j) of Regulation S; and
“U.S. Exchange Act” means the United States Securities Exchange Act of 1934, as amended.
All other capitalized terms used but not otherwise defined in this Schedule “A” shall have the meanings assigned to them in the Agreement to which this Schedule “A” is attached.
1. The Underwriter represents and warrants to the Company that:
(a) it acknowledges that the Offered Shares have not been and will not be registered under the U.S. Securities Act and may not be offered or sold within the United States except by the Underwriter through the U.S. Affiliate pursuant to the exemption from the registration requirements of the U.S. Securities Act provided by Rule 144A. It has not offered or sold, and will not offer or sell, any of the Offered Shares except (A) in accordance with the foregoing exemption, or (B) in Offshore Transactions in compliance with Rule 903 of Regulation S. Accordingly, except in connection with offers and sales pursuant to Rule 144A, or as permitted by Rule 903 of Regulation S, neither it nor its affiliates nor any persons acting on its or their behalf has made or will make (i) any offer to sell Offered Shares to or solicitation of an offer to buy Offered Shares from a person in the United States, or (ii) any sale of Offered Shares unless at the time the purchaser’s buy order was or will be originated the purchaser was outside the United States or it, and its affiliates or any persons acting on its or their behalf reasonably believed that the purchaser was outside the United States;
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(b) it has not entered and will not enter into any contractual arrangement with respect to the distribution of the Offered Shares, except with its affiliates, any selling group members or with the prior written consent of the Company; and
(c) it shall require each selling group member to agree, for the benefit of the Company, to comply with, and shall use its commercially reasonable efforts to ensure that each selling group member complies with, the applicable provisions of this
Schedule “A” as if such provisions applied to such selling group member.
2. The Underwriter covenants to and agrees with the Company that:
(a) all offers and sales of the Offered Shares in the United States have been and will be effected through the U.S. Affiliate in accordance with all applicable U.S. broker- dealer requirements;
(b) the U.S. Affiliate offering Offered Shares to Qualified Institutional Buyers pursuant to Rule 144A is a Qualified Institutional Buyer, and the U.S. Affiliate is and on the date of each offer and sale of Offered Shares in the United States was and will be duly registered as a broker-dealer pursuant to Section 15(b) of the U.S. Exchange Act and under the laws of each state in which such offer or sale is made (unless exempted from the respective state’s broker-dealer registration requirements), and a member of, and in good standing with, the Financial Industry Regulatory Authority, Inc.;
(c) it has not solicited, offered, or offered to sell, and will not solicit offers for, or offer to sell, either directly or through the U.S. Affiliate, the Offered Shares in the United States by means of any form of General Solicitation or General Advertising and neither it nor its affiliate(s), nor any persons acting on its or their behalf have engaged or will engage in any Directed Selling Efforts with respect to the Offered Shares offered and sold pursuant to Rule 903 of Regulation S;
(d) it will solicit, and will cause the U.S. Affiliate to solicit, offers for the Offered Shares in the United States only from, and will offer the Offered Shares only to, and it and they have offered and solicited only from and to, persons it reasonably believes, and immediately prior to making any such offer, it had reasonable grounds to believe and did believe, to be Qualified Institutional Buyers;
(e) it will inform, or cause the U.S. Affiliate to inform, all purchasers of the Offered Shares in the United States that the Offered Shares have not been and will not be registered under the U.S. Securities Act and are being sold to them without registration under the U.S. Securities Act in reliance upon Rule 144A;
A-2
(f) it has delivered or will deliver, through the U.S. Affiliate, a copy of either (i) the Final U.S. Private Placement Memorandum which shall include the Final
Prospectus (together, the “U.S. Offering Documents”) or (ii) the Preliminary U.S.
Private Placement Memorandum which shall include the Preliminary Prospectus, to each person in the United States to which it has offered Offered Shares. Prior to any sale by it of Offered Shares in the United States, it will deliver, through the U.S. Affiliate, a copy of the U.S. Offering Documents to the purchaser of such Offered Shares and no other written material has been or will be used in connection with offers or sales of the Offered Shares in the United States;
(g) it shall cause the U.S. Affiliate to agree, for the benefit of the Company, to the same provisions as are contained in paragraphs 1, 2 and 3 of this Schedule ‘A”;
(h) at least one business day prior to each closing, it shall cause the U.S. Affiliate to provide the Company with (i) a list of all purchasers of the Offered Shares in the United States and (ii) a duly completed and executed QIB Certificate from each such purchaser;
(i) at each closing, it and the U.S. Affiliate will either (i) provide a certificate, substantially in the form of Annex 1 to this Schedule “A”, or (ii) be deemed to have represented and warranted to the Company as of the closing time that neither it nor they offered or sold any Offered Shares in the United States; and
(j) none of it, any of its affiliates or any person acting on any of their behalf has taken or will take, directly or indirectly, any action in violation of Regulation M under the U.S. Exchange Act in connection with the offer and sale of the Offered Shares.
3. It is understood and agreed by the Underwriter that the sale of the Offered Shares in the United States will be made only by the Underwriter or the U.S. Affiliate, acting as agent, pursuant to Rule 144A to persons who are, or are reasonably believed by them to be, Qualified Institutional Buyers, in compliance with any applicable state securities laws of the United States, provided that prior to any such sale each purchaser shall have been provided with the U.S. Offering Documents and such purchaser shall have made the representations, warranties and agreements set forth in the QIB Certificate.
4. The Company represents, warrants, covenants and agrees to and with the Underwriter that:
(a) it is, and at each closing will be, a Foreign Issuer that reasonably believes that there is no Substantial U.S. Market Interest in its Common Shares;
(b) it is not, and after giving effect to the offering and sale of the Offered Shares and the application of the proceeds thereof as described in the Final Prospectus, will not be registered or required to register as an “investment company” pursuant to the provisions of the United States Investment Company Act of 1940, as amended;
(c) at the Closing Date, the Offered Shares will not be (A) part of a class listed on a national securities exchange registered under Section 6 of the U.S. Exchange Act, (B) quoted in a U.S. automated inter-dealer system, or (C) convertible or exchangeable at an effective conversion premium (calculated as specified in paragraph (a)(6) of Rule 144A) of less than ten percent for securities so listed or quoted;
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(d) for so long as any Offered Shares which have been sold in the United States in reliance upon Rule 144A are outstanding and are “restricted securities” within the meaning of Rule 144(a)(3) under the U.S. Securities Act, and if the Company is not subject to and in compliance with the reporting requirements of Section 13 or 15(d) of, or exempt from reporting pursuant to Rule 12g3-2(b) under, the U.S. Exchange Act, the Company will furnish to any holder of the Offered Shares in the United States and any prospective purchaser of the Offered Shares designated by such holder in the United States, upon request of such holder, the information required to be delivered pursuant to Rule 144A(d)(4) under the U.S. Securities Act (so long as such requirement is necessary in order to permit holders of the Offered Shares to effect resales under Rule 144A);
(e) none of the Company, its affiliates or any persons acting on its or their behalf (other than the Underwriter, its affiliates or any person acting on their behalf, in respect of which no representation, warranty or covenant is made) (i) has offered or sold or will offer or sell the Offered Shares except through the Underwriter and the U.S. Affiliate in compliance with this Schedule “A”, or (ii) has taken or will take any action that would cause the exemptions or exclusions from registration provided by Rule 903 of Regulation S or Rule 144A to be unavailable with respect to offers and sales of the Offered Shares pursuant to this Schedule “A”;
(f) the Company has not sold, offered for sale or solicited any offer to buy, and will not sell, offer for sale or solicit any offer to buy, any of its securities in the United States in a manner that would be integrated with the offer and sale of the Offered Shares and would cause the exemptions from registration set forth in Rule 144A to become unavailable with respect to offers and sales of the Offered Shares contemplated hereby; and
(g) none of the Company, any of its affiliates or any person acting on any of their behalf (other than the Underwriter, its affiliates, or any person acting on any of their behalf, in respect of which no representation is made) (i) has engaged in or will engage in any form of General Solicitation or General Advertising with respect to offers or sales of the Offered Shares in the United States; (ii) has made or will make any Directed Selling Efforts; or (iii) has taken or will take, directly or indirectly, any action in violation of Regulation M under the U.S. Exchange Act in connection with the offer and sale of the Offered Shares.
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ANNEX 1 TO SCHEDULE “A”
UNDERWRITER’S CERTIFICATE
In connection with the private placement of common shares (the “Offered Shares”) of New Pacific Metals Corp. (the “Company”) in the United States, the Underwriter referred to in the underwriting agreement dated as of October 8, 2019 between the Company and the Underwriter (the “Underwriting Agreement”), and the U.S. broker-dealer affiliate of the Underwriter (the “U.S. Affiliate”), do hereby certify that:
(a) the U.S. Affiliate is, and was on the date of each offer and sale of Offered Shares in the United States, duly registered as a broker-dealer pursuant to Section 15(b) of the U.S. Exchange Act and under the laws of each state in which such offer or sale was made (unless exempted from the respective state’s broker-dealer registration requirements), and is a member of, and in good standing with, the Financial Industry Regulatory Authority, Inc., and all offers and sales of the Offered Shares in the United States have been and will be effected by the U.S. Affiliate in accordance with all U.S. broker-dealer requirements;
(b) we acknowledge that the Offered Shares have not been registered under the U.S. Securities Act or any applicable state securities laws and may not be offered or sold within the United States except pursuant to an available exemption from the registration requirements of the U.S. Securities Act and applicable state securities laws;
(c) neither we nor our representatives have utilized, and neither we nor our representatives will utilize, any form of General Solicitation or General Advertising;
(d) each offeree was provided with the U.S. Offering Documents, and we have not used and will not use any written material other than the U.S. Offering Documents and the Preliminary U.S. Private Placement Memorandum which included the Preliminary Prospectus;
(e) immediately prior to transmitting any of the foregoing materials to offerees, we had reasonable grounds to believe and did believe that each offeree was a Qualified Institutional Buyer, and on the date hereof, we continue to believe that each offeree that purchases Offered Shares from us is a Qualified Institutional Buyer;
(f) each Qualified Institutional Buyer made, at the time of purchase, the representations, warranties, and covenants set forth in Exhibit I to the Final U.S. Private Placement Memorandum; and
(g) the offering of the Offered Shares has been conducted by us in accordance with the Underwriting Agreement.
Terms used in this certificate have the meanings given to them in the Underwriting Agreement unless otherwise defined herein.
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Dated this ______ day of ______________, 2019.
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BMO NESBITT BURNS INC.
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[INSERT NAME OF U.S. AFFILIATE]
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By: ______________________________
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By: _______________________________
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Name:
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Name:
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Title
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Title
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A-6
SCHEDULE “B”
OUTSTANDING CONVERTIBLE SECURITIES
Stock Options
The following table sets forth details for all outstanding stock options of the Company that were issued under the Company’s stock option plan.
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Number of options
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Date of Grant
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outstanding
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Exercise Price ($)
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Expiry Date
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Nov 01, 2016
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1,555,000
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$0.55
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Oct 31, 2021
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Aug 01, 2017
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1,755,000
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$1.15
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Jul 31, 2022
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Dec 08, 2017
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200,000
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$1.57
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Dec 07, 2022
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Feb 22, 2019
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1,940,027
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$2.15
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Feb 22, 2024
|
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Apr 22, 2019
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100,000
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$2.30
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Apr 22, 2024
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B-1
SCHEDULE “C”
LEGAL OPINION
(a) each of the Company, the Material Subsidiary, New Pacific Offshore Inc., and New Pacific Investment Corp. Limited is a corporation duly incorporated, continued, or amalgamated, as the case may be, and validly existing and is in good standing under the laws of the jurisdiction in which it was incorporated, continued, or amalgamated, as the case may be;
(b) each of the Company, the Material Subsidiary, New Pacific Offshore Inc., and New Pacific Investment Corp. Limited has all requisite corporate power and capacity to carry on its business as now conducted as described in the Final Prospectus and to own, lease and operate its property and assets described in the Final Prospectus and the Company has the requisite corporate power and capacity to execute and deliver this Agreement and to carry out the transactions contemplated hereby;
(c) the ownership interests of the Material Subsidiary, New Pacific Offshore Inc., and New Pacific Investment Corp. Limited;
(d) the authorized and issued capital of the Company, the Material Subsidiary, New Pacific Offshore Inc., and New Pacific Investment Corp. Limited;
(e) all necessary corporate action having been taken by Company to authorize the execution and delivery of this Agreement and the performance by the Company of its obligations hereunder and to authorize the issuance, sale and delivery of the Common Shares and Over-Allotment Common Shares and the grant of the Over-Allotment Option;
(f) the Common Shares have been validly created and will be issued as fully-paid and non-assessable common shares in the capital of the Company upon full payment therefor;
(g) the form and terms of the definitive certificate representing the Common Shares have been approved by the directors of the Company and comply in all material respects with the Business Corporations Act (British Columbia), the notice of articles and articles of the Company and the rules and by-laws of the Exchange;
(h) the Company has all necessary corporate power and capacity: (i) to execute and deliver this Agreement and perform its obligations under this Agreement; and (ii) to issue the Common Shares;
(i) all necessary corporate action has been taken by the Company to authorize the execution and delivery of each of the Preliminary Prospectus, the Final Prospectus and any Supplementary Material and the filing thereof with the Commissions;
(j) this Agreement has been duly executed and delivered by the Company and constitutes a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, subject to bankruptcy, insolvency and other laws affecting the rights of creditors generally and subject to the qualification that equitable remedies may be granted in the discretion of a court of competent jurisdiction and that enforcement of rights to indemnity, contribution and waiver of contribution set out in this Agreement may be limited by applicable law;
C-1
(k) the execution and delivery of this Agreement, the fulfillment of the terms hereof by the Company and the offering, issuance, sale and delivery of the Common Shares and Over-Allotment Common Shares do not and will not result in a breach of or default under, and do not and will not create a state of facts which, after notice or lapse of time or both, will result in a breach of or default under, and do not and will not conflict with any of the terms, conditions or provisions of the articles or notice of articles of the Company;
(l) Computershare Trust Company of Canada is the duly appointed registrar and transfer agent for the common shares of the Company;
(m) all necessary documents have been filed, all requisite proceedings have been taken and all approvals, permits and consents of the appropriate regulatory authority in each Qualifying Jurisdiction to qualify the distribution of the Common Shares, the Over-Allotment Option and the Over-Allotment Common Shares in each of the Qualifying Jurisdictions through persons who are duly registered under Applicable Securities Laws and who have complied with the relevant provisions of such applicable laws; and
(n) as to the accuracy of the statements under the headings “Eligibility For Investment” in the Prospectuses.
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SCHEDULE “D”
LIST OF PROPERTY RIGHTS
Between
Ningde Jungie Mineria Co., Ltd.
Cai Ximing
Li Chengliang
AND
New Pacific Investment Corp. Limited
Dated March 28, 2017
Table of Contents
ANNEXES
1. ANNEX 1
Detail of Company’s Transitory Authorizations (ATEs)
2. ANNEX 2
Detail of Additional Company’s TAs
3. ANNEX 3
Detail of Company Corporate Contracts
4. ANNEX 4
Jungie Company Undertaking Agreement
5. ANNEX 5
Draft Letters to be sent by Jungie to Comibol and Alcira
6. ANNEX 6
Permits, Contracts, Licenses, Transitional Authorizations, Environmental Permits and Other Licenses required from the Government of Bolivia to allow for the commercial operation of the Company
7. ANNEX 7
Company’s Financial Statements
8. ANNEX 8
Inventory of Assets of the Company.
9. ANNEX 9
Detail of existing permits, licenses, authorizations required for mining exploration, and other related items owned by the Company
10. ANNEX 10
Lists of Powers of Attorney granted by the Company
11. ANNEX 11 Escrow Agreement
12. ANNEX 12 Promissory Note
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13. ANNEX 13
Alcira’s Specified Liabilities Totaling US$ 1.300.000.
14. ANNEX 14
Confirmation drilling holes authorization letter
15. ANNEX 15
Payment Instruction for Deposit and Loan
16. ANNEX 16
New Pacific Holding Corp. Guarantee
3
SHARE TRANSFER AGREEMENT
The following is a private agreement for the sale and purchase of shares (the “Agreement”) that can be elevated to a public deed with the sole recognition of signatures, subscribed pursuant to the following clauses:
FIRST CLAUSE. - (Parties). The following individuals are Parties to this Agreement:
1.1. Mr. Cai Ximing, a Chinese citizen, of legal age, qualified by law, business executive by profession, [Redacted: confidential information], (hereinafter "Mr. Cai").
1.2. Mr. Li Chengliang, a Chinese citizen, of legal age, business executive by profession, [Redacted: confidential information](hereinafter "Mr. Li").
1.3. Ningde Jungie Mineria Co., Ltd., a corporation, legally incorporated under the laws of P. R. China, domiciled at [Redacted: confidential information] (hereinafter “JMI”).
1.4. New Pacific Investment Corp. Limited, a corporation, legally incorporated under the laws of Hong Kong, domiciled at [Redacted: confidential information] (hereinafter "NPIC").
Mr. Cai, Mr. Li and JMI will be referred to as the "Sellers" when collectively referred to in this document. NPIC will be referred to as the “Buyer”.
Henceforth, the Sellers, Buyer and Company (as herein below defined) may be individually or jointly called the "Party" or the "Parties".
SECOND CLAUSE. - (Background)
2.1. Sellers are the sole shareholders of Empresa Minera Alcira SA, a corporation legally incorporated under the laws of the Plurinational State of Bolivia, domiciled at Pasaje Las Higueras N° 100, zona Calacoto, registered before Fundempresa under [Redacted: confidential information] (“Company”). The Company's business registration is duly renewed for the 2016 term.
2.2. Sellers further represents that the Company has a fully subscribed and paid-in capital of Two Hundred Thousand Bolivianos (Bs. 200,000) divided into two thousand common and nominative shares, duly subscribed and paid for.
2.3. Mr. Cai is the sole and legitimate owner of ten common and nominative shares in the Company's share capital. These shares are represented by the share certificate No. 00005 of the Company, duly registered in the share registration book of said Company.
2.4. Mr. Li is the sole and legitimate owner of ten common and nominative shares in the Company's share capital. These shares are represented by the share certificate No. 00006 of the Company, duly registered in the share registration book of said Company.
2.5. JMI is the sole and legitimate owner of 1.980 common and nominative shares in the Company's share capital. These shares are represented by share certificates Nos. 00007 and 00008 of the Company, duly registered in the share registration book of said Company.
2.6. Sellers wish to sell and Buyer wishes to purchase all of the shares described in points 2.3, 2.4 and 2.5 above (hereinafter the "Shares") representing a percentage equal to one hundred percent (100%) of the common and nominative shares of the Company, subject to the terms and conditions of this Agreement and its Annexes, which are an indivisible part of this Agreement.
2.7. The Company is the legal and beneficial title holder to the Transitory Authorizations (TAs) detailed in Annex 1 of this Agreement.
2.8. In addition, the Company is legal and beneficial title holder of the TAs or concessions detailed in Annex 2 of this Agreement (the Additional TAs).
2.9. The Company also holds the Contracts detailed in Annex 3 to this Agreement (the Corporate Contracts)
THIRD CLAUSE. - (Object of the Agreement)
The purpose of this Agreement is, on the one hand, the sale of the Shares by the Sellers to the Buyer, in the form and in the conditions detailed in the clauses that follow at the price set forth on Clause Four below.
3.1. Through this Agreement, Mr. Cai sells and transfers in favor of the Buyer (or to any third parties chosen by Buyer at the time of Closing, at Buyer’s exclusive decision), and the Buyer purchases, acquires and accepts from Mr. Cai ten (10) ordinary and nominative Shares in the share capital of the Company, together with all their rights and free of any liens, charges or conditions.
3.2. By means of this Agreement, Mr. Li sells and transfers in favor of the Buyer (or to any third parties chosen by Buyer at the time of Closing, at Buyer’s exclusive decision), and the Buyer purchases, acquires and accepts from Mr. Li ten (10) ordinary and nominative Shares in the share capital of the Company, together with all their rights and free of any liens, charges or conditions.
3.3. Through this Agreement, JMI sells and transfers in favor of Buyer (or to any third parties chosen by Buyer at the time of Closing, at Buyer’s exclusive decision), and the Buyer purchases, acquires and accepts from JMI one thousand nine hundred and eighty (1980) ordinary and nominative Shares in the share capital of the Company, together with all their rights and free of any liens, charges or conditions.
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3.4. The Parties understand and agree that, notwithstanding the fact that Buyer may choose to have any part of the Shares transferred in favour of any third party of its choosing, all of Buyer’s obligations hereunder shall belong to and be complied with and shall constitute undertakings only of or by Buyer. Therefore, Sellers will have recourse under this Agreement for the compliance with or of, said obligations and undertakings solely against Buyer. In light of the above, the Parties agree that henceforth in this Agreement all references to Buyer shall include the right granted to Buyer under this Clause 3, to choose the third parties to whom any part of the Shares shall be eventually transferred, subject to the Closing taking place.
3.5. The Parties agree that the purchase and sale of the Shares subject to this Agreement, includes all the principal and accessory rights, arising or inherent thereto, whether current and future.
3.6. In addition, the purpose of this Agreement is to provide and detail the obligations to be assumed by the Parties under it (the “Obligations to Perform”), as well as the obligations to not do (the “Injunctions”) assumed by them.
FOURTH CLAUSE. - (Conditions Prior to Closing the Purchase)
4.1. On the date of signing hereof, Sellers must provide Buyer with Share certificates representing a total of thirty percent (30%) of the total amount of outstanding Shares of the Company, duly endorsed in property in favour of Buyer. The Parties agree that said Shares represent Buyer’s security under the Promissory Note and are subject to its terms and conditions.
4.2. Buyer acknowledges that Sellers have provided it with copies of all the information, as well as all the tests, examinations, assays, results and technical data relating to the TAs and/or concessions as per Annexes 1 and 2 hereof, and the list of Corporate Contracts (the “Mining Information”).
4.3. JMI has appointed Mr. Li who is authorized to endorse the Shares in favor of the Buyer, once the conditions provided in this Agreement have been fulfilled for that purpose The Sellers will also deliver a testimony of the respective power of attorney to the Buyer’s counsel in Bolivia no later than three days prior to the agreed date of signature of this Contract, who shall issue a Legal Report on its terms and conditions (the Powers) within twenty four hours of having received the testimonies. In case it does not, the Sellers must replace the Powers granted in order to satisfy the conditions indicated by the Buyer. All terms set forth in this Agreement will begin to be enforceable after delivery, to Buyer's satisfaction, of the Powers. Mr. Li and Mr. Cai will be acting on behalf of themselves.
4.4 No later than one hundred and five (105) days after the date of execution by both Parties of this Agreement, and provided Buyer has received the Mining Information and the Powers to its entire satisfaction, Buyer shall remit to the escrow agent set up pursuant to the escrow agreement entered into between the Buyer, Sellers and the escrow agent Computershare Trust Company (the Escrow Agent and the Escrow Agreement respectively), the amount of Thirty Two Million, Two Hundred and Fifty thousand (US$ 32.250.000) dollars of the United States of America, by way of certified cheque payable to the Escrow Agent in its capacity as escrow agent, by wire transfer, or by way of direction to transfer funds held in another account at Computershare. The escrow agent shall confirm to Buyer and Seller, in the manner set forth to that effect in the Escrow Agreement, the receipt of the full amount indicated above. The amount received by the Escrow Agent shall be held by said Escrow Agent and it shall only be released pursuant to the terms of the Escrow Agreement. The Escrow Agreement is part of this Contract as Annex 11.
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4.5 Buyer shall appoint an external accountant and an independent audit firm to review and prepare the Company’s financial statements corresponding to the fiscal years 2015 and 2016 in accordance with Bolivian and IFRS standards, which shall, in turn, be reviewed by the auditor in order for it to issue an opinion thereon. Sellers hereby agrees to provide the accountant as well as the auditor with all necessary documents, access to its employees and officers and offices, as may be reasonably be requested by the accountant and/or auditor. Said audited financial statements must have clean opinions and be completed and produced no later than forty five (45) days after the date of signature of this Agreement. In the event the auditor is unable to issue clean opinions on both or either financial statement, Buyer shall have the right to terminate this Agreement, in this event the amount of US$ 250.000 paid by the Buyer to JMI under clause 5.1 a below, shall be consolidated in favor of Sellers.
4.6 No later than sixty (60) days after the execution hereof by all Parties, Sellers shall send to the Escrow Agent the following documentation (the Closing Documents):
(i) All of the Shares, except those described in point 4.1 above, and including all the original share certificates that include said Shares. All of the share certificates shall be endorsed in property.
(ii) evidence that the filings required to convert the ATs and mineral concession included in Annexes 1 and 2 of this Agreement into Administrative Contracts, have indeed been filed (including all the documents and information that must accompany said filings), as required by Bolivian law, to Buyer’s satisfaction and remain in good standing as of the date of Closing;
(iii) the Company's Share Registry;
(iv) all other ledgers required by law pertaining to the Company (including, but not limited to, Shareholders’ Meetings Minutes Ledger, Board Meetings Ledger and accounting books);
(v) all the irrevocable resignations delivered by the directors of the Company, subject to the Closing taking place;
(vi) the irrevocable resignation presented by the managers and attorneys of the Company, with the express declaration of having no claim against the Company for any reason, subject the Closing taking place;
(vii) all existing documents (including contracts, resolutions, background, licenses, permits and easements) corresponding to the TAs listed in Annex 1 and Annex 2, and the Corporate Contracts, which are listed in Annex 3 and documents listed in Annex 9;
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(viii) the original letters, duly signed by Jungie Mining Industry SRL, (Jungie Bolivia) which will be sent, in the form set out in Annex 5 of this Agreement, to Alcira and the Mining Corporation of Bolivia (COMIBOL), upon the Closing.
(ix) The original auditor’s report on the Company’s 2015 and 2016 Financial Statements, as well as the quarterly reports issued by the Company corresponding to the period between the 2016 audited financial statements and the Closing.
4.7 Before the delivery of the Closing Documents to the Escrow Agent, Sellers shall deliver a copy thereof to Buyer’s Bolivian counsel for their review and conformity. Buyer’s counsel shall review the Closing Documents within seventy two (72) hours of their receipt and shall issue a Legal Report on their status. In the event any deficiencies or lack of documents is identified in said Legal Report, Buyer shall notify Sellers in writing of such deficiencies or lack of documents. Within 3 days of being notified with the deficiencies or lack of documents, Buyer and Sellers shall agree on date in which the cured deficiencies and/or the lack of documents shall be delivered, in original to the Escrow Agent, and in copies to Buyer’s Bolivian counsel. Within seventy two (72) hours of their receipt Buyer’s counsel shall issue a Legal Report on their status. If the Legal Report indicates that all deficiencies have been cured and/or all missing documents have been provided, Buyer and Sellers shall proceed to notify the escrow agent of that fact, upon which occurrence the sale object of this Contract may proceed in accordance with its terms. If the Legal Report indicates that either some deficiencies subsist and/or any documents are still missing (for clarity’s purpose, a document shall be deemed to be missing if it is delivered in a form that is not satisfactory to Buyer’s Bolivian counsel because it does not comply with all required legal formalities), Buyer may choose to waive any or all of said requirements, and grant Sellers an additional term, in which case the procedure set forth herein shall be repeated, or it may choose to terminate this Contract.
4.8 On the date of execution of this Agreement, the Sellers will provide Buyers with a letter that authorizes them to drill three confirmation holes in the TAs areas, in the form set out in Annex 14 (the Confirmation Holes). Buyer shall initiate the drilling of said Confirmation Holes in the areas detailed in Annexes 1 and 2 within two weeks following the deposit set out in Section 5.1. - a). The Confirmation Holes shall be drilled, under similar technical parameters as those performed on the original drillings performed by the Sellers, within a radius of five (5) to ten (10) meters from the location of the original drill collar locations. The Sellers will provide assistance to the drilling sites as requested by Buyer during the confirmation drillings performed by Buyer. All Confirmation Holes must be completed and Buyer shall have all the corresponding results, simultaneously, within three (3) months of the start of the drilling. The results obtained by Buyer, within that term, shall be verified by ALS or SGS Labs at the discretion of the Buyer.
If the results are not obtained and notified to the Sellers within the aforementioned term, the Parties shall negotiate an extension of the term herein and if no agreement is reached, Sellers may terminate this Agreement.
4.9 In the event the drilling is not allowed to proceed or is stopped or delayed by national, local or community authorities or individuals, for any reason, Sellers hereby undertake to solve the problem so that drilling can begin or continue, at Sellers’ expense. Any time needed to that effect shall be added to the term set forth in 4.8 above. If the confirmation drilling process is not concluded due to the causes described in this Section 4.9 for longer than an additional three months, the Parties shall negotiate for a period of up to one month to continue this Agreement. If no agreement is reached, this Agreement will be deemed terminated.
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4.10 Once all the results of the tests carried out with the samples obtained from the Confirmation Holes have been received, the Buyer will compare them with the data included in the Mining Information. In case the results of all the tests, in terms of silver grade and intervals of mineralization, are in a range above seventy percent (70%) of those included in the Mining Information for the same drill hole locations, the Buyer will: firstly notify each of the Sellers, by means of electronic communication with confirmation of receipt, about the conformity of the tests with the ranges indicated above (the Confirmation). Secondly, the Buyer will proceed to make the Payment (as such term is defined later in the Fifth Clause), in the form and under the conditions indicated later in the Fifth Clause.
4.11 In the event that the results of the tests are not within the range indicated in the previous paragraph, the Buyer may choose to proceed with the Agreement, in which case the Buyer may make Sellers an offer which Sellers can accept or refuse at their sole discretion or may terminate this Agreement. Either option shall be performed by the Buyer and informed to the Sellers in five
(5) working days following the moment when the results become available to the Buyer. In case the latter should apply or if Buyer does not perform a choice in aforementioned term, the amount of US$ 250.000 paid by the Buyer to JMI under clause 5.1 a. below, shall be consolidated in favor of JMI. In addition, in case of termination of the Agreement, Buyer shall deliver to JMI all the results emerging from the tests derived from the Confirmation Holes and undertakes not to disclose them to any third party.
FIFTH CLAUSE. - (Price. Terms and Form of Payment, and Closing).
5.1. The Parties agree that the full amount of the price for the purchase of the Shares is of Forty Five Million Dollars of the United States of America (US$ 45.000.000) (the Price). The Price shall be paid by Buyer to Sellers in accordance with the following procedure:
a. Within 72 hours of the signing by all Parties of this Agreement, Buyer shall pay JMI the sum of Two Hundred and Fifty Thousand US Dollars (US $ 250.000) to be deposited in the bank in the account set forth in Annex 15 of this Agreement.
b. Pursuant to the Promissory Note dated on the same date hereof, Buyer agrees to lend to Sellers the amount of Three Million Five Hundred Thousand Dollars of the United States of America (US$ 3.500.000) (the Loan) to be deposited in the bank in the account set forth in Annex 15 of this Agreement. The Loan shall have a term of one hundred and twenty calendar days as of the date of the wiring of the Loan (the Term) (should the Term fall on a holiday or weekend, the Term shall be the next working day. For purposes hereof, work day shall mean a day in which banks are open for business in Vancouver, Canada) and it shall be repaid as per the terms of the promissory note. The text of the Promissory Note is included herein as Annex 12. For the sake of clarity, the amount of the Loan shall be offset against the Price upon Closing.
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c. On the day falling on one hundred and twenty days after the signature by all Parties of this Contract and provided all conditions prior to Closing, as such conditions are set forth in Clause 4 above, have been complied with to Buyer’s satisfaction, the Parties shall meet at the offices of the Escrow Agent’s office in Vancouver, Canada at 11:00 a.m. to carry out the Closing of the purchase of the Shares. On that date, the Parties shall execute and send to the escrow agent the instruction letter included in the Escrow Agreement as Schedule B for an amount equal to Dollars of the United States of America Thirty Two Million Two Hundred and Fifty Thousand (US$ 32.250.000). Once the instructions letter is delivered to the escrow agent, the purchase object of this Contract shall be deemed to have been effected with full legal value.
d. No later than ninety (90) days from the date of Closing, Buyer shall pay the sum of Four Million Dollars of the United States of America (US$ 4.000.000). Said amount shall be disbursed in the following manner: two million and seven hundred thousand Dollars (US$ 2.700.000) shall be disbursed into the bank and the account notified to Buyer by Sellers in writing. One Million and three hundred thousand Dollars of the United States of America (U$ 1,300.000) shall be paid into the bank and the account notified by the Company to Buyer in writing. This latter amount shall be used by the Company exclusively with the purpose of canceling the liabilities listed by Sellers in Annex 13 of this Contract. Wiring instruction shall be provided by Sellers to Buyer no later than two weeks in advance of the payment date.
e. Within seven (7) days from the earlier of: (i) the date on which the Company has obtained all permits, contracts, licenses, transitional authorizations, environmental permits and other licenses for mining and milling operations of industry scale from the Government of Bolivia detailed in Annex 6 of this Agreement, or: (ii) at such time as the Company begins commercial production, Buyer shall pay to Sellers the amount of Five Million Dollars of the United States of America (US$ 5.000.000). This amount shall be disbursed into the bank and the account indicated by Sellers to Buyer in writing. Once the amount is deposited in said bank and account, Buyer shall no longer be responsible for the division or allocation or distribution of the deposited amount and Buyer’s obligation shall be deemed to have been fully and completely discharged by the deposit itself. The payment of the amount set forth in this section and subject to the terms and conditions included in this section e., shall be guaranteed by Buyer’s parent company, New Pacific Holdings Corp., as set forth in Annex 16 hereof.
5.2 For the sake of clarity and ease of understanding, the Parties agree that the following chart reflects the way the Price shall be paid:
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Purchase Price:
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US$ 45.000.000
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Payments:
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Initial Deposit (non-refundable)
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US$ 250.000
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Loan (which can be set off)
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US$ 3.500.000
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Escrow Fund
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US$ 32.250.000
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Payment within 90 days of Closing
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US$ 4.000.000
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Payment subject to Permits
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US$ 5.000.000
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5.3. All amounts to be paid by Buyer to Sellers hereunder shall be paid into the Bank and the account indicated by Sellers to Buyer in writing, from time to time, and the receipt of deposit shall be sufficient evidence that Buyer’s obligation to pay hereunder has been fully and completely discharged. Furthermore, Buyer shall not be responsible nor accountable for the way the money paid by Buyer hereunder is divided or allocated amongst the individuals and companies that comprise Seller.
5.4. Upon signing of this Contract, Sellers, hereby agree not to enter into any agreements with any mining cooperatives, companies (juridical entities) of any type, individuals (natural persons) or COMIBOL either currently located or that could be in any way interested in working within the areas described in Annexes 1 and 2 of this Agreement as well as within a radius of five (5) kilometers of the boundaries thereof. The commitment to not submit any request as well as the commitment not to enter into any agreements indicated in the previous sentence, constitute negative covenants for Sellers, which will be extended to their subsidiaries, companies that they could incorporate in the future in which they could be shareholders or partners, their related companies in any way, as well as their heirs and successors under any title.
5.5. The obligation set forth in 5.4 above, on the part of the Sellers, shall commence on the date of execution of this Agreement and shall last indefinitely, unless the transaction contemplated in this Agreement is not carried out and completed, resulting in the termination thereof, in which case the obligation described herein shall terminate simultaneously with the termination of the Share Purchase Agreement.
5.6. In the event the Closing does not take place for any motive, Buyer hereby undertakes not to enter into any agreements with any mining cooperatives, companies (juridical entities) of any type, individuals (natural persons) or COMIBOL either currently located or that could be in any way interested in working within the areas described in Annexes 1 and 2 of this Agreement as well as within a radius of five (5) kilometers of the boundaries thereof. The commitment to not submit any request as well as the commitment not to enter into any agreements indicated in the previous sentence, constitute negative covenants for Buyer, which will be extended to its parent company, subsidiaries, companies that they could incorporate in the future in which they could be shareholders or partners, their related companies in any way, as well as their heirs and successors under any title. The provisions of this subsection shall survive the termination of this Agreement for any reason.
5.7. The enforcement of this Clause 5.1 (d) and (e) after Closing can be done under the laws of and within the jurisdiction of, Bolivia, Hong Kong or Canada at Seller’s discretion.
5.8. Each Party shall cover any expense or charge due by it, including but not limited to fees of financial institutions for administration or services arising as a result of the Payment. Likewise, any tax (including, but not limited to, the Financial Transactions Tax and Corporate Income Tax for capital gains) arising from the Payment shall be borne by the Party which the applicable law deems obligated to pay them.
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5.9. The Parties undertake to carry out all necessary steps, as well as to carry out such acts as may be necessary, such as the preparation of reports, the delivery of information, the signing of documents and the active and timely collaboration with each other, whatever is necessary, as soon as they are required to do so, before any Bolivian authorities or entities, in order to perfect or comply with the object of this Agreement.
5.10. Any delay or partial failure to comply with post-Closing obligations, even if formally justified, will not annul and/or invalidate any part or all of the operation.
SIXTH CLAUSE. - (Representations and Warranties)
6.1. Representations and Warranties of Sellers:
Sellers represent and warrant that on the date of this Agreement and on the date of each Payment made thereunder (as this term is defined later in this Agreement):
(i) Sellers are the sole shareholders of the Company. The Company's business registration is duly renewed for the 2016 term.
(ii)
a. Mr. Cai is the sole and legitimate owner of ten common and nominative shares in the Company's share capital. These shares are represented by the share certificate No. 00005 of the Company, duly registered in the share registration book of said Company.
b. Mr. Li is the sole and legitimate owner of ten common and nominative shares in the Company's share capital. These shares are represented by the share certificate No. 00006 of the Company, duly registered in the share registration book of said Company.
c. JMI is the sole and legitimate owner of One Thousand Nine Hundred and Eighty common and nominative shares in the Company's share capital. These shares are represented by the share certificates Nos. 00007 and 00008 of the Company, duly registered in the share registration book of said Company.
(iii) In addition, the Company is the legal and beneficial title holder to all the TAs detailed in Annexes 1 and 2 of this Agreement (the TAs) and all such TAs (detailed in Annexes 1 and 2) and the applications made by the Company for their conversion into Mining Administrative Contracts have been duly filed and will be in good standing as of the Closing date.
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(iv) The Company holds the Contracts detailed in Annex 3 to this Agreement (the Corporate Contracts) and there are no other material Contracts to which the Company is a party.
(v) The Company is a corporation duly incorporated and validly existing under the laws of the Plurinational State of Bolivia;
(vi) The Company has the capacity and has obtained all the authorizations required to own their assets, conduct their business in the manner in which they are currently conducting it and to subscribe and fulfill their obligations under this Agreement and all other Documents related thereto;
(vii) This Agreement has been duly authorized and subscribed by the Sellers and constitutes a legally enforceable obligation for each of them, executable in accordance with its terms;
(viii) Neither the subscription nor the execution of this Agreement or any of the documents related thereto, nor the fulfillment of its terms shall be in conflict with or result in a breach of any of the terms, conditions or provisions of, nor shall it constitute a violation, nor shall it require any consent under any transaction agreement, credit contract, encumbrance agreement or other instrument or agreement in which they participates or to which any of the Sellers or the Company is bound, or breach the terms or provisions of their incorporation documents or of any authorization, or any judgment, decree or order, or any applicable law or regulation;
(ix) On the date of execution of this Agreement, the Company is in compliance with all its material obligations arising from financial commitments and that they require no consent or agreement from any third party for the execution of this Agreement.
(x) The incorporation documents of the Company have not been amended since March 28, 2016;
(xi) Neither the Sellers nor the Company enjoy immunity from compensation, judgment or execution in relation to their assets or their obligations under this Agreement or any other document related thereto;
(xii) Neither the Sellers nor the Company are part of, or are committed to participate in any contract which prevents the conclusion of this Agreement or the documents related to it;
(xiii) Neither the Sellers nor the Company are involved in any litigation, arbitration or administrative proceeding, to the extent of their knowledge after careful investigation, nor have they been threatened with litigation, arbitration or any administrative proceeding, the result of which could prevent the present Agreement.
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(xiv) The Company is not in material violation of any authorization or any law, or regulation issued by any governmental authority;
(xv) No judgment or order has been issued, or notified that has had or could prevent the conclusion of this Agreement;
(xvi) The Sellers have not authorized the additional issuance of share capital of the Company, nor the distribution of dividends;
(xvii) None of the statements and warranties contained in this clause omits any item whose omission causes any of said statements and warranties to be inaccurate in a substantial manner;
(xviii) During the due diligence process, the Sellers delivered, in good faith, to the Buyer all the documentation and information of the Company available to it, and such documentation and information reflects, to the extent it was delivered, the real and faithful situation of the Company.
(xix) The Company is in material compliance with the mining legislation applicable to it and to the TAs.
6.2. Additional Representations and Warranties of Sellers: Sellers declare that on the Closing Date and on the date of each Payment (as this term is defined later in this Agreement) made in accordance with it:
(i) Sellers will be - in the corresponding percentages expressed in clause two of this Agreement - the sole and legitimate owners and title holders of the Shares, except to the extent their corresponding percentage participation has already been transferred to Buyer;
(ii) The Shares are ordinary and nominative, will be fully paid and free from any pledge, encumbrance, charge, usufruct, preferential or other rights of third parties, and will have no other limitations that could affect the transfer of the Shares, or the exercise of any of their rights by the respective shareholders, thereby granting to the Buyer the corresponding guarantee of eviction on the Shares;
(iii) In order to transfer the ownership of the Shares there will be no need for any additional action on their part, or any of their entities, or third parties with which they have any legal, contractual, statutory or other relationship, except for the endorsement of the Shares.
(iv) The Company has not hired any individual or entity to act as a broker, and other than legal counsel, as negotiator and/or advisor for the operation contemplated in this contract sale.
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(v) The Company's audited financial statements for the period ending on September 30, 2016 ("Financial Statements”: (a) which will have been prepared in accordance with Section 4.5 hereunder and accounting principles generally accepted in Bolivia and international accounting standards(hereinafter the "Accounting Standards") and fairly present the financial condition of the Company as of the date they were prepared, as well as the results of operations of the Company during the period then ended; and (b) present, in accordance with the Accounting Standards, all liabilities (contingent or otherwise) of the Company, as well as all reserves, if any, to cover such liabilities, as well as all unrealized or unanticipated liabilities or losses arising from commitments acquired by the Company (whether or not such commitments were disclosed in the referred Financial Statements);
(vi) As of the Closing date the Company has the liabilities set out in Annex 13 and no other material liabilities of any kind, (whether accrued, absolute, contingent or otherwise).
(vii) The Company has no encumbrances, charges or notices in force on any of its assets, outside those encumbrances arising from provisions of the law, and has no contractual or conditional or unconditional agreements under which it may be compelled to constitute a lien, and the Company is completely the owner of all its properties;
(viii) The tax payment forms and reports due by the Company, which must be presented by law, have been presented and all taxes, duties, commissions and other governmental charges owed by the Company or its properties, or by its income or assets, which are due and payable, or to be withheld, have been paid or withheld. Sellers believe, in good faith, that should any liabilities exist or appear in this regard, such liabilities should not exceed Dollars of the United States of America Fifteen Thousand (US$ 15.000). If the liabilities are equal to or less than US$ 15.000, Buyer agrees to assume payment thereof without recourse to Sellers. In the event such liabilities do exceed that amount, Sellers hereby irrevocably authorize Buyer to deduct any such amount from any pending payments owed to them at that time;
(ix) The Company has not received and is not aware of (i) any claim or lawsuit, or (ii) order, indication, summons, or notification of any governmental authority having jurisdiction over environmental, health or safety matters, in each case with respect to any matter relating to the compliance by the Company with the laws and regulations in force in Bolivia on environment, health and safety matters, including emission of gases, discharges to the surface or groundwater, noise emission, disposal of solid or liquid waste, or the use, generation, storage, transportation or disposal of toxic or dangerous substances or wastes, or related to any aspect of compliance by the Company with any rule included in Bolivian environmental legislation;
(x) The Company has not received and is not aware of (i) any claim or lawsuit, or (ii) order, indication, summons, or notification of any governmental authority having jurisdiction over labor matters or social security charges, in each case with respect to any matter relating to the Company's compliance with the labor laws and regulations in force in Bolivia or relating to any aspect of the Company's compliance with any rule within Bolivian labor legislation;
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(xi) The Company has not received and is not aware of (i) any claim or lawsuit, or (ii) order, indication, summons, or notification of any governmental authority having jurisdiction over civil, administrative and criminal claims, in each case with respect to any matter relating to compliance by the Company with the laws and regulations in civil, administrative and criminal matters in force in Bolivia or relating to any aspect of the Company's compliance with any rule within Bolivian legislation;
(xii) The Company already has - either directly or indirectly - all rights required for the construction and operation of the facilities it uses to develop its business, including the lease of its current office premises for a period of, at least, six months from the date hereof, a copy of which contract shall be delivered to Buyer at the time of Closing, as set out in the inventory of assets of the Company is attached as Annex 8;
(xiii) The Company has –all the permits, licenses, and other authorizations required for mining exploration, detailed in Annex 9;
(xiv) The Company does not directly or indirectly control, either through a majority shareholding as a shareholder or partner in the social capital or through agreements or contracts granted by the management or administration, any subsidiary company;
(xv) Between the date of the Financial Statements and the date of signature of this Agreement, the Company has been managed within the normal course of business. Likewise, between those dates, the Company: (a) Has not issued shares, options, debentures, negotiable obligations or other rights to subscribe or purchase shares or convertible instruments or exchangeable for shares of the Company; (b) It have not redeemed, purchased or otherwise directly or indirectly acquired shares of the Company; (c) It has not made any changes to its accounting methods or practices; (d) The Company carries the books and records required by the applicable legislation in an adequate manner and in compliance with it: they give full account of the records that should be legally established there. The minutes ledgers contain truthful and sufficient transcripts of all matters that were dealt with and/or resolved in board meetings and at shareholders' meetings and adequately reflect the operations to which those transcripts relate.
(xvi) Annex 10 contains a list of the powers granted by the Company which are valid and in force at the date of Closing.
(xvii) The Company complies and has materially complied with at all times with environmental legislation, stating that there is no material liability or contingency linked to environmental issues.
(xviii) There are no land claims or title claims in any of the areas covered by the TAs and/or the Corporate Agreements filed by any third party, including, but not limited to any indigenous communities, companies, individuals and/or cooperatives.
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(xix) Neither Mr. Cai’s nor Mr. Li’s spouses live in nor are residents nor are they citizens of Bolivia as of the day of Closing.
(xx) Sellers shall not, from the date of signing of this Agreement, until its termination, (1) solicit or engage with any other bidders; or (2) provide information to any third parties.
6.3. The Sellers represent and warrant that the statements and warranties detailed above are correct and accurate as of the date of execution of this Agreement and that they are not aware of any fact or circumstance that made them incorrect or inaccurate. They further acknowledge that the Buyer relied on the representations and warranties contained in this clause in order to enter into and sign this Agreement and its related documents and that the Buyer agrees to this Agreement and the other documents related thereto on the basis of and fully relying on each of the aforementioned declarations and guarantees.
6.4. Representations of the Buyer: The Buyer represent that:
(i) NPIC is a corporation duly incorporated and validly existing under the laws of Hong Kong, and is a subsidiary of New Pacific Holdings Corp., a public company listed on the TSX Venture;
(ii) This Agreement has been duly executed by the Buyer, authorized and subscribed by the Buyer and its legal representatives, who have acquired all corporate and legal authorizations to execute this Agreement, and constitutes a legally enforceable obligation and enforceable in accordance with its terms;
(iii) It has full financial capacity to fulfill all the payment obligations acquired hereto in favor of the Sellers.
(iv) Neither the subscription nor the execution of this Agreement nor any of the documents related to it, nor the fulfillment of its terms shall be in conflict with, nor will it result in a violation of any of the terms, conditions or provisions of, nor constitute a breach, nor will it require any consent under any compromise agreement, credit contract, encumbrance, agreement or other instrument or agreement in which it participates or to which Buyer is obligated, nor violate the terms or provisions of its incorporation documents or any authorization, any judgment, decree or order, or any applicable law or regulation;
(v) The Buyer is not involved in, nor has been threatened with litigation, arbitration or any administrative proceeding, the result of which may prevent the execution of this Agreement.
(vi) No judgment or order has been issued or notified, the result of which could impede the execution of this Agreement;
(vii) None of the statements and warranties contained in this clause omit any item whose omission makes any of said statements and warranties inaccurate in a substantial manner;
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(viii) The Buyer conducted a best efforts due diligence process of the Company.
6.5. The Buyer represents and warrants that the statements and warranties detailed above are correct and accurate as of the date of subscription of this Agreement, and that it is not aware of any fact or circumstance that causes them to be incorrect or inaccurate. Likewise, it acknowledges that it makes the representations and warranties contained in this clause with the intention of inducing the Sellers and the Company to sign this Agreement and the related documents and that the Sellers and the Company agree to this Agreement and the other documents related to it based on and fully relying on each of said statements and warranties.
SEVENTH CLAUSE. - (Notifications)
7.1. Any notice, request or other communication that is to be given or made under this Agreement shall be made in writing - unless otherwise provided in this Agreement - and shall be delivered in person or sent by airmail, facsimile or courier service to each of the Parties to this Agreement at the following addresses. Such notification, request or other communication shall be deemed to have been delivered when it is received, or if it has been delivered to the correct address, in person, or through a courier service, in case of refusal of reception, or in the case of facsimile transmission, when the sending party receives electronic, or facsimile confirmation of receipt:
The Sellers (Mr. Li and JMI only):
Mr. Li Chengliang
[Redacted: confidential information]
Mr. Cai Ximing
[Redacted: confidential information]
The Buyer:
Dr. Rui Feng,
New Pacific Investment Corp. Limited
1378-200 Granville Street
Vancouver, British Columbia, Canada
V6C 1S4
Facsimile: 604-669-9387
Telephone: 604-633-1368
[Redacted: confidential information]
The Company:
[Redacted: confidential information]
Pursuant to this clause, changes to the addresses and contact individuals appointed to receive notifications under this Agreement shall be immediately notified in writing to the other Parties. If a Party has not received notification of the changes, any communication that a Party delivers to the addresses and individuals provided in this Agreement shall be considered valid and effective.
7.2. For legal purposes in Bolivia, the Parties declare and constitute the address indicated above as their legal domicile, with the value assigned by Article 29, paragraph II of the Bolivian Civil Code, in which proceedings for filing and notifications in civil proceedings or any other communication will take place with full legal validity and no right to protest.
EIGHTH CLAUSE. - (Severability)
If any clause, sentence, paragraph, or provision of this Agreement is legally declared prohibited, invalid, unenforceable, void or illegal, the Parties hereto agree, to the extent permitted by law, that this shall not affect the validity, legality and enforceability of the other provisions of this Agreement and the Parties agree that the portion or portions declared to be prohibited, invalid, unenforceable, unlawful or void shall be construed as being removed from this Agreement and the remainder of the Contract shall maintain the same value and force as if the portion (s) removed had never been included in this Agreement.
NINTH CLAUSE. (Absence of Waiver)
9.1. The delay in the exercise or omission of any of the Parties to exercise any right or faculty, contained in this Agreement, shall not operate as a waiver thereof or impede the exercise of any of their rights or powers. The partial exercise of any right shall not constitute a waiver of the exercise of the right in its entirety in the future, or the exercise of any other legal right. The waiver of any right will have no effect unless it is granted in writing.
9.2. The rights and powers provided for in this Agreement are cumulative and do not exclude any other right or power provided by law. The assertion or exercise of any right or faculty hereunder shall not prevent the concurrent exercise of any other right or faculty.
TENTH CLAUSE. - (Amendments, Resignations and Consent)
Any modification, waiver, or consent given under any clause of this Agreement shall necessarily be in writing, and in the case of amendments or modifications, signed by each of the Parties to this Agreement.
ELEVENTH CLAUSE. - (Notary Costs)
All notarial or registration costs of this Agreement will be paid by the Buyer.
TWELFTH CLAUSE. - (Assignment)
Neither Party may assign this Agreement in whole or in part, without the express written consent of all other Parties.
THIRTEENTH CLAUSE. - (Titles of Clauses, Definitions and References and Totality of the Agreement)
13.1.The titles, definitions and references used in this Agreement are for convenience only and do not affect the interpretation of this Agreement.
13.2.This Agreement, including its Annexes, contains the entire understanding between the Parties and supersedes any other negotiation, understanding or agreement between them with respect to the subject matter thereof.
FOURTEENTH CLAUSE. - (Confidentiality)
14.1.The Parties acknowledge and agree that in the course of the negotiations they have exchanged and in the future will exchange information not available to the public, considered confidential and exclusively owned by the other Party (the "Confidential Information"), the disclosure of which could be detrimental to that Party. The Confidential Information includes (i) information of all kinds, whether verbal, written, or otherwise recorded, including analysis, compilations, forecasts, data, studies or other documents relating to past, present or future business, (ii) the fact that negotiations and discussions regarding the operation have been carried out, and (iii) any information related to the Agreement and the resulting operation thereof, and any other agreements that have been entered into or which could be held in connection therewith.
14.2.The Parties agree as follows with respect to the Confidential Information: (i) to keep the Confidential Information confidential and not to disclose it, directly or indirectly, in whole or in part, without the prior written consent of the other Party, and notwithstanding what is otherwise provided in the Agreement; (ii) take all reasonable steps to ensure that the Confidential Information is not disclosed to third parties, and to refrain from using such Confidential Information with respect to any other purpose than that of the operation; and (iii) That they have disclosed and may in the future disclose the Confidential Information only to the representatives, agents, employees, advisers and consultants (the "Representatives") involved in the operation, and that they shall ensure that each Representative complies with the obligation to keep the Confidential Information secret and strictly observe the terms of the Agreement.
14.3.The duty of confidentiality shall not apply to Confidential Information that could be proved to be (i) available to the public by other means other than breach of duty (ii) it was in the possession of the other Party without any obligation of confidentiality prior to the date of the Agreement, or (iii) would have been legitimately received from a third party after the date of the Agreement, without restriction for its disclosure, or breach thereof, and without such third party having assumed a duty of confidentiality with the relevant Party.
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14.4. If, under any (i) applicable law, (ii) order of a competent governmental authority or (iii) requirement or rule of any regulatory body including the rules of any stock exchange where the Buyer or its parent company may be listed, a Party is legally or contractually bound to disclose the Confidential Information, that Party must first expressly communicate such fact, in writing, to the other Party in a manner that allows it to file a precautionary measure for the protection of the Confidential Information or any other measure it deems appropriate. The Party obliged to disclose the Confidential Information must only disclose the part of the Confidential Information that it is legally required, and shall make all reasonable efforts to ensure the confidential treatment of the remaining Confidential Information. The Parties acknowledge that the Buyer will have an obligation to disclose via press release the entering into of this Agreement and the Buyer agrees to make the draft press release available to the Sellers at least 24 hours prior to the release of such press release. The Parties further acknowledge that the parent company of the Buyer will have an obligation to prepare and file a press release with the Canadian securities regulatory authorities and the TSX Venture Exchange prior to the Closing Date a National Instrument 43-101 Technical Report in relation to the TAs, which may contain technical information deemed to be Confidential Information. The Sellers and the Company agree that the Buyer may disclose such Confidential Information if it is required to be disclosed in the technical report.
FIFTEENTH CLAUSE. - (Taxes)
Except as otherwise provided in this Agreement, each Party shall be liable for the payment of their own taxes, payable in connection with the operations.
SIXTEENTH CLAUSE. - (Applicable Law, Language and Dispute Resolution)
16.1.This Agreement, its interpretation, compliance, validity, resolution and/or modification shall be subject to the laws of the Plurinational State of Bolivia.
16.2. This Agreement is entered into in both English and Spanish versions. In case of a discrepancy or a different interpretation thereof, the English version shall prevail. Any discrepancy or difference in interpretation shall be subject to the procedure for the resolution of disputes provided herein below.
16.3.Any dispute, litigation, claim or discrepancy which may arise between any of the Parties concerning the application, validity, performance, interpretation, compliance and/or resolution of this Agreement or in relation thereto (hereinafter a "Dispute"), shall first be negotiated directly between the Parties (the "Direct Negotiation"). The Direct Negotiation shall be conducted by negotiators appointed by each of the Parties involved in the Dispute for a term of thirty (30) calendar days from the date on which any Party that considers itself affected by such Dispute communicates about such Dispute to the other Party or Parties it considers are parties to the Dispute. Once the term established for the Direct Negotiation is concluded, and in case of failure by the Parties to reach an agreement, the prejudiced Party may submit the Dispute to an arbitration proceeding under the provisions of Law 708 of June 25 of 2015 and in accordance with what is set forth in clause 16.4 below.
21
16.4.In order to summon a Direct Negotiation, it shall be sufficient for the affected Party to issue a notarized letter stating the date, time and place in which the first Direct Negotiation meeting will be held. The Parties that are convened undertake to attend the call for Direct Negotiation, since their absence will be considered as a rejection of the Direct Negotiation giving rise to the beginning of the arbitration procedure, as defined below.
16.5.The Parties agree that the arbitration shall take place in the city of Hong Kong, in Spanish. In order to substantiate the arbitration, the Rules of Procedure of the International Court of Arbitration ("ICC") shall be applied, which shall also be the administrative organ of said arbitration. The arbitration shall be held before an arbitral tribunal composed of three (3) bilingual arbitrators (Spanish and Chinese). Each Party shall appoint one (1) Party arbitrator and ICC, in accordance with its rules, shall appoint a third arbitrator to serve as President of the Arbitral Tribunal. All arbitrators of the Arbitral Tribunal must be registered and qualified before the ICC.
16.6.In case more than one of the Sellers is considered to be involved in the Dispute, a Sellers Group shall be deemed to have been formed and such Sellers Group shall have the right to appoint only one arbitrator, the other being appointed by the Parties or Party that is not part of the Sellers Group and the third arbitrator as established in the previous paragraph.
SEVENTEENTH CLAUSE.- (Replacement)
The Parties agree that this Agreement supersedes and terminates all and any agreements, arrangements, covenants, or commitments, whether written or oral, that may exist between the Parties at the date of its subscription.
EIGHTEENTH CLAUSE. - (Acceptance)
The Parties hereby express their full agreement with the contents of the clauses of this Agreement, in its Spanish and English versions, and undertake to strictly comply with them. As a sign of their acceptance, they sign at the foot of this Agreement in the city of La Paz, Bolivia on March 28, 2017.
22
|
Li Chengliang
|
Rui Feng
|
|
For:
|
Ningde Jungie Mineria Co., Ltd.
|
For:
|
New Pacific Investment Corp. Limited
|
|
|
|
|
|
|
Cai Ximing
|
Li Chengliang
|
ANNEX 1
Detail of Company’s Transitory Authorizations (ATEs)
Alcira’s ATEs list
|
#
|
Form No.
|
National Registry
|
Name of the Area
|
Titleholder
|
Size (has)
|
|
1
|
4694
|
503‐01271
|
La Sombra
|
Minera Alcira S.A.
|
66
|
|
2
|
4695
|
503‐01275
|
San Marcos Evangelista
|
Minera Alcira S.A.
|
16
|
|
3
|
4696
|
503‐02424
|
El Carmen
|
Minera Alcira S.A.
|
6
|
|
4
|
4697
|
503‐01276
|
Escuadra
|
Minera Alcira S.A.
|
35
|
|
5
|
4698
|
503‐02423
|
Perfecta
|
Minera Alcira S.A.
|
16
|
|
6
|
4699
|
503‐01270
|
Reintegrante
|
Minera Alcira S.A.
|
3
|
|
7
|
4700
|
503‐01269
|
Félix
|
Minera Alcira S.A.
|
10
|
|
8
|
4701
|
503‐01266
|
Seis de Agosto
|
Minera Alcira S.A.
|
6
|
|
9
|
4702
|
503‐02425
|
Olvidada
|
Minera Alcira S.A.
|
15
|
|
10
|
4703
|
503‐01267
|
Moria
|
Minera Alcira S.A.
|
20
|
|
11
|
4704
|
503‐01268
|
El Rodero
|
Minera Alcira S.A.
|
37
|
|
12
|
4705
|
503‐01272
|
Kirigin
|
Minera Alcira S.A.
|
10
|
|
13
|
4706
|
503‐02426
|
San Antonio
|
Minera Alcira S.A.
|
8
|
|
14
|
4707
|
503‐02427
|
Nieves
|
Minera Alcira S.A.
|
8
|
|
15
|
4708
|
503‐02428
|
Londres
|
Minera Alcira S.A.
|
8
|
|
16
|
4709
|
503‐01273
|
Santa Micaela
|
Minera Alcira S.A.
|
31
|
|
17
|
4710
|
503‐01274
|
Bertha
|
Minera Alcira S.A.
|
20
|
|
|
|
|
|
Total
|
315
|
ANNEX 2
Detail of Additional Company’s TAs
Alcira's Applications to Execute Mining Administrative Contracts / Exploration Licenses
|
#
|
National Registry
|
Name of the Area
|
Applicant
|
Status of the Application
|
Size (has)
|
|
1
|
512‐08866
|
Capricornio
|
Minera Alcira S.A.
|
Not Completed / In Progress
|
1250
|
|
2
|
210‐07716
|
Constancia
|
Minera Alcira S.A.
|
Not Completed / In Progress
|
1250
|
|
3
|
212‐07585
|
Orion
|
Minera Alcira S.A.
|
Not Completed / In Progress
|
1200
|
|
4
|
205‐07704
|
Wara
|
Minera Alcira S.A.
|
On Stand by / To be Abandoned
|
1250
|
|
5
|
2000320
|
Rigel
|
Minera Alcira S.A.
|
Resolution Issued / Mining Registry pending
|
1375
|
|
6
|
2000105
|
Polaris
|
Minera Alcira S.A.
|
On Stand by / To be Abandoned
|
1575
|
|
7
|
2000231
|
Espiga
|
Minera Alcira S.A.
|
Rejected by AJAM due to total overlapping
|
800
|
|
|
|
|
|
Total
|
8700
|
ANNEX 3
Detail of Company Corporate Contracts
• Contrato para la Ejecución de Labores de Explotación Minera con el Sr. Andres Quispe Ninachi, en la Bocamina Sin Nombre ubicada dentro de la ATE La Sombra; de fecha 22/sep/2016, duración del contrato de 5 años.
• Contrato para la Ejecución de Labores de Explotación Minera con los Sres. Humberto Ninachi Vargas, Armando Ninachi Alejo, Jesús Ninachi Alejo y Saturnino Ninachi Vargas, en las Bocaminas Moria 1 y Moria 2 ubicadas dentro de la ATE Moria; fecha firma 22/sep/2016, duración del contrato de 5 años.
• Contrato para la Ejecución de Labores de Explotación Minera con los Sres. Jorge Vargas Cuenca, Victor Vargas Sarmiento, Marcelino Micacio Sarmiento, Mario Limachi Ticona y Daniel Mamani Vargas, en las Bocaminas Sombra 1 y Sombra 2 ubicadas dentro de la ATE La Sombra; fecha firma 22/sep/2016, duración del contrato de 5 años.
• Contrato para la Ejecución de Labores de Explotación Minera con el Sr. Demtrio Ninachi Irribarin, en la Bocamina Pizarro ubicada dentro de la ATE San Marcos Evangelista; fecha de firma 24/oct/2016, duración del contrato de 5 años.
• Contrato de Alquiler de Bien Inmueble con la Sra, Sandra Cecilia Rojas Villarreal, por la vivienda ubicada en La Paz, Calacoto, calle Las Higueras Nº 100 (para regularización).
• Contrato de Trabajo por tiempo indefinido con el Sr. Ángel Angulo Alanoca (Geólogo), vigente a partir de 01/marzo/2012.
• Contrato de Prestación de Servicios mediante Línea de Abonado Digital Asimétrica ADSL con AXS Bolivia S.A.
• Afiliación de Alcira S.A. a la Caja de Salud CORDES (CRP-096-12).
File: Contratos de Desmonte
• Convenio Transaccional Empresa Jungie Mining SRL - Andres Quispe Ninachi, Felipa Ninachi de Quispe. En un primer convenio, la Comunidad de Machacamarca aceptan la construcción e instalación y ejecución de un dique de colas para el Proyecto Minero de Jungie. Los propietarios de los cultivos y los berbecheros señores Andres Quispe y Felipa Ninachi de Quispe, otorgan y autorizan el derecho de uso de los terrenos donde se encuentran los cultivos, respetando la superficie de cuarenta y cinco hectáreas. Como compensación se cancela Bs. 15,000. Termino del convenio de 20 años. Firmas de las partes del convenio. 20/02/2011 (entregado al Dr. Antonio Santos)
• Convenio para la remoción y limpieza de pasivos ambientales y para la Promoción del Turismo Minero en Machacamarca - Empresa Minera
Alcira S.A. - Comunidad de Machacamarca. Municipio de Tacobamba
- Empresa Minera Tirex Ltda. - Firmas autoridades de las partes del convenio. Termino de un año. 19/04/2014
• Acta de Aval - en apoyo a los acuerdos de la Empresa Minera Alcira, para actividades de explotación de minerales en las bocaminas de Alcira denominadas Moria, Moria 2, Moria 3 y la Sombra 1 - Empresa Minera Alcira S.A. - Comunidad de Machacamarca. Municipio de Tacobamba - Empresa Minera Tirex Ltda. - Firmas autoridades de las partes del convenio. 20/04/2015
• Contrato de Explotación de minerales de plata y otros en la Bocamina La Sombra 1 - Empresa Minera Alcira S.A. - Andres Quispe y Marcial Bravo Martinez. Termino de cinco arios del contrato. 19/04/2014
• Contrato de Explotación de minerales de plata y otros en la Bocaminas Moria 2 y Moria 3 - Empresa Minera Alcira S.A. - Jorge Vargas Cuenca, Juan Vargas Cuencia, Victor Vargas Sarmiento, Marcelino Micacio Sarmiento, Juan Micacio Sarmiento - Firmas de las partes del convenio. Termino de cinco años del contrato. 19/04/2014
• Contrato para la ejecución de labores de explotación minera, explotación de plata y otros en las bocaminas San Marcos, 1 y Pizarro - Empresa Minera Alcira S.A. - Freddy Alurralde Buitrago - Firma el Sr. Freddy Alurralde. Termino de dos años del contrato. 19/04/2014
• Acuerdo Transaccional Definitivo e Irrevocable - Empresa Minera Alcira S.A. - Jungie Mining Industry - Andres Quispe Ninachi - Felipa Ninachi de Quispe - Los Srs. Quispe Ninachi declaran de manera irrevocable que ni Alcira S.A. ni Jungie Mining les adeudan dinero alguno por ningún concepto. Firmas de Alcira S.A. y de la Familia Ninachi, falta la firma del representante de Jungie Mining. 01/05/2015
• Ademdum al Contrato de Explotación de minerales de plata y otros en la Bocaminas Moria 1 - Empresa Minera Alcira S.A. - Humberto Ninachi Vargas, Armando Ninachi Alejo, Jesus Ninachi Alejo, Saturnine Ninachi Vargas - Modifican la cláusula 4.1. "deberán comercializar toda la producción en una planta expresamente autorizada por Alcira S.A. Modifica la cláusula 4.2., "Las partes acuerdan participación del valor de la liquidación de carga extraída será del 4% para Alcira S.A. y 96% para los Contratistas. Se agrega la cláusula 4.11 ven la bocamina y parajes autorizados solo podrán trabajar personalmente los señores Humberto Ninachi Vargas, Armando Ninachi Alejo y Saturnine Ninachi Vargas con un máximo de 8 peones. Todas las demás cláusulas se mantienen. Firmas de las partes del contrato. Anexo al adendum de contrato con fecha 10/06/2015. 06/05/2015
• Ademdum Contrato de Explotación de minerales de plata y otros en la Bocaminas Moria 2 y Moria 3 - Empresa Minera Alcira S.A. - Jorge Vargas Cuenca, Juan Vargas Cuenca, Victor Vargas Sarmiento, Marcelino Micacio Sarmiento, Juan Micacio Sarmiento - Modifican la cláusula 4.1. "deberán comercializar toda la producción en una planta que será expresamente autorizada por Alcira S.A. Modifica la cláusula 4.2., "Las partes acuerdan que su participación en el valor de la liquidación de la carga extraída será del 4% para Alcira S.A. y el 96% para los Contratistas. Se agrega la cláusula 4.11 "en la bocamina y parajes autorizados solo podrán trabajar personalmente los señores Jorge Vargas Cuenca, Juan Vargas Cuencia, Victor Vargas Sarmiento, Marcelino Micacio Sarmiento, Juan Micacio Sarmiento con un máximo de 8 peones. Todas las demás cláusulas se mantienen. Firmas de las partes del contrato. 06/05/2015
• Contrato de Explotación de minerales de plata y otros en la Bocaminas Moria 2 y Moria 3 - Empresa Minera Alcira S.A. - Humberto Ninachi, Armando Ninachi y Saturnine Ninachi - Firmas de las partes del convenio. Termino de cinco arios del contrato. 19/04/2014
ANNEX 4
Jungie Company Undertaking Agreement
COMPANY UNDERTAKINGS AGREEMENT
Between
Jungie Mining Industry SRL
Mr. Cai Ximing
Mr. Li Chengliang
AND
New Pacific Investment Corp. Limited
Dated March 28, 2017
Table of Contents
ANNEXES
1. ANNEX 1
Jungie Contract with Comibol.
2. ANNEX 2
Draft Letters to be sent by Jungie to Comibol and Alcira.
3. ANNEX 3
List of Areas Not Given Up
2
COMPANY UNDERTAKING AGREEMENT
The following is a private company undertakings agreement (the “Agreement”) that can be elevated to a public deed with the sole recognition of signatures, subscribed pursuant to the following clauses:
FIRST CLAUSE. - (Parties). The following persons are Parties to this Agreement:
1.1. Mr. Cai Ximing, a Chinese citizen, of legal age, qualified by law, business executive by profession,
[Redacted: confidential information]
1.2. Mr. Li Chengliang, a Chinese citizen, of legal age, business executive by profession, with
[Redacted: confidential information](hereinafter "Mr. Li").
1.3. Jungie Mining Industry SRL, a limited liability company, legally incorporated under the laws of Bolivia, domiciled at [Redacted: confidential information] (hereinafter "Jungie Bolivia").
1.4. New Pacific Investment Corp. Limited, a corporation, legally incorporated under the laws of Hong Kong, domiciled at [Redacted: confidential information] (hereinafter "NPIC").
Mr. Cai Ximing, Mr. Li Chengliang and Jungie Bolivia will be referred to as the "Obligors" when collectively referred to in this document.
Henceforth, the Obligors, NPIC and Jungie Bolivia may be individually or jointly called the "Party" or the "Parties".
SECOND CLAUSE. - (Background)
2.1. The Obligors are aware of the existence of a Share Purchase Agreement to be entered into between Mr. Cai Ximing, Mr. Li Chengliang, Ningde Jungie Minería Co., Ltd. in their condition as shareholders of Empresa Minera Alcira SA a corporation legally incorporated under the laws of the Plurinational State of Bolivia, (“Company”), and New Pacific Investment Corp. Limited (the Share and Purchase Agreement). Said Share Purchase Agreement shall be executed by the shareholders of the Company simultaneously with the execution of this Agreement.
2.2. Jungie Bolivia is party to a joint venture agreement with the Corporación Minera de Bolivia (COMIBOL), number [Redacted: confidential information] (the JV), which agreement is fully valid and remains in force and effect as of the date of execution of this Agreement, included as part of this Agreement as Annex 1.
2.3. The Parties have an interest in the execution and completion of the Share Purchase Agreement and the Obligors are aware that their compliance with the terms hereof are considered to be an essential component for the execution and compliance therewith on the part of the purchasers of the shares of the Company.
2.4. In light of the above, the Obligors have agreed to undertake the actions described in this Agreement in the terms and conditions herein set forth.
2.5. The terms defined in the Share Purchase Agreement shall be applicable to this Agreement, mutatis mutandis.
THIRD CLAUSE. - (Object of the Agreement)
The purpose of this Agreement is the undertaking, on the part of the Obligors to:
3.1. Deliver to the Escrow Agent set up under the Share Purchase Agreement (the Escrow Agent) the original and duly executed letters attached hereto as Annex 2 in two copies, each. Said delivery shall be effected no later than sixty (60) days counted from the execution date of this Agreement.
3.2. Accept and comply with the negative covenant described in Clause 4 hereof. This obligation on the part of the Obligors shall commence on the date of execution of this Agreement and shall last indefinitely, unless the transaction contemplated in the Share Purchase Agreement is not carried out and completed, resulting in the termination thereof, in which case the obligation described herein shall terminate simultaneously with the termination of the Share Purchase Agreement.
FOURTH CLAUSE. - (Negative Covenant)
4.1. Subject to the conditions set forth in 3.2 above, upon signing of this Contract the Obligors, hereby agree not to enter into any agreements with any mining cooperatives, companies (juridical entities) of any type, individuals (natural persons) or COMIBOL either currently located or that could be in any way interested in working within the areas described in Annexes 1 and 2 of the Share Purchase Agreement as well as within a radius of five (5) kilometers of the boundaries thereof. The commitment to not submit any request as well as the commitment not to enter into any agreements indicated in the previous sentence, constitute negative covenants for the Obligors, which will be extended to their subsidiaries, companies that they could incorporate in the future in which they could be shareholders or partners, their related companies in any way, as well as their heirs and successors under any title.
These provisions do not apply to the areas covered in the JV that have not been relinquished by Jungie Bolivia according to the letter included as Annex 5 of the Share Purchase Agreement. See Annex 3 of this Agreement
4.2. The Parties agree that the negative covenant set forth in 4.1 above, may be enforced by NPIC by any legal means available and more particularly by means of obtaining an injunction (prohibición de contratar y prohibición de innovar) from the corresponding legal authorities in Bolivia. In addition, the Parties likewise agree that any breach of this negative covenant can result: (i) in the obtaining of an additional injunction; and (ii) in the claiming of damages by NPIC against any and/or all of the Obligors, from and under any jurisdiction and before any court of law, at NPIC’s exclusive decision. To that effect, the Obligors hereby waive any objection to said choice and agree to subject themselves to the jurisdiction chosen by NPIC.
4
4.3. In addition, unless the Closing of the Share Purchase Agreement takes place, upon signing of this Contract, NPIC hereby agrees not to complete any agreements with any mining cooperatives, companies (juridical entities) of any type, individuals (natural persons) or COMIBOL either currently located or that could be in any way interested in working within the areas described in Annexes 1 and 2 of the Share Purchase Agreement, as well as within a radius of five (5) kilometers of the boundaries thereof. The commitment to not submit any request as well as the commitment not to complete any agreements indicated in the previous sentence, constitute negative covenants for the NPIC, which will be extended to their subsidiaries, companies that they could incorporate in the future in which they could be shareholders or partners, their related companies in any way, as well as their heirs and successors under any title.
FIFTH CLAUSE. - (Representations and Warranties)
5.1 Representations and Warranties of Obligors:
Obligors represent and warrant that on the date of this Agreement and on the date of compliance on their part, with any and all obligations undertaken by them hereunder:
(i) have the legal right as well as the necessary powers and faculties to validly execute the letters described in 3.1 above.
(ii) have the legal right as well as the necessary powers and faculties to validly Accept and comply with the negative covenant described in Clause 4 hereof.
(iii) Jungie Bolivia is a corporation duly incorporated and validly existing under the laws of the Plurinational State of Bolivia;
(iv) Jungie Bolivia has the capacity and has obtained all the authorizations required to subscribe and fulfill their obligations under this Agreement;
(v) This Agreement has been duly authorized and subscribed by the Obligors and constitutes a legally enforceable obligation for each of them, executable in accordance with its terms;
(vi) Neither the subscription nor the execution of this Agreement or any of the documents related thereto, nor the fulfillment of its terms shall be in conflict with or result in a breach of any of the terms, conditions or provisions of, nor shall it constitute a violation, nor shall it require any consent under any agreement or other instrument in which they participates or to which any of the Obligors is bound or of any authorization, or any judgment, decree or order, or any applicable law or regulation;
5
(vii) No judgment or order has been issued, or notified that has had or could prevent the conclusion of this Agreement;
(viii) None of the statements and warranties contained in this clause omits any item whose omission causes any of said statements and warranties to be inaccurate in a substantial manner;
SIXTH CLAUSE. - (Notifications)
6.1 Any notice, request or other communication that is to be given or made under this Agreement shall be made in writing - unless otherwise provided in this Agreement - and shall be delivered in person or sent by airmail, facsimile or courier service to each of the Parties to this Agreement at the following addresses. Such notification, request or other communication shall be deemed to have been delivered when it is received, or if it has been delivered to the correct address, in person, or through a courier service, in case of refusal of reception, or in the case of facsimile transmission, when the sending party receives electronic, or facsimile confirmation of receipt:
The Obligors:
Mr. Cai Ximing
[Redacted: confidential information]
NPIC:
Dr. Rui Feng,
New Pacific Investment Corp. Limited
1378-200 Granville Street
Vancouver, British Columbia, Canada
V6C 1S4
Facsimile: 604-669-9387
Telephone: 604-633-1368
Pursuant to this clause, changes to the addresses and contact individuals appointed to receive notifications under this Agreement shall be immediately notified in writing to the other Parties. If a Party has not received notification of the changes, any communication that a Party delivers to the addresses and individuals provided in this Agreement shall be considered valid and effective.
6.2 For legal purposes in Bolivia, the Parties declare and constitute the address indicated above as their legal domicile, with the value assigned by Article 29, paragraph II of the Bolivian Civil Code, in which proceedings for filing and notifications in civil proceedings or any other communication will take place with full legal validity and no right to protest.
SEVENTH CLAUSE. - (Severability)
If any clause, sentence, paragraph, or provision of this Agreement is legally declared prohibited, invalid, unenforceable, void or illegal, the Parties hereto agree, to the extent permitted by law, that this shall not affect the validity, legality and enforceability of the other provisions of this Agreement and the Parties agree that the portion or portions declared to be prohibited, invalid, unenforceable, unlawful or void shall be construed as being removed from this Agreement and the remainder of the Contract shall maintain the same value and force as if the portion (s) removed had never been included in this Agreement.
EIGHTH CLAUSE. (Absence of Waiver)
8.1 The delay in the exercise or omission of any of the Parties to exercise any right or faculty, contained in this Agreement, shall not operate as a waiver thereof or impede the exercise of any of their rights or powers. The partial exercise of any right shall not constitute a waiver of the exercise of the right in its entirety in the future, or the exercise of any other legal right. The waiver of any right will have no effect unless it is granted in writing.
8.2 The rights and powers provided for in this Agreement are cumulative and do not exclude any other right or power provided by law. The assertion or exercise of any right or faculty hereunder shall not prevent the concurrent exercise of any other right or faculty.
NINTH CLAUSE. - (Amendments, Resignations and Consent)
Any modification, waiver, or consent given under any clause of this Agreement shall necessarily be in writing, and in the case of amendments or modifications, signed by each of the Parties to this Agreement.
TENTH CLAUSE. - (Assignment)
Neither Party may assign this Agreement in whole or in part, or any of its rights or obligations under it, without the express written consent of all other Parties.
ELEVENTH CLAUSE. - (Titles of Clauses, Definitions and References and Totality of the Agreement)
11.1The titles, definitions and references used in this Agreement are for convenience only and do not affect the interpretation of this Agreement.
11.2This Agreement, including its Annexes, contains the entire understanding between the Parties and supersedes any other negotiation, understanding or agreement between them with respect to the subject matter thereof.
7
TWELFTH CLAUSE. - (Replacement)
The Parties agree that this Agreement supersedes and terminates all and any agreements, arrangements, covenants, or commitments, whether written or oral, that may exist between the Parties at the date of its subscription.
THIRTEENTH CLAUSE. - (Acceptance)
The Parties hereby express their full agreement with the contents of the clauses of this Agreement and undertake to strictly comply with them. As a sign of their acceptance, they sign at the foot of this Agreement in the city of La Paz on March 28, 2017.
|
Cai Ximing
|
Rui Feng
|
|
For:
|
Jungie Mining Industry SRL
|
For:
|
New Pacific Investment Corp. Limited
|
|
|
|
|
|
|
Cai Ximing
|
Li Chengliang
|
8
ANNEX 2
PLEASE REFER TO ANNEX 5 OF THE SHARE PURCHASE
AGREEMENT
List of Cocessions for Jungie to Keep Rights
[Redacted: confidential information]
List of Cocessions for Jungie to Keep Rights
[Redacted: confidential information]
Jungie to Keep Right of First Refusal
[Redacted: confidential information]
ANNEX 5
Draft Letters to be sent by Jungie to Comibol and Alcira
La Paz, March 00, 2017
CITE XXXXXXXXXXXX
Mr.
Dn. José Pimentel Castillo
CEO
Bolivia Mining Corporation
Present.-
Ref. - Partial Waiver of Mining Rights (Contract No. DGAJ-CTTO.MIN- 197/2012)
Dear Mr. Chairman,
As stated in Public Deed No. 04, issued on January 10, 2013 by the Notary of Government, Jungie Mining industry S.R.L. signed a Joint Venture Contract for the Development of Mining Activities in the Mining District of Colavi - Canutillos - Machacamarca with the Mining Corporation of Bolivia (Contract No. DGAJ-CTTO.MIN-197/2012 with draft signed on November 20, 2012), a contractual relationship which to this date has been developing normally and which must be adapted into a Mining Production Contract within the period provided by Supreme Decree 2994 of November 23, 2016.
In light of the above, and in response to changes in our corporate objectives we would like to inform you that we are giving up our Joint Venture Rights over specified concession areas. The concessions over which we are giving up our Joint Venture Rights are specified in Table 1 below.
Table 1. Concessions over which Jungie is giving up its Joint Venture Rights
[Redacted: confidential information]
In addition, we would like to inform you that we are likewise irrevocably waiving our rights of first refusal under the DGAJ-CTTO.MIN-197/2012 Joint Venture Agreement with COMIBOL as they relate to the concessions specified in Table 2 below:
Table 2. Concessions over which Jungie is giving up its Right of First Refusal
[Redacted: confidential information]
5
Activities in the Mining District of Colavi - Canutillos - Machacamarca (Contract No. DGAJ-CTTO. MIN-197/2012), as needed.
Thank you for your kind attention.
Kind Regards,
JUNGIE MINING INDUSTRY S.R.L.
Cai Ximing
GENERAL MANAGER
Cc. File
3
La Paz, March 00, 2017
CITE XXXXXXXXXXXX
Letter To Alcira
Ref. - Partial Waiver of Mining Rights (Contract No. DGAJ-CTTO.MIN- 197/2012) and acknowledgement of non-compete zones.
Dear Mr. Chairman,
In support of the objective of our common shareholder to sell its Alcira shares, and knowing that the purchaser of the Alcira shares has requested that Jungie make certain obligation to Alcira as a condition for the closing of the share purchase agreement, Jungie hereby provides notice to you that we are giving up our Joint Venture Rights over specified concession areas.
As stated in Public Deed No. 04, issued on January 10, 2013 by the Notary of Government, Jungie Mining industry S.R.L. signed a Joint Venture Contract for the Development of Mining Activities in the Mining District of Colavi - Canutillos - Machacamarca with the Mining Corporation of Bolivia (Contract No. DGAJ-CTTO.MIN-197/2012 with draft signed on November 20, 2012), a contractual relationship which to this date has been developing normally and which must be adapted into a Mining Production Contract within the period provided by Supreme Decree 2994 of November 23, 2016. (“Comibol JV Agreement”)
The concessions over which we are giving up our Joint Venture Rights under the Comibol JV Agreement are specified in Table 1 below.
4
Table 1. Concessions over which Jungie is giving up its Joint Venture Rights
[Redacted: confidential information]
In addition, we would like to inform you that we are likewise irrevocably waiving our rights of first refusal under the DGAJ-CTTO.MIN-197/2012 Joint Venture Agreement with COMIBOL as they relate to the concessions specified in Table 2 below:
Table 2. Concessions over which Jungie is giving up its Right of First Refusal
[Redacted: confidential information]
5
For better understanding on the two following pages are maps showing the blocks given up and the block retained by Jungie.
6
In addition, Jungie agrees that it will not:
1. Submit any request to obtain rights of any kind or nature over any available areas included within the immobilized area declared by COMIBOL as set out in the map included herein.as Exhibit 1. (the Immobilized Area).
2. Submit any request to obtain rights of any kind or nature over any available areas included within a radius of five (5) kilometers of the boundaries for the areas surrounding Alcira’s seven requested – mineral concessions detailed in Exhibit 2.
3. enter into any agreements with any mining cooperatives, private owners, Comibol, either currently located in, or that could be in any way interested in working within the areas described in exclusion areas covered under Exhibit 1 or Exhibit 2 mentioned in points 1. And 2. above.
The commitment to not submit any request as well as the commitment not to enter into any agreements set out above, constitutes negative covenants for Jungie, which will be extended to their subsidiaries, companies that they could incorporate in the future in which they could be shareholders or partners, their related companies in any way, as well as their heirs and successors under any title.
We hereby give you permission to provide a copy of this letter to the intended purchaser of the Alcira shares.
Kind Regards,
JUNGIE MINING INDUSTRY S.R.L.
Cai Ximing
GENERAL MANAGER
9
Exhibit 1.Map Showing Immobilization Area
Exhibit 2 – List of 7 other Alcira Exploration Areas
1. Capricornio
Name of the Area Requested: Capricornio
Size of the Application: Fifty (50) quadrants (1,250 hectares)
Location: Potosi District, Tomás Frías Province, Porco County.
Applicant’s Name: Empresa Minera Alcira S.A.
Temporary National Registry Number (Padrón Nacional): 512-08866
Coordinates of Corners of Capricornio Concession
|
|
WGS84 20S
|
|
Corner
|
Easting
|
Northing
|
|
1
|
201500
|
7817500
|
|
2
|
204500
|
7817500
|
|
3
|
204500
|
7817000
|
|
4
|
205000
|
7817000
|
|
5
|
205000
|
7815000
|
|
6
|
204000
|
7815000
|
|
7
|
204000
|
7815500
|
|
8
|
202500
|
7815500
|
|
9
|
202500
|
7814000
|
|
10
|
203000
|
7814000
|
|
11
|
203000
|
7813500
|
|
12
|
200500
|
7813500
|
|
13
|
200500
|
7816000
|
|
14
|
201000
|
7816000
|
|
15
|
201000
|
7817000
|
|
16
|
201500
|
7817000
|
11
Concession Map of Capricornio
2. Constancia
Name of the Area Requested: Constancia
Size of the Application: Fifty (50) quadrants (1,250 hectares)
Location: La Paz District, Inquisivi Province, Ichoca and Colquiri Counties.
Applicant’s Name: Empresa Minera Alcira S.A.
Temporary National Registry Number (Padrón Nacional): 210-07716
Coordinates of Corners of Constancia Concession
|
Corner
|
WGS84 19S
|
|
Easting
|
Northing
|
|
1
|
690500
|
8085500
|
|
2
|
693000
|
8085500
|
|
3
|
693000
|
8084000
|
|
4
|
693500
|
8084000
|
|
5
|
693500
|
8079500
|
|
6
|
692000
|
8079500
|
|
7
|
692000
|
8082500
|
|
8
|
691000
|
8082500
|
|
9
|
691000
|
8083000
|
|
10
|
690500
|
8083000
|
|
11
|
691500
|
8084000
|
|
12
|
692000
|
8084000
|
|
13
|
692000
|
8085000
|
|
14
|
691500
|
8085000
|
13
Concession Map of Constancia
14
3. Orion
Name of the Area Requested: Orion
Size of the Application: Forty Eight (48) quadrants (1,200 hectares)
Location: La Paz District, Murillo / Los Andes Provinces, El Alto / Pucarani Counties.
Applicant’s Name: Empresa Minera Alcira S.A.
Temporary National Registry Number (Padrón Nacional): 212-07585
Coordinates of Corners of Orion Concession
|
PTO
|
WGS84 19S
|
|
Easting
|
Northing
|
|
1
|
587500
|
8198500
|
|
2
|
587500
|
8195000
|
|
3
|
587000
|
8195000
|
|
4
|
587000
|
8194500
|
|
5
|
586500
|
8194500
|
|
6
|
586500
|
8196000
|
|
7
|
585500
|
8196000
|
|
8
|
585500
|
8195000
|
|
9
|
585000
|
8195000
|
|
10
|
585000
|
8195500
|
|
11
|
584500
|
8195500
|
|
12
|
584500
|
8196500
|
|
13
|
584000
|
8196500
|
|
14
|
584000
|
8195500
|
|
15
|
583500
|
8195500
|
|
16
|
583500
|
8195500
|
15
4. Wara
Name of the Area Requested: Wara
Size of the Application: Fifty (50) quadrants (1,250 hectares)
Location: La Paz District, Muñecas Province, Aucapata County.
Applicant’s Name: Empresa Minera Alcira S.A.
Temporary National Registry Number (Padrón Nacional): 205-07704
Coordinates of Corners of Wara Concession
|
Corner
|
WGS84 19S
|
|
Easting
|
Northing
|
|
1
|
527000
|
8297000
|
|
2
|
529500
|
8297000
|
|
3
|
529500
|
8297500
|
|
4
|
531500
|
8297500
|
|
5
|
531500
|
8294000
|
|
6
|
529000
|
8294000
|
|
7
|
529000
|
8295000
|
|
8
|
527000
|
8295000
|
17
Concession Map of Wara
18
5. Rigel
Name of the Area Requested as Exploration License: Rigel
Size of the Application: Fifty five (55) quadrants (1,375 hectares)
Location: La Paz District, Aroma Province, Sica County.
Title: Exploration License Resolution No. AJAM-LP/DDLP/AL/RES/ADM/1039/2016 granted on behalf of Empresa Minera Alcira S.A. on November 7th, 2016
Code Number: 2000320
Coordinates of Corners of Rigel Concession
|
Corner
|
WGS84 19S
|
|
Easting
|
Northing
|
|
1
|
631500
|
8089000
|
|
2
|
631500
|
8090000
|
|
3
|
631000
|
8090000
|
|
4
|
631000
|
8091500
|
|
5
|
630000
|
8091500
|
|
6
|
630000
|
8092000
|
|
7
|
629500
|
8092000
|
|
8
|
629500
|
8092500
|
|
9
|
630500
|
8092500
|
|
10
|
630500
|
8093000
|
|
11
|
629500
|
8093000
|
|
12
|
629500
|
8093500
|
|
13
|
631500
|
8093500
|
|
14
|
631500
|
8094000
|
|
15
|
633000
|
8094000
|
|
16
|
633000
|
8092500
|
|
17
|
633500
|
8092500
|
|
18
|
633500
|
8091000
|
|
19
|
634000
|
8091000
|
|
20
|
634000
|
8089500
|
|
21
|
633000
|
8089500
|
|
22
|
633000
|
8089000
|
19
Concession Map of Rigel
20
6. Polaris
Name of the Area Requested as Exploration License: Polaris
Size of the Application: Sixty Three (63) quadrants (1,575 hectares)
Location: La Paz District, Pacajes Province, Caquiaviri County.
Applicant’s Name: Empresa Minera Alcira S.A.
Code Number (Temporary National Registry Number): 2000105
Coordinates of Corners of Polaris Concession
|
Corner
|
WGS84 19S
|
|
Easting
|
Northing
|
|
1
|
555500
|
8119500
|
|
2
|
555500
|
8123500
|
|
3
|
560000
|
8123500
|
|
4
|
560000
|
8119500
|
|
5
|
558000
|
8121500
|
|
6
|
557500
|
8121500
|
|
7
|
557500
|
8122000
|
|
8
|
556500
|
8122000
|
|
9
|
556500
|
8120000
|
|
10
|
557000
|
8120000
|
|
11
|
557000
|
8120500
|
|
12
|
558000
|
8120500
|
21
Concession Map of Polaris
7. Espiga
Name of the Area Requested as Exploration License: Espiga
Size of the Application: Thirty Two (32) quadrants (800 hectares)
Location: Oruro District, Cabrera Province, Salinas de Garci Mendoza County.
Applicant’s Name: Empresa Minera Alcira S.A.
Code Number (Temporary National Registry Number): 2000231
Coordinates of Corners of Espiga Concession
|
Corner
|
WGS84 19S
|
|
Easting
|
Northing
|
|
1
|
634000
|
7826500
|
|
2
|
634000
|
7828500
|
|
3
|
638000
|
7828500
|
|
4
|
638000
|
7826500
|
23
Figure 10 Concession Map of Espiga
ANNEX 6
Permits, Contracts, Licenses, Transitional Authorizations, Environmental Permits and Other Licenses required from the
Government of Bolivia to allow for the commercial operation of the
Company
‐ Mining Administrative Contracts of the 17 ATEs detailed on Annex 1 as product of the Adaptation Process of the ATEs to Mining Administrative Contracts according to the Bolivian Mining and Metallurgy Law.
‐ Certificate of “Good Standing” issued by AJAM on regard of the of the 17 Mining Administrative Contracts detailed on Annex 1, assuming that the adaptation process concluded successfully
‐ Mining Association Contract or Mining Production Contract executed by Jungie with COMIBOL as result of the Adaptation Process (according to the Bolivian Mining and Metallurgy Law) of the Joint Venture Agreement detailed on Annex 2.
‐ Certificate of “Good Standing” issued by COMIBOL on regard of the aforementioned contract
‐ Exploration environmental permits (CD Certificates issued by the local government Gobernación de Potosí)
Certificados de Dispensación
‐ Environmental Assessment Study (EEIA)
Estudio de Evaluación de Impacto Ambiental
‐ Water Assessment Study as part of the EEIA
‐ Socio – Economic Assessment Study as part of the EEIA
‐ Full Scale Archeological Assessment Study as part of the EEIA
‐ Baseline environmental study (ALBA) Auditoría Ambiental de Línea Base
‐ Existence of a Public Consultation Meeting Minutes (for environmental purposes) Acta de la Audiencia de Consulta Pública Ambiental
‐ License for Hazardous Materials (LASP)
Licencia Ambiental para Sustancias Peligrosas
‐ Mining/Operations Environmental Permit (DIA)
Declaratoria de Impacto Ambiental emitida por el Ministerio de Medio Ambiente y Agua
‐ Monitoring Reports filed before the local government Reportes Semestrales de Monitoreo Ambiental
‐ Use of Explosives License granted by the Bolivian Ministry of Defense
‐ License to Purchase, Transport and Use Controlled and Hazardous Substances granted by the Dirección General de Sustancias Controladas
ANNEX 7
Company’s Financial Statements
[Omitted: Company's financial statements which have been superseded and replaced.]
ANNEX 8
Inventory of Assets of the Company.
I. Fixed Assets Inventory List
1. Drill cores
2. Database of geological/exploration information
3. Original logging and sampling records
4. Samples and rejects
5. Lab reports (electronic and hard copies)
6. Geological reports
ADDITIONAL ASSETS LIST ATTACHED.
ANNEX 9
Detail of existing permits, licenses and authorizations required for mining exploration, Waters, Reserves and Mineral Rights on Raw Materials and other related items owned by the Company
In order to comply with this Annex, Alcira needs to include the following documents:
1. CD Cat3 Certificate (Exploration Environmental Permit)
2. EMAP Form which is equivalent to a sworn statement and is used to apply for an Exploration Environmental Permit
3. Controlled Substances Permit
4. Titulo Ejecutorial (Title / Deeds and/or Resolutions) of the ATEs / Exploration Licenses
5. Mining Registry Certificate of the ATEs / Exploration Licenses
6. Mining Patents (Annual Fee) Proof of Payment of the ATEs (from 2012 to 2017) / Exploration Licenses
7. Certificate of Good Standing of the ATEs / Exploration Licenses issued by AJAM
ANNEX 10
Lists of Powers of Attorney granted by the Company
[Omitted: confidential information relating to powers of attorney granted by the Company.]
➣ Testimonio 1378/2015 Poder Especial y suficiente que confiere el Señor Cai Ximing, Vicepresidente del Directorio de Minera Alcira Sociedad Anónima “Alcira! S.A. a favor de los señores Angel Angulo Alanoca y/o Pavel Nilo Mareño Tarifa y/o Walter Ramiro Arancibia Mariscal. Para que se apersonen conjunta o indistintamente ante la AJAM Inscrito en FUNDEMPRESA.
➣ Testimonio Nº 321/2015 Poder General de Administración que confiere al Sociedad Denominada Minera Alcira Sociedad Anónima “Alcira” S.A., a favor del señor Chengliang Li, en su calidad de Presidente Ejecutivo y revocatoria del Poder 685/2012 Inscrito en FUNDEMPRESA.
➣ Testimonio Nº 322/2015 Poder General de Administración que confiere la Sociedad Denominada Minera Alcira Sociedad Anónima “Alcira” S.A. , a favor del señor Ximing Cai, con facultades de suscribir contratos administrativos con la AJAM Inscrito en FUNDEMPRESA.
➣ Testimonio Nº 562/2015 `Poder Especial y Suficiente que confiere la Sociedad Denominada Minera Alcira Sociedad Anónima “Alcira” S.A. favor del señor Ximing Cai, con facultades de suscribir contratos administrativos con la AJAM Inscrito en FUNDEMPRESA.
➣ Testimonio Nº 484/2015 Poder Especial y Suficiente que confiere el Sr. Chengliang Li, en su calidad de Presidente Ejecutivo de la Sociedad Denominada Minera Alcira Sociedad Anónima “Alcira” S.A., a favor de la Sra. Carmela Iriarte Dávila, con facultades de realizar trámites administrativos ante instituciones públicas y privadas a favor de la empresa.
➣ Testimonio Nº 678/2015 Poder Especial y suficiente que confiere el Señor Cai Ximing, Vicepresidente del Directorio de Minera Alcira Sociedad Anónima “Alcira” S.A. a favor de los señores Angel Angulo Alanoca y/o Pavel Nilo Mareño Tarifa y/o Walter Ramiro Arancibia Mariscal. Para que se apersonen conjunta o indistintamente ante la AJAM.
The Sellers represent that the list above includes all powers of attorney issued by the Company as of the date of this Agreement, and that should there be any other powers of attorney issued by the Company and which are not included in this list, Sellers shall arrange to have the Company revoke them within seven days of the signature of this Agreement. Failure to do so shall result in the Seller’s responsibility if such other powers of attorney are used by the attorneys in fact mentioned therein after the date of signature of this Agreement.
ESCROW AGREEMENT
[Omitted: Escrow Agreement among the Vendors, the Purchaser and Computershare Trust Company of Canada]
PROMISSORY NOTE
Date: March 28, 2017
FOR VALUE TO BE RECEIVED the undersigned unconditionally promises to pay on the earlier of a) one hundred and twenty days from the date the funds have been wired to the Undersigned, or b) a Termination Event (defined below) (the “Maturity Date”), to NEW PACIFIC INVESTMENT CORP. LIMITED (the “Lender”) at such place as the Lender may direct in writing, the sum of USD $3,500,000 (THREE MILLION, FIVE HUNDRED THOUSAND UNITED STATES DOLLARS) (the “Loan”), which Loan shall be wired to the Undersigned’ bank account in accordance with the instructions set out in Schedule “A”, with interest calculated from the date of the wiring of the amount of the Loan on the daily balance of such sum and payable on the Maturity Date at the same place, both before and after maturity, default and judgment, at a nominal rate per annum of 5% and interest on overdue interest payable at the same time, place and rate.
No Loan will be advanced until evidence that the filings required to convert the ATs and mineral concessions included in Annexes 1 and 2 of the Alcira Share Transfer Agreement into Administrative Contracts have been duly filed.
Upon default in payment by the undersigned of any principal or interest on the Maturity Date, all principal and interest outstanding under this note shall become immediately due and payable upon demand by the Lender.
As security for the Loan, the undersigned has deposited with the Lender in British Columbia a percentage of its shareholdings in Empresa Minera Alcira SA, (the “Company”), endorsed in property, together with executed stock transfers, which at all times shall total at least 30% (collectively, the “Shares”) of the Company.
Provided the Loan and the corresponding interest accrued thereon are repaid in full at or before Maturity, the Shares shall be returned to the undersigned.
Interest owing under this Loan shall be waived in full in the event that the Lender is successful in acquiring a 100% ownership interest in the Company
The undersigned and the Lender agree that if the Loan and all accrued interest hereunder are not paid in full on the Maturity Date, then at the election of the Lender, the Lender may elect to take the Shares in full satisfaction of the undersigned’s obligations under this note, with no further action required under the laws of British Columbia.
In this note a “Termination Event” shall mean any default, abandonment or termination of the Share Transfer Agreement dated on or about the date hereof among the undersigned, the Lender and others. Notwithstanding anything contained herein to the contrary, should a Termination Event be caused by the Lender, then the Maturity Date shall be one hundred and twenty (120) days following the date on which the Loan was wired to the Undersigned.
{5200-001/01480238.DOCX.4}
- 2 -
This note shall be governed by, and construed in accordance with, the laws of the Province of British Columbia and the laws of Canada applicable in that Province. The undersigned waives presentment for payment, notice of dishonour, protest and notice of protest in respect of this note. This note shall become effective when it has been executed and delivered. Time shall be of the essence of this note in all respects. This note constitutes the entire agreement of the parties pertaining to the indebtedness evidenced by this note and supersedes all prior agreements, understandings, negotiations and discussions with respect to such indebtedness, whether oral or written.
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|
|
|
|
|
|
|
|
|
Ningde Jungie Mineria Co., Ltd.
|
|
|
By:
|
|
|
|
|
Authorized Signatory
|
|
|
|
Name: Mr. Li Chengliang
|
|
|
|
Title: President
|
- 3 -
SCHEDULE “A”
WIRE DETAILS FOR JUNGIE MINING INDUSTRY LTD.
Lender shall pay the Loan in accordance with wiring instructions to be provided at a later date in writing to the Lender from the Undersigned.
ANNEX 13
Alcira’s Specified Liabilities Totaling US$ 1.300.000
The list of specified liabilities will be provided to the Buyer in writing no later than 45 days after the date of the signing of the Agreement. The specified liabilities shall not exceed $us. 1,300,000.
ANNEX 14
Confirmation drilling holes authorization letter
ALCIRA’S LETTERHEAD
March 28, 2017
Mr. Alex Zhang
New Pacific Investment Corp. Limited
1378-200 Granville Street
Vancouver, British Columbia, Canada
V6C 1S4
Ref. –Authorization for drilling of Confirmation Holes
Dear Sirs:
We refer to the Share Transfer Agreement between Mr. Cai Ximing, Mr. Li Chengliang, Ningde Jungie Mineria Co., Ltd. and you, for the eventual transfer of the shares of Empresa Minera Alcira S.A. (“Share Transfer Agreement”), of which I, the undersigned Cai Ximing, am the legal representative and general manager.
Given that Alcira has the legal authorizations and/or permits required under Bolivian law to proceed with the drilling and based on such authorizations and/or permits, we hereby authorize you to initiate the drilling of three Confirmation Holes in the TAs areas under the terms set out in the Share Transfer Agreement. Such drilling is authorized to start within two weeks following the deposit set out in Section 5.1. - a) of the Share Transfer Agreement and its execution.
As agreed, the Confirmation Holes shall be drilled under similar technical parameters as those performed on the original drillings performed by our companies, within a radius of five (5) to ten (10) meters from the location of the original drill collar locations. In addition, we will provide assistance to the drilling sites, as requested, during the confirmation drillings.
Subject to the terms and conditions set forth in Share Transfer Agreement, the drilling of Confirmation Holes must be completed up to the gathering of the results and their verification by ALS or SGS in a term of three (3) months following the start of the drilling.
Sincerely,
Cai Ximing
Legal Representative and
General Manager of
Compania Minera Alcira S.A.
ANNEX 15
Payment Instruction for Deposit and Loan
Buyer shall pay the Deposit (5.1.a) to the following:
[Redacted: confidential bank account information]
Buyer shall pay the Loan (5.1.b) in accordance with instructions to be provided at a later date in writing to the Buyer.
ANNEX 16
New Pacific Holding Corp. Guarantee
NEW PACIFIC HOLDINGS CORP.
(the “Company”)
Guarantee of Obligation of New Pacific Investment Corp. Limited (“NPIC”)
WHEREAS NPIC is a wholly owned subsidiary of the Company;
AND WHEREAS on March 17, 2017 New Pacific Holdings Corp. authorized its Chief Executive Officer to negotiate and execute an agreement for the acquisition of Empresa Minera Alcira SA (“Alcira”) by NPIC (the “Acquisition Agreement”); and
AND WHEREAS as Clause 5.1.e of the Acquisition Agreement provides an obligation on NPIC to make a final payment of US$ 5,000,000 to the Sellers subject to the condition set forth in the Acquisition Agreement (the “the Final Payment”).
AND WHEREAS the Sellers shall have the meaning describe in the Acquisition Agreement.
FOR VALUE TO BE RECEIVED, the undersigned, New Pacific Holdings Corp. (the “Guarantor”), confirms that it has provided a guarantee to the Sellers of Alcira, to pay the Final Payment when due in the event of non- payment by NPIC and upon demand by the Sellers.
This Guarantee of Payment may be enforced in accordance with the laws of the Province of British Columbia, Canada, Bolivia, or Hong Kong at the discretion of the Sellers.
DATED as of the 28 day of March 2017
_________________________________________
Rui Feng, Chief Executive Officer and Director
New Pacific Holdings Corp.
NEW PACIFIC METALS CORP.
Suite 1750 – 1066 West Hastings Street
Vancouver, British Columbia, Canada V6E 3X1
NOTICE OF ANNUAL GENERAL MEETING AND
MANAGEMENT INFORMATION CIRCULAR
FOR THE 2019 ANNUAL GENERAL MEET ING OF SHAREHOLDER S
TO BE HELD AT 10:00 A.M. ON NOVEMBER 29, 2019
Dated October 29, 2019
NEW PACIFIC METALS CORP.
Suite 1750 – 1066 West Hastings Street
Vancouver, British Columbia, Canada V6E 3X1
NOTICE OF ANNUAL GENERAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN that the 2019 annual general meeting (the “Meeting”) of the shareholders (the “Shareholders”) of New Pacific Metals Corp. (the “Company”) will be held at Oceanic Plaza, 1066 West Hastings Street, Vancouver, British Columbia, Canada V6E 3X1 in the Pender Room on Friday, November 29, 2019 at 10:00 a.m. (Vancouver time), and at any adjournment or postponement thereof, for the following purposes:
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(a)
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to receive the audited financial statements of the Company for the year ended June 30, 2019, together with the report of the auditor thereon;
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(b)
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to fix the number of directors at five (5);
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(c)
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to elect directors for the ensuing year;
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(d)
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to re-appoint Deloitte LLP, Chartered Professional Accountants, as auditor for the Company for the ensuing year and to authorize the directors to fix the auditor’s remuneration;
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(e)
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to consider and, if deemed appropriate, to pass with or without variation, an ordinary resolution ratifying, approving and adopting the Company’s amended and restated share based compensation plan (the “Omnibus Plan”), approved by the Company’ board of directors on October 17, 2019, as more particularly described in the accompanying management information circular;
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(f)
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to re-approve the Company’s existing stock option plan and all unallocated stock options and entitlements thereunder if the Omnibus Plan is not approved by the Shareholders; and
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(g)
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to transact such further and other business as may be properly brought before the Meeting or at any
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adjournments thereof.
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Only Shareholders of record on October 23, 2019 are entitled to receive notice of and vote at the Meeting.
Shareholders are entitled to vote at the Meeting either in person or by proxy. Shareholders who are unable to attend the Meeting are requested to read, complete, sign, date and return the enclosed form of proxy and deliver it to the Company’s transfer agent, Computershare Investor Services Inc., in accordance with the instructions set out in the form of proxy and the management information circular accompanying this notice.
DATED at the City of Vancouver, in the Province of British Columbia, this 29th day of October 2019
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BY ORDER OF THE BOARD OF DIRECTORS
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“Rui Feng”
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Dr. Rui Feng
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Chief Executive Officer and Director
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Ne w Pacific Metals Corp.
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NEW PACIFIC METALS CORP.
Suite 1750 – 1066 West Hastings Street
Vancouver, BC V6E 3X1
MANAGEMENT INFORMATION CIRCULAR
FOR THE 2019 ANNUAL GENERAL MEETING OF SHAREHOLDERS
TO BE HELD AT 10:00 A.M. ON NOVEMBER 29, 2019
This information herein is given as at October 29, 2019, except as otherwise stated.
This management information circular (“Circular”) is furnished in connection with the solicitation of proxies by the management (“Management”) of New Pacific Metals Corp. (the “Company”) for use at the annual general meeting (the “Meeting”) of the shareholders of the Company (the “Shareholders”) to be held at the time and place and for the purposes set forth in the accompanying notice of meeting (the “Notice of Meeting”) and at any adjournments thereof.
In this Circular, references to the “Company”, “we” and “our” refer to New Pacific Metals Corp. “Common Shares” or “Shares” means common shares without par value in the capital of the Company. “Options” means the stock options granted to the directors, officers, employees, and consultants of the Company in accordance with the terms of the Company’s stock option plan. “Beneficial Shareholders” means shareholders who do not hold Common Shares in their own name and “Intermediaries” refers to brokers, investment firms, clearing houses and similar entities that own securities on behalf of Beneficial Shareholders.
SOLICITATION OF PROXIES
This solicitation is made on behalf of Management. Solicitation of proxies will be conducted by mail, and may be supplemented by telephone or other personal contact to be made without special compensation by directors, officers and employees of the Company or by the Company’s registrar and transfer agent, Computershare Investor Services Inc. (“Computershare”). All costs of solicitation will be borne by the Company.
Unless the context otherwise requires, references herein to New Pacific Metals Corp. means the Company and its subsidiaries. The principal executive office of the Company is located at Suite 1750 – 1066 West Hastings Street, Vancouver, British Columbia, Canada, V6E 3X1. The telephone number is (604) 633-1368 and the facsimile number is (604) 669-9387. The Company’s website address is www.newpacificmetals.com. The information on that website is not incorporated by reference into this Circular. The registered and records office of the Company is located at Suite 1750 – 1066 West Hastings Street, Vancouver, British Columbia V6E 3X1.
Unless otherwise indicated, all currency amounts stated in this Circular are stated in the lawful currency of Canada.
PROXY INSTRUCTIONS
Appointment of Proxyholders
The persons named in the accompanying form of proxy (the “Form of Proxy”) are directors of the Company. Each Shareholder has the right to appoint some other person, who need not be a shareholder, to represent the Shareholder at the Meeting by striking out the names of the persons designated in the accompanying Form of Proxy and by inserting that other person’s name in the blank space provided.
The instrument appointing a proxyholder must be signed in writing by the Shareholder, or such shareholder’s attorney duly authorized in writing. If signed by a duly authorized attorney, the Form of Proxy must be accompanied by the original power of attorney or a notarially certified copy thereof. If the Shareholder is a corporation, the instrument appointing a proxyholder must be in writing signed by an officer or attorney of the corporation duly authorized by resolutions of the directors of such corporation, which resolutions must accompany such instrument.
A proxy will only be valid if it is duly completed, signed, dated and received by Computershare in accordance with the instructions in the Form of Proxy, not less than forty-eight (48) hours (excluding Saturdays, Sundays and statutory holidays) prior to the time set for the holding of the Meeting, (or any adjournment or postponement thereof) unless the Chair of the Meeting elects to exercise his discretion to accept proxies received subsequently.
REVOCATION OF PROXIES
A Shareholder may revoke a proxy by delivering an instrument in writing executed by the Shareholder or by the Shareholder’s attorney authorized in writing, or where the Shareholder is a corporation, by a duly authorized officer or attorney of the corporation, either at the office of the Company at any time up to and including the last business day preceding the day of the Meeting, or with the consent of the Chair of the Meeting on the day of the Meeting or on the day of any adjournment thereof, before any vote in respect of which the proxy is to be used shall have been taken. A Shareholder may also revoke a proxy by depositing another properly executed instrument appointing a proxyholder bearing a later date with Computershare in the manner described above, or in any other manner permitted by law. A revocation of a proxy does not affect any matter on which a vote has been taken prior to revocation.
HOW TO VOTE
Only registered Shareholders (each a “Registered Shareholder”) or their duly appointed proxyholders are permitted to vote at the Meeting. Beneficial Shareholders are not permitted to vote at the Meeting as only proxies from Registered Shareholders can be recognized and voted at the Meeting. You may vote as follows:
Registered Shareholders: If you are a Registered Shareholder, you may vote by attending the Meeting in person, or if you do not plan to attend the Meeting, by completing the proxy and delivering it according to the instructions contained in the Form of Proxy and this Circular.
Beneficial Shareholders: If you are a Beneficial Shareholder, you must vote by proxy by carefully following the instructions included in the proxy provided to you by your Intermediary. If you do not follow the special procedures described by your Intermediary, you will not be entitled to vote.
In accordance with the requirements of National Instrument 54-101 Communication with Beneficial Owners of Securities of a Reporting Issuer of the Canadian Securities Administrators, the Company has distributed copies of the Notice of Meeting, this Circular and the Form of Proxy (collectively, the “Meeting Materials”) to the clearing agencies and Intermediaries for distribution to Beneficial Shareholder.
VOTING OF SHARES AND EXERCISE OF DISCRETION BY PROXIES
If you complete your proxy properly, then the nominee named in the accompanying Form of Proxy will vote or withhold from voting the Shares represented by the proxy in accordance with your instructions. If you do not specify a choice on any given matter to be voted upon, your Shares will be voted in favour of such matter. The proxy grants the nominee the discretion to vote on amendments or variations to matters identified in the Notice of the Meeting and with respect to other matters that may properly come before the Meeting.
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
No Person (as defined herein) has any material interest, direct or indirect, by way of beneficial ownership of securities or otherwise, in matters to be acted upon at the Meeting other than the election of directors or the appointment of auditor. For the purpose of this paragraph, “Person” shall include each person: (a) who has been a director, senior officer or insider of the Company at any time since the commencement of the Company’s last completed financial year; (b) who is a proposed nominee for election as a director of the Company; or (c) who is an associate or affiliate of a person included in subparagraphs (a) or (b).
VOTING SHARES AND PRINCIPAL SHAREHOLDERS
The Company is authorized to issue an unlimited number of Common Shares without par value, each share carrying the right to one vote. As of the Record Date (as defined below), the Company has issued and outstanding 142,924,618 fully paid and non-assessable Common Shares. The Company has no other classes of voting securities.
The board of directors of the Company (the “Board”) has fixed October 23, 2019 as the record date (the “Record Date”) for the determination of Shareholders entitled to receive the Notice of Meeting and to vote at the Meeting. Any transferee who acquires Shares after the Record Date and who wishes to attend the Meeting and to vote the transferred Shares must demand, not later than 10 days before the Meeting, to be included in the list of Shareholders prepared for the Meeting. Registered Shareholders should contact Computershare and non-Registered Shareholders should contact the Intermediary through whom they acquired the Shares.
On a show of hands, every individual who is present as a Registered Shareholder or as a representative of a Registered Shareholder will have one vote (no matter how many Shares such Registered Shareholder holds). On a poll, every Registered Shareholder present in person or represented by a proxy and every person who is a representative of a Registered Shareholder, will have one vote for each Common Share registered in the name of the Registered Shareholder on the list of Registered Shareholders, which is available for inspection during normal business hours at Computershare and at the Meeting. Registered Shareholders represented by proxyholders are not entitled to vote on a show of hands.
To the best of the knowledge of the directors and officers of the Company, as at the date of this Circular, there are no persons or companies beneficially owning or controlling or directing, directly or indirectly, Shares carrying 10% or more of the voting rights attached to all outstanding Shares of the Company, except as follows:
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Name
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Number of Shares
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Percentage of Outstanding Common Shares
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Silvercorp Metals Inc.
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42,596,506
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28.93%
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Pan American Silver Corp.
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24,724,069
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16.79%
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FINANCIAL STATEMENTS
Financial information regarding the Company and its affairs is provided in the Company’s comparative financial statements and management discussion and analysis (“MD&A”) for its financial year ended June 30, 2019. Shareholders may contact the Company at the address set out on the face page of this Circular to request free copies of the Company’s financial statements and MD&A. Alternatively, they can be found under the Company’s profile on the System for Electronic Document Analysis and Retrieval (“SEDAR”) at www.sedar.com and the Company’s website at www.newpacificmetals.com.
PARTICULARS OF MATTERS TO BE ACTED UPON
NUMBER OF DIRECTORS
The Board presently consists of six directors. Management proposes that the number of directors on the Board be fixed at five. Shareholders will therefore be asked at the Meeting to approve an ordinary resolution that the number of directors elected be fixed at five (5) for the ensuing year, subject to such increases as may be permitted by the Articles of the Company and the provisions of the Business Corporations Act (British Columbia) (“BCBCA”). The Board recommends a vote “FOR” the approval of the resolution setting the number of directors at five (5). In the absence of contrary instructions, the management proxy nominees named as proxyholders in the enclosed Form of Proxy will cast the votes represented by any proxy FOR the approval of the resolution setting the number of directors at five (5).
ELECTION OF DIRECTORS
Each director of the Company is elected annually and holds office until the next annual general meeting of the Shareholders, or until his or her successor is elected or appointed, unless that person’s office is earlier vacated in accordance with the Articles of the Company or with the provisions of the BCBCA.
Management has received written consent from each of Management’s nominees for election as a director as to their willingness and ability to serve as a director. The Company has adopted a majority voting policy where any nominee proposed for election as a director is required to tender their resignation if the director receives more withheld votes than for votes (i.e., a majority of withheld votes) at any meeting where shareholders vote on the uncontested election of directors. An uncontested election means the number of director nominees for election is the same as the number of directors to be elected to the Board. The Corporate Governance Committee (as defined below) will then submit a recommendation regarding whether or not to accept the resignation to the Board. Within 90 days of receiving the final voting results, the Board will issue a press release either announcing the resignation of the director or explaining the reasons justifying its decision not to accept the resignation. A director who tenders a resignation pursuant to this policy will not participate in any meeting of the Board or the Corporate Governance Committee at which the resignation is considered. No proposed director is being elected under any arrangement or understanding between the proposed director and any other person or company.
In the absence of contrary instructions, the management proxy nominees named as proxyholders in the enclosed Form of Proxy will cast the votes represented by any proxy FOR the election of the nominees named below.
The following table sets out the names of the management’s nominees for election as directors, their ages as at the date of the Circular, the municipality and province or state, and country in which each is ordinarily resident, all offices of the Company now held by each of them, each nominee’s principal occupation, business or employment, the period of time for which each nominee has served as a director of the Company, and the number of Common Shares beneficially owned by each, directly or indirectly, or over which each nominee exercises control or direction as of the date of this Circular:
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Name and
Municipality of
Residence(1)
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Current
Position and
Office Held
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Principal Occupations during the Last
Five Years(1)
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Date of
Appointment as a
Director
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Common
Shares
Beneficially
Owned (1)
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Rui Feng, 56
Beijing,
China
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CEO and Director
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CEO, Chair and Director of Silvercorp Metals Inc. since September 2003; Director of the Canada China Business Council - BC Chapter Board; Vice President of Canada- China Business Association.
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May 12, 2004
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10,227,400(2)
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Jack Austin, 87
Vancouver, B.C.,
Canada
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Chair and Director (3)(4)(5)
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Chair and Director of the Company; Advisor to Stern Partners Inc. and Silvercorp Metals Inc.; Honorary Professor and Senior Fellow at the Institute of Asian Research at the University of British Columbia.
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May 13, 2008
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550,000
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David Kong, 73
Richmond, B.C.,
Canada
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Director (3)(4)(5)
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Partner of Ernst & Young LLP from 2005 to 2010. Director of Silvercorp Metals Inc., Uranium Energy Corp., and Gold Mining Inc.
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November 29, 2010
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501,300(6)
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T. Gregory
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Director (3)(4)(5)
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Founding director and/or consultant of
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November 29, 2010
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998,700
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Hawkins, 69
Vancouver, B.C.,
Canada
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public and private exploration development ventures (Brohm Mining Inc., Dayton Mining Inc., Nevsun Resources Ltd., Banro Resource Corp., Tagish Lake Gold Corp., and African Gold Group Inc.). Chairman of Yellowhead Mining Inc. Director of Discovery-Corp Enterprises Inc. Managing Director of CME and Co. from 1993 to 2014.
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Martin G.
Wafforn, 60
Vancouver, B.C.,
Canada
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Director
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Senior Vice President of Pan American Silver Corp.
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November 27, 2017
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Nil
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Total
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12,277,400
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Notes:
(1) The information as to residence, principal occupation or employment and shares beneficially owned, directly or indirectly, or controlled is not within the knowledge of the Management of the Company and has been furnished by the respective director or officer.
(2) Silvercorp Metals Inc. itself, or through subsidiaries, beneficially owns and controls 42,596,506 common shares representing 28.93% of the Company’s outstanding common shares. Dr. Rui Feng and Silvercorp Metals Inc., acting jointly and in concert, beneficially own, directly and indirectly, or exercise control or direction over 52,823,906 or 35.88% of the outstanding common shares of the Company.
(3) Denotes member of the Audit Committee.
(4) Denotes member of the Compensation Committee.
(5) Denotes member of the Corporate Governance Committee.
(6) Of these shares, 190,000 are held in the name of Mr. Kong’s spouse.
The Company confirms that no director, together with his or her associates or affiliates, owns or controls directly or indirectly 10% or more of the outstanding Common Shares.
No proposed director:
(a) is, as at the date of this Circular, or has been, within 10 years before the date of this Circular, a director, chief executive officer or chief financial officer of any company (including the Company) that,
(i) was subject to an order that was issued while the proposed director was acting the capacity as director, chief executive; or
(ii) was subject to an order that was issued after the proposed director ceased to be a director, chief executive officer or chief financial officer and which resulted from an event that occurred while that person was acting in the capacity as director, chief executive officer or chief financial officer,
(b) is, as at the date of this Circular, or has been within the 10 years before the date of this Circular, a director or executive officer of any company (including the Company) that, while that person was acting in that capacity, or within a year of that person ceasing to act in that capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets; or
(c) has, within 10 years before the date of this Circular, become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or become subject to or instituted any proceedings, arrangement or compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold the assets of the proposed director.
No proposed director has been subject to:
(a) any penalties or sanctions imposed by a court relating to securities legislation or by a securities regulatory authority or has entered into a settlement agreement with a securities regulatory authority; or
(b) any other penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable securityholder in deciding whether to vote for a proposed director.
APPOINTMENT OF AUDITOR
It is proposed that Deloitte LLP, Chartered Professional Accountants, of Vancouver, British Columbia be reappointed as the auditors of the Company to hold office until the next annual meeting of the Shareholders or until a successor is appointed, and that the directors be authorized to determine the auditor’s remuneration.
The Board recommends a vote “FOR” the approval of the resolution appointing Deloitte LLP, Chartered Professional Accountants, as auditors of the Company at remuneration to be fixed by the Board. In the absence of contrary instructions, the management proxy nominees named as proxyholders in the enclosed Form of Proxy will cast the votes represented by any proxy FOR the appointment of Deloitte LLP as auditor of the Company at remuneration to be fixed by the Board.
APPROVAL OF SHARE BASED COMPENSATION PLAN
The Board has determined that it is advisable to adopt a share based compensation plan (the “Omnibus Plan”), a copy of which is attached as Exhibit “A” to this Circular, which it believes is in the best interests of the Company. The Omnibus Plan will amend and restate the Company’s existing stock option plan (the “Existing Option Plan”). Options granted under the Existing Option Plan will remain outstanding and be governed by the terms of the Omnibus Plan if the Omnibus Plan is approved by the shareholders of the Company. If the Omnibus Plan is not approved, the Existing Option Plan will remain in place and Options will continue to be governed by such Existing Option Plan, and the Company will seek confirmation of the Existing Option Plan by the shareholders in accordance with the policies of the TSXV. If the shareholders of the Company do not pass the resolution approving the Existing Option Plan at the Meeting, the options previously granted before November 29, 2019 will be valid; however, the Company will not be permitted to grant further options without shareholder approval.
The Board is of the view that the Omnibus Plan is required in order to provide additional incentive to the directors, officers, employees and consultants who provide services to the Company to act in the best interests of the Company.
The following is a description of the key terms of the Omnibus Plan, which is qualified in its entirety by reference to the full text of the Omnibus Plan.
∙ Types of Awards – Pursuant to the Omnibus Plan, the Company may issue options (“Options”), Restricted Share Units (“RSUs”) and Performance Share Units (“PSUs”, and together with the Options and RSUs, collectively the “Awards”).
∙ Participants – Pursuant to the Omnibus Plan, the Company may issue Awards to the directors, officer, employees and consultants of the Company (each an “Eligible Person”). Each such Eligible Person granted Awards pursuant to the Plan – a “Participant”.
∙ Maximum Number of Shares Issuable – The maximum number of shares (the “Shares”) issuable under the Omnibus Plan, together with the number of shares issuable under any other security-based compensation arrangements of the Company, shall not in the aggregate exceed 10% of the issued and outstanding shares of the Company, from time to time (the “Outstanding Issue”). The Company may not issue more than 3,500,000 Shares in the form of RSUs or 780,000 Shares in the form of PSUs.
∙ Plan Limits – When combined with all of the Company’s other security-based compensation arrangements, the Omnibus Plan shall not result in:
o the number of Shares issuable to any one person at any time exceeding 5% of the Outstanding Issue;
o the number of Shares (i) issued to Insiders within a one-year period, and (ii) issuable to Insiders at any time, exceeding 10% of the Outstanding Issue;
o the issuance to any one Insider and such Insider’s associates, within any one year period, exceeding 5% of the Outstanding Issue;
o the issuance to any one consultant of the Company, in a 12-month period, of a number of Shares exceeding 2% of the Outstanding Issue at the time of the granting of the Awards;
o the issuance to persons retained to provide investor relations activities (as defined in the policies of the TSXV), in a 12-month period, of a number of Shares exceeding 2% of the Outstanding Issue at the time of granting of the Awards which Awards must vest in stages over a period of not less than 12 months with no more than one-quarter of the Awards vesting in any three month period;
o the issuance to persons retained to provide investor relations activities of any RSU or PSU;
o the issuance to any one person, in a twelve month period, of a number of RSUs and PSUs, on an aggregate basis, exceeding 1% of the Outstanding Issue at the time of granting of the Awards and the issuance to persons, in a twelve month period, of a number of RSUs and PSUs, on an aggregate basis, exceeding 2% of the Outstanding Issue at the time of granting of the Awards; or
o a number of Shares issuable to any one non-executive Director within a one-year period exceeding an Award value of $150,000 per such non-executive may comprise Options based on a valuation method acceptable to the Board.
Options
∙ Terms and Exercise Price – The number of Shares subject to each Option grant, the exercise price, vesting, expiry date and other terms and conditions thereof will be determined by the Board. The exercise price of each Option shall in no event be lower than the closing price of the Shares on the TSXV (the “Market Price”) on the date prior to the grant date.
∙ Term – Unless otherwise specified at the time of grant, Options shall expire 10 years from the date of grant, unless terminated earlier in accordance with the Omnibus Plan.
∙ Vesting Schedule – Unless otherwise specified at the time of grant, Options vest and become exercisable in 25% increments on each of the 6 month, 12 month, 18 month, and 24 month anniversaries from the grant date.
∙ Exercise of Option – A participant may exercise vested Options by payment of the exercise price per Share subject to each Option.
∙ Termination of Employment – If a Participant ceases to be a director, officer, employee or consultant of the Company for any reason other than death, such director, officer, consultant or employee of the Company shall have such rights to exercise any Option not exercised prior to such termination within the lesser of a period of 90 calendar days after the date of termination, or the expiry date of the Option, or such shorter period as may be set out in the Participant’s Option Award Agreement.
∙ Death – If a Participant dies prior to the expiry of his Option, his legal representatives may, within the lesser of one year from the date of the Participant's death or the expiry date of the Option, exercise that portion of an Option granted to the director, officer, employee or consultant of the Company under this Plan which remains outstanding.
Restricted Share Units and Performance Share Units
∙ Terms – RSUs and PSUs are notional securities that entitle the recipient to receive cash or Shares at the end of a vesting period. The terms applicable to RSUs and PSUs under the Omnibus Plan (including the vesting schedule, performance cycle, performance criteria for vesting and whether dividend equivalents will be credited to a participant’s account) are determined by the Board at the time of the grant.
∙ Vesting – Unless otherwise provided, RSUs typically vest on the second anniversary of the date the RSU was granted and shall be settled in accordance with the settlement provisions described below. Unless otherwise noted, PSUs shall vest as at the date that is the end of their specified performance cycle, subject to any performance criteria having been satisfied and shall be settled in accordance with the settlement provisions described below. Vesting of PSUs is contingent upon achieving certain performance criteria.
∙ Settlement – On settlement, the Company shall, for each vested RSU or PSU being settled, deliver to a Participant either (a) one Share, (b) a cash payment equal to the Market Price of one Share as of the vesting date, or (c) any combination of cash and Shares equal to the Market Price of one Share as of the vesting date, at the discretion of the Board.
∙ Dividend Equivalents – As dividends are declared, additional RSUs and PSUs may be credited to a Participant in an amount equal to the greatest whole number which may be obtained by dividing (i) the value of such dividend or distribution on the payment date therefore by (ii) the Market Price of one Share on such date.
∙ Termination of Employment – If a director, officer, consultant or employee of the Company ceases to be so engaged by the Company for any reason other than death, all outstanding RSUs and PSUs that were vested on or before the date of the termination of employment or services of such Participant shall be settled in accordance with the applicable settlement provisions of the Omnibus Plan as of the date of termination, after which time the RSUs and PSUs shall in all respects terminate.
∙ Death – If a Participant dies, all outstanding RSUs and PSUs that were vested on or before the date of the date of death such Participant shall be settled in accordance with the applicable settlement provisions of the Omnibus Plan as of the date of death. Outstanding RSUs that were not vested on or before the date of death shall vest and be settled in accordance applicable settlement provisions of the Omnibus Plan as of the date of death, prorated to reflect the actual period between the grant date of the RSU and the date of death. Outstanding PSUs that were not vested on or before the date of death shall vest and be settled in accordance with the applicable settlement provisions of the Omnibus Plan as of the date of death, prorated to reflect the actual period between the commencement of the performance cycle and the date of death, based on the performance criteria for the applicable performance period(s) up to the date of death. Subject to the foregoing, any remaining RSUs and PSUs shall in all respects terminate as of the date of death.
General
∙ Assignment – Awards granted under the Omnibus Plan are non-assignable and non-transferable other than by will or by the laws of descent and distribution.
∙ Change of Control – In the event of a Change of Control, all unvested Awards then outstanding will, as applicable, be substituted by or replaced with awards of the surviving corporation (or any affiliate thereof) or the potential successor (or any affiliate thereto) (the “continuing entity”) on the same terms and conditions as the original Awards, subject to appropriate adjustments that do not diminish the value of the original Awards. If, upon a Change of Control, the continuing entity fails to comply with this requirement, the vesting of all then outstanding Awards (and, if applicable, the time during which such Awards may be exercised) will be accelerated in full. Additionally, in the event of a potential Change of Control, the Board will have the power, in its sole discretion, to modify the terms of the Omnibus Plan and/or the Awards to assist the Participants in tendering to a take-over bid or other transaction leading to a Change of Control (including to accelerate the vesting of Awards and to permit Participants to conditionally exercise their Awards).
∙ Amendments Not Requiring Shareholder Approval – The Board may amend the Omnibus Plan or Awards at any time, provided, however, that no such amendment may adversely affect any Award previously granted to a Participant without the consent of the Participant, except to the extent required by applicable law (including TSXV requirements). Any such amendment will be subject to all necessary regulatory approvals. Without limiting the generality of the foregoing, the Board may, without prior notice to the shareholders and without further shareholder approval, at any time and from time to time, amend the Plan or any provisions thereof, or the form of Award Agreement or instrument to be executed pursuant to the Plan, in such manner as the Board, in its sole discretion, determines appropriate:
o for the purposes of making formal minor or technical modifications to any of the provisions of the Omnibus Plan;
o to correct any ambiguity, defective provisions, error or omission in the provisions of the Omnibus Plan;
o to change any vesting provisions of Awards;
o to change the termination provisions of the Awards or the Omnibus Plan;
o to change the persons who qualify as Eligible Persons under the Omnibus Plan; and
o to add or change provisions relating to any form of financial assistance provided by the Company to Participants that would facilitate the purchase of securities under the Omnibus Plan.
∙ Amendments Requiring Shareholder Approval – Shareholder approval (or disinterested shareholder approval, if required by the policies of the TSXV) will be required for the following types of amendments:
o an increase in the number of Shares issuable under Awards granted pursuant to the Omnibus Plan;
o a reduction in the Option Price of an Option, or a cancellation and reissuance of an Option;
o an extension of (i) the term of an Option beyond its original expiry date, or (ii) the date on which a PSU or RSU will be forfeited or terminated in accordance with its terms, other than in accordance with the Omnibus Plan;
o a revision to the assignment provisions to permit Awards granted under the Plan to be transferable or assignable other than for estate settlement purposes;
o a revision to the insider participation limits or the non-executive director limits;
o a revision to the amending provisions; or
o any amendment required to be approved by shareholders of the Company under applicable law (including without limitation, pursuant to the policies of the TSX).
∙ Black Out Periods – If the expiry date or vesting date of an Award falls (other than a PSU or RSU awarded to a Canadian resident) is during a self-imposed blackout period imposed under any insider trading policy or similar policy of the Company (a “Blackout Period”), the expiry date or vesting date, as applicable, will be automatically extended for a period of ten business day after the earlier of the end of such Blackout Period, or, provided the Blackout Period has ended, the expiry date or vesting date of such Award. In the case of a RSU or PSU awarded to a Canadian resident, any settlement that is effected during a Blackout Period shall be settled in cash, notwithstanding any other provision of the Omnibus Plan.
∙ Hold Period – In addition to any resale restrictions under applicable securities laws, all Awards granted under the Omnibus Plan and all Shares issued on the exercise thereof will, if applicable under the policies of the TSXV, be subject to a hold period of four months from the date of grant and will bear the legends required by the TSXV.
Regulatory and Shareholder Approval
The rules and policies of the TSXV require shareholder approval of security-based compensation arrangements in respect of arrangements that involve the issuance from treasury or potential issuance from treasury of securities of the issuer.
As the Omnibus Plan provides for the potential issuance from treasury of securities of the Company, shareholders will be asked to vote for or against the following resolution at the Meeting:
“WHEREAS the Board of Directors (the “Board”) of New Pacific Metals Corp. (the “Company”) approved on October 17, 2019 the adoption of the Share Based Compensation Plan (the “Omnibus Plan”) for the benefit of any employee, officer, director, or consultant of the Company.
AND WHEREAS the maximum number of common shares of the Company (“Shares”) available for issuance under the Omnibus Plan shall not exceed 10% of the issued and outstanding common shares of the Company from time to time less the number of Shares reserved for issuance under all other security based compensation arrangements of the Company.
NOW THEREFORE BE IT RESOLVED as an ordinary resolution of the shareholders of the Company, that:
1. the Omnibus Plan, as disclosed in the management information circular of the Company dated October 29, 2019 (the “Information Circular”), including reserving for issuance under the Omnibus Plan at any time a maximum of 10% of the outstanding common shares of the Company for issuance from time to time pursuant to the exercise or settlement of awards thereunder, is hereby approved, ratified and confirmed; and
2. any one director or officer of the Company be and is hereby authorized and directed to do such things and to execute and deliver all such instruments, deeds and documents, and any amendments thereto, as may be necessary or advisable in order to give effect to the foregoing resolution.”
The Board has determined that the Omnibus Plan is in the best interests of the Company and its shareholders and recommends that Shareholders vote IN FAVOUR OF the foregoing resolution approving the Omnibus Plan.
To be effective, the resolution must be passed by the majority of votes cast by shareholders present or represented by proxy at the Meeting and also by a simple majority of votes cast by disinterested shareholders present or represented by proxy at the Meeting pursuant to Section 3.10(b) of TSXV Policy 4.4.
In the event the shareholders of the Company do not approve the Omnibus Plan at the Meeting, the shareholders will be asked to pass a resolution confirming the approval of the Existing Option Plan in accordance with the policies of the TSXV as follows:
“NOW THEREFORE BE IT RESOLVED as an ordinary resolution of the shareholders of the Company, that the Existing Option Plan is hereby approved and confirmed.”
The Board recommends that Shareholders vote IN FAVOUR OF the foregoing resolution approving the Existing Option Plan.
In order to be effective, the resolution regarding the approval of the Existing Option Plan must be passed by the majority of the votes cast by shareholders present or represented by proxy who are entitled to vote at the Meeting.
CORPORATE GOVERNANCE
Board of Directors
In compliance with the requirements of the BCBCA, the directors are elected by the Shareholders to manage or supervise the management of the business and affairs of the Company. In exercising their powers and discharging their duties, the directors are required to act honestly and in good faith with a view to the best interests of the Company, and to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.
The Board is responsible for approving long-term strategic plans and annual operating budgets recommended by Management. Board consideration and approval is also required for material contracts and business transactions, and all debt and equity financing transactions. Any responsibility which is not delegated to Management or to the committees of the Board remains with the Board. The Board meets and engages in discussions on a regular basis, as required by the state of the Company’s affairs, and also from time to time as deemed necessary to enable it to fulfill its responsibilities.
The Board believes that good corporate governance is important to the effective performance of the Company and plays a significant role in protecting Shareholders’ interests and maximizing value for the Shareholders. The Company has reviewed its own corporate governance practices in light of National Instrument 58-101 Disclosure of Corporate Governance Practices (“NI 58-101”) and National Policy 58-201 Corporate Governance Guidelines (“NP 58-201”). The Board has adopted a written mandate for the Board which is attached hereto as Schedule “A” and is posted on the Company’s website at www.newpacificmetals.com. The Board is committed to sound corporate governance practices in the interest of its Shareholders and to effective and efficient decision making. The Company will continue to review and implement corporate governance guidelines as the business of the Company progresses.
Composition of the Board
NP 58-201 recommends that the board of directors of a reporting issuer be composed of a majority of independent directors. During the most recently completed financial year, the Company had a majority of independent directors; Jack Austin, David Kong, John McCluskey, Greg Hawkins, and Martin Wafforn are “independent” within the meaning of National Instrument 52-110 Audit Committees (“NI 52-110”). Dr. Rui Feng, the Chair of the Board, is not considered independent as he is the Chief Executive Officer (the “CEO”) of the Company.
The Company has taken steps to ensure that adequate structures and processes are in place to permit the Board to function independently of Management. The size of the Company is such that all the Company’s operations are conducted by a relatively small Management team which is also represented on the Board. Any director may submit items for inclusion in the agenda of matters to be discussed at a meeting of the Board. The Board considers that Management is effectively supervised by the independent directors on an informal basis, as the independent directors are actively and regularly involved in reviewing the operations of the Company and has regular and full access to Management. Many of the Company’s directors sit on the board of other issuers. This information is listed under each director profile in the “Election of Directors” section starting on page 8.
The Board holds four regularly scheduled quarterly meetings throughout the year. Meetings are also conducted on an as-required basis in order to deal with matters as business developments warrant. The following table summarizes directors’ attendance at all Board meetings during the fiscal year ended June 30, 2019:
|
Director
|
Number of meetings attended
|
Number of meetings eligible to attend
|
|
Rui Feng
|
4
|
4
|
|
Jack Austin
|
4
|
4
|
|
David Kong
|
4
|
4
|
|
Greg Hawkins
|
4
|
4
|
|
John McCluskey
|
4
|
4
|
|
Martin G. Wafforn
|
4
|
4
|
The Board has developed written position descriptions for the Chair of the Company, the CEO, and the chairs of each committee of the Board.
Orientation and Education
The Company provides new directors with an orientation program upon joining the Company that includes copies of relevant financial, information regarding its properties, as well as opportunities for meetings with Management. Board members are encouraged to communicate with Management and auditors, to keep themselves current with industry trends and development, and to attend related industry seminars. Board members have full access to the Company’s records.
Ethical Business Conduct
The Board has adopted a written code of business conduct and ethics (the “Code”). A copy of the Code may be obtained by contacting the Company at the address on the cover of this Circular. Alternatively, a copy of the Code can be found under the Company’s profile on SEDAR at www.sedar.com and the Company’s website at www.newpacificmetals.com. When proposed transactions or agreements in which directors or officers may have an interest, material or not, are presented to the Board, the directors are required to disclose any such interest and the persons who have such an interest are excluded from all discussion on the matter and are not permitted to vote on the proposal. All such interests in transactions or agreements involving senior Management are dealt with by the Board, regardless of apparent immateriality.
Compensation Committee
The compensation committee of the Board (the “Compensation Committee”) is responsible for determining and approving compensation for directors and senior officers. Fees payable to Management and directors have been determined using a number of factors, such as the nature and extent of the contributions by individual directors, and by direct comparison with other companies of similar size, complexity and risk profile. The Compensation Committee is currently comprised of four directors: David Kong (Chair), Jack Austin, Greg Hawkins, and John McCluskey. Each member of the committee is independent. All Compensation Committee members have direct experience that is relevant to their responsibilities in executive compensation. All members have advised on compensation matters for several public companies and within the resource sector. The charter of the Compensation Committee is attached hereto as Schedule “B”. A description of the responsibilities, powers and operation of the Compensation Committee can be found therein.
Corporate Governance Committee
The corporate governance committee of the Board (the “Corporate Governance Committee”) is responsible for assisting the Board in establishing and maintaining a sound system of corporate governance through a process of continuing assessment and enhancement. The Corporate Governance Committee works to ensure that the Board functions independently of Management, that Management is clearly accountable to the Board, and that procedures are in place to monitor the effectiveness of the performance of the Board, the committees of the Board and individual directors. The Corporate Governance Committee is currently comprised of four directors: John McCluskey (Chair), Jack Austin, David Kong, and Greg Hawkins. Each member of the committee is independent. The charter of the Corporate Governance Committee is attached hereto as Schedule “C”. A description of the responsibilities, powers and operation of the committee can be found therein.
Assessments
The Corporate Governance Committee and the Board annually, and at such other times as they deem fit, monitor the adequacy of information given to directors, communications between the Board and Management, and the strategic direction and processes of the Board and its committees. As part of the assessments, the Board and/or the committees may review their respective charter and conduct reviews of applicable corporate policies. Each Board member is well-qualified through current or previous professions. Each member participates fully in each meeting, having in all cases been specifically canvassed for their input.
AUDIT COMMITTEE
The Company’s audit committee (the “Audit Committee”) assists the Board in fulfilling its responsibilities for oversight of financial and accounting matters. The Audit Committee is currently comprised of three directors: David Kong (Chair), Jack Austin, and Greg Hawkins. All of the members are considered independent and financially literate pursuant to NI 52-110. A description of responsibilities, powers and operation of the Audit Committee and a copy of the Audit Committee Charter is attached to the Company’s annual information form dated September 20, 2019, filed with the Canadian securities regulators and posted on SEDAR at www.sedar.com.
EXECUTIVE COMPENSATION
Executive Compensation
Set out below are particulars of compensation paid to the following persons (the “Named Executive Officers” or “NEOs”): (a) the Company’s CEO; (b) the Company’s Chief Financial Officer (the “CFO”); (c) each of the Company’s three most highly compensated executive officers, or three most highly compensated individuals acting in a similar capacity, other than the CEO and CFO, at the end of the most recently completed financial year whose total compensation was, individually, more than $150,000 for that financial year; and (d) any additional individuals for whom disclosure would have been provided under (c) except that the individual was not serving as an executive officer of the company, nor acting in a similar capacity, at the end of the most recently completed financial year.
Compensation Discussion and Analysis
The Company’s executive compensation program is overseen by the Compensation Committee. See “Compensation Committee” for a description of the composition of this committee. The Compensation Committee is responsible for making recommendations to the Board with respect to the compensation of executive officers of the Company as well as with respect to the Company’s stock option plan. The Compensation Committee also assumes responsibility for reviewing and monitoring the long-term compensation strategy for the senior Management of the Company.
The Compensation Committee attempts to ensure that the compensation packages for executive officers and the overall equity participation plan are in line with publicly listed mining and mineral exploration companies of a comparable size. Comparable mining companies comprises of publicly traded mining companies of similar size in North America, as determined by market capitalization and complexity relative to the Company. Comparable companies include SilverCrest Metals Inc., Great Bear Resources Ltd., Bear Creek Mining Corporation, Kootenay Silver Inc., and Alexco Resource Corp. The Compensation Committee does not rely on any formula, or objective criteria and analysis to determine an exact amount of compensation to pay. Compensation decisions are made through discussion by the Compensation Committee, with input from the CEO, with the final recommendations of the Compensation Committee being submitted to the Board for further discussion and final approval.
The Compensation Committee considered the implications of the risks associated with the Company’s compensation policies and practices and concluded that, given the nature of the Company’s business and the role of the Compensation Committee in overseeing the Company’s executive compensation practices, the compensation policies and practices do not serve to encourage any NEO or individual at a principal business unit or division to take inappropriate or excessive risks, and no risks were identified arising from the Company’s compensation policies and practices that are reasonably likely to have a material adverse effect on the Company.
No NEOs or directors are permitted to purchase financial instruments including forward contracts, equity swaps, collars, or like instruments, that are designed to hedge against a decrease in market value of securities of the Company granted to such NEOs or directors as compensation.
No new actions, decisions or policies were made after the end of the most recently completed financial year that could affect a reasonable person’s understanding of an NEO’s compensation for the year ended June 30, 2019.
Performance Graph
The following chart compares the total cumulative shareholder return for CDN$100 invested in Common Shares of the Company on June 30, 2015, with the cumulative total return of the S&P/TSX Composite Index for the period from June 30, 2015 to June 30, 2019. The Common Share performance as set out in the graph does not necessarily indicate future price performance. The Company has never paid dividends to its Shareholders. The Company does take into account overall share price performance in determining executive compensation amounts; however, share price performance is just one of the many factors, as discussed above, that the Company takes into consideration.
There is not a direct correlation between the Company’s share price performance and the amount of compensation paid to NEOs.
Cumulative Total Return
|
Date
|
2015
|
2016
|
2017
|
2018
|
2019
|
|
NUAG
|
100.00
|
243.75
|
656.25
|
987.50
|
1,500.00
|
|
S&P/TSX Composite Index
|
100.00
|
96.64
|
104.32
|
111.85
|
112.57
|
|
NUAG Closing Price*
|
0.16
|
0.39
|
1.05
|
1.58
|
2.40
|
|
S&P/TSX Composite Index
|
14,553.30
|
14,064,50
|
15,182,20
|
16,277.70
|
16,382.20
|
Note:
* From February 16, 2012 to June 30, 2016, the Common Shares of the Company traded on the Toronto Stock Exchange (“TSX”) and thereafter on the TSX Venture Exchange (“TSXV”) under the symbol “NUX”. On April 10, 2017, the Company announced a proposed acquisition and an intended Change of Business and Change of Name. Trading of the Common Shares on the TSXV was halted pending completion of the transaction, and resumed trading on July 24, 2017 with a new ticker symbol “NUAG”.
Base Compensation
In the Compensation Committee’s view, paying base compensation that is competitive in the market in which the Company operates is a first step to attracting and retaining talented, qualified and effective executives. The Compensation Committee makes assessments by making reference to independent salary surveys, and comparing salaries with that of other Canadian mining companies with similar size as discussed above.
Short Term Incentive Plan
The Company does not maintain any short term incentive plans for its CEO or other NEOs.
Option-based Awards
The Company believes that encouraging its executive officers and employees to become shareholders is the best way of aligning their interests with those of its Shareholders. Equity participation is accomplished through the Company’s stock option plan. Options are granted to executive officers taking into account a number of factors, including the amount and terms of options previously granted, base compensation and performance bonuses, if any, and competitive factors. During the 2019 fiscal year, the Board granted options to employees and directors to purchase a total of 2,155,000 Common Shares which represents 1.5% of the outstanding Common Shares as at June 30, 2019. The Options granted in the 2019 fiscal year were granted at or above market prices with a term of five years, and vesting in equal 6-month amounts over a three year vesting period.
Compensation Governance
See “Compensation Committee” for a description of the composition of the Compensation Committee.
Summary Compensation Table
|
Name and
|
Fiscal
|
Salary
|
Share-
|
Option-
|
Non-Equity Incentive
|
Pension
|
All Other
|
Total
|
|
Principal
|
Year
|
($)
|
Based
|
Based
|
Plan Compensation
|
Value
|
Compensation
|
Compensation
|
|
Position
|
Ended
|
|
Awards
|
Awards
|
($)
|
($)
|
($)
|
($)
|
|
|
June 30
|
|
($)
|
($)(4)
|
|
|
|
|
|
|
|
|
|
|
|
Annual
|
Long
|
|
|
|
|
|
|
|
|
|
Incentive
|
Term
|
|
|
|
|
|
|
|
|
|
Plans(6)
|
Incentive
|
|
|
|
|
|
|
|
|
|
|
Plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rui Feng(1)
|
2019
|
72,000
|
Nil
|
226,222
|
Nil
|
Nil
|
Nil
|
Nil
|
298,222
|
|
CEO and
|
|
2018
|
72,000
|
Nil
|
47,409
|
Nil
|
Nil
|
Nil
|
Nil
|
119,409
|
|
Director
|
|
|
2017
|
72,000
|
Nil
|
155,491
|
Nil
|
Nil
|
Nil
|
Nil
|
227,491
|
|
Jalen Yuan
|
2019
|
20,000
|
Nil
|
54,293
|
Nil
|
Nil
|
Nil
|
Nil
|
74,293
|
|
CFO
|
|
2018
|
Nil
|
Nil
|
63,212
|
Nil
|
Nil
|
Nil
|
Nil
|
63,212
|
|
|
|
|
2017
|
Nil
|
Nil
|
46,647
|
Nil
|
Nil
|
Nil
|
Nil
|
46,647
|
|
Gordon
|
2019
|
356,250
|
Nil
|
226,222
|
Nil
|
Nil
|
Nil
|
Nil
|
584,472
|
|
Neal(2)
|
|
2018
|
229,167
|
Nil
|
316,061
|
Nil
|
Nil
|
Nil
|
Nil
|
545,228
|
|
President
|
|
Alex Zhang,
|
2019
|
240,000
|
Nil
|
135,733
|
Nil
|
Nil
|
Nil
|
Nil
|
375,733
|
|
Vice(3)
|
|
|
|
|
|
|
|
|
|
|
|
President,
|
2018
|
160,000
|
Nil
|
79,015
|
Nil
|
Nil
|
Nil
|
Nil
|
239,015
|
|
Exploration
|
2017
|
Nil
|
Nil
|
108,844
|
Nil
|
Nil
|
Nil
|
Nil
|
108,844
|
|
Yong-Jae
|
|
|
|
|
|
|
|
|
|
|
Kim(4)
|
|
|
|
|
|
|
|
|
|
|
General
|
2019
|
Nil
|
Nil
|
90,489
|
Nil
|
Nil
|
Nil
|
Nil
|
90,489
|
|
Counsel and
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
|
|
Secretary
|
|
|
|
|
|
|
|
|
|
|
Notes:
|
|
|
|
|
|
|
|
|
|
(1) The amounts paid to Dr. Rui Feng relate to his role as an officer of the Company and not that of a director. He does not receive any compensation as a director of the Company.
(2) Gordon Neal was appointed President on August 1, 2017.
(3) Alex Zhang was appointed Vice President, Exploration on June 16, 2016.
(4) Yong-Jae Kim was appointed General Counsel and Corporate Secretary on December 10, 2018.
(5) The Company has adopted IFRS 2 – Share-based Paymens to account for the issuance of Options to employees and non-employees. The fair value of Options is estimated at the grant date using the Black-Scholes Option Pricing Model which requires the input of a number of assumptions. Although the assumptions used reflect management’s best estimates, they involve inherent uncertainties based on market conditions generally outside of the control of the Company. The following summarizes the key assumptions used to calculate the fair value of each set of Options granted:
|
Name
|
Fiscal
|
Grant Date
|
Options
|
Exercise
|
Expiry Date
|
Weighted
|
Weighted
|
Weighted
|
Weighted
|
|
|
Year of
|
|
Granted(1)
|
price
|
|
average
|
average
|
average
|
average
|
|
|
Options
|
|
|
($)
|
|
expected
|
risk free
|
volatilities
|
fair value
|
|
|
Granted
|
|
|
|
|
life
|
rates
|
|
per
|
|
|
|
|
|
|
|
(years)
|
|
|
Option
|
|
|
|
|
|
|
|
|
|
|
($)
|
|
Rui Feng, CEO
|
2019
|
22-Feb-2019
|
250,000
|
2.15
|
22-Feb-2024
|
2.75
|
1.78%
|
64.44%
|
0.90
|
|
and Director
|
|
Name
|
Fiscal
|
Grant Date
|
Options
|
Exercise
|
Expiry Date
|
Weighted
|
Weighted
|
Weighted
|
Weighted
|
|
|
Year of
|
|
Granted(1)
|
price
|
|
average
|
average
|
average
|
average
|
|
|
Options
|
|
|
($)
|
|
expected
|
risk free
|
volatilities
|
fair value
|
|
|
Granted
|
|
|
|
|
life
|
rates
|
|
per
|
|
|
|
|
|
|
|
(years)
|
|
|
Option
|
|
|
|
|
|
|
|
|
|
|
($)
|
|
|
2018
|
01-Aug-2017
|
75,000
|
1.15
|
31-Jul-2022
|
2.75
|
1.32%
|
91.43%
|
0.63
|
|
|
|
|
2017
|
01-Nov-2016
|
500,000
|
0.55
|
31-Oct-2021
|
2.75
|
0.58%
|
95.89%
|
0.31
|
|
Jalen Yuan,
|
2019
|
02-Feb-2019
|
60,000
|
2.15
|
22-Feb-2024
|
2.75
|
1.78%
|
64.44%
|
0.90
|
|
CFO
|
|
2018
|
01-Aug-2017
|
100,000
|
1.15
|
31-Jul-2022
|
2.75
|
1.32%
|
91.43%
|
0.63
|
|
|
|
|
2017
|
01-Nov-2016
|
150,000
|
0.55
|
31-Oct-2021
|
2.75
|
0.58%
|
95.89%
|
0.31
|
|
Gordon Neal,
|
2019
|
22-Feb-2019
|
250,000
|
2.15
|
22-Feb-2024
|
2.75
|
1.78%
|
64.44%
|
0.90
|
|
President
|
|
2018
|
01-Aug-2017
|
500,000
|
1.15
|
31-Jul-2022
|
2.75
|
1.32%
|
91.43%
|
0.63
|
|
|
|
|
2017
|
01-Nov-2016
|
60,000
|
0.55
|
31-Oct-2021
|
2.75
|
0.58%
|
95.89%
|
0.31
|
|
Alex Zhang,
|
2019
|
22-Feb-2019
|
150,000
|
2.15
|
22-Feb-2024
|
2.75
|
1.78%
|
64.44%
|
0.90
|
|
Vice President,
|
|
2018
|
01-Aug-2017
|
125,000
|
1.15
|
31-Jul-2022
|
2.75
|
1.32%
|
91.43%
|
0.63
|
|
Exploration
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
01-Nov-2016
|
350,000
|
0.55
|
31-Oct-2021
|
2.75
|
0.58%
|
95.89%
|
0.31
|
|
|
|
|
|
|
|
|
|
|
|
|
Yong-Jae Kim,
|
|
|
|
|
|
|
|
|
|
|
General
|
2019
|
22-Feb-2019
|
100,000
|
2.15
|
22-Feb-2024
|
2.75
|
1.78%
|
64.44%
|
0,90
|
|
Counsel and
|
|
Corporate
|
|
|
|
|
|
|
|
|
|
|
Secretary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plan Benefits
The Company does not provide any pension plan benefits.
Outstanding Share-based Awards and Option-based Awards
The following table summarizes awards outstanding at fiscal year ended June 30, 2019, for each NEO:
|
|
Option-Based Awards
|
Share-Based Awards
|
|
|
|
|
|
|
|
|
|
|
Name
|
Number of
|
Option
|
Option
|
Value of
|
Number of
|
Market or
|
Market or
|
|
|
Securities
|
Exercise Price
|
Expiration
|
Unexercised
|
Shares or
|
Payout Value
|
Payout Value
|
|
|
Underlying
|
($)
|
Date
|
In-The-
|
Units of
|
of Share-
|
of Vested
|
|
|
Unexercised
|
|
|
Money
|
Shares that
|
Based
|
Share-Based
|
|
|
Options
|
|
|
Options (1)
|
have not
|
Awards that
|
Awards not
|
|
|
|
|
|
($)
|
Vested (#)
|
have not
|
Paid Out or
|
|
|
|
|
|
|
|
Vested
|
Distributed
|
|
|
|
|
|
|
|
($)
|
($)
|
|
Rui Feng,
|
250,000
|
2.15
|
22-Feb-2024
|
62,500
|
Nil
|
Nil
|
Nil
|
|
CEO and Director
|
75,000
|
1.15
|
31-Jul-2022
|
32,250
|
Nil
|
Nil
|
Nil
|
|
|
500,000
|
0.55
|
31-Oct-2021
|
515,000
|
Nil
|
Nil
|
Nil
|
|
|
100,000
|
0.57
|
23-Sep-2018
|
101,000
|
Nil
|
Nil
|
Nil
|
|
Jalen Yuan,
|
60,000
|
2.15
|
22-Feb-2024
|
62,500
|
Nil
|
Nil
|
Nil
|
|
CFO
|
100,000
|
1.15
|
31-Jul-2022
|
43,000
|
Nil
|
Nil
|
Nil
|
|
|
150,000
|
0.55
|
31-Oct-2021
|
154,500
|
Nil
|
Nil
|
Nil
|
|
|
25,000
|
0.57
|
23-Sep-2018
|
25,250
|
Nil
|
Nil
|
Nil
|
|
Gordon Neal,
|
250,000
|
2.15
|
22-Feb-2024
|
62,500
|
Nil
|
Nil
|
Nil
|
|
President
|
500,000
|
1.15
|
31-Jul-2022
|
215,000
|
Nil
|
Nil
|
Nil
|
|
|
60,000
|
0.55
|
31-Oct-2021
|
61,800
|
Nil
|
Nil
|
Nil
|
|
Alex Zhang,
|
150,000
|
2.15
|
22-Feb-2024
|
37,500
|
Nil
|
Nil
|
Nil
|
|
Vice President,
|
|
125,000
|
1.15
|
31-Jul-2022
|
156,250
|
Nil
|
Nil
|
Nil
|
|
|
|
|
|
Option-Based Awards
|
|
Share-Based Awards
|
|
|
|
|
|
|
|
|
|
|
Name
|
Number of
|
Option
|
Option
|
Value of
|
Number of
|
Market or
|
Market or
|
|
|
Securities
|
Exercise Price
|
Expiration
|
Unexercised
|
Shares or
|
Payout Value
|
Payout Value
|
|
|
Underlying
|
($)
|
Date
|
In-The-
|
Units of
|
of Share-
|
of Vested
|
|
|
Unexercised
|
|
|
Money
|
Shares that
|
Based
|
Share-Based
|
|
|
Options
|
|
|
Options (1)
|
have not
|
Awards that
|
Awards not
|
|
|
|
|
|
($)
|
Vested (#)
|
have not
|
Paid Out or
|
|
|
|
|
|
|
|
Vested
|
Distributed
|
|
|
|
|
|
|
|
($)
|
($)
|
|
Exploration
|
350,000
|
0.55
|
31-Oct-2021
|
647,500
|
Nil
|
Nil
|
Nil
|
|
Yong-Jae Kim,
|
|
|
|
|
|
|
|
|
General Counsel
|
100,000
|
2.15
|
22-Feb-2024
|
25,000
|
Nil
|
Nil
|
Nil
|
|
and Corporate
|
|
|
|
|
|
|
|
|
|
Secretary
|
|
|
|
|
|
|
|
|
Note:
|
|
|
|
|
|
|
|
(1) The value of the unexercised in-the-money options is based on the closing price of the Common Shares on the TSXV of $2.40 per Common Share as at June 30, 2019 (using the last trading date price of $2.40 as of June 28, 2019) net of the exercise price of the Options.
Incentive Plan Awards – Value Vested or Earned During the Year
The following table discloses the number of option-based grants to the NEOs that have vested during the fiscal year ended June 30, 2019 and provides the aggregate dollar value that would have been realized if these Options had been exercised on the vesting date by determining the difference between the market price of the underlying securities and the exercise price of the Options on the vesting date.
|
Name
|
Option-based awards – Value
|
Share-based awards – Value
|
Non-equity incentive plan
|
|
|
vested during the year
|
vested during the year
|
compensation – Value earned
|
|
|
($)(1)
|
($)
|
during the year
|
|
|
|
|
($)
|
|
Rui Feng, CEO and Director
|
225,501
|
Nil
|
Nil
|
|
|
|
|
|
|
Jalen Yuan, CFO
|
83,667
|
Nil
|
Nil
|
|
Gordon Neal, President
|
128,533
|
Nil
|
Nil
|
|
Alex Zhang, Vice President,
|
172,834
|
Nil
|
Nil
|
|
Exploration
|
|
|
|
|
|
Yong-Jae Kim, General Counsel
|
Nil
|
Nil
|
Nil
|
|
and Corporate Secretary
|
|
|
|
|
|
Note:
|
|
|
|
(1) This amount is calculated based on the dollar value that would have been realized by determining the difference between the closing market price of the Common Shares and the exercise price of the Options on the vesting date.
Termination and Change of Control Benefits
The Company does not have any contract, agreement, plan or arrangement that provides for payments to an NEO at, following or in connection with any termination (whether voluntary, involuntary or constructive), resignation, retirement, a change in control of the Company or a change in an NEO’s responsibilities. There are no deferred compensation plans.
DIRECTOR COMPENSATION
Compensation for Directors
Each director, except those who are NEOs, is paid an annual cash compensation of $10,000. In addition, the Company pays Jack Austin annual cash compensation of $30,000 for being Chair of the Board. No other cash compensation was paid to the Company`s directors during the most recently completed financial year other than the reimbursement of out-of-pocket expenses.
The Company has no standard arrangement pursuant to which directors are compensated by the Company for their services in their capacity as directors except for the granting from time to time of Options in accordance with the terms of the Company’s stock option plan and the policies of the TSXV. The following table sets out compensation paid to directors in the financial year ended June 30, 2019:
|
Name(1)
|
Fees
|
Share-
|
Option
|
Non-equity
|
Pension
|
All other
|
Total
|
|
|
earned
|
based
|
based
|
incentive plan
|
value
|
compensation
|
compensation
|
|
|
($)
|
awards
|
awards
|
compensation
|
($)
|
($)
|
($)
|
|
|
|
($)
|
($)(4)
|
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jack Austin
|
40,000
|
Nil
|
90,489
|
Nil
|
Nil
|
Nil
|
130,489
|
|
|
|
|
|
|
|
|
|
|
David Kong
|
10,000
|
Nil
|
90,489
|
Nil
|
Nil
|
Nil
|
100,489
|
|
|
|
|
|
|
|
|
|
|
Greg Hawkins
|
10,000
|
Nil
|
90,489
|
Nil
|
Nil
|
Nil
|
100,489
|
|
|
|
|
|
|
|
|
|
|
John McCluskey
|
10,000
|
Nil
|
90,489
|
Nil
|
Nil
|
Nil
|
100,489
|
|
|
|
|
|
|
|
|
|
|
Martin Wafforn
|
10,000
|
Nil
|
90,489
|
Nil
|
Nil
|
Nil
|
100,489
|
|
|
|
|
|
|
|
|
|
Notes:
(1) Disclosure about compensation payable to Dr. Rui Feng in his capacity as a director of the Company has already been disclosed above under the heading “Summary Compensation Table”.
(2) The Company has adopted IFRS 2 – Share-based Payment to account for the issuance of stock options to employees and non-employees. The fair value of Options is estimated at the grant date using the Black-Scholes Option Pricing Model which requires the input of a number of assumptions. The assumptions used reflect management’s best estimates, but involve inherent uncertainties based on market conditions outside of the control of the Company. The following summarizes the key assumptions used to calculate the fair value of each set of Options granted to directors, who are not NEOs, during the financial year ended June 30, 2019:
|
Name
|
Grant Date
|
Options
|
Exercise
|
Expiry Date
|
Weighted
|
Weighted
|
Weighted
|
Weighted
|
|
|
|
Granted
|
price
|
|
average
|
average
|
average
|
average fair
|
|
|
|
|
($)
|
|
expected
|
risk free
|
volatilities
|
value per
|
|
|
|
|
|
|
lives
|
rates
|
|
option
|
|
|
|
|
|
|
(years)
|
|
|
($)
|
|
|
|
|
|
|
|
|
|
|
|
Jack Austin
|
22-Feb-2019
|
100,000
|
2.15
|
22-Feb-2024
|
2.75
|
1.78%
|
64.44%
|
0.90
|
|
|
|
|
|
|
|
|
|
|
|
David Kong
|
22-Feb-2019
|
100,000
|
2.15
|
22-Feb-2024
|
2.75
|
1.78%
|
64.44%
|
0.90
|
|
|
|
|
|
|
|
|
|
|
|
Greg Hawkins
|
22-Feb-2019
|
100,000
|
2.15
|
22-Feb-2024
|
2.75
|
1.78%
|
64.44%
|
0.90
|
|
|
|
|
|
|
|
|
|
|
|
John McCluskey
|
22-Feb-2019
|
100,000
|
2.15
|
22-Feb-2024
|
2.75
|
1.78%
|
64.44%
|
0.90
|
|
|
|
|
|
|
|
|
|
|
|
Martin Wafforn
|
22-Feb-2019
|
100,000
|
2.15
|
22-Feb-2024
|
2.75
|
1.78%
|
64.44%
|
0.90
|
|
|
|
|
|
|
|
|
|
|
Outstanding Share-based Awards and Option-based Awards
The following tables table summarizes awards outstanding at fiscal year ended June 30, 2019, for each non- executive director.
|
|
Option-Based Awards
|
Share-Based Awards
|
|
|
|
|
|
|
|
|
|
|
Name
|
Number of
|
Option
|
Option
|
Value of
|
Number of
|
Market or
|
Market or
|
|
|
Securities
|
Exercise Price
|
Expiration
|
Unexercised
|
Shares or
|
Payout Value
|
Payout Value
|
|
|
Underlying
|
($)
|
Date
|
In-The-
|
Units of
|
of Share-
|
of Vested
|
|
|
Unexercised
|
|
|
Money
|
Shares that
|
Based
|
Share-Based
|
|
|
Options
|
|
|
Options (1)
|
have not
|
Awards that
|
Awards not
|
|
|
|
|
|
($)
|
Vested (#)
|
have not
|
Paid Out or
|
|
|
|
|
|
|
|
Vested
|
Distributed
|
|
|
|
|
|
|
|
($)
|
($)
|
|
Jack Austin
|
100,000
|
2.15
|
22-Feb-2024
|
25,000
|
Nil
|
Nil
|
Nil
|
|
|
75,000
|
1.15
|
31-Jul-2022
|
93,750
|
Nil
|
Nil
|
Nil
|
|
|
65,000
|
0.55
|
31-Oct-2021
|
120,250
|
Nil
|
Nil
|
Nil
|
|
David Kong
|
100,000
|
2.15
|
22-Feb-2024
|
25,000
|
Nil
|
Nil
|
Nil
|
|
|
75,000
|
1.15
|
31-Jul-2022
|
93,750
|
Nil
|
Nil
|
Nil
|
|
|
125,000
|
0.55
|
31-Oct-2021
|
231,250
|
Nil
|
Nil
|
Nil
|
|
Greg Hawkins
|
100,000
|
2.15
|
22-Feb-2024
|
25,000
|
Nil
|
Nil
|
Nil
|
|
|
75,000
|
1.15
|
31-Jul-2022
|
93,750
|
Nil
|
Nil
|
Nil
|
|
|
125,000
|
0.55
|
31-Oct-2021
|
231,250
|
Nil
|
Nil
|
Nil
|
|
John McCluskey
|
100,000
|
2.15
|
22-Feb-2024
|
25,000
|
Nil
|
Nil
|
Nil
|
|
|
300,000
|
1.15
|
31-Jul-2022
|
375,000
|
Nil
|
Nil
|
Nil
|
|
Martin Wafforn
|
100,000
|
2.15
|
22-Feb-2024
|
25,000
|
Nil
|
Nil
|
Nil
|
|
|
200,000
|
1.57
|
7-Dec-2022
|
166,000
|
Nil
|
Nil
|
Nil
|
Notes:
(1) The value of the unexercised in-the-money options is based on the closing price of the Common Shares on the TSXV of $2.40 per Common Share as at June 30, 2019 (using the last trading date price of $2.40 as of June 28, 2019) net of the exercise price of the Options.
Incentive Plan Awards – Value Vested or Earned During the Year
The following table discloses the number of option-based grants to each non-executive directors of the Company that have vested during the fiscal year ended June 30, 2019 and provides the aggregate dollar value that would have been realized if these Options had been exercised on the vesting date by determining the difference between the market price of the underlying securities and the exercise price of the Options on the vesting date.
|
Name
|
Option-based awards – Value
|
Share-based awards – Value
|
Non-equity incentive plan
|
|
|
vested during the year
|
vested during the year
|
compensation – Value earned
|
|
|
($)(1)
|
($)
|
during the year
|
|
|
|
|
($)
|
|
Jack Austin
|
68,001
|
Nil
|
Nil
|
|
David Kong
|
68,001
|
Nil
|
Nil
|
|
Greg Hawkins
|
68,001
|
Nil
|
Nil
|
|
John McCluskey
|
62,000
|
Nil
|
Nil
|
|
Martin Wafforn
|
21,333
|
Nil
|
Nil
|
Note:
(1) This amount is calculated based on the dollar value that would have been realized by determining the difference between the closing market price of the Common Shares and the exercise price of the Options on the vesting date.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The only equity compensation plan which the Company has in place is its stock option plan (the “Plan”) which was last approved by the Shareholders on December 10, 2018. At the 2018 annual general meeting, Shareholders approved a new amendment to the Plan in order to, among other things, convert the Plan from a “fixed number plan” to a “rolling 10% plan”. A copy of the Plan is attached as Appendix A to the Circular for the year ended June 30, 2019 and may be obtained by contacting the Company at the address on the cover of this Circular or under the Company’s profile on SEDAR at www.sedar.com.
The Plan has been established to attract and retain employees, consultants, officers or directors to the Company and to motivate them to advance the interests of the Company by affording them with the opportunity to acquire an equity interest in the Company. The Plan is administered by the directors and Compensation Committee. The maximum number of Common Shares that may be reserved for issuance for all purposes under the Plan is 10% of the issued and outstanding Common Shares, from time to time. Any Common Shares reserved for issuance pursuant to an Option which for any reason is cancelled or terminated without having been exercised will again be available for grant under the Plan. Additionally, if any Option has been exercised, the number of Common Shares into which such Option was exercised will become available to be issued upon the exercise of Options subsequently granted under the Plan. Thus, upon exercise of Options, the Common Shares underlying such Options will become available for issuance under the Plan. See Appendix A for additional detail.
The Company has an authorized capital of an unlimited number of common shares without par value, of which 142,924,618 Common Shares were issued and outstanding as fully paid and non-assessable as of the Record Date. The total number of Options available under the Plan is 14,292,461 (representing 10% of the Company’s issued and outstanding Common Shares). A further 5,550,027 Options have been reserved and allotted for issuance upon the due and proper exercise of certain Options outstanding as at the date hereof which represents 3.9% of the Company’s issued and outstanding Common Shares. 8,742,434 Options are available for future issuance under the Plan (representing 6.1% of the Company’s issued and outstanding Common Shares).
As of the date of this Circular, the Company has outstanding Options to purchase 5,550,027 Common Shares at exercise prices from $0.55 to $2.30 per Common Share and original terms of five years, with the last Options expiring on April 23, 2024.
The following table sets out equity compensation plan information as at the end of the financial year ended June 30, 2019.
Equity Compensation Plan Information as at June 30, 2019
|
Plan Category
|
Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights
|
Weighted-average exercise
price of outstanding options,
warrants and rights
|
Number of securities
remaining available for
future issuance under equity
compensation plans
(excluding securities
reflected in column (a))
|
|
Equity compensation plans approved by security holders
|
5,905,000 Common Shares
|
$1.36
|
8,338,281 Common Shares
|
|
Equity compensation plans not approved by security holders
|
Nil
|
Nil
|
Nil
|
|
Total
|
5,905,000 Common Shares
|
$1.36
|
8,338,281 Common Shares
|
INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS
During the Company’s last completed financial year-ended June 30, 2019, no director or executive officer of the Company, no proposed nominee for election as a director of the Company, and no associate of any of the foregoing persons has been indebted to the Company or any of its subsidiaries, nor has any of these individuals been indebted to another entity which indebtedness is the subject of a guarantee, support agreement, letter of credit or other similar arrangement or understanding provided by the Company or any of its subsidiaries.
MANAGEMENT CONTRACTS
There are no management functions of the Company that are to any substantial degree performed by a person or company other than the directors or executive/senior officers (or private companies controlled by them, either directly or indirectly) of the Company or its subsidiaries.
INTEREST OF INFORMED PERSONS IN MATERIAL TRANSACTIONS
Except as disclosed in this Circular, during the most recently completed financial year, no informed person of the Company, nominee for election as a director or any associate or affiliate of an informed person or nominee, had any material interest, direct or indirect, in any transaction or any proposed transaction which has materially affected or would materially affect the Company or any of its subsidiaries. An “informed person” means: (a) a director or executive officer of the Company; (b) a director or executive officer of a person or company that is itself an informed person or subsidiary of the Company; (c) any person or company who beneficially owns, directly or indirectly, voting securities of the company or who exercises control or direction over voting securities of the Company or a combination of both carrying more than 10% of the voting rights other than voting securities held by the person or company as underwriter in the course of a distribution; and (d) the Company itself, if and for so long as, it has purchased, redeemed or otherwise acquired any of its shares.
Material Transactions - Since July 1, 2018
Related Party Transactions
The following summarizes the Company’s relationship with related parties:
|
Transactions with related parties
|
Years ended June 30,
|
|
2019
|
2018
|
|
Silvercorp Metals Inc.
|
$304,561
|
$351,280
|
Related party transactions are entered into based on normal market conditions at the amounts agreed on by the parties. As at June 30, 2019, the balances with related parties, which are unsecured, non-interest bearing, and due on demand, are as follows:
|
Due to related parties
|
June 30, 2019
|
June 30, 2018
|
|
Silvercorp Metals Inc.
|
$89,189
|
$24,417
|
Silvercorp Metals Inc. has two common directors and two officers with the Company and shares office space and provides various general and administrative services to the Company. During the year ended June 30, 2019, the Company recorded total expenses of $304,561 (year ended June 30, 2018 - $351,280) for services rendered and expenses incurred by Silvercorp Metals Inc. on behalf of the Company.
AUDITOR
Deloitte LLP, Chartered Professional Accountants, of Vancouver, British Colubmia, are the auditors for the Company and have advised that they are independent with respect to the Company within the meaning of the Rules of Professional Conduct of the Institute of Chartered Professional Accountants of British Columbia.
OTHER BUSINESS
Management knows of no other matters which will come before the Meeting, other than as set forth above and in the Notice of Meeting, but if such should occur, the persons named in the enclosed Form of Proxy intend to vote on them in accordance with their best judgment exercising discretionary authority with respect to amendments or variations of matters identified in the Notice of Meeting and other matters which may properly come before the Meeting, or any adjournments thereof.
ADDITIONAL INFORMATION
Additional information relating to the Company is available under the Company’s profile under SEDAR at www.sedar.com.
Financial information regarding the Company and its affairs is provided in the Company’s comparative financial statements and management discussion and analysis (“MD&A”) for its financial year ended June 30, 2019. Shareholders may contact the Company at the address set out on the face page of this Circular to request free copies of the Company’s financial statements and MD&A. Alternatively, they can be found under the Company’s profile on SEDAR at www.sedar.com and the Company’s website at www.newpacificmetals.com.
BOARD APPROVAL
The contents of this Circular have been approved and its mailing has been authorized by the directors of the Company.
Dated at Vancouver, British Columbia, this 29th day of October, 2019.
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BY ORDER OF THE BOARD OF DIRECTORS
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“Rui Feng”
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Dr. Rui Feng
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Chief Executive Officer and Director
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New Pacific Metals Corp.
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SCHEDULE “A”
MANDATE OF THE BOARD OF DIRECTORS OF
NEW PACIFIC METALS CORP.
The Board is responsible for the stewardship of the Company and for the oversight of its management and affairs.
Directors shall exercise their best business judgment in a manner consistent with their fiduciary duties. The Board’s primary responsibilities, which are discharged directly and through delegation to its Committees, include the following:
∙ To act honestly and in good faith with a view to the best interests of the Company.
∙ To exercise due care, diligence and skill that reasonably prudent persons would exercise in comparable circumstances.
∙ Consistent with its responsibilities to the Company, to further the interests of the shareholders.
∙ To consider business opportunities and risks and to adopt strategic plans from time to time.
∙ To identify the principal risks of the Company’s business, and to implement an appropriate system to manage these risks.
∙ To develop an investor relations and shareholder communications policy for the Company.
∙ To oversee management’s adoption of effective internal control and management information systems.
∙ To review and approve annual and quarterly financial statements and the publication thereof by management.
∙ To approve operating plans and any capital budget plans.
∙ To select and approve all key executive appointments, and to monitor executive development.
∙ To develop the Company’s approach to corporate governance, including establishing a set of corporate governance principles and guidelines that are specifically applicable to the Company.
∙ To adopt a code of conduct to govern employees and management in their activities for and on behalf of the Company.
∙ To promote a culture of integrity throughout the Company consistent with the adopted code of conduct.
∙ To take action on issues that by law or practice requires the independent action of a Board or one of its Committees.
∙ To oversee management in its implementation of effective programs to provide a safe work environment, to employ sound environmental practices, and to operate in accordance with applicable laws, regulations and permits.
∙ To oversee management in its implementation of an effective communications policy with regard to investors, employees, the communities in which it operates and the governments of those communities.
SCHEDULE “B”
CHARTER FOR THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS OF
NEW PACIFIC METALS CORP.
1.0 Purpose of the Committee
1.1 The purpose of the Compensation Committee is to assist the Board in discharging its duties relating to compensation of the executive officers of the Company.
2.0 Members of the Compensation Committee
2.1 The Compensation Committee shall consist, whenever possible, of no less than three Directors, a majority of whom shall be “independent” as defined under Multilateral Instrument 52-110, while the Company is in the developmental stage of its business. The members of the Committee shall be selected annually by the Board and shall serve at the pleasure of the Board.
3.0 Meeting Requirements
3.1 The Committee shall meet as necessary, but at least once each year, to enable it to fulfill its responsibilities. Without a meeting, the Committee may act by unanimous written consent of all members.
3.2. The Committee may meet by telephone conference call or by any other means permitted by law or the Company’s by-laws. A majority of the members of the Committee shall constitute a quorum.
3.3 Minutes will be kept of each meeting of the Compensation Committee.
4.0 Committee Responsibilities
4.1 The Committee shall be responsible for:
i. reviewing and approving corporate goals and objectives relative to the compensation of senior management, evaluating senior management’s performance in light of those goals and objectives, and making recommendations to the board with respect to senior management’s compensation level based on this evaluation;
ii. making recommendations to the Board with respect to the compensation of other senior management and executive officers of the Company;
iii. reviewing the adequacy and form of the compensation and benefits of the directors in their capacity as directors of the Company to ensure that such compensation realistically reflects the responsibilities and risks involved in being an effective director;
iv. reviewing and making periodic recommendations to the Board as to the general compensation and benefits policies and practices of the Company, including incentive compensation plans and equity based plans;
v. reviewing directors and officers compensation disclosure before the Company discloses this information;
vi. performing such other functions as the Board may from time to time assign to the Committee;
vii. approving all special perquisites, special cash payments, bonuses and other special compensation and benefit arrangements for the Company’s executive officers; and
viii. reviewing its charter from time to time and recommending any changes thereto to the Board.
5.0 Miscellaneous
5.1 Nothing contained in this Charter is intended to extend applicable standards of liability under statutory or regulatory requirements for the directors of the Company or members of the Committee. The purposes and responsibilities outlined in this Charter are meant to serve as guidelines rather than as inflexible rules and the Committee is encouraged to adopt such additional procedures and standards as it deems necessary from time to time to fulfill its responsibilities.
SCHEDULE “C”
CHARTER FOR THE CORPORATE GOVERNANCE
COMMITTEEOF THE BOARD OF DIRECTORS OF
NEW PACIFIC METALS CORP.
New Pacific Metals Corp. (the “Company”) has established a Corporate Governance (the “Committee”) of the Board of Directors (the “Board”) which consists of three or more directors, a majority of whom shall be independent. The Committee meets at least annually, or more frequently as required.
The Committee’s mandate is to assist the Board in establishing and maintaining a sound system of corporate governance through a process of continuing assessment and enhancement.
The Committee’s duties and responsibilities are:
∙ To advise the Chairman of the Board and the Board on matters of corporate governance, including adherence to any governance guidelines or rules established by applicable regulatory authorities.
∙ To advise the Board on issues of conflict of interest for individual directors.
∙ To examine the effectiveness of the Company’s corporate governance practices at least annually and to propose such procedures and policies as the Committee believes are appropriate to ensure that the Board functions independently of management, management is accountable to the Board and procedures are in place to monitor the effectiveness of performance of the Board, committees of the Board and individual directors.
∙ To develop and review, together with the Chairman, CEO and the President of the Board, annual Board goals or improvement priorities.
∙ To identify and to recommend to the Board suitable candidates for nomination as new directors, and to review the credentials of directors standing for re-election.
∙ With assistance of management, to organize and provide an orientation program for new directors where appropriate.
∙ To periodically review the mandates of the Board and committees of the Board and determine what additional committees of the Board, if any, are required or appropriate.
∙ To develop such codes of conduct and other policies as are appropriate to deal with the confidentiality of the Company’s information, insider trading and the Company’s timely disclosure and other public company obligations.
∙ To take such other steps as the Committee decides are appropriate, in consultation with the Board, to ensure that proper corporate governance practices are in place for the Company, with reference to the Toronto Stock Exchange guidelines or recommendations and other regulatory requirements on corporate governance.To review its charter and assess annually the adequacy of this mandate, the effectiveness of its performance and, when necessary, and to recommend changes to the Board of Directors for its approval.
EXHIBIT “A”
NEW PACIFIC METALS CORP.
SHARE BASED COMPENSATION PLAN
PART 1
INTERPRETATION
1.01 Definitions Where used herein or in any amendments hereto or in any communication required or permitted to be given hereunder, the following words and phrases shall have the following meanings, respectively, unless the context requires otherwise:
(a) “Award” means a grant to a Participant of one or more Options, PSUs or RSUs pursuant to the terms of this Plan;
(b) “Award Agreement” means an Option Award Agreement, a PSU Award Agreement, and/or an RSU Award Agreement or such other written contract, certificate or other instrument or document evidencing an individual Award granted under the Plan, if any, which may, in the discretion of the Company, be evidenced in electronic form (as applicable) as the context requires;
(c) “Board” means the board of directors of the Company as constituted from time to time, and includes any committee of directors appointed by the directors as contemplated by Section 3.01 hereof;
(d) “Canadian Taxpayer” means a Participant (other than a Consultant) who is resident in Canada for the purposes of the Tax Act or is otherwise liable to pay tax under the Tax Act in respect of an Award;
(e) “Change of Control” means, at any time the occurrence of any of the following, in one transaction or a series of related transactions:
(i) the acquisition by any person or persons acting jointly or in concert (as determined by the Securities Act), whether directly or indirectly, of beneficial ownership of voting securities of the Company that, together with all other voting securities of the Company held by such persons, constitute in the aggregate, more than 50% of all of the then outstanding voting securities of the Company;
(ii) an amalgamation, merger, arrangement, consolidation, share exchange, take- over bid or other form of business combination of the Company or any of its subsidiaries with another person that results in the holders of voting securities of that other person holding, in the aggregate, more than 50% of all outstanding voting securities of the person resulting from the business combination;
(iii) the sale, lease, exchange or other disposition of all or substantially all of the property of the Company or any of its affiliates to another person, other than (A) in the ordinary course of business of the Company or of an affiliate of the Company or (B) to the Company or any one or more of its affiliates; or
(iv) a resolution is adopted to wind-up, dissolve or liquidate the Company.
Notwithstanding the foregoing, a transaction or a series of related transactions will not constitute a Change of Control if such transaction(s) result(s) in the Company, any successor to the Company, or any successor to the Company’s business, being controlled, directly or indirectly, by the same person or persons who controlled the Company, directly or indirectly, immediately before such transaction(s);
(f) “Company” means New Pacific Metals Corp.;
(g) “Consultant” means a person (other than an Employee or a Director) that:
(i) is engaged to provide on an ongoing bona fide basis, consulting, technical, management or other services to the Company or to an affiliate of the Company, other than services provided in relation to a sale of securities of the Company from treasury;
(ii) provides the services under a written contract with the Company or one of its affiliates;
(iii) in the reasonable opinion of the Company, spends or will spend a significant amount of time and attention on the affairs and business of the Company or its affiliate; and
(iv) has a relationship with the Company or its affiliates that that enables such person to be knowledgeable about the business and affairs of the Company.
(h) “Director” means any director of the Company or of any of its subsidiaries;
(i) “Dividend Equivalents” means the right, if any, granted under PART 8, to receive future payments in cash or in Shares, based on dividends declared on Shares;
(j) “Eligible Person” means a Director, Officer, Consultant or Employee who is eligible to receive Awards under the Plan;
(k) “Employee” means any individual in the employment of the Company or any of its subsidiaries or of a company providing management or administrative services to the Company;
(l) “Exchange” means the TSX Venture Exchange;
(m) “Exchange Policy” means the policies, bylaws, rules and regulations of the Exchange governing the granting of Awards by the Company, as amended from time to time;
(n) “Grant Date” means the date on which the Award is made to an Eligible Person in accordance with the provisions hereof;
(o) “Insider” has the meaning ascribed thereto in the Exchange Policy;
(p) “Investor Relations Activities” has the meaning ascribed thereto in the Exchange Policy;
(q) “Market Price” as of a particular date, shall be equal to the closing price of the Shares for the trading day immediately preceding such date as reported by the Exchange, or, if the Shares are not listed on the Exchange, on such other principal stock exchange or over- the-counter market on which the Shares are listed or quoted, as the case may be. If the Shares are not publicly traded or quoted, then the “Market Price” shall be the fair market value of the Shares, as determined by the Board, on the particular date;
(r) “Option” means an option to purchase Shares of the Company pursuant to the Plan;
(s) “Option Award Agreement” means a written award agreement, substantially in the form of Schedule A – Option Award Agreement, or such other form as the Board may approve from time to time, setting out the terms and conditions relating to an Option and entered into in accordance with Section 5.02;
(t) “Option Price” means the Market Price on the Grant Date of the Options;
(u) “Officer” means any officer of the Company or of any of its subsidiaries as defined in the Securities Act;
(v) “Outstanding Issue” means the issued and outstanding Shares, as determined by Exchange Policy and by Securities Laws;
(w) “Participants” means an Eligible Person granted Awards in accordance with the Plan;
(x) “Plan” means this share based compensation plan as from time to time amended;
(y) “Performance Criteria” means criteria established by the Board which, without limitation, may include criteria based on the Participant’s personal performance, the financial performance of the Company and/or of its subsidiaries and/or achievement of corporate goals and strategic initiatives, and that may be used to determine the vesting of the Awards, when applicable;
(z) “PSU” means a performance share unit granted in accordance with Section 6.01, the value of which on any particular date will be equal to the Market Price of one Share, and that represents the conditional right, on the terms and conditions set out in the Plan and the applicable PSU Award Agreement, to receive a cash payment equal to the Market Price of one Share on settlement of the PSU or its equivalent in Shares at the discretion of the Company;
(aa) “PSU Award Agreement” means a written confirmation agreement, substantially in the form of Schedule B – PSU Award Agreement, or such other form as the Board may approve from time to time, setting out the terms and conditions relating to a PSU and entered into in accordance with Section 6.02;
(bb) “RSU” means a restricted share unit granted in accordance with Section 7.01, the value of which on any particular date will be equal to the Market Price of one Share, and that represents the conditional right, on the terms and conditions set out in the Plan and the applicable RSU Award Agreement, to receive a cash payment equal to the Market Price of one Share on settlement of the RSU or its equivalent in Shares at the discretion of the Company;
(cc) “RSU Award Agreement” means a written confirmation agreement, substantially in the form of Schedule C – RSU Award Agreement, or such other form as the Board may approve from time to time, setting out the terms and conditions relating to an RSU and entered into in accordance with Section 7.02;
(dd) “Securities Act” means the Securities Act, R.S.B.C. 1996, c.418, as amended, from time to time;
(ee) “Securities Laws” means the acts, policies, bylaws, rules and regulations of the Canadian securities commissions governing the granting of Awards by the Company, as amended from time to time;
(ff) “Service Agreement” means any written agreement between a Participant and the Company or a subsidiary of the Company (as applicable), in connection with that Participant’s employment, service or engagement as a Director, Officer, Consultant or Employee or the termination of such employment, service or engagement, as amended, replaced or restated from time to time;
(gg) “Shares” means common shares of the Company;
(hh) “Tax Act” means the Income Tax Act (Canada) and its regulations thereunder, as amended from time to time.
1.02 Gender Throughout this Plan, words importing the masculine gender shall be interpreted as including the female gender.
PART 2
PURPOSE OF PLAN
2.01 Purpose The purpose of this Plan is to attract and retain Employees, Consultants, Officers or Directors to the Company and to motivate them to advance the interests of the Company by affording them with the opportunity to acquire an equity interest in the Company through Awards granted under this Plan to purchase Shares.
PART 3
ADMINISTRATION OF PLAN
3.01 Administration This Plan shall be administered and interpreted by the Board or, if the Board so elects, by a committee (which may consist of only one person) appointed by the Board from its members, and in such circumstances, all references to the term “Board” will be deemed to be references to such Committee, except as may otherwise be determined by the Board. The day-to- day administration of the Plan may be delegated to such Officers and Employees as the Board determines.
3.02 Board Authority Subject to the terms and conditions set forth in the Plan, the Board shall have the sole and absolute discretion to: (i) designate Participants; (ii) determine the type, size, price, terms, and conditions of Awards to be granted; (iii) determine the method by which an Award may be vested, settled, exercised, canceled, forfeited, or suspended; (iv) determine the circumstances under which the delivery of cash, property, or other amounts payable with respect to an Award may be deferred either automatically or at the Participant’s or the Board’s election; (v) interpret and administer, reconcile any inconsistency in, correct any defect in, and supply any omission in the Plan and any Award granted under, the Plan; (vi) establish, amend, suspend, or waive any rules and regulations and appoint such agents as the Board shall deem appropriate for the proper administration of the Plan; (vii) subject to Exchange acceptance, if applicable, accelerate the vesting, delivery, or exercisability of, or payment for or lapse of restrictions on, or waive any condition in respect of, Awards; and (viii) make any other determination and take any other action that the Board deems necessary or desirable for the administration of the Plan or to comply with any applicable law.
No member of the Board will be liable for any action or determination taken or made in good faith in the administration, interpretation, construction or application of the Plan, any Award Agreement or other document or any Awards granted pursuant to the Plan.
Unless otherwise expressly provided in the Plan, all designations, determinations, interpretations, and other decisions regarding the Plan or any Award or any documents evidencing any Award granted pursuant to the Plan shall be within the sole discretion of the Board, may be made at any time, and shall be final, conclusive, and binding upon all persons or entities, including, without limitation, the Company, any subsidiary of the Company, any Participant, any holder or beneficiary of any Award, and any shareholder of the Company.
3.03 Committee's Recommendations The Board may accept all or any part of recommendations of the committee or may refer all or any part thereof back to the committee for further consideration and recommendation.
3.04 Clawback Policy All Awards granted under this Plan will be subject to the Company’s Policy on Recoupment of Incentive Compensation (the “Clawback Policy”), as amended from time to time.
PART 4
RESERVE OF SHARES FOR AWARDS
4.01 Sufficient Authorized Shares to be Reserved A sufficient number of Shares shall be reserved by the Board to satisfy the exercise of Awards granted under this Plan. Shares that were the subject of Awards that have lapsed or terminated shall thereupon no longer be in reserve and may once again be subject to an Award granted under this Plan. If any Award has been exercised, the number of Shares into which such Award was exercised shall become available to be issued upon the exercise of Awards subsequently granted under the Plan; provided, however that any RSU or PSU that has been exercised will no longer be available to be subsequently granted under the Plan.
4.02 Maximum Number of Shares to be Reserved Under Plan The aggregate number of Shares which may be subject to issuance pursuant to Awards granted under this Plan, and inclusive of any other share-based compensation arrangement adopted by the Company, shall be equal to 10% of the Outstanding Issue, from time to time. Furthermore, no more than 3,500,000 Shares may be granted in the form of RSUs and no more than 780,000 Shares may be granted in the form of PSUs.
4.03 Maximum Number of Shares Reserved Unless authorized by shareholders of the Company, this Plan, together with all of the Company's other previously established or proposed stock options, stock option plans, employee stock purchase plans or any other compensation or incentive mechanisms involving the issuance or potential issuance of Shares, shall not result in:
(a) the number of Shares (i) issued to Insiders, within any one year period, and (ii) issuable to Insiders, at any time, exceeding 10% of the Outstanding Issue;
(b) the issuance to any one Insider and such Insider's associates, within a one year period, of a number of Shares exceeding 5% of the Outstanding Issue;
(c) the issuance to any one Consultant, in a 12-month period, of a number of Shares exceeding 2% of the Outstanding Issue at the time of granting of the Awards;
(d) the issuance to persons retained to provide Investor Relations Activities, in a 12-month period, of a number of Shares exceeding 2% of the Outstanding Issue at the time of granting of the Awards which Awards must vest in stages over a period of not less than 12 months with no more than one-quarter of the Awards vesting in any three month period;
(e) the issuance to persons retained to provide Investor Relations Activities of any RSU or PSU;
(f) the issuance to any one Eligible Person, in a twelve month period, of a number of RSUs and PSUs, on an aggregate basis, exceeding 1% of the Outstanding Issue at the time of granting of the Awards and the issuance to all Eligible Persons, in a twelve month period, of a number of RSUs and PSUs, on an aggregate basis, exceeding 2% of the Outstanding Issue at the time of granting of the Awards; or
(g) a number of Shares issuable to any one non-executive Director within a one-year period exceeding an Award value of $150,000 per such non-executive Director, of which no more than $100,000 may comprise Options based on a generally accepted valuation method acceptable to the Board.
4.04 Number of Shares The number of Shares reserved for issuance to any one person pursuant to Awards granted under this Plan shall not exceed 5% of the Outstanding Issue at the time of granting of the Awards.
4.05 No Fractional Shares No fractional Shares shall be issued upon the exercise of Options or the settlement of PSUs or RSUs in Shares, and, accordingly, if a Participant would become entitled to a fractional Share upon the exercise of an Option or settlement of a PSU or RSU in Shares, such Participant will only have the right to acquire the next lowest whole number of Shares, and no payment or other adjustment will be made with respect to the fractional interest so disregarded.
PART 5
OPTIONS
5.01 Grant Options may be granted to Eligible Persons at such time or times as shall be determined by the Board by resolution. The Grant Date of an Option for purposes of the Plan will be the date on which the Option is awarded by the Board, or such later date determined by the Board, subject to applicable Securities Laws and Exchange Policy.
5.02 Terms and Conditions Options shall be evidenced by an Option Award Agreement, which shall specify such terms and conditions, not inconsistent with the Plan, as the Board shall determine, including:
(a) the number of Shares to which the Options to be awarded to the Participant pertain;
(b) the exercise price of the Options, which shall not be less than the Option Price on the Grant Date;
(c) the expiry date of the Options, which will not be later than ten years from the Grant Date or such shorter period as prescribed by the Exchange;
(d) the vesting schedule of the Options; and
(e) such other terms and conditions, not inconsistent with the Plan, as the Board shall determine, including customary representations, warranties and covenants with respect to matters relating to Securities Laws.
For greater certainty, each Option Award Agreement may contain terms and conditions in addition to those set forth in the Plan.
5.03 Vesting Subject to PART 10, unless otherwise determined by the Board in accordance with the provisions hereof, or unless otherwise specified in the Participant’s Service Agreement or Option Award Agreement, each Option shall vest as to one-quarter of the number of Shares granted by such Option every six months following the Grant Date for the first two anniversaries of the Grant Date of such Option (and in no circumstances shall Options vest at a rate that is faster).
5.04 Method of Exercise Subject to the exercisability and termination provisions set forth in this Plan and in the applicable Option Award Agreement, Options may be exercised, in whole or in part, at any time and from time to time during the term of the Option, by the delivery of written notice of exercise (the “Exercise Notice”) by the Participant to the Company substantially in the form of Appendix A to the Option Award Agreement specifying the number of Shares to be purchased. Such notice will be accompanied by payment in full of the Option Price and any applicable tax withholdings by one of following methods: in cash, by certified cheque or bank draft payable to the Company or by wire transfer of immediately available funds.
5.05 Termination of Employment If a Director, Officer, Consultant or Employee ceases to be so engaged by the Company for any reason other than death, such Director, Officer, Consultant or Employee shall have such rights to exercise any vested Option not exercised prior to such termination within the lesser of a period of 90 calendar days after the date of termination or the expiry date of the Option, or such shorter period as may be set out in the Participant’s Option Award Agreement. For the avoidance of doubt, subject to applicable laws, no period of notice, if any, or payment instead of notice that is given or that ought to have been given under applicable law, whether by statute, imposed by a court or otherwise, in respect of such termination of employment that follows or is in respect of a period after the Participant’s termination date will be considered as extending the Participants period of employment for the purposes of determining his entitlement under the Plan. The Participant shall have no entitlement to damages or other compensation arising from or related to not receiving any Awards which would have settled or vested or accrued to the Participant after the termination date.
5.06 Death If a Director, Officer, Consultant or Employee dies prior to the expiry of his Option, his legal representatives may, within the lesser of one year from the date of the Participant's death or the expiry date of the Option, exercise that portion of an Option granted to the Director, Officer, Consultant or Employee under this Plan which remains outstanding.
PART 6
PERFORMANCE SHARE UNITS
6.01 Grant PSUs may be granted to Eligible Persons at such time or times as shall be determined by the Board by resolution. The Grant Date of a PSU for purposes of the Plan will be the date on which the PSU is awarded by the Board, or such later date determined by the Board, subject to Securities Laws and Exchange Policy.
6.02 Terms and Conditions Any PSU granted under this Plan shall be evidenced by a PSU Award Agreement which shall specify such terms and conditions, not inconsistent with the Plan, as the Board shall determine, including:
(a) the number of PSUs to be awarded to the Participant;
(b) the performance cycle applicable to each PSU, which shall be the period of time between the Grant Date and the date on which the Performance Criteria specified in Section 6.02(c) must be satisfied before the PSU is fully vested and may be settled by the Participant, before being subject to forfeiture or termination, which period of time, for Canadian Taxpayers, shall in no case end later than November 30 of the calendar year which is two years after the calendar year in which the Grant Date occurs;
(c) the Performance Criteria that shall be used to determine the vesting of the PSUs;
(d) whether and to what extent Dividend Equivalents will be credited to a Participant’s PSU Account in accordance with PART 8; and
(e) such other terms and conditions, not inconsistent with the Plan, as the Board shall determine, including customary representations, warranties and covenants with respect to matters relating to Securities Laws.
For greater certainty, each PSU Award Agreement may contain terms and conditions in addition to those set forth in the Plan and, if applicable. No Shares will be issued on the Grant Date and the Company shall not be required to set aside a fund for the payment of any such Awards.
6.03 PSU Accounts A separate notional account shall be maintained for each Participant with respect to PSUs granted to such Participant (a “PSU Account”) in accordance with Section 14.03. PSUs awarded to the Participant from time to time pursuant to Sections 6.01 shall be credited to the Participant’s PSU Account and shall vest in accordance with Section 6.04. On the vesting of the PSUs pursuant to Section 6.04 and the corresponding issuance of cash and/or Shares to the Participant pursuant to Section 6.05, or on the forfeiture or termination of the PSUs pursuant to the terms of the Award, the PSUs credited to the Participant’s PSU Account will be cancelled.
6.04 Vesting Subject to PART 10, unless otherwise determined by the Board in accordance with the provisions hereof, or unless otherwise specified in the Participant’s Service Agreement or PSU Award Agreement, each PSU shall vest as at the date that is the end of the performance cycle (which shall be the “PSU Vesting Date”), subject to any Performance Criteria having been satisfied and will be settled in accordance with Section 6.05.
6.05 Settlement
(a) The PSUs may be settled by delivery by the Participant to the Company of a notice of settlement, substantially in the form attached as Schedule 1 – Notice of Settlement of PSUs attached to the PSU Award Agreement, acknowledged by the Company. On settlement, the Company shall, for each vested PSU being settled, deliver to the Participant a cash payment equal to the Market Price of one Share as of the PSU Vesting Date, one Share, or any combination of cash and Shares equal to the Market Price of one Share as of the PSU Vesting Date, in the sole discretion of the Board.
No certificates for Shares issued in settlement will be issued to the Participant until the Participant and the Company have each completed all steps required by law to be taken in connection with the issuance of the Shares, including receipt from the Participant of payment or provision for all withholding taxes due as a result of the settlement of the PSUs. The delivery of certificates representing the Shares to be issued in settlement of PSUs will be contingent upon the fulfilment of any requirements contained in the PSU Award Agreement or applicable provisions of laws.
(b) For greater certainty, for Canadian Taxpayers, in no event shall such settlement be later than December 31 of the calendar year which is three years after the calendar year in which the Grant Date occurs.
6.06 Termination of Employment If a Director, Officer, Consultant or Employee ceases to be so engaged by the Company for any reason other than death, all outstanding PSUs that were vested on or before the date of the termination of employment or services of such Director, Officer, Consultant or Employee shall be settled in accordance with Section 6.05 as of the date of termination, after which time the PSUs shall in all respects terminate.
6.07 Death If a Director, Officer, Consultant or Employee dies, all outstanding PSUs that were vested on or before the date of the date of death such Director, Officer, Consultant or Employee shall be settled in accordance with Section 6.05 as of the date of death. Outstanding PSUs that were not vested on or before the date of death shall vest and be settled in accordance with Section 6.05 as of the date of death, prorated to reflect the actual period between the commencement of the performance cycle and the date of death, based on the Performance Criteria for the applicable performance period(s) up to the date of death. Subject to the foregoing, any remaining PSUs shall in all respects terminate as of the date of death.
6.08 PSU Tax Considerations Any PSUs that are awarded to a Participant who is a resident of Canada or employed in Canada (each for purposes of the Tax Act) shall be structured so as to be considered to be a plan described in section 7 of the Tax Act or in such other manner to ensure that such award is not a “salary deferral arrangement” as defined in the Tax Act (or any successor to such provisions).
PART 7
RESTRICTED SHARE UNITS.
7.01 Grant RSUs may be granted to Eligible Persons at such time or times as shall be determined by the Board by resolution. The Grant Date of a RSU for purposes of the Plan will be the date on which the RSU is awarded by the Board, or such later date determined by the Board, subject to Securities Laws and Exchange Policy.
7.02 Terms and Conditions Any RSU granted under this Plan shall be evidenced by an RSU Award Agreement which shall specify such terms and conditions, not inconsistent with the Plan, as the Board shall determine, including:
(a) the number of RSUs to be awarded to the Participant;
(b) the period of time between the Grant Date and the date on which the RSU is fully vested and may be settled by the Participant, before being subject to forfeiture or termination, which period of time, for Canadian Taxpayers, shall in no case be later than November 30 of the calendar year which is two years after the calendar year in which the Grant Date occurs;
(c) whether and to what extent Dividend Equivalents will be credited to a Participant’s RSU Account in accordance with PART 8; and
(d) such other terms and conditions, not inconsistent with the Plan, as the Board shall determine, including customary representations, warranties and covenants with respect to matters relating to Securities Laws.
For greater certainty, each RSU Award Agreement may contain terms and conditions in addition to those set forth in the Plan and, if applicable. No Shares will be issued on the Grant Date and the Company shall not be required to set aside a fund for the payment of any such Awards.
7.03 RSU Accounts A separate notional account shall be maintained for each Participant with respect to RSUs granted to such Participant (an “RSU Account”) in accordance with Section 14.03. RSUs awarded to the Participant from time to time pursuant to Sections 7.01 shall be credited to the Participant’s RSU Account and shall vest in accordance with Section 7.04. On the vesting of the RSUs pursuant to Section 7.04 and the corresponding issuance of cash and/or Shares to the Participant pursuant to Section 7.05, or on the forfeiture or termination of the RSUs pursuant to the terms of the Award, the RSUs credited to the Participant’s RSU Account will be cancelled.
7.04 Vesting Subject to PART 10, unless otherwise determined by the Board in accordance with the provisions hereof, or unless otherwise specified in the Participant’s Service Agreement or RSU Award Agreement, each RSU shall vest when all applicable restrictions shall have lapsed (which shall be the “RSU Vesting Date”) and will be settled in accordance with Section 7.05. Unless otherwise determined by the Board in accordance with the provisions hereof, or unless otherwise specified in the Participant’s Service Agreement or RSU Award Agreement, each RSU shall vest and shall be settled on November 30th following the two year anniversary of the Grant Date.
7.05 Settlement
(a) The RSUs may be settled by delivery by the Participant to the Company of a notice of settlement, substantially in the form attached as Schedule 1 – Notice of Settlement of RSUs attached to the RSU Award Agreement, acknowledged by the Company. On settlement, the Company shall, for each vested RSU being settled, deliver to the Participant a cash payment equal to the Market Price of one Share as of the RSU Vesting Date, one Share, or any combination of cash and Shares equal to the Market Price of one Share as of the RSU Vesting Date, in the sole discretion of the Board. No certificates for Shares issued in settlement will be issued to the Participant until the Participant and the Company have each completed all steps required by law to be taken in connection with the issuance of the Shares, including receipt from the Participant of payment or provision for all withholding taxes due as a result of the settlement of the RSUs. The delivery of certificates representing the Shares to be issued in settlement of RSUs will be contingent upon the fulfillment of any requirements contained in the RSU Award Agreement or applicable provisions of laws.
(b) For greater certainty, for Canadian Taxpayers, in no event shall such settlement be later than December 31 of the calendar year which is three years after the calendar year in which the Grant Date occurs.
7.06 Termination of Employment If a Director, Officer, Consultant or Employee ceases to be so engaged by the Company for any reason other than death, all outstanding RSUs that were vested on or before the date of the termination of employment or services of such Director, Officer, Consultant or Employee shall be settled in accordance with Section 7.05 as of the date of termination, after which time the RSUs shall in all respects terminate.
7.07 Death If a Director, Officer, Consultant or Employee dies, all outstanding RSUs that were vested on or before the date of death of such Director, Officer, Consultant or Employee shall be settled in accordance with Section 7.05 as of the date of death. Outstanding RSUs that were not vested on or before the date of death shall vest and be settled in accordance with Section 7.05 as of the date of death, prorated to reflect the actual period between the Grant Date and the date of death. Subject to the foregoing, any remaining RSUs shall in all respects terminate as of the date of death.
7.08 RSU Tax Considerations Any RSUs that are awarded to a Participant who is a resident of Canada or employed in Canada (each for purposes of the Tax Act) shall be structured so as to be considered to be a plan described in section 7 of the Tax Act or in such other manner to ensure that such award is not a “salary deferral arrangement” as defined in the Tax Act (or any successor to such provisions).
PART 8
DIVIDEND EQUIVALENTS
8.01 Credit of Dividend Equivalents The Board may determine whether and to what extent Dividend Equivalents will be credited to a Participant’s PSU Account and RSU Account with respect to Awards of PSUs or RSUs. Dividend Equivalents to be credited to a Participant’s PSU Account or RSU Account shall be credited as follows:
(a) any cash dividends or distributions credited to the Participant’s PSU Account or RSU Account shall be deemed to have been invested in additional PSUs or RSUs, as applicable, on the payment date established for the related dividend or distribution in an amount equal to the greatest whole number which may be obtained by dividing (i) the value of such dividend or distribution on the payment date by (ii) the Market Price of one Share on such payment date, and such additional PSU or RSU, as applicable, shall be subject to the same terms and conditions as are applicable in respect of the PSU or RSU, as applicable, with respect to which such dividends or distributions were payable; and
(b) if any such dividends or distributions are paid in Shares or other securities, such Shares and other securities shall be subject to the same vesting, performance and other restrictions as apply to the PSUs or RSUs, as applicable, with respect to which they were paid.
8.02 No Dividend Equivalent No Dividend Equivalent will be credited to or paid on Awards of PSUs or RSUs that have expired or that have been forfeited or terminated.
PART 9
ADJUSTMENTS
9.01 Corporate Reorganizations The number and kind of Shares to which an Award pertains and, with respect to Options, the Option Price, shall be adjusted in the event of a reorganization, recapitalization, stock split or redivision, reduction, combination or consolidation, stock dividend, combination of shares, merger, consolidation, rights offering or any other change in the corporate structure or shares of the Company, in such manner, if any, and at such time, as the Board, in its sole discretion, may determine to be equitable in the circumstances. Failure of the Board to provide for an adjustment shall be conclusive evidence that the Board has determined that it is equitable to make no adjustment in the circumstances. If an adjustment results in a fractional share, the fraction shall be disregarded.
9.02 No Adjustment for Additional Purchases of Securities If at any time the Company grants to its shareholders the right to subscribe for and purchase pro rata additional securities of any other corporation or entity, there shall be no adjustments made to the Shares or other securities subject to an Award in consequence thereof and the Awards shall remain unaffected.
9.03 Cumulative Effect of Adjustments The adjustments provided for in this PART 9 shall be cumulative.
9.04 Amendments to Effect Adjustments On the happening of each and every of the foregoing events, the applicable provisions of the Plan shall be deemed to be amended accordingly and the Board shall take all necessary action so as to make all necessary adjustments in the number and kind of securities subject to any outstanding Award (and the Plan) and, with respect to Options, the Option Price.
PART 10
CHANGE OF CONTROL
10.01 Effect of a Change of Control Despite any other provision of the Plan, in the event of a Change of Control, all unvested Awards then outstanding will, as applicable, be substituted by or replaced with awards of the surviving corporation (or any affiliate thereof) or the potential successor (or any affiliate thereto) (the “continuing entity”) on the same terms and conditions as the original Awards, subject to appropriate adjustments that do not diminish the value of the original Awards. If, upon a Change of Control, the continuing entity fails to comply with this Section 10.01, the vesting of all then outstanding Awards (and, if applicable, the time during which such Awards may be exercised) will be accelerated in full, and any performance vesting conditions will be assessed by the board, acting in good faith, on a pro-rata basis.
10.02 Discretion to Accelerate Vesting Despite anything else to the contrary in the Plan, in the event of a potential Change of Control, the Board will have the power, in its sole discretion, to modify the terms of the Plan and/or the Awards to assist the Participants in tendering to a take-over bid or other transaction leading to a Change of Control. For greater certainty, in the event of a take-over bid or other transaction leading to a Change of Control, the Board has the power, in its sole discretion, subject to Exchange acceptance, as applicable, to accelerate the vesting of Awards and to permit Participants to conditionally exercise their Awards, such conditional exercise to be conditional upon the take-up by such offeror of the Shares or other securities tendered to such take-over bid in accordance with the terms of the take-over bid (or the effectiveness of such other transaction leading to a Change of Control). If, however, the potential Change of Control referred to in this Section 10.02 is not completed within the time specified (as the same may be extended), then despite this Section 10.02 or the definition of “Change of Control”, (i) any conditional exercise of vested Awards will be deemed to be null, void and of no effect, and such conditionally exercised Awards will for all purposes be deemed not to have been exercised, and (ii) Awards which vested pursuant to this Section 10.02 will be returned by the Participant to the Company and reinstated as authorized but unissued Shares and the original terms applicable to such Awards will be reinstated.
10.03 Termination of Awards on Change of Control If the Board has, pursuant to the provisions of Section 10.02 permitted the conditional exercise of Awards in connection with a potential Change of Control, then the Board will have the power, in its sole discretion, to terminate, immediately following actual completion of such Change of Control and on such terms as it sees fit, any Awards not exercised (including all vested and unvested Awards).
10.04 Further Assurances on Change in Control The Participant shall execute such documents and instruments and take such other actions, including exercise or settlement of Awards vesting pursuant to Section 10.02 or the Award Agreement, as may be required consistent with the foregoing; provided, however, that the exercise or settlement of Awards vesting pursuant to Section 10.02 or the Award Agreement shall be subject to the completion of the Change of Control.
10.05 Awards Need Not be Treated Identically In taking any of the actions contemplated by this PART 10, the Board shall not be obligated to treat all Awards held by any Participant, or all Awards in general, identically.
10.06 No Fractional Shares No fractional Shares or other security will be issued upon the exercise of any Award and accordingly, if as a result of a Change of Control, a Participant would become entitled to a fractional Share or other security, such participant will have the right to acquire only the next lowest whole number of Shares or other security and no payment or other adjustment will be made with respect to the fractional interest so disregarded.
PART 11
SECURITIES LAWS AND EXCHANGE POLICIES
11.01 Exchange's Rules and Policies Apply This Plan and the granting and exercise of any Awards hereunder are also subject to such other terms and conditions as are set out from time to time in the Securities Laws and Exchange Policies and such rules and policies shall be deemed to be incorporated into and become a part of this Plan.
In the event of an inconsistency between the provisions of such rules and policies and of this Plan, the provisions of such rules and policies shall govern. In the event that the Company’s listing changes from one tier to another tier on a stock exchange or the Company’s shares are listed on a new stock exchange, the granting of Awards shall be governed by the rules and policies of such new tier or new stock exchange and unless inconsistent with the terms of this Plan, the Company shall be able to grant Awards pursuant to the rules and policies of such new tier or new stock exchange without requiring shareholder approval.
11.02 Hold Period In addition to any resale restrictions under Securities Laws, all Awards granted hereunder and all Shares issued on the exercise thereof will, if applicable under Exchange Policies, be subject to a hold period of four months from the date of grant, and the agreements and any certificates representing such Shares will bear the following legend:
“Without prior written approval of the TSX Venture Exchange and compliance with all applicable securities legislation, the securities represented by this certificate may not be sold, transferred, hypothecated or otherwise traded on or through the facilities of the TSX Venture Exchange or otherwise in Canada, or to or for the benefit of a Canadian resident, until [insert date].”
11.03 Eligibility The Company and the Participant are responsible for ensuring and confirming that such person is a bona fide Director, Officer, Consultant or Employee, as the case may be.
PART 12
AMENDMENT OF PLAN
12.01 Board May Amend Subject to Section 12.03 hereof, the Board may amend the Plan or Awards at any time, provided, however, that no such amendment of the Plan may be made without the consent of such affected Participant if such amendment would adversely affect the rights of such Participant under the Plan. Without limiting the generality of the foregoing, the Board may, without prior notice to the shareholders and without further shareholder approval, at any time and from time to time, amend the Plan or any provisions thereof, or the form of Award Agreement or instrument to be executed pursuant to the Plan, in such manner as the Board, in its sole discretion, determines appropriate:
(a) for the purposes of making formal minor or technical modifications to any of the provisions of the Plan;
(b) to correct any ambiguity, defective provisions, error or omission in the provisions of the Plan;
(c) to change any vesting provisions of Awards;
(d) to change the termination provisions of the Awards or the Plan;
(e) to change the persons who qualify as eligible Participants under the Plan; and
(f) to add or change provisions relating to any form of financial assistance provided by the Company to Participants that would facilitate the purchase of securities under the Plan.
12.02 Termination The Board may terminate this Plan at any time provided that such termination shall not alter the terms or conditions of any Award or materially impair any right of any Participant pursuant to any Award granted prior to the date of such termination except with the consent of such Participant and notwithstanding such termination the Company, such Awards and such Participants shall continue to be governed by the provisions of this Plan.
12.03 Amendments Requiring Shareholder Approval. Shareholder approval shall be obtained in accordance with the requirements of the Exchange for any amendment that results in:
(a) an increase in the number of Shares issuable under Awards granted pursuant to the Plan;
(b) a reduction in the Option Price of an Option, or a cancellation and reissuance of an Option;
(c) an extension of (i) the term of an Option beyond its original expiry date, or (ii) the date on which a PSU or RSU will be forfeited or terminated in accordance with its terms, other than in accordance with Section 14.05;
(d) a revision to Section 14.05 to permit Awards granted under the Plan to be transferable or assignable other than for estate settlement purposes;
(e) a revision to the insider participation limits or the non-executive director limits set out in Section 4.03;
(f) a revision to the amending provisions set forth in this PART 12; or
(g) any amendment required to be approved by shareholders under applicable law (including without limitation, pursuant to the Exchange Policies).
PART 13
EFFECT OF PLAN ON OTHER COMPENSATION OPTIONS
13.01 Other Options Not Affected This Plan is in addition to any other existing stock options granted prior to and outstanding as at the date of this Plan and shall not in any way affect the policies or decisions of the Board in relation to the remuneration of Directors, Officers, Consultants and Employees.
PART 14
MISCELLANEOUS
14.01 No Rights as Shareholder Nothing contained in the Plan nor in any Award granted hereunder shall be deemed to give any person any interest or title in or to any Shares or any rights as a shareholder of the Company or any other legal or equitable right against the Company whatsoever with respect to Shares issuable pursuant to an Award until such person becomes the holder of record of Shares.
14.02 Employment Nothing contained in the Plan shall confer upon any Participant any right with respect to employment or continued employment or the right to continue to serve as a director or interfere in any way with the right of the Company to terminate such employment or directorship at any time. Participation in the Plan by an Eligible Person is voluntary. For greater certainty, the granting of Awards to a Participant shall not impose any obligation on the Company to grant any Awards in the future nor shall it entitle the Participant to receive future grants.
14.03 Record Keeping The Company shall maintain appropriate registers in which shall be recorded all pertinent information with respect to the granting, amendment, exercise, vesting, expiry, forfeiture and termination of Awards. Such registers shall include, as appropriate:
(a) the name and address of each Participant;
(b) the number of Awards credited to each Participant’s account;
(c) any and all adjustments made to Awards recorded in each Participant’s account; and
(d) such other information which the Company considers appropriate to record in such registers.
14.04 No Representation or Warranty The Company makes no representation or warranty as to the future market value of any Shares issued pursuant to the Plan.
14.05 Black Out Periods Notwithstanding any other provision of the Plan, if the expiry date or vesting date of an Award, other than a PSU or RSU awarded to a Canadian Taxpayer, as applicable, is during a self-imposed “black out” or similar period imposed under any insider trading policy or similar policy of the Company (a “Blackout Period”), the expiry date or vesting date, as applicable, will be automatically extended for a period of ten business day after the earlier of the end of such Blackout Period, or, provided the Blackout period has ended, the expiry date or vesting date of such Award. In the case of a PSU or RSU awarded to a Canadian Taxpayer, any settlement that is effected during a Blackout Period in order to comply with Sections 6.08 or 7.08, as applicable, in the case of a Canadian Taxpayer shall (subject to the requirements of applicable law) be settled in cash, notwithstanding any other provision hereof.
14.06 Unfunded Plan Unless otherwise determined by the Board, the Plan shall be unfunded. To the extent any Participant or his or her estate holds any rights by virtue of a grant of Awards under the Plan, such rights (unless otherwise determined by the Board) shall be no greater than the rights of an unsecured creditor of the Company.
14.07 Conformity to Plan In the event that an Award is granted or an Award Agreement is executed which does not conform in all particulars with the provisions of the Plan, or purports to grant Awards on terms different from those set out in the Plan, the Award or the grant of such Award shall not be in any way void or invalidated, but the Award so granted will be adjusted to become, in all respects, in conformity with the Plan.
14.08 Non-Transferability Except as may otherwise be specifically determined by the Board with respect to a particular Award and provided there is no change in beneficial ownership of such Award, Awards granted to a Participant pursuant to this Plan are personal to the Participant and may not be sold, pledged, assigned, hypothecated, gifted, transferred or disposed of in any manner, either voluntarily or involuntarily by operation of law, other than by will or by the laws of descent and distribution.
14.09 Term of Award Subject to Section 14.05, in no circumstances shall the term of an Award exceed ten years from the Grant Date.
14.10 Expiry, Forfeiture and Termination of Awards If for any reason an Award expires without having been exercised or is forfeited or terminated, and subject to any extension thereof in accordance with the Plan, such Award shall forthwith expire and be forfeited and shall terminate and be of no further force or effect.
14.11 Tax Withholding
(a) Notwithstanding any other provision of the Plan, all distributions, delivery of Shares or payments to a Participant (or to the liquidator, executor or administrator, as the case may be, of the estate of the Participant) under the Plan shall be made net of applicable source deductions. If the event giving rise to the withholding obligation involves an issuance or delivery of Shares, then, the withholding obligation may be satisfied by (i) having the Participant elect to have the appropriate number of such Shares sold by the Company, the Company’s transfer agent and registrar or any trustee appointed by the Company, on behalf of and as agent for the Participant as soon as permissible and practicable, with the proceeds of such sale being delivered to the Company, which will in turn remit such amounts to the appropriate governmental authorities, or (ii) any other mechanism as may be required or appropriate to conform with local tax and other rules. The Company may also, in its sole discretion, agree to allow a Participant to satisfy its withholding obligation by surrendering the right to a receive a portion of the Shares that would otherwise be issued to the Participant, such that the number of Shares received by the Participant shall be reduced by such number of Shares as are equal in value to the withholding obligation (as determined by the Company).
(b) Notwithstanding any other provision of the Plan, the Company shall not be required to issue any Shares or make payments under this Plan until arrangements satisfactory to the Company have been made for payment of all applicable withholdings obligations.
(c) The sale of Shares by the Company, or by a broker on behalf of the Company, under Section 14.11(a) or under any other provision of the Plan will be made on the Exchange or any other alternative trading system. The Participant consents to such sale and grants to the Company an irrevocable power of attorney to effect the sale of such Shares on his behalf and acknowledges and agrees that (i) the number of Shares sold will be, at a minimum, sufficient to fund the withholding obligations net of all selling costs, which costs are the responsibility of the Participant and which the Participant hereby authorizes to be deducted from the proceeds of such sale; (ii) in effecting the sale of any such Shares, the Company or the broker will exercise its sole judgment as to the timing and the manner of sale and will not be obligated to seek or obtain a minimum price; and (iii) neither the Company nor the broker will be liable for any loss arising out of such sale of the Shares including any loss relating to the pricing, manner or timing of the sales or any delay in transferring any Shares to a Participant or otherwise.
(d) The Participant further acknowledges that the sale price of the Shares will fluctuate with the market price of the Shares and no assurance can be given that any particular price will be received upon any sale. The Company makes no representation or warranty as to the future market value of the Shares or with respect to any income tax matters affecting the Participant resulting from the grant or exercise of an Award and/or transactions in the Shares. Neither the Company, nor any of its directors, officers, Employees, shareholders or agents will be liable for anything done or omitted to be done by such person or any other person with respect to the price, time, quantity or other conditions and circumstances of the issuance of Shares under the Plan, with respect to any fluctuations in the market price of Shares or in any other manner related to the Plan.
PART 15
EFFECTIVE DATE OF PLAN
15.01 Effective Date This Plan shall become effective upon the later of the date of acceptance for filing of this Plan by the Exchange or the approval of this Plan by the shareholders of the Company, however, Awards may be granted under this Plan prior to the receipt of approval by shareholders and acceptance from the Exchange. Any Awards granted prior to such approval and acceptance will be conditional upon such approval and acceptance being given and no such Awards may be exercised or will vest unless such approval and acceptance is given.
DATE OF PLAN: _________________, 2019
UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the three and six months ended December 31, 2019 and 2018
(Expressed in Canadian Dollars)
Notice to Readers of the Unaudited Condensed Consolidated Interim Financial Statements
for the three and six months ended December 31, 2019
The unaudited condensed consolidated interim financial statements of New Pacific Metals Corp. (the “Company”) for the three and six months ended December 31, 2019 (the “Financial Statements”) have been prepared by management and have not been reviewed by the Company’s independent auditors. The Financial Statements should be read in conjunction with the Company’s audited financial statements for the year ended June 30, 2019 which are available under the Company’s profile on SEDAR at www.sedar.com. The Financial Statements are stated in terms of Canadian dollars and are prepared in accordance with International Financial Reporting Standards (“IFRS”).
New Pacific Metals Corp.
Unaudited Condensed Consolidated Interim Statements of Financial Position
(Expressed in Canadian dollars)
|
|
Notes
|
|
December 31, 2019
|
|
|
June 30, 2019
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
33,620,262
|
|
$
|
27,849,961
|
|
|
Bonds
|
3
|
|
8,694,975
|
|
|
10,942,898
|
|
|
Receivables
|
|
|
381,177
|
|
|
259,600
|
|
|
Deposits and prepayments
|
|
|
197,268
|
|
|
142,370
|
|
|
|
|
|
42,893,682
|
|
|
39,194,829
|
|
|
Non‐current Assets
|
|
|
|
|
|
|
|
|
Reclamation deposits
|
|
|
15,075
|
|
|
15,075
|
|
|
Other tax receivable
|
4
|
|
2,590,017
|
|
|
1,800,713
|
|
|
Equity investments
|
5
|
|
6,187,122
|
|
|
5,110,893
|
|
|
Plant and equipment
|
6
|
|
1,308,938
|
|
|
1,310,803
|
|
|
Mineral property interests
|
7
|
|
86,653,184
|
|
|
76,816,082
|
|
|
TOTAL ASSETS
|
|
$
|
139,648,018
|
|
$
|
124,248,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
1,473,365
|
|
$
|
1,621,403
|
|
|
Payable for mineral property acquisition
|
|
|
263,120
|
|
|
394,680
|
|
|
Due to a related party
|
8
|
|
124,032
|
|
|
89,189
|
|
|
|
|
|
1,860,517
|
|
|
2,105,272
|
|
|
Non‐current liabilities
|
|
|
|
|
|
|
|
|
Payable for mineral property acquisition
|
|
|
‐
|
|
|
263,120
|
|
|
Total Liabilities
|
|
|
1,860,517
|
|
|
2,368,392
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
Share capital
|
|
|
166,665,213
|
|
|
150,005,738
|
|
|
Share‐based payment reserve
|
|
|
20,372,551
|
|
|
19,978,062
|
|
|
Accumulated other comprehensive income
|
|
|
2,458,393
|
|
|
3,264,901
|
|
|
Deficit
|
|
|
(51,644,899
|
)
|
|
(51,331,013
|
)
|
|
Total equity attributable to the equity holders of the Company
|
|
|
137,851,258
|
|
|
121,917,688
|
|
|
|
|
|
|
|
|
|
|
|
Non‐controlling interests
|
10
|
|
(63,757
|
)
|
|
(37,685
|
)
|
|
Total Equity
|
|
|
137,787,501
|
|
|
121,880,003
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND EQUITY
|
|
$
|
139,648,018
|
|
$
|
124,248,395
|
|
Approved on behalf of the Board:
(Signed) David Kong
Director
(Signed) Rui Feng
Director
See accompanying notes to the unaudited condensed consolidated interim financial statements
Page | 1
New Pacific Metals Corp.
Unaudited Condensed Consolidated Interim Statements of Income (Loss)
(Expressed in Canadian dollars)
|
|
|
|
Three Months Ended December 31,
|
|
|
Six Months Ended December 31,
|
|
|
|
Notes
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
Income from investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on equity investments
|
4
|
$
|
142,178
|
|
$
|
150,525
|
|
$
|
2,325,805
|
|
$
|
(214,432
|
)
|
|
Fair value change and interest earned on bonds
|
3
|
|
189,594
|
|
|
(125,677
|
)
|
|
111,520
|
|
|
355,162
|
|
|
Dividend income
|
|
|
‐
|
|
|
27,306
|
|
|
‐
|
|
|
27,306
|
|
|
Interest income
|
|
|
7,882
|
|
|
13,772
|
|
|
17,777
|
|
|
15,087
|
|
|
|
|
|
339,654
|
|
|
65,926
|
|
|
2,455,102
|
|
|
183,123
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting
|
|
|
13,135
|
|
|
‐
|
|
|
38,891
|
|
|
‐
|
|
|
Depreciation
|
|
|
3,525
|
|
|
2,511
|
|
|
5,714
|
|
|
6,052
|
|
|
Filing and listing
|
|
|
144,853
|
|
|
82,179
|
|
|
207,866
|
|
|
85,114
|
|
|
Investor relations
|
|
|
162,263
|
|
|
95,770
|
|
|
440,573
|
|
|
136,319
|
|
|
Professional fees
|
|
|
156,760
|
|
|
17,350
|
|
|
173,905
|
|
|
71,654
|
|
|
Salaries and benefits
|
|
|
625,559
|
|
|
277,600
|
|
|
828,557
|
|
|
459,664
|
|
|
Office and administration
|
|
|
225,882
|
|
|
29,511
|
|
|
349,486
|
|
|
105,361
|
|
|
Share‐based compensation
|
9(b)
|
|
293,156
|
|
|
153,801
|
|
|
589,081
|
|
|
325,831
|
|
|
Loss before other income and expenses
|
|
|
(1,285,479
|
)
|
|
(592,796
|
)
|
|
(178,971
|
)
|
|
(1,006,872
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange gain (loss)
|
|
|
(322,879
|
)
|
|
1,065,279
|
|
|
(146,537
|
)
|
|
720,437
|
|
|
Other income
|
|
|
‐
|
|
|
5,452
|
|
|
‐
|
|
|
6,833
|
|
|
|
|
|
(322,879
|
)
|
|
1,070,731
|
|
|
(146,537
|
)
|
|
727,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(1,608,358
|
)
|
$
|
477,935
|
|
$
|
(325,508
|
)
|
$
|
(279,602
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity holders of the Company
|
|
$
|
(1,599,824
|
)
|
$
|
473,838
|
|
$
|
(313,886
|
)
|
$
|
(278,745
|
)
|
|
Non‐controlling interests
|
10
|
|
(8,534
|
)
|
|
4,097
|
|
|
(11,622
|
)
|
|
(857
|
)
|
|
|
|
$
|
(1,608,358
|
)
|
$
|
477,935
|
|
$
|
(325,508
|
)
|
$
|
(279,602
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share attributable to the equity holders of the Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$
|
(0.01
|
)
|
$
|
0.00
|
|
$
|
(0.00
|
)
|
$
|
(0.00
|
)
|
|
Diluted earnings (loss) per share
|
|
$
|
(0.01
|
)
|
$
|
0.00
|
|
$
|
(0.00
|
)
|
$
|
(0.00
|
)
|
|
Weighted average number of common shares ‐ basic
|
|
|
146,089,210
|
|
|
132,859,479
|
|
|
144,349,881
|
|
|
132,671,816
|
|
|
Weighted average number of common shares ‐ diluted
|
|
|
146,089,210
|
|
|
133,984,786
|
|
|
144,349,881
|
|
|
132,671,816
|
|
See accompanying notes to the unaudited condensed consolidated interim financial statements
Page | 2
New Pacific Metals Corp.
Unaudited Condensed Consolidated Interim Statements of Comprehensive Income (Loss)
(Expressed in Canadian dollars)
|
|
|
|
Three Months Ended December 31,
|
|
|
Six Months Ended December 31,
|
|
|
|
Notes
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(1,608,358
|
)
|
$
|
477,935
|
|
$
|
(325,508
|
)
|
$
|
(279,602
|
)
|
|
Other comprehensive income (loss), net of taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Items that may subsequently be reclassified to net income or loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustment, net of tax of $nil
|
|
|
(1,592,934
|
)
|
|
3,682,410
|
|
|
(820,958
|
)
|
|
2,283,698
|
|
|
Other comprehensive income (loss), net of taxes
|
|
$
|
(1,592,934
|
)
|
$
|
3,682,410
|
|
$
|
(820,958
|
)
|
$
|
2,283,698
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity holders of the Company
|
|
$
|
(1,597,219
|
)
|
$
|
3,640,716
|
|
$
|
(806,508
|
)
|
$
|
2,287,347
|
|
|
Non‐controlling interests
|
10
|
|
4,285
|
|
|
41,694
|
|
|
(14,450
|
)
|
|
(3,649
|
)
|
|
|
|
$
|
(1,592,934
|
)
|
$
|
3,682,410
|
|
$
|
(820,958
|
)
|
$
|
2,283,698
|
|
|
Total comprehensive income (loss), net of taxes
|
|
$
|
(3,201,292
|
)
|
$
|
4,160,345
|
|
$
|
(1,146,466
|
)
|
$
|
2,004,096
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity holders of the Company
|
|
$
|
(3,197,043
|
)
|
$
|
4,114,554
|
|
$
|
(1,120,394
|
)
|
$
|
2,008,602
|
|
|
Non‐controlling interests
|
|
|
(4,249
|
)
|
|
45,791
|
|
|
(26,072
|
)
|
|
(4,506
|
)
|
|
|
|
$
|
(3,201,292
|
)
|
$
|
4,160,345
|
|
$
|
(1,146,466
|
)
|
$
|
2,004,096
|
|
See accompanying notes to the unaudited condensed consolidated interim financial statements
Page | 3
New Pacific Metals Corp.
Unaudited Condensed Consolidated Interim Statements of Cash Flows
(Expressed in Canadian dollars)
|
|
|
|
Three Months Ended December 31,
|
|
|
Six Months Ended December 31,
|
|
|
|
Notes
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(1,608,358
|
)
|
$
|
477,935
|
|
$
|
(325,508
|
)
|
$
|
(279,602
|
)
|
|
Add (deduct) items not affecting cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss (gain) on equity investments
|
4
|
|
(142,178
|
)
|
|
(150,525
|
)
|
|
(2,325,805
|
)
|
|
214,432
|
|
|
Fair value change and interest earned on bonds
|
3
|
|
(189,594
|
)
|
|
125,677
|
|
|
(111,520
|
)
|
|
(355,162
|
)
|
|
Interest income
|
|
|
(7,882
|
)
|
|
(13,772
|
)
|
|
(17,777
|
)
|
|
(15,087
|
)
|
|
Depreciation
|
|
|
3,525
|
|
|
2,511
|
|
|
5,714
|
|
|
6,052
|
|
|
Share‐based compensation
|
9(b)
|
|
293,156
|
|
|
153,801
|
|
|
589,081
|
|
|
325,831
|
|
|
Unrealized foreign exchange loss (gain)
|
|
|
322,879
|
|
|
(1,065,279
|
)
|
|
146,537
|
|
|
(720,437
|
)
|
|
Interest received
|
|
|
7,882
|
|
|
13,772
|
|
|
17,777
|
|
|
15,087
|
|
|
Changes in non‐cash operating working capital
|
14
|
|
(640,745
|
)
|
|
598,872
|
|
|
(295,908
|
)
|
|
(73,535
|
)
|
|
Net cash provided by (used in) operating activities
|
|
|
(1,961,315
|
)
|
|
142,992
|
|
|
(2,317,409
|
)
|
|
(882,421
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mineral property interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(3,315,584
|
)
|
|
(3,411,057
|
)
|
|
(8,098,393
|
)
|
|
(6,525,048
|
)
|
|
Acquisition of mineral concession
|
|
|
(2,041,480
|
)
|
|
‐
|
|
|
(2,436,160
|
)
|
|
(657,800
|
)
|
|
Plant and equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
(21,042
|
)
|
|
(17,532
|
)
|
|
(64,376
|
)
|
|
(63,446
|
)
|
|
Bonds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds on disposals
|
3
|
|
‐
|
|
|
2,945,883
|
|
|
1,978,450
|
|
|
4,134,616
|
|
|
Coupon payments
|
3
|
|
109,747
|
|
|
235,975
|
|
|
333,208
|
|
|
566,219
|
|
|
Equity investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition
|
|
|
(4,771,338
|
)
|
|
‐
|
|
|
(4,771,338
|
)
|
|
‐
|
|
|
Proceeds on disposals
|
4
|
|
787,780
|
|
|
292,913
|
|
|
6,020,914
|
|
|
292,913
|
|
|
Changes in other tax receivable
|
|
|
(284,777
|
)
|
|
(339,332
|
)
|
|
(816,157
|
)
|
|
(730,715
|
)
|
|
Net cash used in investing activities
|
|
|
(9,536,694
|
)
|
|
(293,150
|
)
|
|
(7,853,852
|
)
|
|
(2,983,261
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common shares
|
|
|
15,887,034
|
|
|
‐
|
|
|
16,071,434
|
|
|
148,201
|
|
|
Net cash provided by financing activities
|
|
|
15,887,034
|
|
|
‐
|
|
|
16,071,434
|
|
|
148,201
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(165,319
|
)
|
|
263,600
|
|
|
(129,872
|
)
|
|
77,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
4,223,706
|
|
|
113,442
|
|
|
5,770,301
|
|
|
(3,639,786
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of the period
|
|
|
29,396,556
|
|
|
10,850,885
|
|
|
27,849,961
|
|
|
14,604,113
|
|
|
Cash and cash equivalents, end of the period
|
|
$
|
33,620,262
|
|
$
|
10,964,327
|
|
$
|
33,620,262
|
|
$
|
10,964,327
|
|
|
Supplementary cash flow information
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the unaudited condensed consolidated interim financial statements
Page | 4
New Pacific Metals Corp.
Unaudited Condensed Consolidated Interim Statements of Change in Equity
(Expressed in Canadian dollars, except for share figures)
|
|
|
|
Share capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
Total equity
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Share‐based
|
|
|
other
|
|
|
|
|
|
attributable to the
|
|
|
Non‐
|
|
|
|
|
|
|
|
|
common
|
|
|
|
|
|
payment
|
|
|
comprehensive
|
|
|
|
|
|
equity holders of
|
|
|
controlling
|
|
|
|
|
|
|
Notes
|
|
shares issued
|
|
|
Amount
|
|
|
reserve
|
|
|
income
|
|
|
Deficit
|
|
|
the Company
|
|
|
interests
|
|
|
Total equity
|
|
|
Balance, July 1, 2018
|
|
|
132,349,479
|
|
$
|
124,164,312
|
|
$
|
23,440,856
|
|
$
|
3,987,952
|
|
$
|
(48,910,109
|
)
|
$
|
102,683,011
|
|
$
|
147,422
|
|
$
|
102,830,433
|
|
|
Options exercised
|
|
|
260,000
|
|
|
216,619
|
|
|
(68,418
|
)
|
|
‐
|
|
|
‐
|
|
|
148,201
|
|
|
‐
|
|
|
148,201
|
|
|
Share‐based compensation
|
|
|
‐
|
|
|
‐
|
|
|
325,831
|
|
|
‐
|
|
|
‐
|
|
|
325,831
|
|
|
‐
|
|
|
325,831
|
|
|
Common shares issued to acquire mineral property interest
|
|
|
250,000
|
|
|
395,313
|
|
|
920,287
|
|
|
‐
|
|
|
‐
|
|
|
1,315,600
|
|
|
‐
|
|
|
1,315,600
|
|
|
Net loss
|
|
|
‐
|
|
|
‐
|
|
|
‐
|
|
|
‐
|
|
|
(278,745
|
)
|
|
(278,745
|
)
|
|
(857
|
)
|
|
(279,602
|
)
|
|
Currency translation adjustment
|
|
|
‐
|
|
|
‐
|
|
|
‐
|
|
|
2,287,347
|
|
|
‐
|
|
|
2,287,347
|
|
|
(3,649
|
)
|
|
2,283,698
|
|
|
Balance, December 31, 2018
|
|
|
132,859,479
|
|
$
|
124,776,244
|
|
$
|
24,618,556
|
|
$
|
6,275,299
|
|
$
|
(49,188,854
|
)
|
$
|
106,481,245
|
|
$
|
142,916
|
|
$
|
106,624,161
|
|
|
Options exercised
|
|
|
73,333
|
|
|
66,208
|
|
|
(23,875
|
)
|
|
‐
|
|
|
‐
|
|
|
42,333
|
|
|
‐
|
|
|
42,333
|
|
|
Warrants exercised
|
|
|
9,500,000
|
|
|
25,163,286
|
|
|
(5,213,286
|
)
|
|
‐
|
|
|
‐
|
|
|
19,950,000
|
|
|
‐
|
|
|
19,950,000
|
|
|
Share‐based compensation
|
|
|
‐
|
|
|
‐
|
|
|
596,667
|
|
|
‐
|
|
|
‐
|
|
|
596,667
|
|
|
‐
|
|
|
596,667
|
|
|
Net loss
|
|
|
‐
|
|
|
‐
|
|
|
‐
|
|
|
‐
|
|
|
(2,142,159
|
)
|
|
(2,142,159
|
)
|
|
(150,994
|
)
|
|
(2,293,153
|
)
|
|
Currency translation adjustment
|
|
|
‐
|
|
|
‐
|
|
|
‐
|
|
|
(3,010,398
|
)
|
|
‐
|
|
|
(3,010,398
|
)
|
|
(29,607
|
)
|
|
(3,040,005
|
)
|
|
Balance, June 30, 2019
|
|
|
142,432,812
|
|
$
|
150,005,738
|
|
$
|
19,978,062
|
|
$
|
3,264,901
|
|
$
|
(51,331,013
|
)
|
$
|
121,917,688
|
|
$
|
(37,685
|
)
|
$
|
121,880,003
|
|
|
Options exercised
|
9(b)
|
|
270,806
|
|
|
365,798
|
|
|
(127,898
|
)
|
|
‐
|
|
|
‐
|
|
|
237,900
|
|
|
‐
|
|
|
237,900
|
|
|
Common shares issued through bought deal financing
|
9(e)
|
|
4,312,500
|
|
|
15,833,533
|
|
|
‐
|
|
|
‐
|
|
|
‐
|
|
|
15,833,533
|
|
|
‐
|
|
|
15,833,533
|
|
|
Share‐based compensation
|
9(b)
|
|
‐
|
|
|
‐
|
|
|
982,531
|
|
|
‐
|
|
|
‐
|
|
|
982,531
|
|
|
‐
|
|
|
982,531
|
|
|
Common shares issued to acquire mineral property interest
|
9(c)
|
|
291,000
|
|
|
460,144
|
|
|
(460,144
|
)
|
|
‐
|
|
|
‐
|
|
|
‐
|
|
|
‐
|
|
|
‐
|
|
|
Net loss
|
|
|
‐
|
|
|
‐
|
|
|
‐
|
|
|
‐
|
|
|
(313,886
|
)
|
|
(313,886
|
)
|
|
(11,622
|
)
|
|
(325,508
|
)
|
|
Currency translation adjustment
|
|
|
‐
|
|
|
‐
|
|
|
‐
|
|
|
(806,508
|
)
|
|
‐
|
|
|
(806,508
|
)
|
|
(14,450
|
)
|
|
(820,958
|
)
|
|
Balance, December 31, 2019
|
|
|
147,307,118
|
|
$
|
166,665,213
|
|
$
|
20,372,551
|
|
$
|
2,458,393
|
|
$
|
(51,644,899
|
)
|
$
|
137,851,258
|
|
$
|
(63,757
|
)
|
$
|
137,787,501
|
|
See accompanying notes to the unaudited condensed consolidated interim financial statements
Page | 5
1. CORPORATE INFORMATION
New Pacific Metals Corp. along with its subsidiaries (collectively, the “Company” or “New Pacific”) is a Canadian mining issuer engaged in exploring and developing mineral properties in Bolivia and Canada. The Company is in the stage of exploring and developing its mineral properties and has not yet determined whether its mineral property interests contain economically recoverable mineral reserves. The underlying value and the recoverability of the amounts shown for mineral property interests are entirely dependent upon the existence of economically recoverable mineral reserves, the ability of the Company to obtain the necessary financing to complete the exploration and development of the mineral property interests, and future profitable production or proceeds from the disposition of the mineral property interests.
The Company is publicly listed on the TSX Venture Exchange (“TSX‐V”) under the symbol “NUAG” and on the OTCQX Best Market in the United States under the symbol “NUPMF”. The head office, registered and records offices of the Company are located at 1066 West Hastings Street, Suite 1750, Vancouver, British Columbia, Canada, V6E 3X1.
2. SIGNIFICANT ACCOUNTING POLICIES
(a) Statement of Compliance and Basis of Preparation
These unaudited condensed consolidated interim financial statements have been prepared in accordance with IAS 34 – Interim Financial Reporting. These unaudited condensed consolidated interim financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended June 30, 2019. These unaudited condensed consolidated interim financial statements follow the same significant accounting policies set out in Note 2 to the audited consolidated financial statements for the year ended June 30, 2019.
These unaudited condensed consolidated interim financial statements have been prepared on a going concern basis. The Company has a history of losses and no operating revenues from its operations. As at December 31, 2019, the Company had a working capital position of $41,033,165 and sufficient cash resources to meet the Company’s normal exploration and operating needs for, but not limited to, the next 12 months. These unaudited condensed consolidated interim financial statements do not reflect adjustments, which could be material, to the carrying value of assets and liabilities which may be required should the Company be unable to continue as a going concern.
The unaudited condensed consolidated interim financial statements of the Company as at and for the three and six months ended December 31, 2019 were authorized for issue in accordance with a resolution of the Company’s board of directors (the “Board”) dated on February 12, 2020.
(b) Basis of Consolidation
These consolidated financial statements include the accounts of the Company and its wholly or partially owned subsidiaries.
Subsidiaries are consolidated from the date on which the Company obtains control up to the date of the disposition of control. Control is achieved when the Company has power over the subsidiary, is exposed or has rights to variable returns from its involvement with the subsidiary; and has the ability to use its power to affect its returns. For non‐wholly‐owned subsidiaries over which the Company has control, the net assets attributable to outside equity shareholders are presented as “non‐controlling interests” in the equity section of the consolidated statements of financial position. Net income for the period that is attributable to the non‐controlling interests is calculated based on the ownership of the non‐controlling interest shareholders in the subsidiary.
Page | 6
Balances, transactions, income and expenses between the Company and its subsidiaries are eliminated on consolidation.
Details of the Company’s significant subsidiaries which are consolidated are as follows:
|
|
|
|
Proportion of ownership interest held
|
|
|
|
|
Country of
|
December 31,
|
June 30,
|
Mineral
|
|
Name of subsidiaries
|
Principal activity
|
incorporation
|
2019
|
2019
|
properties
|
|
New Pacific Offshore Inc.
|
Holding company
|
BVI (i)
|
100%
|
100%
|
|
|
SKN Nickel & Platinum Ltd.
|
Holding company
|
BVI
|
100%
|
100%
|
|
|
Glory Metals Investment Corp. Limited
|
Holding company
|
Hong Kong
|
100%
|
100%
|
|
|
New Pacific Investment Corp. Limited
|
Holding company
|
Hong Kong
|
100%
|
100%
|
|
|
New Pacific Andes Corp. Limited
|
Holding company
|
Hong Kong
|
100%
|
100%
|
|
|
Fortress Mining Inc.
|
Holding company
|
BVI
|
100%
|
100%
|
|
|
Minera Alcira S.A.
|
Mining company
|
Bolivia
|
100%
|
100%
|
Silver Sand
|
|
NPM Minerales S.A.
|
Mining company
|
Bolivia
|
100%
|
100%
|
|
|
Colquehuasi S.R.L.
|
Mining company
|
Bolivia
|
100%
|
100%
|
Silverstrike
|
|
Granville S.R.L.
|
Mining company
|
Bolivia
|
100%
|
N/A
|
|
|
Qinghai Found Mining Co., Ltd.
|
Mining company
|
China
|
82%
|
82%
|
RZY
|
|
Tagish Lake Gold Corp.
|
Mining company
|
Canada
|
100%
|
100%
|
TLG
|
|
(i) British Virgin Islands ("BVI")
|
|
|
|
|
|
3. BONDS
The Company acquired bonds issued by other companies from various industries through the open market. These bonds were held to receive coupon interest payments as well as to realize potential gains. The bonds may also be disposed on demand through the open market should the Company require funds for operational or investment needs. The Company accounts for the bonds at fair value at each reporting date.
The continuity of bonds is summarized as follows:
|
|
|
Amount
|
|
|
Balance, July 1, 2018
|
$
|
18,114,026
|
|
|
Interest earned
|
|
882,960
|
|
|
Gain on fair value change
|
|
631,809
|
|
|
Coupon payment
|
|
(853,076
|
)
|
|
Disposition
|
|
(7,700,006
|
)
|
|
Foreign currency translation impact
|
|
(132,815
|
)
|
|
Balance, June 30, 2019
|
$
|
10,942,898
|
|
|
Interest earned
|
|
287,219
|
|
|
Loss on fair value change
|
|
(175,699
|
)
|
|
Coupon payment
|
|
(333,208
|
)
|
|
Disposition
|
|
(1,978,450
|
)
|
|
Foreign currency translation impact
|
|
(47,785
|
)
|
|
Balance, December 31, 2019
|
$
|
8,694,975
|
|
Page | 7
4. OTHER TAX RECEIVABLE
Other tax receivable composed of value‐added tax (“VAT”) imposed by the Bolivian government. The Company had VAT outputs through its exploration costs and general expenses incurred in Bolivia. These VAT outputs are deductible against future VAT inputs that will be generated through sales.
5. EQUITY INVESTMENTS
Equity investments represent equity interests of other publicly‐trading or privately‐held companies that the Company has acquired through the open market or through private placements. These equity interests consist of common shares, preferred shares, and warrants. Equity investments are classified as FVTPL and are measured at fair value on initial recognition and subsequent measurement. The fair value of warrants was determined using the Black‐Scholes pricing model as at the acquisition date as well as at each period end.
The equity investments are summarized as follow:
|
|
|
December 31, 2019
|
|
|
June 30, 2019
|
|
|
Common or preferred shares
|
|
|
|
|
|
|
|
Public companies
|
$
|
5,259,760
|
|
$
|
4,443,963
|
|
|
Private companies
|
|
324,700
|
|
|
327,175
|
|
|
Warrants
|
|
|
|
|
|
|
|
Public companies
|
|
602,662
|
|
|
339,755
|
|
|
|
$
|
6,187,122
|
|
$
|
5,110,893
|
|
The fair values of the warrants were estimated using the Black Scholes options pricing model with the following assumptions:
|
|
|
December 31, 2019
|
|
|
June 30, 2019
|
|
|
Risk free interest rate
|
|
1.68%
|
|
|
1.39%
|
|
|
Expected volatility
|
|
125%
|
|
|
130%
|
|
|
Expected life of warrants in years
|
|
1.69
|
|
|
2.19
|
|
The continuity of equity investments is summarized as follows:
|
|
|
|
|
|
Accumulated mark‐to‐
|
|
|
|
|
|
|
|
market gain included in net
|
|
|
|
|
Fair value
|
|
|
income
|
|
|
Balance, July 1, 2018
|
$
|
5,758,627
|
|
$
|
3,112,656
|
|
|
Proceeds on disposal
|
|
(570,561
|
)
|
|
‐
|
|
|
Change in fair value
|
|
(77,173
|
)
|
|
(77,173
|
)
|
|
Balance, June 30, 2019
|
$
|
5,110,893
|
|
$
|
3,035,483
|
|
|
Acquisition
|
|
4,771,338
|
|
|
‐
|
|
|
Proceeds on disposal
|
|
(6,020,914
|
)
|
|
‐
|
|
|
Change in fair value
|
|
2,325,805
|
|
|
2,325,805
|
|
|
Balance, December 31, 2019
|
$
|
6,187,122
|
|
$
|
5,361,288
|
|
Page | 8
6. PLANT AND EQUIPMENT
|
|
|
|
|
|
|
|
|
|
|
|
Office
|
|
|
|
|
|
|
|
|
|
|
Land and
|
|
|
|
|
|
Motor
|
|
|
equipment and
|
|
|
Computer
|
|
|
|
|
|
Cost
|
|
building
|
|
|
Machinery
|
|
|
vehicles
|
|
|
furniture
|
|
|
software
|
|
|
Total
|
|
|
Balance, July 1, 2018
|
$
|
890,754
|
|
$
|
1,316,781
|
|
$
|
238,827
|
|
$
|
188,342
|
|
$
|
126,272
|
|
$
|
2,760,976
|
|
|
Additions
|
|
833,931
|
|
|
68,060
|
|
|
115,041
|
|
|
44,382
|
|
|
‐
|
|
|
1,061,414
|
|
|
Foreign currency translation impact
|
|
(9,450
|
)
|
|
(3,573
|
)
|
|
(2,934
|
)
|
|
(3,358
|
)
|
|
(15
|
)
|
|
(19,330
|
)
|
|
Balance, June 30, 2019
|
$
|
1,715,235
|
|
$
|
1,381,268
|
|
$
|
350,934
|
|
$
|
229,366
|
|
$
|
126,257
|
|
$
|
3,803,060
|
|
|
Additions
|
|
‐
|
|
|
43,536
|
|
|
‐
|
|
|
20,840
|
|
|
‐
|
|
|
64,376
|
|
|
Foreign currency translation impact
|
|
(6,235
|
)
|
|
(2,393
|
)
|
|
(2,328
|
)
|
|
(2,136
|
)
|
|
(7
|
)
|
|
(13,099
|
)
|
|
Balance, December 31, 2019
|
$
|
1,709,000
|
|
$
|
1,422,411
|
|
$
|
348,606
|
|
$
|
248,070
|
|
$
|
126,250
|
|
$
|
3,854,337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at July 1, 2018
|
$
|
(890,754
|
)
|
$
|
(1,132,264
|
)
|
$
|
(104,390
|
)
|
$
|
(161,759
|
)
|
$
|
(126,223
|
)
|
$
|
(2,415,390
|
)
|
|
Depreciation and amortization
|
|
‐
|
|
|
(17,400
|
)
|
|
(37,728
|
)
|
|
(25,465
|
)
|
|
‐
|
|
|
(80,593
|
)
|
|
Foreign currency translation impact
|
|
‐
|
|
|
409
|
|
|
880
|
|
|
2,424
|
|
|
13
|
|
|
3,726
|
|
|
Balance, June 30, 2019
|
$
|
(890,754
|
)
|
$
|
(1,149,255
|
)
|
$
|
(141,238
|
)
|
$
|
(184,800
|
)
|
$
|
(126,210
|
)
|
$
|
(2,492,257
|
)
|
|
Depreciation and amortization
|
|
‐
|
|
|
(14,335
|
)
|
|
(26,500
|
)
|
|
(15,275
|
)
|
|
‐
|
|
|
(56,110
|
)
|
|
Foreign currency translation impact
|
|
‐
|
|
|
520
|
|
|
1,036
|
|
|
1,406
|
|
|
6
|
|
|
2,968
|
|
|
Balance, December 31, 2019
|
$
|
(890,754
|
)
|
$
|
(1,163,070
|
)
|
$
|
(166,702
|
)
|
$
|
(198,669
|
)
|
$
|
(126,204
|
)
|
$
|
(2,545,399
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2019
|
$
|
824,481
|
|
$
|
232,013
|
|
$
|
209,696
|
|
$
|
44,566
|
|
$
|
47
|
|
$
|
1,310,803
|
|
|
Balance, December 31, 2019
|
$
|
818,246
|
|
$
|
259,341
|
|
$
|
181,904
|
|
$
|
49,401
|
|
$
|
46
|
|
$
|
1,308,938
|
|
7. MINERAL PROPERTY INTERESTS
(a) Silver Sand Project
On July 20, 2017, the Company acquired the Silver Sand Project. The Silver Sand Project is located in the Potosí Department, Bolivia and has an area of approximately 3.17 square kilometres.
The Company has carried out extensive risk exploration drilling programs on its 100% owned Silver Sand Project since its acquisition in 2017. During 2017‐2018 discovery exploration drilling campaign, a total of 195 holes in 55,011.8 metres (“m”) of drilling were completed. During the 2019 drilling campaign, a total of 191 drill holes in 42,607.25m of drilling were completed. From 2017 to the end of 2019, the Company has completed 97,619.05m of drilling in 386 drill holes.
For the three and six months ended December 31, 2019, total expenditures of $3,697,610 and $8,537,035, respectively (three and six months ended December 31, 2018 ‐ $3,413,976 and $6,593,939, respectively) were capitalized under the project for expenditures related to the 2019 drilling campaign, site and camp service and construction, and maintaining a regional office in La Paz, a management team, and workforce for the project.
As part of the Silver Sand Project’s expansion plan, the Company entered into a mining production contract (the “MPC”) in January 2019 with Corporación Minera de Bolivia (“COMIBOL”) to explore and mine the area adjoining the Silver Sand Project. The MPC remains subject to ratification by the Plurinational Legislative Assembly of Bolivia. As of today, the MPC has not been ratified nor approved by Plurinational Legislative Assembly of Bolivia.
Page | 9
In July 2018, the Company entered into an agreement with private owners to acquire their 100% interest in certain mineral concessions located adjacent to the Silver Sand Project by cash payments of $1,315,600 (US$1,000,000) and issuance of 832,000 common shares (see note 9 (c)). During Fiscal 2019, cash payments of $657,800 (US$500,000) were paid and 250,000 common shares were issued to the vendors. During the six months ended December 31, 2019, cash payments of $394,680 (US$300,000) were paid and 291,000 common shares were issued to the vendors. Future cash payments of $263,120 (US$200,000) were accrued as payable for mineral property acquisition as at December 31, 2019.
In December 2019, the Company further expanded its Silver Sand land package by acquiring a 100% interest in a Special Temporary Authorization (“ATE”) located immediately to the north of the project by making a one‐time cash payment of $267,720 (US$200,000) to arm’s length private owners. This newly acquired ATE currently consists of six hectares but will total approximately 0.50 square kilometres once it has been consolidated to concessions called “Cuadriculas” and converted to Mining Administrative Contract with Bolivia’s Autoridad Jurisdiccional Administrativa Minera (“AJAM”).
(b) Silverstrike Project
In December 2019, the Company, through its wholly‐owned subsidiary, signed an agreement with an arm’s length private Bolivian corporation (the “Vendor”) to acquire a 98% interest in the Silverstrike project from the Vendor by making a one‐time cash payment of $1,782,270 (US$1,350,000). The Company will cover 100% of the future expenditures of exploration, mining, development and production activities. The agreement has a term of 30 years and renewable for another 15 years without any payment and is subject to an approval by AJAM in Bolivia.
The Silverstrike Project, at an elevation of 4,000 to 4,500 metres (“m”), is located approximately 140 kilometres (“km”) southwest of La Paz, Bolivia or approximately 450 km northwest of the Company’s Silver Sand Project. The Silverstrike Project consists of nine ATEs with an area of approximately 13km² currently in the process of conversion to Mining Administrative Contracts before AJAM. The Vendor has also applied for exploration rights over areas surrounding the Silverstrike Project as part of the transaction.
(c) Tagish Lake Gold Project
The Tagish Lake Gold Project, covering an area of 166 square kilometres, is located in Yukon Territory, Canada, and consists of 1,051 mining claims with three identified gold and gold‐silver mineral deposits: Skukum Creek, Goddell Gully and Mount Skukum.
(d) RZY Project
The RZY Project, located in Qinghai, China is an early stage silver‐lead‐zinc exploration project, situated on a high plateau with an average elevation of 5,000 metres above sea level. The RZY Project is located approximately 237 kilometres via paved and gravel roads from the city of Yushu Tibetan Autonomous Prefecture, or 820 kilometres via paved highway from Qinghai Province’s capital city of Xining. In 2016, the Qinghai Government issued a moratorium which suspended exploration for 26 mining projects in the region, including the RZY Project, and classified the region as a National Nature Reserve Area.
During the six months ended December 31, 2019, the Company’s subsidiary, Qinghai Found, reached a compensation agreement (the “Agreement”) with the Qinghai Government for the RZY Project. Pursuant to the Agreement, Qinghai Found will surrender its title of the RZY Project to the Qinghai Government after completing certain reclamation works for one‐time cash compensation of $3.8 million (RMB ¥20 million). As of December 31, 2019, the Company completed the reclamation works for a cost of approximately $200,000, and they are currently under review and subject to approval by the Qinghai Government.
Page | 10
The continuity schedule of mineral property acquisition costs and deferred exploration and development costs are summarized as follows:
|
Cost
|
|
Silver Sand
|
|
|
Silverstrike
|
|
|
Tagish Lake
|
|
|
RZY Project
|
|
|
Total
|
|
|
Balance, July 1, 2018
|
$
|
60,374,656
|
|
$
|
‐
|
|
$
|
‐
|
|
$
|
4,488,108
|
|
$
|
64,862,764
|
|
|
Capitalized exploration expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Drilling and assaying
|
|
6,978,112
|
|
|
‐
|
|
|
‐
|
|
|
‐
|
|
|
6,978,112
|
|
|
Project management and support
|
|
2,980,841
|
|
|
‐
|
|
|
‐
|
|
|
‐
|
|
|
2,980,841
|
|
|
Camp service
|
|
742,163
|
|
|
‐
|
|
|
‐
|
|
|
‐
|
|
|
742,163
|
|
|
Geological surveys
|
|
4,170
|
|
|
‐
|
|
|
‐
|
|
|
‐
|
|
|
4,170
|
|
|
Permitting
|
|
7,401
|
|
|
‐
|
|
|
‐
|
|
|
‐
|
|
|
7,401
|
|
|
Acquisition of mineral concessions
|
|
2,631,200
|
|
|
‐
|
|
|
‐
|
|
|
‐
|
|
|
2,631,200
|
|
|
Other
|
|
13,237
|
|
|
‐
|
|
|
‐
|
|
|
‐
|
|
|
13,237
|
|
|
Impairment
|
|
‐
|
|
|
‐
|
|
|
‐
|
|
|
(779,823
|
)
|
|
(779,823
|
)
|
|
Foreign currency impact
|
|
(450,362
|
)
|
|
‐
|
|
|
‐
|
|
|
(173,621
|
)
|
|
(623,983
|
)
|
|
Balance, June 30, 2019
|
$
|
73,281,418
|
|
$
|
‐
|
|
$
|
‐
|
|
$
|
3,534,664
|
|
$
|
76,816,082
|
|
|
Capitalized exploration expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reporting and assessment
|
|
105,961
|
|
|
‐
|
|
|
‐
|
|
|
‐
|
|
|
105,961
|
|
|
Drilling and assaying
|
|
5,653,266
|
|
|
‐
|
|
|
‐
|
|
|
‐
|
|
|
5,653,266
|
|
|
Project management and support
|
|
2,475,055
|
|
|
5,202
|
|
|
‐
|
|
|
‐
|
|
|
2,480,257
|
|
|
Camp service
|
|
232,278
|
|
|
‐
|
|
|
‐
|
|
|
‐
|
|
|
232,278
|
|
|
Camp construction
|
|
28,417
|
|
|
‐
|
|
|
‐
|
|
|
‐
|
|
|
28,417
|
|
|
Geological surveys
|
|
235
|
|
|
‐
|
|
|
‐
|
|
|
‐
|
|
|
235
|
|
|
Permitting
|
|
22,020
|
|
|
‐
|
|
|
‐
|
|
|
‐
|
|
|
22,020
|
|
|
Acquisition of Silverstrike Project
|
|
‐
|
|
|
1,782,270
|
|
|
‐
|
|
|
‐
|
|
|
1,782,270
|
|
|
Acquisition of mineral concessions
|
|
267,720
|
|
|
‐
|
|
|
‐
|
|
|
‐
|
|
|
267,720
|
|
|
Other
|
|
19,803
|
|
|
‐
|
|
|
‐
|
|
|
‐
|
|
|
19,803
|
|
|
Foreign currency impact
|
|
(650,118
|
)
|
|
(28,974
|
)
|
|
‐
|
|
|
(76,033
|
)
|
|
(755,125
|
)
|
|
Balance, December 31, 2019
|
$
|
81,436,055
|
|
$
|
1,758,498
|
|
$
|
‐
|
|
$
|
3,458,631
|
|
$
|
86,653,184
|
|
8. RELATED PARTY TRANSACTIONS
Related party transactions are made on terms agreed upon by the related parties. The balances with related parties are unsecured, non‐interest bearing, and due on demand. Related party transactions not disclosed elsewhere in the condensed consolidated interim financial statements are as follows:
|
Due to a related party
|
|
December 31, 2019
|
|
|
June 30, 2019
|
|
|
Silvercorp Metals Inc.
|
$
|
124,032
|
|
$
|
89,189
|
|
Silvercorp Metals Inc. (“Silvercorp”) has two directors and two officers in common with the Company. Silvercorp and the Company share office space and Silvercorp provides various general and administrative services to the Company. Expenses in services rendered and incurred by Silvercorp on behalf of the Company for the three and six months ended December 31, 2019, the Company were $235,710 and $424,347, respectively (three and six months ended December 31, 2018 ‐ $66,840 and $128,259, respectively).
Page | 11
9. SHARE CAPITAL
(a) Share Capital ‐ authorized share capital
Unlimited number of common shares without par value.
(b) Share‐based compensation
The Company has a share‐based compensation plan (the “Plan”) which consists of stock options, restricted share units (the “RSUs”) and performance share units (the “PSUs”). The Plan allows for the maximum number of common shares to be reserved for issuance on any share‐based compensation to be a rolling 10% of the issued and outstanding common shares from time to time. Furthermore, no more than 3,500,000 shares may be granted in the form of RSUs and no more than 780,000 shares may be granted in the form of PSUs.
For the three and six months ended December 31, 2019, a total of $293,156 and $589,081, respectively (three and six months ended December 31, 2018 ‐ $153,801 and $325,831, respectively) were recorded as share‐based compensation expense.
(i) Stock Options
The continuity schedule of stock options, as at December 31, 2019, is as follows:
|
|
|
|
|
|
Weighted average
|
|
|
|
|
Number of options
|
|
|
exercise price
|
|
|
Balance, July 1, 2018
|
|
4,145,000
|
|
|
0.87
|
|
|
Options granted
|
|
2,155,000
|
|
|
2.16
|
|
|
Options exercised
|
|
(333,333
|
)
|
|
0.57
|
|
|
Options cancelled
|
|
(11,667
|
)
|
|
0.89
|
|
|
Options expired
|
|
(50,000
|
)
|
|
0.57
|
|
|
Balance, June 30, 2019
|
|
5,905,000
|
|
|
1.36
|
|
|
Options exercised
|
|
(270,806
|
)
|
|
0.88
|
|
|
Options cancelled
|
|
(154,167
|
)
|
|
1.85
|
|
|
Balance, December 31, 2019
|
|
5,480,027
|
|
|
1.38
|
|
Option pricing model requires the input of subjective assumptions including the expected volatility. Changes in the assumptions can materially affect the fair value estimate and therefore, the existing models do not necessarily provide a reliable estimate of the fair value of the Company’s stock options. The Company’s expected volatility is based on the historical volatility of the Company’s share price on the TSX‐V.
Page | 12
The following table summarizes information about stock options outstanding as at December 31, 2019:
|
|
|
Number of options
|
Weighted
|
Number of options
|
Weighted
|
|
|
Exercise
|
outstanding as at
|
average remaining
|
exercisable as at
|
average
|
|
|
prices
|
12/31/2019
|
contractual life (years)
|
12/31/2019
|
exercise price
|
|
$
|
0.55
|
1,510,000
|
1.83
|
1,510,000
|
$0.55
|
|
|
1.15
|
1,730,000
|
2.58
|
1,145,001
|
$1.15
|
|
|
1.57
|
200,000
|
2.93
|
133,333
|
$1.57
|
|
|
2.15
|
1,940,027
|
4.15
|
310,864
|
$2.15
|
|
|
2.30
|
100,000
|
4.31
|
16,667
|
$2.30
|
|
|
0.55 ‐ 2.30
|
5,480,027
|
2.97
|
3,115,865
|
$0.98
|
Subsequent to December 31, 2019, a total of 170,400 options with exercise price from $0.55 to $2.30 were exercised for proceeds of $152,387 and 83,333 options with exercise price of $2.30 were cancelled.
(ii) RSUs
The continuity schedule of RSUs, as at December 31, 2019, is as follows:
|
|
|
Number of shares
|
|
|
Weighted average
grant date closing
price per share $CAD
|
|
|
Balance, July 1, 2019
|
|
‐
|
|
$
|
‐
|
|
|
Granted
|
|
1,064,600
|
|
|
4.70
|
|
|
Balance, December 31, 2019
|
|
1,064,600
|
|
$
|
4.70
|
|
During the six months ended December 31, 2019, a total of 1,064,600 RSUs were granted to directors, officers, employees, and consultants of the Company at grant date closing price of CAD$4.70 per share subject to a vesting schedule over a two‐year term with 25% of the RSUs vesting every six months from the date of grant.
(c) Common Shares Issued for Mineral Property Interest
As part of the consideration given to acquire certain mineral concessions located adjacent to the Silver Sand Property (see note 7(a)), the Company agreed to issue a total of 832,000 common shares to the vendors valued at $1,315,600 (US$1,000,000) in 2018. During the six months ended December 31, 2019, 291,000 common shares valued at $460,144 (six months ended December 31, 2018 – 250,000 common shares valued at $395,313) were issued and recorded under share capital. Future issuance of 291,000 shares valued at $460,143 was recorded under share‐based payment reserve.
(e) Bought Deal Financing
On October 25, 2019, the Company successfully closed a bought deal financing underwritten by BMO Capital Markets to issue a total of 4,312,500 common shares at a price of $4.00 per common share for gross proceeds of $17,250,000. The underwriter’s fee and other issuance costs for the transaction were $1,416,467.
Page | 13
10. NON‐CONTROLLING INTEREST
|
|
|
Qinghai Found
|
|
|
Balance, July 1, 2018
|
$
|
147,422
|
|
|
Share of net loss
|
|
(151,851
|
)
|
|
Share of other comprehensive loss
|
|
(33,256
|
)
|
|
Balance, June 30, 2019
|
$
|
(37,685
|
)
|
|
Share of net loss
|
|
(11,622
|
)
|
|
Share of other comprehensive loss
|
|
(14,450
|
)
|
|
Balance, December 31, 2019
|
$
|
(63,757
|
)
|
As at December 31, 2019 and June 30, 2019, the non‐controlling interest in the Company’s subsidiary Qinghai Found Mining Co., Ltd. was 18%.
11. FINANCIAL INSTRUMENTS
The Company manages its exposure to financial risks, including liquidity risk, foreign exchange rate risk, interest rate risk, credit risk, and equity price risk in accordance with its risk management framework. The Board has overall responsibility for the establishment and oversight of the Company’s risk management framework and reviews the Company’s policies on an ongoing basis.
(a) Fair Value
The Company classifies its fair value measurements within a fair value hierarchy, which reflects the significance of inputs used in making the measurements as defined in IFRS 7 – Financial Instruments: Disclosures (“IFRS 7”).
Level 1 – Unadjusted quoted prices at the measurement date for identical assets or liabilities in active markets.
Level 2 – Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3 – Unobservable inputs which are supported by little or no market activity.
The following table sets forth the Company’s financial assets that are measured at fair value on a recurring basis by level within the fair value hierarchy as at December 31, 2019 and June 30, 2019 that are not otherwise disclosed. As required by IFRS 7, financial assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
Page | 14
|
|
|
Fair value as at December 31, 2019
|
|
|
Recurring measurements
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
33,620,262
|
|
$
|
‐
|
|
$
|
‐
|
|
$
|
33,620,262
|
|
|
Bonds
|
|
8,694,975
|
|
|
‐
|
|
|
‐
|
|
|
8,694,975
|
|
|
Common or preferred shares(1)
|
|
5,259,760
|
|
|
‐
|
|
|
324,700
|
|
|
5,584,460
|
|
|
Warrants
|
|
‐
|
|
|
602,662
|
|
|
‐
|
|
|
602,662
|
|
(1) Common shares in private companies are Level 3 financial instruments
|
|
|
Fair value as at June 30, 2019
|
|
|
Recurring measurements
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
27,849,961
|
|
$
|
‐
|
|
$
|
‐
|
|
$
|
27,849,961
|
|
|
Bonds
|
|
10,942,898
|
|
|
‐
|
|
|
‐
|
|
|
10,942,898
|
|
|
Common shares(1)
|
|
4,443,963
|
|
|
‐
|
|
|
327,175
|
|
|
4,771,138
|
|
|
Preferred shares
|
|
‐
|
|
|
‐
|
|
|
‐
|
|
|
‐
|
|
|
Warrants
|
|
‐
|
|
|
339,755
|
|
|
‐
|
|
|
339,755
|
|
(1) Common shares in private companies are Level 3 financial instruments
Fair value of other financial instruments excluded from the table above approximates their carrying amount as of December 31, 2019 and June 30, 2019, respectively.
There were no transfers into or out of Level 3 during the period.
(b) Liquidity Risk
The Company has a history of losses and no operating revenues from its operations. Liquidity risk is the risk that the Company will not be able to meet its short term business requirements. As at December 31, 2019, the Company had a working capital position of $41,033,165 and sufficient cash resources to meet the Company’s short‐term financial liabilities and its planned exploration expenditures on the Silver Sand Project and Silverstrike project for, but not limited to, the next 12 months.
In the normal course of business, the Company enters into contracts that give rise to commitments for future minimum payments. The following summarizes the remaining contractual maturities of the Company’s financial liabilities:
|
|
|
December 31, 2019
|
|
|
June 30, 2019
|
|
|
|
|
Due within a year
|
|
|
Total
|
|
|
Total
|
|
|
Trade and other payables
|
$
|
1,473,365
|
|
$
|
1,473,365
|
|
$
|
1,621,403
|
|
|
Due to a related party
|
|
124,032
|
|
|
124,032
|
|
|
89,189
|
|
|
Payable for mineral property acquisition
|
|
263,120
|
|
|
263,120
|
|
|
657,800
|
|
|
|
$
|
1,860,517
|
|
$
|
1,860,517
|
|
$
|
2,368,392
|
|
(c) Foreign Exchange Risk
The Company is exposed to foreign exchange risk when it undertakes transactions and holds assets and liabilities denominated in foreign currencies other than its functional currencies. The Company currently does not engage in foreign exchange currency hedging. The Company’s exposure to foreign exchange risk is summarized as follows:
Page | 15
|
The amounts are expressed in CAD equivalents
|
|
December 31, 2019
|
|
|
June 30, 2019
|
|
|
United States dollars
|
$
|
16,328,256
|
|
$
|
17,615,304
|
|
|
Bolivianos
|
|
165,153
|
|
|
191,204
|
|
|
Chinese RMB
|
|
253,821
|
|
|
191,645
|
|
|
Financial assets in foreign currency
|
$
|
16,747,230
|
|
$
|
17,998,153
|
|
|
|
|
|
|
|
|
|
|
United States dollars
|
$
|
615,046
|
|
$
|
1,330,481
|
|
|
Chinese RMB
|
|
134,716
|
|
|
4,258
|
|
|
Financial liabilities in foreign currency
|
$
|
749,762
|
|
$
|
1,334,739
|
|
As at December 31, 2019, with other variables unchanged, a 1% strengthening (weakening) of the U.S. dollar against the CAD would have increased (decreased) net income by approximately $157,000.
As at December 31, 2019, with other variables unchanged, a 1% strengthening (weakening) of the Bolivianos against the CAD would have increased (decreased) net income by approximately $1,650.
As at December 31, 2019, with other variables unchanged, a 1% strengthening (weakening) of the Chinese RMB against the CAD would have increased (decreased) net income by approximately $1,200.
(d) Interest Rate Risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market interest rates. The Company’s cash and cash equivalents primarily include highly liquid investments that earn interest at market rates that are fixed to maturity. The Company also holds a portion of cash and cash equivalents in bank accounts that earn variable interest rates. Due to the short‐term nature of these financial instruments, fluctuations in market rates do not have significant impact on the fair values of the financial instruments as of December 31, 2019. The Company also owns bonds that earn coupon payments at fixed rates to maturity. Fluctuation in market interest rates usually will have an impact on bond’s fair value. An increase in market interest rates will generally reduce bond’s fair value while a decrease in market interest rates will generally increase it. The Company monitors market interest rate fluctuations closely and adjusts the investment portfolio accordingly.
(e) Credit Risk
Credit risk is the risk of financial loss to the Company if the counterparty to a financial instrument fails to meets its contractual obligations. The Company’s exposure to credit risk is primarily associated with cash and cash equivalents, bonds, and receivables. The carrying amount of financial assets included on the statement of financial position represents the maximum credit exposure.
The Company has deposits of cash equivalents that meet minimum requirements for quality and liquidity as stipulated by the Board. Management believes the risk of loss to be remote, as majority of its cash and cash equivalents are held with major financial institutions. Bonds by nature are exposed to more credit risk than cash. The Company manages its risk associated with bonds by only investing in large globally recognized corporations from diversified industries. As at December 31, 2019, the Company had a receivables balance of $381,177 (June 30, 2019 ‐ $259,600).
Page | 16
(f) Equity Price Risk
The Company holds certain marketable securities that will fluctuate in value as a result of trading on global financial markets. As the Company’s marketable securities holding are mainly in mining companies, the value will also fluctuate based on commodity prices. Based upon the Company’s portfolio at December 31, 2019, a 10% increase (decrease) in the market price of the securities held, ignoring any foreign exchange effects would have resulted in an increase (decrease) to net income of approximately $619,000.
12. CAPITAL MANAGEMENT
The Company’s objectives of capital management are intended to safeguard the entity’s ability to support the Company’s normal exploration and operating requirement on an ongoing basis, continue the investment in high quality assets along with safeguarding the value of its development and exploration mineral properties, and support any expansionary plans.
The capital of the Company consists of the items included in equity. The Board does not establish a quantitative return on capital criteria for management. The Company manages the capital structure and makes adjustments in light of changes in economic conditions and the risk characteristics of the underlying assets.
The Company’s overall strategy with respect to capital risk management remained unchanged during the period. The Company is not subject to any externally imposed capital requirement as at December 31, 2019.
Page | 17
13. SEGMENTED INFORMATION
The Company operates in four reportable operating segments, one being the corporate segment; the others being the mining segments focused on safeguarding the value of its exploration and development mineral properties in Bolivia, Canada, and China. These reporting segments are components of the Company where separate financial information is available that is evaluated regularly by the Company’s Chief Executive Officer, the chief operating decision maker.
(a) Segment information for assets and liabilities are as follows:
|
|
|
December 31, 2019
|
|
|
|
|
Corporate
|
|
|
Mining
|
|
|
|
|
|
|
|
Canada and BVI
|
|
|
Bolivia
|
|
|
Canada
|
|
|
China
|
|
|
Total
|
|
|
Cash and cash equivalents
|
$
|
32,989,490
|
|
$
|
524,897
|
|
$
|
26,183
|
|
$
|
79,692
|
|
$
|
33,620,262
|
|
|
Bonds
|
|
8,694,975
|
|
|
‐
|
|
|
‐
|
|
|
‐
|
|
|
8,694,975
|
|
|
Equity investments
|
|
6,187,122
|
|
|
‐
|
|
|
‐
|
|
|
‐
|
|
|
6,187,122
|
|
|
Plant and equipment
|
|
31,714
|
|
|
1,255,250
|
|
|
‐
|
|
|
21,974
|
|
|
1,308,938
|
|
|
Mineral property interests
|
|
‐
|
|
|
83,194,553
|
|
|
‐
|
|
|
3,458,631
|
|
|
86,653,184
|
|
|
Other assets
|
|
140,533
|
|
|
2,845,483
|
|
|
15,266
|
|
|
182,255
|
|
|
3,183,537
|
|
|
Total Assets
|
$
|
48,043,834
|
|
$
|
87,820,183
|
|
$
|
41,449
|
|
$
|
3,742,552
|
|
$
|
139,648,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
$
|
(994,601
|
)
|
$
|
(618,765
|
)
|
$
|
(112,435
|
)
|
$
|
(134,716
|
)
|
$
|
(1,860,517
|
)
|
|
|
|
|
June 30, 2019
|
|
|
|
|
|
Corporate
|
|
|
Mining
|
|
|
|
|
|
|
|
|
Canada and BVI
|
|
|
Bolivia
|
|
|
Canada
|
|
|
China
|
|
|
Total
|
|
|
Cash and cash equivalents
|
|
$
|
27,372,635
|
|
$
|
384,332
|
|
$
|
29,886
|
|
$
|
63,108
|
|
$
|
27,849,961
|
|
|
Bonds
|
|
|
10,942,898
|
|
|
‐
|
|
|
‐
|
|
|
‐
|
|
|
10,942,898
|
|
|
Equity investments
|
|
|
5,110,893
|
|
|
‐
|
|
|
‐
|
|
|
‐
|
|
|
5,110,893
|
|
|
Plant and equipment
|
|
|
32,714
|
|
|
1,255,631
|
|
|
‐
|
|
|
22,458
|
|
|
1,310,803
|
|
|
Mineral property interests
|
|
|
‐
|
|
|
73,281,417
|
|
|
‐
|
|
|
3,534,665
|
|
|
76,816,082
|
|
|
Other assets
|
|
|
66,138
|
|
|
1,999,715
|
|
|
15,199
|
|
|
136,706
|
|
|
2,217,758
|
|
|
Total Assets
|
|
$
|
43,525,278
|
|
$
|
76,921,095
|
|
$
|
45,085
|
|
$
|
3,756,937
|
|
$
|
124,248,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
$
|
(921,806
|
)
|
$
|
(1,330,481
|
)
|
$
|
(111,847
|
)
|
$
|
(4,258
|
)
|
$
|
(2,368,392
|
)
|
Page | 18
(b) Segment information for operating results are as follows:
|
|
|
Three months ended December 31, 2019
|
|
|
|
|
Corporate
|
|
|
Mining
|
|
|
|
|
|
|
|
Canada and BVI
|
|
|
Bolivia
|
|
|
Canada
|
|
|
China
|
|
|
Total
|
|
|
Gain on equity investments
|
$
|
142,178
|
|
$
|
‐
|
|
$
|
‐
|
|
$
|
‐
|
|
$
|
142,178
|
|
|
Fair value change and interest earned on bonds
|
|
189,594
|
|
|
‐
|
|
|
‐
|
|
|
‐
|
|
|
189,594
|
|
|
Interest income
|
|
7,817
|
|
|
‐
|
|
|
‐
|
|
|
65
|
|
|
7,882
|
|
|
|
|
339,589
|
|
|
‐
|
|
|
‐
|
|
|
65
|
|
|
339,654
|
|
|
Salaries and benefits
|
|
608,990
|
|
|
‐
|
|
|
‐
|
|
|
16,569
|
|
|
625,559
|
|
|
Share‐based compensation
|
|
293,156
|
|
|
‐
|
|
|
‐
|
|
|
‐
|
|
|
293,156
|
|
|
Other operating expenses
|
|
567,336
|
|
|
‐
|
|
|
108,045
|
|
|
31,037
|
|
|
706,418
|
|
|
Income (loss) before other income and expenses
|
|
(1,129,893
|
)
|
|
‐
|
|
|
(108,045
|
)
|
|
(47,541
|
)
|
|
(1,285,479
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange (loss) gain
|
|
(323,013
|
)
|
|
‐
|
|
|
‐
|
|
|
134
|
|
|
(322,879
|
)
|
|
Other income (expense)
|
|
15,000
|
|
|
‐
|
|
|
(15,000
|
)
|
|
‐
|
|
|
‐
|
|
|
Net loss
|
$
|
(1,437,906
|
)
|
$
|
‐
|
|
$
|
(123,045
|
)
|
$
|
(47,407
|
)
|
$
|
(1,608,358
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributed to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity holders of the Company
|
$
|
(1,437,906
|
)
|
$
|
‐
|
|
$
|
(123,045
|
)
|
$
|
(38,873
|
)
|
$
|
(1,599,824
|
)
|
|
Non‐controlling interests
|
|
‐
|
|
|
‐
|
|
|
‐
|
|
|
(8,534
|
)
|
|
(8,534
|
)
|
|
Net loss
|
$
|
(1,437,906
|
)
|
$
|
‐
|
|
$
|
(123,045
|
)
|
$
|
(47,407
|
)
|
$
|
(1,608,358
|
)
|
|
|
|
|
Three months ended December 31, 2018
|
|
|
|
|
|
Corporate
|
|
|
Mining
|
|
|
|
|
|
|
|
|
Canada and BVI
|
|
|
Bolivia
|
|
|
Canada
|
|
|
China
|
|
|
Total
|
|
|
Gain on equity investments
|
|
$
|
150,525
|
|
$
|
‐
|
|
$
|
‐
|
|
$
|
‐
|
|
$
|
150,525
|
|
|
Fair value change and interest earned on bonds
|
|
|
(125,677
|
)
|
|
‐
|
|
|
‐
|
|
|
‐
|
|
|
(125,677
|
)
|
|
Dividend income
|
|
|
27,306
|
|
|
‐
|
|
|
‐
|
|
|
‐
|
|
|
27,306
|
|
|
Interest income
|
|
|
13,693
|
|
|
‐
|
|
|
‐
|
|
|
79
|
|
|
13,772
|
|
|
|
|
|
65,847
|
|
|
‐
|
|
|
‐
|
|
|
79
|
|
|
65,926
|
|
|
Salaries and benefits
|
|
|
261,784
|
|
|
‐
|
|
|
‐
|
|
|
15,816
|
|
|
277,600
|
|
|
Share‐based compensation
|
|
|
153,801
|
|
|
‐
|
|
|
‐
|
|
|
‐
|
|
|
153,801
|
|
|
Other operating expenses (income)
|
|
|
161,680
|
|
|
(2,402
|
)
|
|
102,816
|
|
|
(34,773
|
)
|
|
227,321
|
|
|
Loss (income) before other income and expenses
|
|
|
(511,418
|
)
|
|
2,402
|
|
|
(102,816
|
)
|
|
19,036
|
|
|
(592,796
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange gain
|
|
|
1,061,407
|
|
|
143
|
|
|
‐
|
|
|
3,729
|
|
|
1,065,279
|
|
|
Other income (expense)
|
|
|
15,000
|
|
|
5,452
|
|
|
(15,000
|
)
|
|
‐
|
|
|
5,452
|
|
|
Net income (loss)
|
|
$
|
564,989
|
|
$
|
7,997
|
|
$
|
(117,816
|
)
|
$
|
22,765
|
|
$
|
477,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributed to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity holders of the Company
|
|
$
|
564,989
|
|
$
|
7,997
|
|
$
|
(117,816
|
)
|
$
|
18,668
|
|
$
|
473,838
|
|
|
Non‐controlling interests
|
|
|
‐
|
|
|
‐
|
|
|
‐
|
|
|
4,097
|
|
|
4,097
|
|
|
Net income (loss)
|
|
$
|
564,989
|
|
$
|
7,997
|
|
$
|
(117,816
|
)
|
$
|
22,765
|
|
$
|
477,935
|
|
Page | 19
|
|
|
Six months ended December 31, 2019
|
|
|
|
|
Corporate
|
|
|
Mining
|
|
|
|
|
|
|
|
Canada and BVI
|
|
|
Bolivia
|
|
|
Canada
|
|
|
China
|
|
|
Total
|
|
|
Gain on equity investments
|
$
|
2,325,805
|
|
$
|
‐
|
|
$
|
‐
|
|
$
|
‐
|
|
$
|
2,325,805
|
|
|
Fair value change and interest earned on bonds
|
|
111,520
|
|
|
‐
|
|
|
‐
|
|
|
‐
|
|
|
111,520
|
|
|
Interest income
|
|
17,645
|
|
|
‐
|
|
|
‐
|
|
|
132
|
|
|
17,777
|
|
|
|
|
2,454,970
|
|
|
‐
|
|
|
‐
|
|
|
132
|
|
|
2,455,102
|
|
|
Salaries and benefits
|
|
795,338
|
|
|
‐
|
|
|
‐
|
|
|
33,219
|
|
|
828,557
|
|
|
Share‐based compensation
|
|
589,081
|
|
|
‐
|
|
|
‐
|
|
|
‐
|
|
|
589,081
|
|
|
Other operating expenses
|
|
1,072,595
|
|
|
‐
|
|
|
112,230
|
|
|
31,610
|
|
|
1,216,435
|
|
|
Loss before other income and expenses
|
|
(2,044
|
)
|
|
‐
|
|
|
(112,230
|
)
|
|
(64,697
|
)
|
|
(178,971
|
)
|
|
Foreign exchange gain (loss)
|
|
(146,669
|
)
|
|
‐
|
|
|
‐
|
|
|
132
|
|
|
(146,537
|
)
|
|
Other income (expense)
|
|
30,000
|
|
|
‐
|
|
|
(30,000
|
)
|
|
‐
|
|
|
‐
|
|
|
Net loss
|
$
|
(118,713
|
)
|
$
|
‐
|
|
$
|
(142,230
|
)
|
$
|
(64,565
|
)
|
$
|
(325,508
|
)
|
|
Attributed to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity holders of the Company
|
$
|
(118,713
|
)
|
$
|
‐
|
|
$
|
(142,230
|
)
|
$
|
(52,943
|
)
|
$
|
(313,886
|
)
|
|
Non‐controlling interests
|
|
‐
|
|
|
‐
|
|
|
‐
|
|
|
(11,622
|
)
|
|
(11,622
|
)
|
|
Net loss
|
$
|
(118,713
|
)
|
$
|
‐
|
|
$
|
(142,230
|
)
|
$
|
(64,565
|
)
|
$
|
(325,508
|
)
|
|
|
|
Six months ended December 31, 2018
|
|
|
|
|
Corporate
|
|
|
Mining
|
|
|
|
|
|
|
|
Canada
|
|
|
Bolivia
|
|
|
Canada
|
|
|
China
|
|
|
Total
|
|
|
Loss on equity investments
|
$
|
(214,432
|
)
|
$
|
‐
|
|
$
|
‐
|
|
$
|
‐
|
|
$
|
(214,432
|
)
|
|
Fair value change and interest earned on bonds
|
|
355,162
|
|
|
‐
|
|
|
‐
|
|
|
‐
|
|
|
355,162
|
|
|
Dividend income
|
|
27,306
|
|
|
‐
|
|
|
‐
|
|
|
‐
|
|
|
27,306
|
|
|
Interest income
|
|
14,971
|
|
|
‐
|
|
|
‐
|
|
|
116
|
|
|
15,087
|
|
|
|
|
183,007
|
|
|
‐
|
|
|
‐
|
|
|
116
|
|
|
183,123
|
|
|
Salaries and benefits
|
|
427,744
|
|
|
‐
|
|
|
‐
|
|
|
31,920
|
|
|
459,664
|
|
|
Share‐based compensation
|
|
325,831
|
|
|
‐
|
|
|
‐
|
|
|
‐
|
|
|
325,831
|
|
|
Other operating expenses (income)
|
|
297,618
|
|
|
23,702
|
|
|
106,497
|
|
|
(23,317
|
)
|
|
404,500
|
|
|
Loss before other income and expenses
|
|
(868,186
|
)
|
|
(23,702
|
)
|
|
(106,497
|
)
|
|
(8,487
|
)
|
|
(1,006,872
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange loss
|
|
716,709
|
|
|
(1
|
)
|
|
‐
|
|
|
3,729
|
|
|
720,437
|
|
|
Other income (expense)
|
|
30,000
|
|
|
5,452
|
|
|
(28,619
|
)
|
|
‐
|
|
|
6,833
|
|
|
Net loss
|
$
|
(121,477
|
)
|
$
|
(18,251
|
)
|
$
|
(135,116
|
)
|
$
|
(4,758
|
)
|
$
|
(279,602
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributed to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity holders of the Company
|
$
|
(121,477
|
)
|
$
|
(18,251
|
)
|
$
|
(135,116
|
)
|
$
|
(3,901
|
)
|
$
|
(278,745
|
)
|
|
Non‐controlling interests
|
|
‐
|
|
|
‐
|
|
|
‐
|
|
|
(857
|
)
|
|
(857
|
)
|
|
Net loss
|
$
|
(121,477
|
)
|
$
|
(18,251
|
)
|
$
|
(135,116
|
)
|
$
|
(4,758
|
)
|
$
|
(279,602
|
)
|
14. SUPPLEMENTARY CASH FLOW INFORMATION
|
Changes in non‐cash operating working capital:
|
|
Three Months Ended December 31,
|
|
|
Six Months Ended December 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
Receivables
|
$
|
(11,360
|
)
|
$
|
(40,519
|
)
|
$
|
(124,855
|
)
|
$
|
(65,778
|
)
|
|
Deposits and prepayments
|
|
159,408
|
|
|
101,901
|
|
|
(57,359
|
)
|
|
(98,108
|
)
|
|
Accounts payable and accrued liabilities
|
|
(812,931
|
)
|
|
504,016
|
|
|
(148,537
|
)
|
|
60,983
|
|
|
Due to a related party
|
|
24,138
|
|
|
33,474
|
|
|
34,843
|
|
|
29,368
|
|
|
|
$
|
(640,745
|
)
|
$
|
598,872
|
|
$
|
(295,908
|
)
|
$
|
(73,535
|
)
|
Page | 20
UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the three and nine months ended March 31, 2020 and 2019
(Expressed in Canadian Dollars)
New Pacific Metals Corp.
Unaudited Condensed Consolidated Interim Statements of Financial Position
(Expressed in Canadian dollars)
|
|
Notes
|
|
March 31, 2020
|
|
|
June 30, 2019
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
39,062,867
|
|
$
|
27,849,961
|
|
|
Bonds
|
3
|
|
2,016,853
|
|
|
10,942,898
|
|
|
Receivables
|
|
|
398,889
|
|
|
259,600
|
|
|
Deposits and prepayments
|
|
|
188,347
|
|
|
142,370
|
|
|
|
|
|
41,666,956
|
|
|
39,194,829
|
|
|
|
|
|
|
|
|
|
|
|
Non-current Assets
|
|
|
|
|
|
|
|
|
Reclamation deposits
|
|
|
15,075
|
|
|
15,075
|
|
|
Other tax receivable
|
4
|
|
2,946,050
|
|
|
1,800,713
|
|
|
Equity investments
|
5
|
|
4,898,718
|
|
|
5,110,893
|
|
|
Plant and equipment
|
6
|
|
1,499,632
|
|
|
1,310,803
|
|
|
Mineral property interests
|
7
|
|
96,953,417
|
|
|
76,816,082
|
|
|
TOTAL ASSETS
|
|
$
|
147,979,848
|
|
$
|
124,248,395
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
1,619,015
|
|
$
|
1,621,403
|
|
|
Payable for mineral property acquisition
|
|
|
263,120
|
|
|
394,680
|
|
|
Due to a related party
|
8
|
|
132,739
|
|
|
89,189
|
|
|
|
|
|
2,014,874
|
|
|
2,105,272
|
|
|
Non-current liabilities
|
|
|
|
|
|
|
|
|
Payable for mineral property acquisition
|
|
|
-
|
|
|
263,120
|
|
|
Total Liabilities
|
|
|
2,014,874
|
|
|
2,368,392
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
Share capital
|
|
|
167,452,932
|
|
|
150,005,738
|
|
|
Share-based payment reserve
|
|
|
21,598,857
|
|
|
19,978,062
|
|
|
Accumulated other comprehensive income
|
|
|
10,311,996
|
|
|
3,264,901
|
|
|
Deficit
|
|
|
(53,378,032
|
)
|
|
(51,331,013
|
)
|
|
Total equity attributable to the equity holders of the Company
|
|
|
145,985,753
|
|
|
121,917,688
|
|
|
|
|
|
|
|
|
|
|
|
Non-controlling interests
|
10
|
|
(20,779
|
)
|
|
(37,685
|
)
|
|
Total Equity
|
|
|
145,964,974
|
|
|
121,880,003
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND EQUITY
|
|
$
|
147,979,848
|
|
$
|
124,248,395
|
|
Approved on behalf of the Board:
(Signed) David Kong
Director
(Signed) Rui Feng
Director
See accompanying notes to the unaudited condensed consolidated interim financial statements
Page | 1
New Pacific Metals Corp.
Unaudited Condensed Consolidated Interim Statements of Income (Loss)
(Expressed in Canadian dollars)
|
|
|
|
Three Months Ended March 31,
|
|
|
Nine Months Ended March 31,
|
|
|
|
Notes
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on equity investments
|
5
|
$
|
(1,424,696
|
)
|
$
|
464,481
|
|
$
|
901,109
|
|
$
|
250,049
|
|
|
Fair value change and interest earned on bonds
|
3
|
|
(243,309
|
)
|
|
1,064,994
|
|
|
(131,789
|
)
|
|
1,420,156
|
|
|
Dividend income
|
|
|
68,255
|
|
|
14,160
|
|
|
68,255
|
|
|
41,466
|
|
|
Interest income
|
|
|
4,794
|
|
|
8,811
|
|
|
22,571
|
|
|
23,898
|
|
|
|
|
|
(1,594,956
|
)
|
|
1,552,446
|
|
|
860,146
|
|
|
1,735,569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
3,412
|
|
|
3,025
|
|
|
9,126
|
|
|
9,077
|
|
|
Filing and listing
|
|
|
30,352
|
|
|
21,278
|
|
|
238,218
|
|
|
106,392
|
|
|
Investor relations
|
|
|
152,995
|
|
|
440,187
|
|
|
593,568
|
|
|
576,506
|
|
|
Professional fees
|
|
|
69,360
|
|
|
71,944
|
|
|
282,156
|
|
|
143,598
|
|
|
Salaries and benefits
|
|
|
396,764
|
|
|
252,113
|
|
|
1,225,321
|
|
|
711,777
|
|
|
Office and administration
|
|
|
174,312
|
|
|
120,672
|
|
|
523,798
|
|
|
226,033
|
|
|
Share-based compensation
|
9(b)
|
|
705,653
|
|
|
218,964
|
|
|
1,294,734
|
|
|
544,795
|
|
|
Loss before other income and expenses
|
|
|
(3,127,804
|
)
|
|
424,263
|
|
|
(3,306,775
|
)
|
|
(582,609
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange gain (loss)
|
|
|
1,390,100
|
|
|
(431,492
|
)
|
|
1,243,563
|
|
|
288,945
|
|
|
Other income
|
|
|
-
|
|
|
22
|
|
|
-
|
|
|
6,855
|
|
|
|
|
|
1,390,100
|
|
|
(431,470
|
)
|
|
1,243,563
|
|
|
295,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,737,704
|
)
|
$
|
(7,207
|
)
|
$
|
(2,063,212
|
)
|
$
|
(286,809
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity holders of the Company
|
|
$
|
(1,733,133
|
)
|
$
|
(359
|
)
|
$
|
(2,047,019
|
)
|
$
|
(279,104
|
)
|
|
Non-controlling interests
|
10
|
|
(4,571
|
)
|
|
(6,848
|
)
|
|
(16,193
|
)
|
|
(7,705
|
)
|
|
Net loss
|
|
$
|
(1,737,704
|
)
|
$
|
(7,207
|
)
|
$
|
(2,063,212
|
)
|
$
|
(286,809
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share attributable to the equity holders of the Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share
|
|
$
|
(0.01
|
)
|
$
|
(0.00
|
)
|
$
|
(0.01
|
)
|
$
|
(0.00
|
)
|
|
Weighted average number of common shares - basic and diluted
|
|
|
147,522,980
|
|
|
132,862,155
|
|
|
145,399,888
|
|
|
132,736,133
|
|
See accompanying notes to the unaudited condensed consolidated interim financial statements
Page | 2
New Pacific Metals Corp.
Unaudited Condensed Consolidated Interim Statements of Comprehensive Income (Loss)
(Expressed in Canadian dollars)
|
|
|
|
Three Months Ended March 31,
|
|
|
Nine Months Ended March 31,
|
|
|
|
Notes
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,737,704
|
)
|
$
|
(7,207
|
)
|
$
|
(2,063,212
|
)
|
$
|
(286,809
|
)
|
|
Other comprehensive income (loss), net of taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Items that may subsequently be reclassified to net income or loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustment, net of tax of $nil
|
|
|
7,901,155
|
|
|
(1,370,911
|
)
|
|
7,080,197
|
|
|
912,787
|
|
|
Other comprehensive income (loss), net of taxes
|
|
$
|
7,901,155
|
|
$
|
(1,370,911
|
)
|
$
|
7,080,197
|
|
$
|
912,787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity holders of the Company
|
|
$
|
7,853,606
|
|
$
|
(1,374,167
|
)
|
$
|
7,047,098
|
|
$
|
913,180
|
|
|
Non-controlling interests
|
10
|
|
47,549
|
|
|
3,256
|
|
|
33,099
|
|
|
(393
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,901,155
|
|
$
|
(1,370,911
|
)
|
$
|
7,080,197
|
|
$
|
912,787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss), net of taxes
|
|
$
|
6,163,451
|
|
$
|
(1,378,118
|
)
|
$
|
5,016,985
|
|
$
|
625,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity holders of the Company
|
|
$
|
6,120,473
|
|
$
|
(1,374,526
|
)
|
$
|
5,000,079
|
|
$
|
634,076
|
|
|
Non-controlling interests
|
|
|
42,978
|
|
|
(3,592
|
)
|
|
16,906
|
|
|
(8,098
|
)
|
|
Total comprehensive income (loss), net of taxes
|
|
$
|
6,163,451
|
|
$
|
(1,378,118
|
)
|
$
|
5,016,985
|
|
$
|
625,978
|
|
See accompanying notes to the unaudited condensed consolidated interim financial statements
Page | 3
New Pacific Metals Corp.
Unaudited Condensed Consolidated Interim Statements of Cash Flows
(Expressed in Canadian dollars)
|
|
|
|
Three Months Ended March 31
|
|
|
Nine Months Ended March 31,
|
|
|
|
Notes
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,737,704
|
)
|
$
|
(7,207
|
)
|
$
|
(2,063,212
|
)
|
$
|
(286,809
|
)
|
|
Add (deduct) items not affecting cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss (gain) on equity investments
|
5
|
|
1,424,696
|
|
|
(464,481
|
)
|
|
(901,109
|
)
|
|
(250,049
|
)
|
|
Fair value change and interest earned on bonds
|
3
|
|
243,309
|
|
|
(1,064,994
|
)
|
|
131,789
|
|
|
(1,420,156
|
)
|
|
Interest income
|
|
|
(4,794
|
)
|
|
(8,811
|
)
|
|
(22,571
|
)
|
|
(23,898
|
)
|
|
Depreciation
|
|
|
3,412
|
|
|
3,025
|
|
|
9,126
|
|
|
9,077
|
|
|
Share-based compensation
|
9(b)
|
|
705,653
|
|
|
218,964
|
|
|
1,294,734
|
|
|
544,795
|
|
|
Unrealized foreign exchange loss (gain)
|
|
|
(1,390,100
|
)
|
|
431,492
|
|
|
(1,243,563
|
)
|
|
(288,945
|
)
|
|
Interest received
|
|
|
4,794
|
|
|
8,811
|
|
|
22,571
|
|
|
23,898
|
|
|
Changes in non-cash operating working capital
|
14
|
|
(6,854
|
)
|
|
(1,496,043
|
)
|
|
(302,762
|
)
|
|
(1,569,578
|
)
|
|
Net cash used in operating activities
|
|
|
(757,588
|
)
|
|
(2,379,244
|
)
|
|
(3,074,997
|
)
|
|
(3,261,665
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mineral property interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(1,999,153
|
)
|
|
(1,027,386
|
)
|
|
(10,097,546
|
)
|
|
(7,552,434
|
)
|
|
Acquisition of mineral concession
|
|
|
-
|
|
|
-
|
|
|
(2,436,160
|
)
|
|
(657,800
|
)
|
|
Plant and equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
(101,261
|
)
|
|
(7,422
|
)
|
|
(165,637
|
)
|
|
(70,868
|
)
|
|
Bonds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds on disposals
|
3
|
|
6,838,198
|
|
|
3,565,390
|
|
|
8,816,648
|
|
|
7,700,006
|
|
|
Coupon payments
|
3
|
|
-
|
|
|
286,857
|
|
|
333,208
|
|
|
853,076
|
|
|
Equity investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition
|
5
|
|
(247,000
|
)
|
|
-
|
|
|
(5,018,338
|
)
|
|
-
|
|
|
Proceeds on disposals
|
5
|
|
110,708
|
|
|
73,048
|
|
|
6,131,622
|
|
|
365,961
|
|
|
Changes in other tax receivable
|
|
|
(114,625
|
)
|
|
(38,179
|
)
|
|
(930,782
|
)
|
|
(768,894
|
)
|
|
Net cash provided by (used in) investing activities
|
|
|
4,486,867
|
|
|
2,852,308
|
|
|
(3,366,985
|
)
|
|
(130,953
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common shares
|
|
|
517,052
|
|
|
9,333
|
|
|
16,588,486
|
|
|
157,534
|
|
|
Net cash provided by financing activities
|
|
|
517,052
|
|
|
9,333
|
|
|
16,588,486
|
|
|
157,534
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
1,196,274
|
|
|
(107,061
|
)
|
|
1,066,402
|
|
|
(29,366
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
5,442,605
|
|
|
375,336
|
|
|
11,212,906
|
|
|
(3,264,450
|
)
|
|
Cash and cash equivalents, beginning of the period
|
|
|
33,620,262
|
|
|
10,964,327
|
|
|
27,849,961
|
|
|
14,604,113
|
|
|
Cash and cash equivalents, end of the period
|
|
$
|
39,062,867
|
|
$
|
11,339,663
|
|
$
|
39,062,867
|
|
$
|
11,339,663
|
|
|
Supplementary cash flow information
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the unaudited condensed consolidated interim financial statements
Page | 4
New Pacific Metals Corp.
Unaudited Condensed Consolidated Interim Statements of Change in Equity
(Expressed in Canadian dollars, except for share figures)
|
|
|
|
Share capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
Total equity
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Share-based
|
|
|
other
|
|
|
|
|
|
attributable to the
|
|
|
Non-
|
|
|
|
|
|
|
|
|
common
|
|
|
|
|
|
payment
|
|
|
comprehensive
|
|
|
|
|
|
equity holders of
|
|
|
controlling
|
|
|
|
|
|
|
Notes
|
|
shares issued
|
|
|
Amount
|
|
|
reserve
|
|
|
income
|
|
|
Deficit
|
|
|
the Company
|
|
|
interests
|
|
|
Total equity
|
|
|
Balance, July 1, 2018
|
|
|
132,349,479
|
|
$
|
124,164,312
|
|
$
|
23,440,856
|
|
$
|
3,987,952
|
|
$
|
(48,910,109
|
)
|
$
|
102,683,011
|
|
$
|
147,422
|
|
$
|
102,830,433
|
|
|
Options exercised
|
|
|
273,333
|
|
|
231,168
|
|
|
(73,634
|
)
|
|
-
|
|
|
-
|
|
|
157,534
|
|
|
-
|
|
|
157,534
|
|
|
Share-based compensation
|
|
|
-
|
|
|
-
|
|
|
544,795
|
|
|
-
|
|
|
-
|
|
|
544,795
|
|
|
-
|
|
|
544,795
|
|
|
Common shares issued to acquire mineral property
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
interest
|
|
|
250,000
|
|
|
395,313
|
|
|
920,287
|
|
|
-
|
|
|
-
|
|
|
1,315,600
|
|
|
-
|
|
|
1,315,600
|
|
|
Net loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(279,104
|
)
|
|
(279,104
|
)
|
|
(7,705
|
)
|
|
(286,809
|
)
|
|
Currency translation adjustment
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
913,180
|
|
|
-
|
|
|
913,180
|
|
|
(393
|
)
|
|
912,787
|
|
|
Balance, March 31, 2019
|
|
|
132,872,812
|
|
$
|
124,790,793
|
|
$
|
24,832,304
|
|
$
|
4,901,132
|
|
$
|
(49,189,213
|
)
|
$
|
105,335,016
|
|
$
|
139,324
|
|
$
|
105,474,340
|
|
|
Options exercised
|
|
|
60,000
|
|
|
51,659
|
|
|
(18,659
|
)
|
|
-
|
|
|
-
|
|
|
33,000
|
|
|
-
|
|
|
33,000
|
|
|
Warrants exercised
|
|
|
9,500,000
|
|
|
25,163,286
|
|
|
(5,213,286
|
)
|
|
-
|
|
|
-
|
|
|
19,950,000
|
|
|
-
|
|
|
19,950,000
|
|
|
Share-based compensation
|
|
|
-
|
|
|
-
|
|
|
377,703
|
|
|
-
|
|
|
-
|
|
|
377,703
|
|
|
-
|
|
|
377,703
|
|
|
Net loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(2,141,800
|
)
|
|
(2,141,800
|
)
|
|
(144,146
|
)
|
|
(2,285,946
|
)
|
|
Currency translation adjustment
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,636,231
|
)
|
|
-
|
|
|
(1,636,231
|
)
|
|
(32,863
|
)
|
|
(1,669,094
|
)
|
|
Balance, June 30, 2019
|
|
|
142,432,812
|
|
$
|
150,005,738
|
|
$
|
19,978,062
|
|
$
|
3,264,901
|
|
$
|
(51,331,013
|
)
|
$
|
121,917,688
|
|
$
|
(37,685
|
)
|
$
|
121,880,003
|
|
|
Options exercised
|
9(b)
|
|
724,539
|
|
|
1,153,517
|
|
|
(398,564
|
)
|
|
-
|
|
|
-
|
|
|
754,953
|
|
|
-
|
|
|
754,953
|
|
|
Common shares issued through bought deal financing
|
9(e)
|
|
4,312,500
|
|
|
15,833,533
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
15,833,533
|
|
|
-
|
|
|
15,833,533
|
|
|
Share-based compensation
|
9(b)
|
|
-
|
|
|
-
|
|
|
2,479,503
|
|
|
-
|
|
|
-
|
|
|
2,479,503
|
|
|
-
|
|
|
2,479,503
|
|
|
Common shares issued to acquire mineral property interest
|
9(c)
|
|
291,000
|
|
|
460,144
|
|
|
(460,144
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Net loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(2,047,019
|
)
|
|
(2,047,019
|
)
|
|
(16,193
|
)
|
|
(2,063,212
|
)
|
|
Currency translation adjustment
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
7,047,095
|
|
|
-
|
|
|
7,047,095
|
|
|
33,099
|
|
|
7,080,194
|
|
|
Balance, March 31, 2020
|
|
|
147,760,851
|
|
$
|
167,452,932
|
|
$
|
21,598,857
|
|
$
|
10,311,996
|
|
$
|
(53,378,032
|
)
|
$
|
145,985,753
|
|
$
|
(20,779
|
)
|
$
|
145,964,974
|
|
See accompanying notes to the unaudited condensed consolidated interim financial statements
Page | 5
1. CORPORATE INFORMATION
New Pacific Metals Corp. along with its subsidiaries (collectively, the “Company” or “New Pacific”) is a Canadian mining issuer engaged in exploring and developing mineral properties in Bolivia and Canada. The Company is in the stage of exploring and developing its mineral properties and has not yet determined whether its mineral property interests contain economically recoverable mineral reserves. The underlying value and the recoverability of the amounts shown for mineral property interests are entirely dependent upon the existence of economically recoverable mineral reserves, the ability of the Company to obtain the necessary financing to complete the exploration and development of the mineral property interests, and future profitable production or proceeds from the disposition of the mineral property interests.
The Company is publicly listed on the TSX Venture Exchange (“TSX-V”) under the symbol “NUAG” and on the OTCQX Best Market in the United States under the symbol “NUPMF”. The head office, registered and records offices of the Company are located at 1066 West Hastings Street, Suite 1750, Vancouver, British Columbia, Canada, V6E 3X1.
2. SIGNIFICANT ACCOUNTING POLICIES
(a) Statement of Compliance and Basis of Preparation
These unaudited condensed consolidated interim financial statements have been prepared in accordance with IAS 34 – Interim Financial Reporting. These unaudited condensed consolidated interim financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended June 30, 2019. These unaudited condensed consolidated interim financial statements follow the same significant accounting policies set out in Note 2 to the audited consolidated financial statements for the year ended June 30, 2019.
These unaudited condensed consolidated interim financial statements have been prepared on a going concern basis.
The unaudited condensed consolidated interim financial statements of the Company as at and for the three and nine months ended March 31, 2020 were authorized for issue in accordance with a resolution of the Company’s board of directors (the “Board”) dated on May 24, 2020.
(b) Basis of Consolidation
These consolidated financial statements include the accounts of the Company and its wholly or partially owned subsidiaries.
Subsidiaries are consolidated from the date on which the Company obtains control up to the date of the disposition of control. Control is achieved when the Company has power over the subsidiary, is exposed or has rights to variable returns from its involvement with the subsidiary; and has the ability to use its power to affect its returns. For non-wholly-owned subsidiaries over which the Company has control, the net assets attributable to outside equity shareholders are presented as “non-controlling interests” in the equity section of the consolidated statements of financial position. Net income for the period that is attributable to the non-controlling interests is calculated based on the ownership of the non-controlling interest shareholders in the subsidiary.
Page | 6
Balances, transactions, income and expenses between the Company and its subsidiaries are eliminated on consolidation.
Details of the Company’s significant subsidiaries which are consolidated are as follows:
|
|
|
|
Proportion of ownership interest held
|
|
|
|
|
Country of
|
March 31,
|
June 30,
|
Mineral
|
|
Name of subsidiaries
|
Principal activity
|
incorporation
|
2020
|
2019
|
properties
|
|
New Pacific Offshore Inc.
|
Holding company
|
BVI (i)
|
100%
|
100%
|
|
|
SKN Nickel & Platinum Ltd.
|
Holding company
|
BVI
|
100%
|
100%
|
|
|
Glory Metals Investment Corp. Limited
|
Holding company
|
Hong Kong
|
100%
|
100%
|
|
|
New Pacific Investment Corp. Limited
|
Holding company
|
Hong Kong
|
100%
|
100%
|
|
|
New Pacific Andes Corp. Limited
|
Holding company
|
Hong Kong
|
100%
|
100%
|
|
|
Fortress Mining Inc.
|
Holding company
|
BVI
|
100%
|
100%
|
|
|
Minera Alcira S.A.
|
Mining company
|
Bolivia
|
100%
|
100%
|
Silver Sand
|
|
NPM Minerales S.A.
|
Mining company
|
Bolivia
|
100%
|
100%
|
|
|
Colquehuasi S.R.L.
|
Mining company
|
Bolivia
|
100%
|
100%
|
Silverstrike
|
|
Qinghai Found Mining Co., Ltd.
|
Mining company
|
China
|
82%
|
82%
|
RZY
|
|
Whitehorse Gold Corp.
|
Mining company
|
Canada
|
100%
|
N/A
|
|
|
Tagish Lake Gold Corp.
|
Mining company
|
Canada
|
100%
|
100%
|
TLG
|
|
(i) British Virgin Islands ("BVI")
|
|
|
|
|
|
3. BONDS
The Company acquired bonds issued by other companies from various industries through the open market. These bonds were held to receive coupon interest payments as well as to realize potential gains. The bonds may also be disposed on demand through the open market should the Company require funds for operational or investment needs. The Company accounts for the bonds at fair value at each reporting date.
The continuity of bonds is summarized as follows:
|
|
|
Amount
|
|
|
Balance, July 1, 2018
|
$
|
18,114,026
|
|
|
Interest earned
|
|
882,960
|
|
|
Gain on fair value change
|
|
631,809
|
|
|
Coupon payment
|
|
(853,076
|
)
|
|
Disposition
|
|
(7,700,006
|
)
|
|
Foreign currency translation impact
|
|
(132,815
|
)
|
|
Balance, June 30, 2019
|
$
|
10,942,898
|
|
|
Interest earned
|
|
349,281
|
|
|
Loss on fair value change
|
|
(481,070
|
)
|
|
Coupon payment
|
|
(333,208
|
)
|
|
Disposition
|
|
(8,816,648
|
)
|
|
Foreign currency translation impact
|
|
355,600
|
|
|
Balance, March 31, 2020
|
$
|
2,016,853
|
|
Subsequent to March 31, 2020, certain bonds were disposed for proceeds of $1,463,879.
4. OTHER TAX RECEIVABLE
Other tax receivable composed of value-added tax (“VAT”) imposed by the Bolivian government. The Company had VAT outputs through its exploration costs and general expenses incurred in Bolivia. These VAT outputs are deductible against future VAT inputs that will be generated through sales.
Page | 7
5. EQUITY INVESTMENTS
Equity investments represent equity interests of other publicly traded or privately-held companies that the Company has acquired through the open market or through private placements. These equity interests consist of common shares, preferred shares, and warrants. Equity investments are classified as FVTPL and are measured at fair value on initial recognition and subsequent measurement. The fair value of warrants was determined using the Black-Scholes pricing model as at the acquisition date as well as at each period end.
The equity investments are summarized as follows:
|
|
|
March 31, 2020
|
|
|
June 30, 2019
|
|
|
Common or preferred shares
|
|
|
|
|
|
|
|
Public companies
|
$
|
4,118,520
|
|
$
|
4,443,963
|
|
|
Private companies
|
|
354,675
|
|
|
327,175
|
|
|
Warrants
|
|
|
|
|
|
|
|
Public companies
|
|
425,523
|
|
|
339,755
|
|
|
|
$
|
4,898,718
|
|
$
|
5,110,893
|
|
The fair values of the warrants were estimated using the Black Scholes options pricing model with the following assumptions:
|
|
|
March 31, 2020
|
|
|
June 30, 2019
|
|
|
Risk free interest rate
|
|
0.60%
|
|
|
1.39%
|
|
|
Expected volatility
|
|
124%
|
|
|
130%
|
|
|
Expected life of warrants in years
|
|
1.45
|
|
|
2.19
|
|
The continuity of equity investments is summarized as follows:
|
|
|
|
|
|
Accumulated mark-to-
|
|
|
|
|
|
|
|
market gain included in net
|
|
|
|
|
Fair value
|
|
|
income
|
|
|
Balance, July 1, 2018
|
$
|
5,758,627
|
|
$
|
3,112,656
|
|
|
Proceeds on disposal
|
|
(570,561
|
)
|
|
-
|
|
|
Change in fair value
|
|
(77,173
|
)
|
|
(77,173
|
)
|
|
Balance, June 30, 2019
|
$
|
5,110,893
|
|
$
|
3,035,483
|
|
|
Acquisition
|
|
5,018,338
|
|
|
-
|
|
|
Proceeds on disposal
|
|
(6,131,622
|
)
|
|
-
|
|
|
Change in fair value
|
|
901,109
|
|
|
901,109
|
|
|
Balance, March 31, 2020
|
$
|
4,898,718
|
|
$
|
3,936,592
|
|
Page | 8
6. PLANT AND EQUIPMENT
|
|
|
|
|
|
|
|
|
|
|
|
Office
|
|
|
|
|
|
|
|
|
|
|
Land and
|
|
|
|
|
|
Motor
|
|
|
equipment and
|
|
|
Computer
|
|
|
|
|
|
Cost
|
|
building
|
|
|
Machinery
|
|
|
vehicles
|
|
|
furniture
|
|
|
software
|
|
|
Total
|
|
|
Balance, July 1, 2018
|
$
|
890,754
|
|
$
|
1,316,781
|
|
$
|
238,827
|
|
$
|
188,342
|
|
$
|
126,272
|
|
$
|
2,760,976
|
|
|
Additions
|
|
833,931
|
|
|
68,060
|
|
|
115,041
|
|
|
44,382
|
|
|
-
|
|
|
1,061,414
|
|
|
Foreign currency translation impact
|
|
(9,450
|
)
|
|
(3,573
|
)
|
|
(2,934
|
)
|
|
(3,358
|
)
|
|
(15
|
)
|
|
(19,330
|
)
|
|
Balance, June 30, 2019
|
$
|
1,715,235
|
|
$
|
1,381,268
|
|
$
|
350,934
|
|
$
|
229,366
|
|
$
|
126,257
|
|
$
|
3,803,060
|
|
|
Additions
|
|
-
|
|
|
52,173
|
|
|
39,870
|
|
|
73,594
|
|
|
-
|
|
|
165,637
|
|
|
Foreign currency translation impact
|
|
69,297
|
|
|
20,948
|
|
|
25,443
|
|
|
11,214
|
|
|
17
|
|
|
126,919
|
|
|
Balance, March 31, 2020
|
$
|
1,784,532
|
|
$
|
1,454,389
|
|
$
|
416,247
|
|
$
|
314,174
|
|
$
|
126,274
|
|
$
|
4,095,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at July 1, 2018
|
$
|
(890,754
|
)
|
$
|
(1,132,264
|
)
|
$
|
(104,390
|
)
|
$
|
(161,759
|
)
|
$
|
(126,223
|
)
|
$
|
(2,415,390
|
)
|
|
Depreciation and amortization
|
|
-
|
|
|
(17,400
|
)
|
|
(37,728
|
)
|
|
(25,465
|
)
|
|
-
|
|
|
(80,593
|
)
|
|
Foreign currency translation impact
|
|
-
|
|
|
409
|
|
|
880
|
|
|
2,424
|
|
|
13
|
|
|
3,726
|
|
|
Balance, June 30, 2019
|
$
|
(890,754
|
)
|
$
|
(1,149,255
|
)
|
$
|
(141,238
|
)
|
$
|
(184,800
|
)
|
$
|
(126,210
|
)
|
$
|
(2,492,257
|
)
|
|
Depreciation and amortization
|
|
-
|
|
|
(22,241
|
)
|
|
(39,855
|
)
|
|
(24,164
|
)
|
|
-
|
|
|
(86,260
|
)
|
|
Foreign currency translation impact
|
|
-
|
|
|
(4,106
|
)
|
|
(8,085
|
)
|
|
(5,262
|
)
|
|
(14
|
)
|
|
(17,467
|
)
|
|
Balance, March 31, 2020
|
$
|
(890,754
|
)
|
$
|
(1,175,602
|
)
|
$
|
(189,178
|
)
|
$
|
(214,226
|
)
|
$
|
(126,224
|
)
|
$
|
(2,595,984
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2019
|
$
|
824,481
|
|
$
|
232,013
|
|
$
|
209,696
|
|
$
|
44,566
|
|
$
|
47
|
|
$
|
1,310,803
|
|
|
Balance, March 31, 2020
|
$
|
893,778
|
|
$
|
278,787
|
|
$
|
227,069
|
|
$
|
99,948
|
|
$
|
50
|
|
$
|
1,499,632
|
|
7. MINERAL PROPERTY INTERESTS
(a) Silver Sand Project
On July 20, 2017, the Company acquired the Silver Sand Project. The Silver Sand Project is located in the Colavi District of PotosíDepartment, in Southwestern Bolivia, 25 kilometres (“km”) northeast of Potosí City, the department capital. The Silver Sand Project covers an area of approximately 3.17 km2 at an elevation of 4,072 metres (“m”).
The Company has carried out extensive exploration and resource definition drill programs on its Silver Sand Project since acquisition in 2017. During the 2017-2018 discovery exploration drill campaign, a total of 195 holes in 55,012m of drilling were completed. During the 2019 resource definition drill campaign, a total of 191 drill holes in 42,607m of drilling were completed. In total since project inception, the Company completed 97,619m of drilling in 386 drill holes. On April 14, 2020, the Company released the inaugural independent National Instrument 43-101 (“NI 43-101”) Mineral Resource estimate for its 100% owned Silver Sand Project. Using a 45 g/t silver cut-off-grade the estimate reported Measured & Indicated tonnes of 35.39 Mt @ 137 g/t Ag for 155.86 Moz and Inferred tonnes of 9.84 Mt @ 112 g/t Ag for 35.55 Moz., or approximately 70% of the resource estimate.
For the three and nine months ended March 31, 2020, total expenditures of $2,395,286 and $10,932,321, respectively (three and nine months ended March 31, 2019 - $1,040,108 and $7,634,047, respectively) were capitalized under the project for expenditures related to the 2019 drill campaign, site and camp service and construction, and maintaining a regional office in La Paz, a management team, and workforce for the project.
Page | 9
As part of the Silver Sand Project’s expansion plan, the Company entered into a mining production contract (the “MPC”) in January 2019 with Corporación Minera de Bolivia (“COMIBOL”) to explore and potentially develop and mine the area adjoining the Silver Sand Project. The MPC remains subject to ratification by the Plurinational Legislative Assembly of Bolivia. As of the date of these unaudited condensed consolidated interim financial statements, the MPC has not been ratified nor approved by the Plurinational Legislative Assembly of Bolivia. Given the political instability and social unrest in Bolivia following the general elections held on October 20, 2019, there is no assurance that the Company will be successful in obtaining ratification of the MPC in a timely manner or at all, or that they will be obtained on reasonable terms. The Company cannot predict the government’s positions on foreign investment, mining concessions, land tenure, environmental regulation, community relations, or taxation. A change in government positions on these issues could adversely affect the ratification of the MPC and the Company’s business.
In July 2018, the Company entered into an agreement with third party private owners to acquire their 100% interest in certain mineral concessions located subjacent to the Silver Sand Project by cash payments of $1,315,600 (US$1,000,000) and issuance of 832,000 common shares (see note 9 (c)). During Fiscal 2019, cash payments of $657,800 (US$500,000) were paid and 250,000 common shares were issued to the vendors. During the nine months ended March 31, 2020, cash payments of $394,680 (US$300,000) were paid and 291,000 common shares were issued to the vendors. Future cash payments of $263,120 (US$200,000) were accrued as payable for mineral property acquisition as at March 31, 2020.
In December 2019, the Company further expanded its Silver Sand land package by acquiring a 100% interest in a Special Temporary Authorization (“ATE”) located immediately to the north of the project by making a one-time cash payment of $267,720 (US$200,000) to arm’s length private owners. This newly acquired ATE currently consists of six hectares but will total approximately 0.50 km2 once it has been consolidated to concessions called “Cuadriculas” and converted to Mining Administrative Contract with Bolivia’s Jurisdictional Mining Administrative Authority (Autoridad Jurisdiccional Administrativa Minera or “AJAM”).
(b) Silverstrike Project
In December 2019, the Company announced the acquisition of a 98% interest in the Silverstrike Project from an arm’s length private Bolivian corporation (the “Vendor”) by making a one-time cash payment of $1,782,270 (US$1,350,000). Under the agreement signed between the Company’s wholly-owned subsidiary and the Vendor, the Company will cover 100% of the future expenditures of exploration, mining, development and production activities. The agreement has a term of 30 years and renewable for another 15 years without any payment and is subject to approval by AJAM.
The Silverstrike Project, at an elevation of 4,000 to 4,500m, is located approximately 140 km southwest of La Paz, Bolivia. The Silverstrike Project consists of nine ATEs with an area of approximately 13km² currently in the process of conversion to Mining Administrative Contracts before AJAM. The Vendor has also applied for exploration rights over areas surrounding the Silverstrike Project as part of the transaction.
For the three and nine months ended March 31, 2020, total expenditures of $421,925 and $427,127, respectively (three and nine months ended March 31, 2019 - $nil and $nil, respectively) were capitalized under the project for expenditures related to camp service and maintaining a management team and workforce for the project.
Page | 10
(c) Tagish Lake Gold Project
The Tagish Lake Gold Project, covering an area of 166 km2, is located in Yukon Territory, Canada, and consists of 1,051 mining claims with three identified gold and gold-silver mineral deposits: Skukum Creek, Goddell Gully and Mount Skukum.
(d) RZY Project
The RZY Project, located in Qinghai, China is an early stage silver-lead-zinc exploration project, situated on a high plateau with an average elevation of 5,000m above sea level. The RZY Project is located approximately 237 km via paved and gravel roads from the city of Yushu Tibetan Autonomous Prefecture, or 820 km via paved highway from Qinghai Province’s capital city of Xining. In 2016, the Qinghai Government issued a moratorium which suspended exploration for 26 mining projects in the region, including the RZY Project, and classified the region as a National Nature Reserve Area.
During the nine months ended March 31, 2020, the Company’s subsidiary, Qinghai Found, reached a compensation agreement (the “Agreement”) with the Qinghai Government for the RZY Project. Pursuant to the Agreement, Qinghai Found will surrender its title of the RZY Project to the Qinghai Government after completing certain reclamation works for one-time cash compensation of $3.8 million (RMB ¥20 million). As of March 31, 2020, the Company completed the reclamation works for a cost of approximately $200,000, and they are currently under review and subject to approval by the Qinghai Government.
The continuity schedule of mineral property acquisition costs and deferred exploration and development costs are summarized as follows:
|
Cost
|
|
Silver Sand
|
|
|
Silverstrike
|
|
|
Tagish Lake
|
|
|
RZY Project
|
|
|
Total
|
|
|
Balance, July 1, 2018
|
$
|
60,374,656
|
|
$
|
-
|
|
$
|
-
|
|
$
|
4,488,108
|
|
$
|
64,862,764
|
|
|
Capitalized exploration expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Drilling and assaying
|
|
6,978,112
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
6,978,112
|
|
|
Project management and support
|
|
2,980,841
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,980,841
|
|
|
Camp service
|
|
742,163
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
742,163
|
|
|
Geological surveys
|
|
4,170
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4,170
|
|
|
Permitting
|
|
7,401
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
7,401
|
|
|
Acquisition of mineral concessions
|
|
2,631,200
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,631,200
|
|
|
Other
|
|
13,237
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
13,237
|
|
|
Impairment
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(779,823
|
)
|
|
(779,823
|
)
|
|
Foreign currency impact
|
|
(450,362
|
)
|
|
-
|
|
|
-
|
|
|
(173,621
|
)
|
|
(623,983
|
)
|
|
Balance, June 30, 2019
|
$
|
73,281,418
|
|
$
|
-
|
|
$
|
-
|
|
$
|
3,534,664
|
|
$
|
76,816,082
|
|
|
Capitalized exploration expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reporting and assessment
|
|
493,948
|
|
|
974
|
|
|
-
|
|
|
-
|
|
|
494,922
|
|
|
Drilling and assaying
|
|
6,433,060
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
6,433,060
|
|
|
Project management and support
|
|
3,311,015
|
|
|
403,082
|
|
|
-
|
|
|
-
|
|
|
3,714,097
|
|
|
Camp service
|
|
594,415
|
|
|
23,072
|
|
|
-
|
|
|
-
|
|
|
617,487
|
|
|
Camp construction
|
|
32,064
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
32,064
|
|
|
Permitting
|
|
41,249
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
41,249
|
|
|
Acquisition of Silverstrike Project
|
|
-
|
|
|
1,782,270
|
|
|
-
|
|
|
-
|
|
|
1,782,270
|
|
|
Acquisition of mineral concessions
|
|
276,020
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
276,020
|
|
|
Other
|
|
26,570
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
26,570
|
|
|
Foreign currency impact
|
|
6,404,513
|
|
|
137,051
|
|
|
-
|
|
|
178,032
|
|
|
6,719,596
|
|
|
Balance, March 31, 2020
|
$
|
90,894,272
|
|
$
|
2,346,449
|
|
$
|
-
|
|
$
|
3,712,696
|
|
$
|
96,953,417
|
|
Page | 11
8. RELATED PARTY TRANSACTIONS
Related party transactions are made on terms agreed upon by the related parties. The balances with related parties are unsecured, non-interest bearing, and due on demand. Related party transactions not disclosed elsewhere in the condensed consolidated interim financial statements are as follows:
|
Due to a related party
|
|
March 31, 2020
|
|
|
June 30, 2019
|
|
|
Silvercorp Metals Inc.
|
$
|
132,739
|
|
$
|
89,189
|
|
Silvercorp Metals Inc. (“Silvercorp”) has two directors and one officer in common with the Company. Silvercorp and the Company share office space and Silvercorp provides various general and administrative services to the Company. Expenses in services rendered and incurred by Silvercorp on behalf of the Company for the three and nine months ended March 31, 2020, the Company were $151,288 and $575,635, respectively (three and nine months ended March 31, 2019 - $93,204 and $221,463, respectively).
9. SHARE CAPITAL
(a) Share Capital - authorized share capital
Unlimited number of common shares without par value.
(b) Share-based compensation
The Company has a share-based compensation plan (the “Plan”) which consists of stock options, restricted share units (the “RSUs”) and performance share units (the “PSUs”). The Plan allows for the maximum number of common shares to be reserved for issuance on any share-based compensation to be a rolling 10% of the issued and outstanding common shares from time to time. Furthermore, no more than 3,500,000 shares may be granted in the form of RSUs and no more than 780,000 shares may be granted in the form of PSUs.
For the three and nine months ended March 31, 2020, a total of $705,653 and $1,294,734, respectively (three and nine months ended March 31, 2019 - $218,964 and $544,795, respectively) were recorded as share-based compensation expense. For the three and nine months ended March 31, 2020, a total of $791,318 and $1,184,768, respectively (three and nine months ended March 31, 2019 - $nil and $nil, respectively) were capitalized under mineral property interests.
Page | 12
(i) Stock Options
The continuity schedule of stock options, as at March 31, 2020, is as follows:
|
|
|
|
|
|
Weighted average
|
|
|
|
|
Number of options
|
|
|
exercise price
|
|
|
Balance, July 1, 2018
|
|
4,145,000
|
|
|
0.87
|
|
|
Options granted
|
|
2,155,000
|
|
|
2.16
|
|
|
Options exercised
|
|
(333,333
|
)
|
|
0.57
|
|
|
Options cancelled
|
|
(11,667
|
)
|
|
0.89
|
|
|
Options expired
|
|
(50,000
|
)
|
|
0.57
|
|
|
Balance, June 30, 2019
|
|
5,905,000
|
|
|
1.36
|
|
|
Options exercised
|
|
(724,539
|
)
|
|
1.04
|
|
|
Options cancelled
|
|
(237,500
|
)
|
|
2.01
|
|
|
Balance, March 31, 2020
|
|
4,942,961
|
|
|
1.38
|
|
Option pricing model requires the input of subjective assumptions including the expected volatility. Changes in the assumptions can materially affect the fair value estimate and therefore, the existing models do not necessarily provide a reliable estimate of the fair value of the Company’s stock options. The Company’s expected volatility is based on the historical volatility of the Company’s share price on the TSX-V.
The following table summarizes information about stock options outstanding as at March 31, 2020:
|
|
|
Number of options
|
Weighted
|
Number of options
|
Weighted
|
|
|
Exercise
|
outstanding as at
|
average remaining
|
exercisable as at
|
average
|
|
|
prices
|
3/31/2020
|
contractual life (years)
|
3/31/2020
|
exercise price
|
|
$
|
0.55
|
1,414,600
|
1.59
|
1,414,600
|
$0.55
|
|
|
1.15
|
1,421,667
|
2.33
|
1,129,166
|
$1.15
|
|
|
1.57
|
200,000
|
2.69
|
133,333
|
$1.57
|
|
|
2.15
|
1,906,694
|
3.90
|
603,357
|
$2.15
|
|
|
0.55 - 2.15
|
4,942,961
|
2.74
|
3,280,456
|
$1.09
|
Subsequent to March 31, 2020, a total of 123,527 options with exercise price from $0.55 to $2.15 were exercised for proceeds of $240,283.
(ii) RSUs
The continuity schedule of RSUs, as at March 31, 2020, is as follows:
|
|
|
Number of shares
|
|
|
Weighted average
grant date closing
price per share $CAD
|
|
|
Balance, July 1, 2019
|
|
-
|
|
$
|
-
|
|
|
Granted
|
|
1,064,600
|
|
|
4.70
|
|
|
Balance, March 31, 2020
|
|
1,064,600
|
|
$
|
4.70
|
|
Page | 13
During the nine months ended March 31, 2020, a total of 1,064,600 RSUs were granted to directors, officers, employees, and consultants of the Company at grant date closing price of CAD$4.70 per share subject to a vesting schedule over a two-year term with 25% of the RSUs vesting every six months from the date of grant.
(c) Common Shares Issued for Mineral Property Interest
As part of the consideration given to acquire certain mineral concessions located adjacent to the Silver Sand Property (see note 7(a)), the Company agreed to issue a total of 832,000 common shares to the vendors valued at $1,315,600 (US$1,000,000) in the year ended June 30, 2019. During the nine months ended March 31, 2020, 291,000 common shares valued at $460,144 (nine months ended March 31, 2019 – 250,000 common shares valued at $395,313) were issued and recorded under share capital. The future issuance of 291,000 shares valued at $460,143 has been recorded under share-based payment reserve.
(e) Bought Deal Financing
On October 25, 2019, the Company successfully closed a bought deal financing underwritten by BMO Capital Markets (“BMO”) to issue a total of 4,312,500 common shares at a price of $4.00 per common share for gross proceeds of $17,250,000. The underwriter’s fee and other issuance costs for the transaction were $1,416,467.
Subsequent to March 31, 2020, on May 19, 2020, the Company announced that it has entered into an agreement with BMO as sole underwriter to issue a total of 4,238,000 common shares at a price of $5.90 per common share for estimated gross proceeds of $25 million (the “Offering”). The Company has granted BMO an option, exercisable at the offering price for a period of 30 days following the closing of the Offering, to purchase up to an additional 15% of the Offering to cover over-allotments, if any. The Offering is expected to close on or about June 9, 2020.
10. NON-CONTROLLING INTEREST
|
|
|
Qinghai Found
|
|
|
Balance, July 1, 2018
|
$
|
147,422
|
|
|
Share of net loss
|
|
(151,851
|
)
|
|
Share of other comprehensive loss
|
|
(33,256
|
)
|
|
Balance, June 30, 2019
|
$
|
(37,685
|
)
|
|
Share of net loss
|
|
(16,193
|
)
|
|
Share of other comprehensive income
|
|
33,099
|
|
|
Balance, March 31, 2020
|
$
|
(20,779
|
)
|
As at March 31, 2020 and June 30, 2019, the non-controlling interest in the Company’s subsidiary Qinghai Found Mining Co., Ltd. was 18%.
11. FINANCIAL INSTRUMENTS
The Company manages its exposure to financial risks, including liquidity risk, foreign exchange rate risk, interest rate risk, credit risk, and equity price risk in accordance with its risk management framework. The Board has overall responsibility for the establishment and oversight of the Company’s risk management framework and reviews the Company’s policies on an ongoing basis.
Page | 14
(a) Fair Value
The Company classifies its fair value measurements within a fair value hierarchy, which reflects the significance of inputs used in making the measurements as defined in IFRS 7 – Financial Instruments: Disclosures (“IFRS 7”).
Level 1 – Unadjusted quoted prices at the measurement date for identical assets or liabilities in active markets.
Level 2 – Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3 – Unobservable inputs which are supported by little or no market activity.
The following table sets forth the Company’s financial assets that are measured at fair value on a recurring basis by level within the fair value hierarchy as at March 31, 2020 and June 30, 2019 that are not otherwise disclosed. As required by IFRS 7, financial assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
|
|
|
Fair value as at March 31, 2020
|
|
|
Recurring measurements
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
39,062,867
|
|
$
|
-
|
|
$
|
-
|
|
$
|
39,062,867
|
|
|
Bonds
|
|
2,016,853
|
|
|
-
|
|
|
-
|
|
|
2,016,853
|
|
|
Common or preferred shares(1)
|
|
4,118,520
|
|
|
-
|
|
|
354,675
|
|
|
4,473,195
|
|
|
Warrants
|
|
-
|
|
|
425,523
|
|
|
-
|
|
|
425,523
|
|
(1) Common shares in private companies are Level 3 financial instruments
|
|
|
Fair value as at June 30, 2019
|
|
|
Recurring measurements
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
27,849,961
|
|
$
|
-
|
|
$
|
-
|
|
$
|
27,849,961
|
|
|
Bonds
|
|
10,942,898
|
|
|
-
|
|
|
-
|
|
|
10,942,898
|
|
|
Common shares(1)
|
|
4,443,963
|
|
|
-
|
|
|
327,175
|
|
|
4,771,138
|
|
|
Preferred shares
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Warrants
|
|
-
|
|
|
339,755
|
|
|
-
|
|
|
339,755
|
|
(1) Common shares in private companies are Level 3 financial instruments
Fair value of other financial instruments excluded from the table above approximates their carrying amount as of March 31, 2020 and June 30, 2019, respectively.
There were no transfers into or out of Level 3 during the period.
Page | 15
(b) Liquidity Risk
The Company has a history of losses and no operating revenues from its operations. Liquidity risk is the risk that the Company will not be able to meet its short term business requirements. As at March 31, 2020, the Company had a working capital position of $39,652,082 and sufficient cash resources to meet the Company’s short-term financial liabilities and its planned exploration expenditures on the Silver Sand and Silverstrike Projects for, but not limited to, the next 12 months.
In the normal course of business, the Company enters into contracts that give rise to commitments for future minimum payments. The following summarizes the remaining contractual maturities of the Company’s financial liabilities:
|
|
|
March 31, 2020
|
|
|
June 30, 2019
|
|
|
|
|
Due within a year
|
|
|
Total
|
|
|
Total
|
|
|
Trade and other payables
|
$
|
1,619,015
|
|
$
|
1,619,015
|
|
$
|
1,621,403
|
|
|
Due to a related party
|
|
132,739
|
|
|
132,739
|
|
|
89,189
|
|
|
Payable for mineral property acquisition
|
|
263,120
|
|
|
263,120
|
|
|
657,800
|
|
|
|
$
|
2,014,874
|
|
$
|
2,014,874
|
|
$
|
2,368,392
|
|
(c) Foreign Exchange Risk
The Company is exposed to foreign exchange risk when it undertakes transactions and holds assets and liabilities denominated in foreign currencies other than its functional currencies. The Company currently does not engage in foreign exchange currency hedging. The Company’s exposure to foreign exchange risk is summarized as follows:
|
The amounts are expressed in CAD equivalents
|
|
March 31, 2020
|
|
|
June 30, 2019
|
|
|
United States dollars
|
$
|
16,929,666
|
|
$
|
17,615,304
|
|
|
Bolivianos
|
|
564,872
|
|
|
191,204
|
|
|
Chinese RMB
|
|
246,339
|
|
|
191,645
|
|
|
Financial assets in foreign currency
|
$
|
17,740,877
|
|
$
|
17,998,153
|
|
|
|
|
|
|
|
|
|
|
United States dollars
|
$
|
774,422
|
|
$
|
1,330,481
|
|
|
Chinese RMB
|
|
144,746
|
|
|
4,258
|
|
|
Financial liabilities in foreign currency
|
$
|
919,168
|
|
$
|
1,334,739
|
|
As at March 31, 2020, with other variables unchanged, a 1% strengthening (weakening) of the US dollar against the CAD would have increased (decreased) net income by approximately $161,500.
As at March 31, 2020, with other variables unchanged, a 1% strengthening (weakening) of the Bolivianos against the CAD would have increased (decreased) net income by approximately $5,650.
As at March 31, 2020, with other variables unchanged, a 1% strengthening (weakening) of the Chinese RMB against the CAD would have increased (decreased) net income by approximately $1,000.
Page | 16
(d) Interest Rate Risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market interest rates. The Company’s cash and cash equivalents primarily include highly liquid investments that earn interest at market rates that are fixed to maturity. The Company also holds a portion of cash and cash equivalents in bank accounts that earn variable interest rates. Due to the short-term nature of these financial instruments, fluctuations in market rates do not have significant impact on the fair values of the financial instruments as of March 31, 2020. The Company also owns bonds that earn coupon payments at fixed rates to maturity. Fluctuation in market interest rates usually will have an impact on bond’s fair value. An increase in market interest rates will generally reduce bond’s fair value while a decrease in market interest rates will generally increase it. The Company monitors market interest rate fluctuations closely and adjusts the investment portfolio accordingly.
(e) Credit Risk
Credit risk is the risk of financial loss to the Company if the counterparty to a financial instrument fails to meets its contractual obligations. The Company’s exposure to credit risk is primarily associated with cash and cash equivalents, bonds, and receivables. The carrying amount of financial assets included on the statement of financial position represents the maximum credit exposure.
The Company has deposits of cash equivalents that meet minimum requirements for quality and liquidity as stipulated by the Board. Management believes the risk of loss to be remote, as majority of its cash and cash equivalents are held with major financial institutions. Bonds by nature are exposed to more credit risk than cash. The Company manages its risk associated with bonds by only investing in large globally recognized corporations from diversified industries. As at March 31, 2020, the Company had a receivables balance of $398,889 (June 30, 2019 - $259,600).
(f) Equity Price Risk
The Company holds certain marketable securities that will fluctuate in value as a result of trading on global financial markets. Based upon the Company’s portfolio at March 31, 2020, a 10% increase (decrease) in the market price of the securities held, ignoring any foreign exchange effects would have resulted in an increase (decrease) to net income of approximately $490,000.
12. CAPITAL MANAGEMENT
The Company’s objectives of capital management are intended to safeguard the entity’s ability to support the Company’s normal exploration and operating requirement on an ongoing basis, continue the investment in high quality assets along with safeguarding the value of its development and exploration mineral properties, and support any expansionary plans.
The capital of the Company consists of the items included in equity less cash and cash equivalents and bonds. Risk and capital management are primarily the responsibility of the Company’s corporate finance function and is monitored by the Board of Directors. The Company manages the capital structure and makes adjustments depending on economic conditions. Significant risks are monitored and actions are taken, when necessary, according to the Company’s approved policies.
Page | 17
In addition, the current outbreak of COVID-19 has caused significant disruption to global economic conditions which may adversely impact the Company’s results. Moreover, COVID-19 has also negatively impacted on the stock markets which could adversely impact the Company’s ability to raise capital.
13. SEGMENTED INFORMATION
The Company operates in four reportable operating segments, one being the corporate segment; the others being the mining segments focused on safeguarding the value of its exploration and development mineral properties in Bolivia, Canada, and China. These reporting segments are components of the Company where separate financial information is available that is evaluated regularly by the Company’s Chief Executive Officer, the chief operating decision maker.
(a) Segment information for assets and liabilities are as follows:
|
|
|
|
March 31, 2020
|
|
|
|
|
|
Corporate
|
|
|
Mining
|
|
|
|
|
|
|
|
|
Canada and BVI
|
|
|
Bolivia
|
|
|
Canada
|
|
|
China
|
|
|
Total
|
|
|
Cash and cash equivalents
|
|
$
|
37,692,384
|
|
$
|
800,717
|
|
$
|
512,349
|
|
$
|
57,417
|
|
$
|
39,062,867
|
|
|
Bonds
|
|
|
2,016,853
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,016,853
|
|
|
Equity investments
|
|
|
4,898,718
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4,898,718
|
|
|
Plant and equipment
|
|
|
71,100
|
|
|
1,404,944
|
|
|
-
|
|
|
23,588
|
|
|
1,499,632
|
|
|
Mineral property interests
|
|
|
-
|
|
|
93,240,721
|
|
|
-
|
|
|
3,712,696
|
|
|
96,953,417
|
|
|
Other assets
|
|
|
96,193
|
|
|
3,238,690
|
|
|
15,833
|
|
|
197,645
|
|
|
3,548,361
|
|
|
Total Assets
|
|
$
|
44,775,248
|
|
$
|
98,685,072
|
|
$
|
528,182
|
|
$
|
3,991,346
|
|
$
|
147,979,848
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
$
|
(944,395
|
)
|
$
|
(797,373
|
)
|
$
|
(128,361
|
)
|
$
|
(144,745
|
)
|
$
|
(2,014,874
|
)
|
|
|
|
|
June 30, 2019
|
|
|
|
|
|
Corporate
|
|
|
Mining
|
|
|
|
|
|
|
|
|
Canada and BVI
|
|
|
Bolivia
|
|
|
Canada
|
|
|
China
|
|
|
Total
|
|
|
Cash and cash equivalents
|
|
$
|
27,372,635
|
|
$
|
384,332
|
|
$
|
29,886
|
|
$
|
63,108
|
|
$
|
27,849,961
|
|
|
Bonds
|
|
|
10,942,898
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
10,942,898
|
|
|
Equity investments
|
|
|
5,110,893
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
5,110,893
|
|
|
Plant and equipment
|
|
|
32,714
|
|
|
1,255,631
|
|
|
-
|
|
|
22,458
|
|
|
1,310,803
|
|
|
Mineral property interests
|
|
|
-
|
|
|
73,281,417
|
|
|
-
|
|
|
3,534,665
|
|
|
76,816,082
|
|
|
Other assets
|
|
|
66,138
|
|
|
1,999,715
|
|
|
15,199
|
|
|
136,706
|
|
|
2,217,758
|
|
|
Total Assets
|
|
$
|
43,525,278
|
|
$
|
76,921,095
|
|
$
|
45,085
|
|
$
|
3,756,937
|
|
$
|
124,248,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
$
|
(921,806
|
)
|
$
|
(1,330,481
|
)
|
$
|
(111,847
|
)
|
$
|
(4,258
|
)
|
$
|
(2,368,392
|
)
|
Page | 18
(b) Segment information for operating results are as follows:
|
|
|
Three months ended March 31, 2020
|
|
|
|
|
|
|
|
Mining
|
|
|
|
|
|
|
|
Canada and BVI
|
|
|
Bolivia
|
|
|
Canada
|
|
|
China
|
|
|
Total
|
|
|
Loss on equity investments
|
$
|
(1,424,696
|
)
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
(1,424,696
|
)
|
|
Fair value change and interest earned on bonds
|
|
(243,309
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(243,309
|
)
|
|
Dividend income
|
|
68,255
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
68,255
|
|
|
Interest income
|
|
4,748
|
|
|
-
|
|
|
-
|
|
|
46
|
|
|
4,794
|
|
|
|
|
(1,595,002
|
)
|
|
-
|
|
|
-
|
|
|
46
|
|
|
(1,594,956
|
)
|
|
Salaries and benefits
|
|
365,257
|
|
|
-
|
|
|
14,676
|
|
|
16,831
|
|
|
396,764
|
|
|
Share-based compensation
|
|
705,653
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
705,653
|
|
|
Other operating expenses
|
|
406,596
|
|
|
-
|
|
|
15,226
|
|
|
8,609
|
|
|
430,431
|
|
|
Loss before other income and expenses
|
|
(3,072,508
|
)
|
|
-
|
|
|
(29,902
|
)
|
|
(25,394
|
)
|
|
(3,127,804
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange gain
|
|
1,390,043
|
|
|
-
|
|
|
56
|
|
|
1
|
|
|
1,390,100
|
|
|
Other income (expense)
|
|
15,000
|
|
|
-
|
|
|
(15,000
|
)
|
|
-
|
|
|
-
|
|
|
Net loss
|
$
|
(1,667,465
|
)
|
$
|
-
|
|
$
|
(44,846
|
)
|
$
|
(25,393
|
)
|
$
|
(1,737,704
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributed to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity holders of the Company
|
$
|
(1,667,465
|
)
|
$
|
-
|
|
$
|
(44,846
|
)
|
$
|
(20,822
|
)
|
$
|
(1,733,133
|
)
|
|
Non-controlling interests
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(4,571
|
)
|
|
(4,571
|
)
|
|
Net loss
|
$
|
(1,667,465
|
)
|
$
|
-
|
|
$
|
(44,846
|
)
|
$
|
(25,393
|
)
|
$
|
(1,737,704
|
)
|
|
|
|
Three months ended March 31, 2019
|
|
|
|
|
Corporate
|
|
|
Mining
|
|
|
|
|
|
|
|
Canada and BVI
|
|
|
Bolivia
|
|
|
Canada
|
|
|
China
|
|
|
Total
|
|
|
Gain on equity investments
|
$
|
464,481
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
464,481
|
|
|
Fair value change and interest earned on bonds
|
|
1,064,994
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,064,994
|
|
|
Dividend income
|
|
14,160
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
14,160
|
|
|
Interest income
|
|
8,742
|
|
|
-
|
|
|
-
|
|
|
69
|
|
|
8,811
|
|
|
|
|
1,552,377
|
|
|
-
|
|
|
-
|
|
|
69
|
|
|
1,552,446
|
|
|
Salaries and benefits
|
|
232,950
|
|
|
-
|
|
|
-
|
|
|
19,163
|
|
|
252,113
|
|
|
Share-based compensation
|
|
218,964
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
218,964
|
|
|
Other operating expenses
|
|
595,030
|
|
|
7,899
|
|
|
35,190
|
|
|
18,987
|
|
|
657,106
|
|
|
Income (Loss) before other income and expenses
|
|
505,433
|
|
|
(7,899
|
)
|
|
(35,190
|
)
|
|
(38,081
|
)
|
|
424,263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange (loss) gain
|
|
(431,530
|
)
|
|
1
|
|
|
-
|
|
|
37
|
|
|
(431,492
|
)
|
|
Other income (expense)
|
|
15,000
|
|
|
22
|
|
|
(15,000
|
)
|
|
-
|
|
|
22
|
|
|
Net income (loss)
|
$
|
88,903
|
|
$
|
(7,876
|
)
|
$
|
(50,190
|
)
|
$
|
(38,044
|
)
|
$
|
(7,207
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributed to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity holders of the Company
|
$
|
88,903
|
|
$
|
(7,876
|
)
|
$
|
(50,190
|
)
|
$
|
(31,196
|
)
|
$
|
(359
|
)
|
|
Non-controlling interests
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(6,848
|
)
|
|
(6,848
|
)
|
|
Net income (loss)
|
$
|
88,903
|
|
$
|
(7,876
|
)
|
$
|
(50,190
|
)
|
$
|
(38,044
|
)
|
$
|
(7,207
|
)
|
Page | 19
|
|
|
Nine months ended March 31, 2020
|
|
|
|
|
Corporate
|
|
|
Mining
|
|
|
|
|
|
|
|
Canada and BVI
|
|
|
Bolivia
|
|
|
Canada
|
|
|
China
|
|
|
Total
|
|
|
Gain on equity investments
|
$
|
901,109
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
901,109
|
|
|
Fair value change and interest earned on bonds
|
|
(131,789
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(131,789
|
)
|
|
Dividend income
|
|
68,255
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
68,255
|
|
|
Interest income
|
|
22,393
|
|
|
-
|
|
|
-
|
|
|
178
|
|
|
22,571
|
|
|
|
|
859,968
|
|
|
-
|
|
|
-
|
|
|
178
|
|
|
860,146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
1,160,595
|
|
|
-
|
|
|
14,676
|
|
|
50,050
|
|
|
1,225,321
|
|
|
Share-based compensation
|
|
1,294,734
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,294,734
|
|
|
Other operating expenses
|
|
1,479,191
|
|
|
-
|
|
|
127,456
|
|
|
40,219
|
|
|
1,646,866
|
|
|
Loss before other income and expenses
|
|
(3,074,552
|
)
|
|
-
|
|
|
(142,132
|
)
|
|
(90,091
|
)
|
|
(3,306,775
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange gain
|
|
1,243,374
|
|
|
-
|
|
|
56
|
|
|
133
|
|
|
1,243,563
|
|
|
Other income (expense)
|
|
45,000
|
|
|
-
|
|
|
(45,000
|
)
|
|
-
|
|
|
-
|
|
|
Net loss
|
$
|
(1,786,178
|
)
|
$
|
-
|
|
$
|
(187,076
|
)
|
$
|
(89,958
|
)
|
$
|
(2,063,212
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributed to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity holders of the Company
|
$
|
(1,786,178
|
)
|
$
|
-
|
|
$
|
(187,076
|
)
|
$
|
(73,765
|
)
|
$
|
(2,047,019
|
)
|
|
Non-controlling interests
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(16,193
|
)
|
|
(16,193
|
)
|
|
Net loss
|
$
|
(1,786,178
|
)
|
$
|
-
|
|
$
|
(187,076
|
)
|
$
|
(89,958
|
)
|
$
|
(2,063,212
|
)
|
|
|
|
Nine months ended March 31, 2019
|
|
|
|
|
Corporate
|
|
|
Mining
|
|
|
|
|
|
|
|
Canada
|
|
|
Bolivia
|
|
|
Canada
|
|
|
China
|
|
|
Total
|
|
|
Gain on equity investments
|
$
|
250,049
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
250,049
|
|
|
Fair value change and interest earned on bonds
|
|
1,420,156
|
|
|
-
|
|
|
-
|
|
|
-
|
|
$
|
1,420,156
|
|
|
Dividend income
|
|
41,466
|
|
|
-
|
|
|
-
|
|
|
-
|
|
$
|
41,466
|
|
|
Interest income
|
|
23,713
|
|
|
-
|
|
|
-
|
|
|
185
|
|
$
|
23,898
|
|
|
|
|
1,735,384
|
|
|
-
|
|
|
-
|
|
|
185
|
|
|
1,735,569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
660,694
|
|
|
-
|
|
|
-
|
|
|
51,083
|
|
|
711,777
|
|
|
Share-based compensation
|
|
544,795
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
544,795
|
|
|
Other operating expenses (income)
|
|
892,648
|
|
|
31,601
|
|
|
141,687
|
|
|
(4,330
|
)
|
|
1,061,606
|
|
|
Loss before other income and expenses
|
|
(362,753
|
)
|
|
(31,601
|
)
|
|
(141,687
|
)
|
|
(46,568
|
)
|
|
(582,609
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange gain
|
|
285,179
|
|
|
-
|
|
|
-
|
|
|
3,766
|
|
|
288,945
|
|
|
Other income (expense)
|
|
45,000
|
|
|
5,474
|
|
|
(43,619
|
)
|
|
-
|
|
|
6,855
|
|
|
Net loss
|
$
|
(32,574
|
)
|
$
|
(26,127
|
)
|
$
|
(185,306
|
)
|
$
|
(42,802
|
)
|
$
|
(286,809
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributed to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity holders of the Company
|
$
|
(32,574
|
)
|
$
|
(26,127
|
)
|
$
|
(185,306
|
)
|
$
|
(35,097
|
)
|
$
|
(279,104
|
)
|
|
Non-controlling interests
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(7,705
|
)
|
$
|
(7,705
|
)
|
|
Net loss
|
$
|
(32,574
|
)
|
$
|
(26,127
|
)
|
$
|
(185,306
|
)
|
$
|
(42,802
|
)
|
$
|
(286,809
|
)
|
14. SUPPLEMENTARY CASH FLOW INFORMATION
|
Changes in non-cash operating working capital:
|
|
Three Months Ended March 31,
|
|
|
Nine Months Ended March 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
Receivables
|
$
|
7,695
|
|
$
|
(68,699
|
)
|
$
|
(117,160
|
)
|
$
|
(134,477
|
)
|
|
Deposits and prepayments
|
|
20,668
|
|
|
16,886
|
|
|
(36,691
|
)
|
|
(81,222
|
)
|
|
Accounts payable and accrued liabilities
|
|
(43,924
|
)
|
|
(1,434,910
|
)
|
|
(192,461
|
)
|
|
(1,373,927
|
)
|
|
Due to a related party
|
|
8,707
|
|
|
(9,320
|
)
|
|
43,550
|
|
|
20,048
|
|
|
|
$
|
(6,854
|
)
|
$
|
(1,496,043
|
)
|
$
|
(302,762
|
)
|
$
|
(1,569,578
|
)
|
Page | 20
DATE OF REPORT: May 24, 2020
This MD&A for New Pacific Metals Corp. and its subsidiaries’ (“New Pacific” or the “Company”) should be read in conjunction with the Company’s unaudited condensed consolidated interim financial statements for the three and nine months ended March 31, 2020 and the related notes contained therein. In addition, the following should be read in conjunction with the audited consolidated financial statements of the Company for the year ended June 30, 2019, the related MD&A, and the Annual Information Form (available on SEDAR at www.sedar.com). The Company reports its financial position, financial performance and cash flow in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. The Company’s significant accounting policies are set out in Note 2 of the audited consolidated financial statements for the year ended June 30, 2019.
BUSINESS STRATEGY
The Company is a Canadian mining issuer engaged in exploring and developing mineral properties in Bolivia and Canada. The Company is in the stage of exploring and developing its mineral properties and has not yet determined whether its mineral property interests contain economically recoverable mineral reserves. The underlying value and the recoverability of the amounts shown for mineral property interests are entirely dependent upon the existence of economically recoverable mineral reserves, the ability of the Company to obtain the necessary financing to complete the exploration and development of the mineral property interests, and future profitable production or proceeds from the disposition of the mineral property interests.
The Company is publicly listed on the TSX Venture Exchange (“TSX-V”) under the symbol “NUAG” and on the OTCQX Best Market in the United States under the symbol “NUPMF”. The head office, registered and records offices of the Company are located at 1066 West Hastings Street, Suite 1750, Vancouver, British Columbia, Canada, V6E 3X1.
PROJECTS OVERVIEW
1. Silver Sand Project
On July 20, 2017, the Company, through its wholly-owned Bolivia subsidiary, Empresa Minera Alcira S.A. (“Alcira”), acquired 100% interest in the Silver Sand Project. The Silver Sand Project is located in the Colavi District of PotosíDepartment in southwestern Bolivia, 25 kilometres (“km”) northeast of Potosí City, the department capital. The Silver Sand Project covers an area of approximately 3.17 km2 at an elevation of 4,072 metres (“m”) above sea level.
Exploration Progress
The Company has carried out exploration and resource definition drill programs on the Silver Sand Project since its acquisition in 2017. During the 2017-2018 discovery exploration drill campaign, a total of 195 holes in 55,012 m of drilling were completed. During the 2019 resource definition drill campaign, a total of 191 drill holes in 42,607m of drilling were completed. In total since project inception, the Company completed 97,619m of drilling in 386 drill holes. On April 14, 2020, the Company released its inaugural independent National Instrument 43-101 (“NI 43-101”) Mineral Resource estimate for the Silver Sand Project. Using a 45 g/t silver cut-off-grade the estimate reported Measured & Indicated tonnes of 35.39 Mt at 137 g/t Ag for 155.86 Moz and Inferred tonnes of 9.84 Mt at 112 g/t Ag for 35.55 Moz., or approximately 70% of the resource estimate.
The Company’s field operations were impacted by the COVID-19 pandemic during the first quarter. The 2020 drill campaign at the Silver Sand project was suspended in the latter part of March and all projects remain under care and maintenance. A total of 2,388m of drilling had been completed at Silver Sand during the quarter prior to the suspension. On March 25, Bolivian government announced a quarantine in the country. The Company took immediate steps to protect the health and safety of its employees and to ensure full compliance with the applicable rules. During this period, the Company has developed protocols to protect our workforce against the spread of COVID-19 and is continuing to provide assistance to the communities neighbouring our projects by donating medical, hygiene and food supplies to them as part of our ongoing social responsibility program. Field operations are expected to resume following receipt of authorization from the government of Bolivia and respecting applicable health guidelines although no timing for that authorization is currently available.
For the three and nine months ended March 31, 2020, total expenditures of $2,395,286 and $10,932,321, respectively (three and nine months ended March 31, 2019 - $1,040,108 and $7,634,047, respectively) were capitalized under the project for expenditures related to the 2019 drill campaign, site and camp service and construction, and maintaining a regional office in La Paz, a management team, and workforce for the project.
Following the discovery of significant silver mineralization at Silver Sand, the Company sought to expand the property package in the areas surrounding the 100% owned Silver Sand Project.
On July 25, 2018, New Pacific announced that Alcira signed a memorandum of understanding (the “MOU”) with Corporación Minera de Bolivia (“COMIBOL”), allowing Alcira to explore and potentially develop and mine the 38 Special Temporary Authorizations (“ATEs”) adjoining south and west to the Silver Sand Project.
On January 11, 2019, New Pacific announced that Alcira entered into a Mining Production Contract (the “MPC”) with COMIBOL granting Alcira the right to carry out exploration, development and mining production activities in the areas adjoining the Company’s Silver Sand Project. The MPC covers an aggregate area of 56.9 km2. The first area consists of 29 COMIBOL owned ATEs, located to the south and west of the Silver Sand Project. The second area includes additional open ground properties to the north, the east and the south of the Silver Sand Project whereby COMIBOL will apply for exploration and mining rights with Bolivia’s Jurisdictional Mining Administrative Authority (Autoridad Jurisdiccional Administrativa Minera or “AJAM”). Upon granting of the exploration and mining rights by AJAM, COMIBOL will contribute these additional properties to the MPC.
Key Terms of the MPC:
1. Alcira will commit to a minimum of US$5,935,000 exploration investment during the first five years of the MPC and make a monthly cash payment of US$10,000 to COMIBOL.
2. If an economic mineral deposit is defined, Alcira will cover all cost of further exploration, environmental studies, engineering studies, pre-feasibility and feasibility studies as well as development and production.
3. If commercial production commences, COMIBOL will receive a 4% gross sales value of all minerals produced from the areas covered under the MPC.
The MPC was approved by Bolivia’s Ministry of Mining and Metallurgy on January 7, 2019, but remains subject to ratification and approval by the Plurinational Legislative Assembly of Bolivia. As of the date of this MD&A, the MPC has not been ratified nor approved by the Plurinational Legislative Assembly of Bolivia. Given the political instability and social unrest in Bolivia following the general elections held on October 20, 2019, there is no assurance that the Company will be successful in obtaining ratification of the MPC in a timely manner or at all, or that they will be obtained on reasonable terms. The Company cannot predict the government’s positions on foreign investment, mining concessions, land tenure, environmental regulation, community relations, or taxation. A change in government positions on these issues could adversely affect the ratification of the MPC and the Company’s business.
At the time of signing of the MPC, there are no known economic mineral deposits, nor any previous drilling or exploration discovery within the MPC areas. Alcira has not received any geological maps nor any assay results from COMIBOL on the properties covered by the MPC before or after signing of the MPC. Alcira maintains that the MPC with COMIBOL continues to present an opportunity to explore and evaluate the possible extension of the mineralization outside of the Silver Sand Project.
In July 2018, the Company entered into an agreement with third party private owners to acquire their 100% interest in certain mineral concessions located subjacent to the Silver Sand Project by cash payments in the aggregate amount of $1,315,600 (US$1,000,000) and issuance of 832,000 common shares. During Fiscal 2019, cash payments of $657,800 (US$500,000) were paid and 250,000 common shares were issued to the vendors. During the nine months ended March 31, 2020, cash payments of $394,680 (US$300,000) were paid and 291,000 common shares were issued to the vendors. Future cash payments of $263,120 (US$200,000) were accrued as payable for mineral property acquisition as at March 31, 2020.
In December 2019, the Company further expanded its Silver Sand land package by acquiring a 100% interest in an ATE, El Bronce, located immediately to the north of the project by making a one-time cash payment of $267,720 (US$200,000) to arm’s length private owners. This newly acquired ATE currently consists of six hectares but will total approximately 0.50 km2 once it has been consolidated to concessions called “Cuadriculas” and converted to Mining Administrative Contract with AJAM.
2. Silverstrike Project
In December 2019, the Company announced the acquisition of a 98% interest in the Silverstrike Project from an arm’s length private Bolivian corporation (the “Vendor”) by making a one-time cash payment of $1,782,270 (US$1,350,000). Under the agreement signed between the Company’s wholly-owned subsidiary and the Vendor, the Company will cover 100% of the future expenditures of exploration, mining, development and production activities. The agreement has a term of 30 years and renewable for another 15 years without any payment and is subject to approval by AJAM.
The Silverstrike Project, at an elevation of 4,000 to 4,500 m, is located approximately 140 km southwest of La Paz. The Silverstrike Project consists of nine ATEs with an area of approximately 13km² currently in the process of conversion to Mining Administrative Contracts before AJAM. The Vendor has also applied for exploration rights over areas surrounding the Silverstrike Project as part of the transaction.
For the three and nine months ended March 31, 2020, total expenditures of $421,925 and $427,127, respectively (three and nine months ended March 31, 2019 - $nil and $nil, respectively) were capitalized under the project for expenditures related to camp service and maintaining a management team and workforce for the project.
3. Tagish Lake Gold Project
The Tagish Lake Gold Project, covering an area of 166 km2, is located in Yukon Territory, Canada, and consists of 1,051 mining claims with three identified gold and gold-silver mineral deposits: Skukum Creek, Goddell Gully and Mount Skukum.
On September 14, 2012, the Company filed an updated NI 43-101 technical report for the Skukum Creek, Goddell and Mount Skukum projects. The Company does not intend to conduct any further exploration on the Tagish Lake Gold Project and will examine strategic opportunities for the Tagish Lake Gold Project in accordance with its business strategies and objectives.
Exploration Progress
Since the acquisition of the Tagish Lake Gold Project in December 2010, the Company had one exploration season that commenced on May 18, 2011 and ended on October 9, 2011. The project was on care and maintenance status with a rotating crew of two men on site at all times between the end of exploration work and November 2014. Since November 2014, the camp has been sealed and unmanned. All major onsite equipment items were removed and sold.
4. RZY Silver-Lead-Zinc Project
The RZY Project, located in Qinghai, China is an early stage silver-lead-zinc exploration project, situated on a high plateau with an average elevation of 5,000 m above sea level. The RZY Project is located approximately 237 km via paved and gravel roads from the city of Yushu Tibetan Autonomous Prefecture, or 820 km via paved highway from Qinghai Province’s capital city of Xining. In 2016, the Qinghai Government issued a moratorium which suspended exploration for 26 mining projects in the region, including the RZY project, and classified the region as a National Nature Reserve Area.
During the nine months ended March 31, 2020, the Company’s subsidiary, Qinghai Found, reached a compensation agreement (the “Agreement”) with the Qinghai Government for the RZY Project. Pursuant to the Agreement, Qinghai Found will surrender its title of the RZY Project to the Qinghai Government after completing certain reclamation works for one-time cash compensation of $3.8 million (RMB ¥20 million). As of March 31, 2020, the Company completed the reclamation works for a cost of approximately $200,000, and they are currently under review and subject to approval by the Qinghai Government.
NEW PACIFIC METALS CORP.
Management’s Discussion and Analysis
For the three and nine months ended March 31, 2020 and 2019 (Expressed in Canadian dollars, unless otherwise stated)
The continuity schedule of mineral property acquisition costs and deferred exploration and development costs are summarized as follows:
|
Cost
|
|
Silver Sand
|
|
|
Silverstrike
|
|
|
Tagish Lake
|
|
|
RZY Project
|
|
|
Total
|
|
|
Balance, July 1, 2018
|
$
|
60,374,656
|
|
$
|
-
|
|
$
|
-
|
|
$
|
4,488,108
|
|
$
|
64,862,764
|
|
|
Capitalized exploration expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Drilling and assaying
|
|
6,978,112
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
6,978,112
|
|
|
Project management and support
|
|
2,980,841
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,980,841
|
|
|
Camp service
|
|
742,163
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
742,163
|
|
|
Geological surveys
|
|
4,170
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4,170
|
|
|
Permitting
|
|
7,401
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
7,401
|
|
|
Acquisition of mineral concessions
|
|
2,631,200
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,631,200
|
|
|
Other
|
|
13,237
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
13,237
|
|
|
Impairment
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(779,823
|
)
|
|
(779,823
|
)
|
|
Foreign currency impact
|
|
(450,362
|
)
|
|
-
|
|
|
-
|
|
|
(173,621
|
)
|
|
(623,983
|
)
|
|
Balance, June 30, 2019
|
$
|
73,281,418
|
|
$
|
-
|
|
$
|
-
|
|
$
|
3,534,664
|
|
$
|
76,816,082
|
|
|
Capitalized exploration expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reporting and assessment
|
|
493,948
|
|
|
974
|
|
|
-
|
|
|
-
|
|
|
494,922
|
|
|
Drilling and assaying
|
|
6,433,060
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
6,433,060
|
|
|
Project management and support
|
|
3,311,015
|
|
|
403,082
|
|
|
-
|
|
|
-
|
|
|
3,714,097
|
|
|
Camp service
|
|
594,415
|
|
|
23,072
|
|
|
-
|
|
|
-
|
|
|
617,487
|
|
|
Camp construction
|
|
32,064
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
32,064
|
|
|
Permitting
|
|
41,249
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
41,249
|
|
|
Acquisition of Silverstrike Project
|
|
-
|
|
|
1,782,270
|
|
|
-
|
|
|
-
|
|
|
1,782,270
|
|
|
Acquisition of mineral concessions
|
|
276,020
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
276,020
|
|
|
Other
|
|
26,570
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
26,570
|
|
|
Foreign currency impact
|
|
6,404,513
|
|
|
137,051
|
|
|
-
|
|
|
178,032
|
|
|
6,719,596
|
|
|
Balance, March 31, 2020
|
$
|
90,894,272
|
|
$
|
2,346,449
|
|
$
|
-
|
|
$
|
3,712,696
|
|
$
|
96,953,417
|
|
INVESTMENTS OVERVIEW
1. Bonds
The Company acquired bonds issued by other companies from various industries through the open market. These bonds are held to receive coupon interest payments as well as to realize potential gains. The bonds may also be disposed on demand through the open market should the Company require funds for other operational or investment needs.
The continuity of bonds is summarized as follows:
|
|
|
Amount
|
|
|
Balance, July 1, 2018
|
$
|
18,114,026
|
|
|
Interest earned
|
|
882,960
|
|
|
Gain on fair value change
|
|
631,809
|
|
|
Coupon payment
|
|
(853,076
|
)
|
|
Disposition
|
|
(7,700,006
|
)
|
|
Foreign currency translation impact
|
|
(132,815
|
)
|
|
Balance, June 30, 2019
|
$
|
10,942,898
|
|
|
Interest earned
|
|
349,281
|
|
|
Loss on fair value change
|
|
(481,070
|
)
|
|
Coupon payment
|
|
(333,208
|
)
|
|
Disposition
|
|
(8,816,648
|
)
|
|
Foreign currency translation impact
|
|
355,600
|
|
|
Balance, March 31, 2020
|
$
|
2,016,853
|
|
Subsequent to March 31, 2020, certain bonds were disposed of for proceeds of $1,463,879.
2. Equity Investments
Equity investments represent equity interests of other publicly traded or privately-held companies that the Company has acquired through the open market or through private placements. These equity interests consist of common shares, preferred shares, and warrants.
The Company’s equity investments are summarized as follows:
|
|
|
March 31, 2020
|
|
|
June 30, 2019
|
|
|
Common or preferred shares
|
|
|
|
|
|
|
|
Public companies
|
$
|
4,118,520
|
|
$
|
4,443,963
|
|
|
Private companies
|
|
354,675
|
|
|
327,175
|
|
|
Warrants
|
|
|
|
|
|
|
|
Public companies
|
|
425,523
|
|
|
339,755
|
|
|
|
$
|
4,898,718
|
|
$
|
5,110,893
|
|
The continuity of equity investments is summarized as follows:
|
|
|
|
|
|
Accumulated mark-to-
|
|
|
|
|
|
|
|
market gain included in net
|
|
|
|
|
Fair value
|
|
|
income
|
|
|
Balance, July 1, 2018
|
$
|
5,758,627
|
|
$
|
3,112,656
|
|
|
Proceeds on disposal
|
|
(570,561
|
)
|
|
-
|
|
|
Change in fair value
|
|
(77,173
|
)
|
|
(77,173
|
)
|
|
Balance, June 30, 2019
|
$
|
5,110,893
|
|
$
|
3,035,483
|
|
|
Acquisition
|
|
5,018,338
|
|
|
-
|
|
|
Proceeds on disposal
|
|
(6,131,622
|
)
|
|
-
|
|
|
Change in fair value
|
|
901,109
|
|
|
901,109
|
|
|
Balance, March 31, 2020
|
$
|
4,898,718
|
|
$
|
3,936,592
|
|
FINANCIAL RESULTS
Net loss attributable to equity holders of the Company for the three months ended March 31, 2020 was $1,733,133 or $0.01 per share (three months ended March 31, 2019 - net loss of $359 or $0.00 per share). The Company’s financial results were mainly impacted by the following: (i) loss from investments of $1,594,956 compared to income of $1,552,446 in the prior year quarter; (ii) operating expenses of $1,532,848 compared to $1,128,183 in the prior year quarter; and (iii) foreign exchange gain of $1,390,100 compared to loss of $431,492 in the prior year quarter.
For the nine months ended March 31, 2020, net loss attributable to equity holders of the Company was $2,047,019 or $0.01 per share compared to net loss of $279,104 or $0.00 per share for the nine months ended March 31, 2019.
Loss from investments for the three months ended March 31, 2020 was $1,594,956 (three months ended March 31, 2019 – income of $1,552,446). Within the loss from investments, $1,424,696 was loss on the Company’s equity investments and $243,309 was loss from fair value change partially offset by interest earned on bonds. The rapid outbreak of COVID-19 pandemic caused extreme volatilities in the global equity and financial markets during February and March 2020, which had adverse impacts on the Company’s equity and bonds investment portfolio during the quarter. As of the date of this MD&A, the Company’s material investments are preferred shares issued by the largest five Canadian Banks with weighted average dividends yield of 5.71%.
For the nine months ended March 31, 2020, income from investments was $860,146 compared to income of $1,735,569 for the nine months ended March 31, 2019.
Operating expenses for the three and nine months ended March 31, 2020 were $1,532,848 and $4,166,921, respectively (three and nine months ended March 31, 2019 - $1,128,183 and $2,318,178, respectively). Items included in operating expenses were as follows:
(i) Filing and listing fees for the three and nine months ended March 31, 2020 were $30,352 and $238,218, respectively (three and nine months ended March 31, 2019 - $21,278 and $106,392, respectively). The increase in filing and listing fees in the current period was a result of the
Company’s bought deal financing transaction incurred in October 2019.
(ii) Investor relations expenses for the three and nine months ended March 31, 2020 were $152,995 and $593,568, respectively (three and nine months ended March 31, 2019 - $440,187 and $576,506, respectively).
(iii) Professional fees for the three and nine months ended March 31, 2020 were $69,360 and $282,156, respectively (three and nine months ended March 31, 2019 - $71,944 and $143,598). The increase in professional fees in the current period was related to the acquisition of Silverstrike Project along with the expansion of the Silver Sand Property.
(iv) Salaries and benefits expense for the three and nine months ended March 31, 2020 were $396,764 and $1,225,321, respectively (three and nine months ended March 31, 2019 - $252,113 and $711,777, respectively). The increase in salaries and benefits expense in the current period was related to more employees being hired in Bolivia and Canada to facilitate the operation and expansion of the
Company’s various mining projects.
(v) Office and administration expenses for the three and nine months ended March 31, 2020 were $174,312 and $523,798, respectively (three and nine months ended March 31, 2019 - $120,672 and $226,033, respectively).
(vi) Share-based compensation for the three and nine months ended March 31, 2020 was $705,653 and $1,294,734, respectively (three and nine months ended March 31, 2019 - $218,964 and $544,795, respectively). The increase in share-based compensation was due to the grant of restricted share units (“RSUs”) in the previous quarter instead of stock options. RSUs are valued at higher costs compared to equivalent stock options.
Foreign exchange gain for the three months ended March 31, 2020 was $1,390,100 (three months ended March 31, 2019 – loss of $431,492). The Company holds a large portion of cash and cash equivalents and bonds in US dollars while the Company’s functional currency is Canadian dollar. The fluctuation in exchange rates between the US dollar and the Canadian dollar will impact the financial results of the Company. During the three months ended March 31, 2020, the US dollar appreciated by 9.2% against the Canadian dollar (from 1.2988 to 1.4187) while in the prior year quarter the US dollar depreciated by 2% against the Canadian dollar (from 1.3642 to 1.3363).
For the nine months ended March 31, 2020, foreign exchange gain was $1,243,563 (nine months ended March 31, 2019 – foreign exchange gain of $288,945).
|
Selected Quarterly Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Quarters Ended
|
|
|
|
|
Mar. 31, 2020
|
|
|
Dec. 31, 2019
|
|
|
Sep. 30, 2019
|
|
|
Jun. 30, 2019
|
|
|
Income (loss) from Investments
|
$
|
(1,594,956
|
)
|
$
|
339,654
|
|
$
|
2,115,448
|
|
$
|
(203,178
|
)
|
|
Income (loss) before other income and expenses
|
|
(3,127,804
|
)
|
|
(1,285,479
|
)
|
|
1,106,508
|
|
|
(1,152,707
|
)
|
|
Impairment of mineral property interests
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(779,823
|
)
|
|
Other income (loss)
|
|
1,390,100
|
|
|
(322,879
|
)
|
|
176,342
|
|
|
(353,416
|
)
|
|
Net income (loss)
|
|
(1,737,704
|
)
|
|
(1,608,358
|
)
|
|
1,282,850
|
|
|
(2,285,946
|
)
|
|
Net income (loss) attributable to equity holders
|
|
(1,733,133
|
)
|
|
(1,599,824
|
)
|
|
1,285,938
|
|
|
(2,141,800
|
)
|
|
Basic and diluted earnings (loss) per share
|
|
(0.01
|
)
|
|
(0.01
|
)
|
|
0.01
|
|
|
(0.01
|
)
|
|
Total assets
|
|
147,979,848
|
|
|
139,648,018
|
|
|
127,078,569
|
|
|
124,248,395
|
|
|
Total liabilities
|
|
2,014,874
|
|
|
1,860,517
|
|
|
2,663,415
|
|
|
2,368,392
|
|
|
|
|
For the Quarters Ended
|
|
|
|
|
Mar. 31, 2019
|
|
|
Dec. 31, 2018
|
|
|
Sep. 30, 2018
|
|
|
Jun. 30, 2018
|
|
|
Income (loss) from Investments
|
$
|
1,552,446
|
|
$
|
65,926
|
|
$
|
117,197
|
|
$
|
(995,797
|
)
|
|
Income (loss) before other income and expenses
|
|
424,263
|
|
|
(592,796
|
)
|
|
(414,076
|
)
|
|
(1,612,419
|
)
|
|
Other income (loss)
|
|
(431,470
|
)
|
|
1,070,731
|
|
|
(343,461
|
)
|
|
408,703
|
|
|
Net income (loss)
|
|
(7,207
|
)
|
|
477,935
|
|
|
(757,537
|
)
|
|
(1,203,716
|
)
|
|
Net income (loss) attributable to equity holders
|
|
(359
|
)
|
|
473,838
|
|
|
(752,583
|
)
|
|
(1,199,933
|
)
|
|
Basic and diluted earnings (loss) per share
|
|
(0.00
|
)
|
|
0.00
|
|
|
(0.01
|
)
|
|
(0.01
|
)
|
|
Total assets
|
|
106,639,014
|
|
|
109,287,409
|
|
|
104,344,191
|
|
|
104,682,200
|
|
|
Total liabilities
|
|
1,164,674
|
|
|
2,663,248
|
|
|
2,034,176
|
|
|
1,851,767
|
|
LIQUIDITY AND CAPITAL RESOURCES
1. Cash Flows
Cash used in operating activities for the three and nine months ended March 31, 2020 was $757,588 and $3,074,997, respectively (three and nine months ended March 31, 2019 – $2,379,244 and $3,261,665, respectively).
Cash provided by investing activities for the three months ended March 31, 2020 was $4,486,867 (three months ended March 31, 2019 – $2,852,308). Cash flows from investing activities were mainly impacted by the following: (i) capital expenditures for mineral properties and plant and equipment of $2,100,414 on the exploration projects in Bolivia compared to $1,034,808 in the prior year period; (ii) proceeds of $6,838,198 from disposal of bonds compared to $3,565,390 in the prior year period; and (iii) additional equity investments in the amount of $247,000, partially offset by proceeds of $110,708 from the disposal of equity investments compared to proceeds of $73,048 in the prior year period.
For the nine months ended March 31, 2020, cash used in investing activities was $3,366,985 (nine months ended March 31, 2019 - $130,953).
Cash provided by financing activities for the three months ended March 31, 2020 was $517,052 (three months ended March 31, 2019 – $9,333). Cash flows from financing activities during the quarter were proceeds arising from stock options exercised.
For the nine months ended March 31, 2019, cash provided by financing activities was $16,588,486 (nine months ended March 31, 2019 - $157,534). Cash flows from financing activities were net proceeds of $15,833,533 raised from the BMO bought deal financing plus $754,953 from stock option exercises. On October 25, 2019, the Company successfully closed a bought deal financing underwritten by BMO Capital Markets to issue a total of 4,312,500 common shares at a price of $4.00 per common share for gross proceeds of $17,250,000. The underwriter’s fee and other issuance costs for the financing were $1,416,467.
Subsequent to March 31, 2020, on May 19, 2020, the Company announced that it has entered into an agreement with BMO as sole underwriter to issue a total of 4,238,000 common shares at a price of $5.90 per common share for estimated gross proceeds of $25 million (the “Offering”). The Company has granted BMO an option, exercisable at the offering price for a period of 30 days following the closing of the Offering, to purchase up to an additional 15% of the Offering to cover over-allotments, if any. The Offering is expected to close on or about June 9, 2020.
Liquidity and Capital Resources
As at March 31, 2020, the Company had working capital of $39,652,082 (June 30, 2019 – $37,089,557), comprised of cash and cash equivalents of $39,062,867 (June 30, 2019 - $27,849,961), bonds of $2,016,853 (June 30, 2019 - $10,942,898) and other current assets of $587,236 (June 30, 2019 - $401,970) offset by current liabilities of $2,014,874 (June 30, 2019 - $2,105,272). Management believes that the Company has sufficient funds to support its normal exploration and operating requirements on an ongoing basis.
The Company does not have unlimited resources and its future capital requirements will depend on many factors, including, among others, cash flow from interest, dividends, and realized gains on investments. To the extent that its existing resources and the funds generated by future income are insufficient to fund the Company’s operations, the Company may need to raise additional funds through public or private debt or equity financing. If additional funds are raised through the issuance of equity securities, the percentage ownership of current shareholders will be reduced and such equity securities may have rights, preferences or privileges senior to those of the holders of the Company’s common shares. No assurance can be given that additional financing will be available or that, if available, can be obtained on terms favourable to the Company and its shareholders. If adequate funds are not available, the Company may be required to delay, limit or eliminate some or all of its proposed operations. The Company believes it has sufficient capital to meet its cash needs for the next 12 months, including the costs of compliance with continuing reporting requirements.
In addition, the current outbreak of COVID-19 has caused significant disruption to global economic conditions which may adversely impact the Company’s results. Moreover, COVID-19 has also negatively impacted on the stock markets, which could adversely impact the Company’s ability to raise capital.
FINANCIAL INSTRUMENTS
The Company manages its exposure to financial risks, including liquidity risk, foreign exchange rate risk, interest rate risk, credit risk, and equity price risk in accordance with its risk management framework. The Board has overall responsibility for the establishment and oversight of the Company’s risk management framework and reviews the Company’s policies on an ongoing basis.
(a) Fair Value
The Company classifies its fair value measurements within a fair value hierarchy, which reflects the significance of inputs used in making the measurements as defined in IFRS 7 – Financial Instruments: Disclosures (“IFRS 7”).
Level 1 – Unadjusted quoted prices at the measurement date for identical assets or liabilities in active markets.
Level 2 – Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3 – Unobservable inputs which are supported by little or no market activity.
The following table sets forth the Company’s financial assets that are measured at fair value on a recurring basis by level within the fair value hierarchy as at March 31, 2020 and June 30, 2019 that are not otherwise disclosed. As required by IFRS 7, financial assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
|
|
|
Fair value as at March 31, 2020
|
|
|
Recurring measurements
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
39,062,867
|
|
$
|
-
|
|
$
|
-
|
|
$
|
39,062,867
|
|
|
Bonds
|
|
2,016,853
|
|
|
-
|
|
|
-
|
|
|
2,016,853
|
|
|
Common or preferred shares(1)
|
|
4,118,520
|
|
|
-
|
|
|
354,675
|
|
|
4,473,195
|
|
|
Warrants
|
|
-
|
|
|
425,523
|
|
|
-
|
|
|
425,523
|
|
(1) Common shares in private companies are Level 3 financial instruments
|
|
|
Fair value as at June 30, 2019
|
|
|
Recurring measurements
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
27,849,961
|
|
$
|
-
|
|
$
|
-
|
|
$
|
27,849,961
|
|
|
Bonds
|
|
10,942,898
|
|
|
-
|
|
|
-
|
|
|
10,942,898
|
|
|
Common shares(1)
|
|
4,443,963
|
|
|
-
|
|
|
327,175
|
|
|
4,771,138
|
|
|
Preferred shares
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Warrants
|
|
-
|
|
|
339,755
|
|
|
-
|
|
|
339,755
|
|
(1) Common shares in private companies are Level 3 financial instruments
Fair value of other financial instruments excluded from the table above approximates their carrying amount as of March 31, 2020 and June 30, 2019, respectively.
There were no transfers into or out of Level 3 during the period.
(b) Liquidity Risk
The Company has a history of losses and no operating revenues from its operations. Liquidity risk is the risk that the Company will not be able to meet its short term business requirements. As at March 31, 2020, the Company had a working capital position of $39,652,082 and sufficient cash resources to meet the Company’s short-term financial liabilities and its planned exploration expenditures on the Silver Sand and Silverstrike Projects for, but not limited to, the next 12 months.
In the normal course of business, the Company enters into contracts that give rise to commitments for future minimum payments. The following summarizes the remaining contractual maturities of the Company’s financial liabilities:
|
|
|
March 31, 2020
|
|
|
June 30, 2019
|
|
|
|
|
Due within a year
|
|
|
Total
|
|
|
Total
|
|
|
Trade and other payables
|
$
|
1,619,015
|
|
$
|
1,619,015
|
|
$
|
1,621,403
|
|
|
Due to a related party
|
|
132,739
|
|
|
132,739
|
|
|
89,189
|
|
|
Payable for mineral property acquisition
|
|
263,120
|
|
|
263,120
|
|
|
657,800
|
|
|
|
$
|
2,014,874
|
|
$
|
2,014,874
|
|
$
|
2,368,392
|
|
(c) Foreign Exchange Risk
The Company is exposed to foreign exchange risk when it undertakes transactions and holds assets and liabilities denominated in foreign currencies other than its functional currencies. The Company currently does not engage in foreign exchange currency hedging. The Company’s exposure to foreign exchange risk is summarized as follows:
|
The amounts are expressed in CAD equivalents
|
|
March 31, 2020
|
|
|
June 30, 2019
|
|
|
United States dollars
|
$
|
16,929,666
|
|
$
|
17,615,304
|
|
|
Bolivianos
|
|
564,872
|
|
|
191,204
|
|
|
Chinese RMB
|
|
246,339
|
|
|
191,645
|
|
|
Financial assets in foreign currency
|
$
|
17,740,877
|
|
$
|
17,998,153
|
|
|
|
|
|
|
|
|
|
|
United States dollars
|
$
|
774,422
|
|
$
|
1,330,481
|
|
|
Chinese RMB
|
|
144,746
|
|
|
4,258
|
|
|
Financial liabilities in foreign currency
|
$
|
919,168
|
|
$
|
1,334,739
|
|
As at March 31, 2020, with other variables unchanged, a 1% strengthening (weakening) of the US dollar against the CAD would have increased (decreased) net income by approximately $161,500.
As at March 31, 2020, with other variables unchanged, a 1% strengthening (weakening) of the Bolivianos against the CAD would have increased (decreased) net income by approximately $5,650.
As at March 31, 2020, with other variables unchanged, a 1% strengthening (weakening) of the Chinese RMB against the CAD would have increased (decreased) net income by approximately $1,000.
(d) Interest Rate Risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market interest rates. The Company’s cash and cash equivalents primarily include highly liquid investments that earn interest at market rates that are fixed to maturity. The Company also holds a portion of cash and cash equivalents in bank accounts that earn variable interest rates. Due to the short-term nature of these financial instruments, fluctuations in market rates do not have significant impact on the fair values of the financial instruments as of March 31, 2020. The Company also owns bonds that earn coupon payments at fixed rates to maturity. Fluctuation in market interest rates usually will have an impact on bond’s fair value. An increase in market interest rates will generally reduce bond’s fair value while a decrease in market interest rates will generally increase it. The Company monitors market interest rate fluctuations closely and adjusts the investment portfolio accordingly.
(e) Credit Risk
Credit risk is the risk of financial loss to the Company if the counterparty to a financial instrument fails to meets its contractual obligations. The Company’s exposure to credit risk is primarily associated with cash and cash equivalents, bonds, and receivables. The carrying amount of financial assets included on the statement of financial position represents the maximum credit exposure.
The Company has deposits of cash equivalents that meet minimum requirements for quality and liquidity as stipulated by the Board. Management believes the risk of loss to be remote, as majority of its cash and cash equivalents are held with major financial institutions. Bonds by nature are exposed to more credit risk than cash. The Company manages its risk associated with bonds by only investing in large globally recognized corporations from diversified industries. As at March 31, 2020, the Company had a receivables balance of $398,889 (June 30, 2019 - $259,600).
(f) Equity Price Risk
The Company holds certain marketable securities that will fluctuate in value as a result of trading on global financial markets. Based upon the Company’s portfolio at March 31, 2020, a 10% increase (decrease) in the market price of the securities held, ignoring any foreign exchange effects would have resulted in an increase (decrease) to net income of approximately $490,000.
RELATED PARTY TRANSACTIONS
Related party transactions are made on terms agreed upon by the related parties. The balances with related parties are unsecured, non-interest bearing, and due on demand. Related party transactions not disclosed elsewhere in this MD&A are as follows:
|
Due to a related party
|
|
March 31, 2020
|
|
|
June 30, 2019
|
|
|
Silvercorp Metals Inc.
|
$
|
132,739
|
|
$
|
89,189
|
|
Silvercorp Metals Inc. (“Silvercorp”) has two directors and one officer in common with the Company. Silvercorp and the Company share office space and Silvercorp provides various general and administrative services to the Company. Expenses in services rendered and incurred by Silvercorp on behalf of the Company for the three and nine months ended March 31, 2020, the Company were $151,288 and $575,635, respectively (three and nine months ended March 31, 2019 - $93,204 and $221,463, respectively).
OFF-BALANCE SHEET ARRANGEMENTS
The Company does not have any off-balance sheet financial arrangements.
PROPOSED TRANSACTIONS
There are no proposed acquisitions or disposals of assets or business, other than those in the ordinary course of business, approved by the Board as at the date of this MD&A.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of the consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the amounts reported on the consolidated financial statements. These critical accounting estimates represent management’s estimates that are uncertain and any changes in these estimates could materially impact the Company’s consolidated financial statements. Management continuously reviews its estimates and assumptions using the most current information available. The Company’s critical accounting policies and estimates are described in Note 2 of the audited consolidated financial statements for the year ended June 30, 2019.
Management has identified: (a) Impairment of mineral property interests and (b) Share-based payments as the critical estimates for the following discussion:
(a) Impairment of mineral property interests
Where an indicator of impairment exists, a formal estimate of the recoverable amount is made which is considered to be the higher of the fair value less costs to sell and value in use. These assessments require the use of estimates and assumptions such as long-term commodity prices (considering current and historical prices, price trends and related factors), discount rates, operating costs, future capital requirements, closure and rehabilitation costs, exploration potential, reserves and in-situ value of the property. These estimates and assumptions are subject to risk and uncertainty. Therefore, there is a possibility that changes in circumstances will impact these projections, which may impact the recoverable amount of assets and/or cash generating units. Fair value or value in use is determined as the amount that would be obtained from the sale of the asset in an arm’s length transaction between knowledgeable and willing parties.
(b) Share-based payments
The Company accounts for stock options granted to employees, officers, directors, and consultants using the fair value method. The fair value of options granted to employees, officers, and directors is determined using the Black-Scholes option pricing model with market related inputs as of the date of grant. The fair value of stock options granted to consultants is measured at the fair value of the services delivered. Market related inputs using the Black-Scholes option pricing model are subject to estimation and includes risk free interest rate, expected life of option, expected volatility, expected dividend yield, and estimated forfeiture rate.
OUTSTANDING SHARE DATA
As at the date of this MD&A, the following securities were outstanding:
(a) Share Capital
Authorized – unlimited number of common shares without par value.
Issued and outstanding – 147,884,378 common shares with a recorded value of $167.7 million. Shares subject to escrow or pooling agreements – nil.
(b) Options
The outstanding options as at the date of this MD&A are summarized as follows:
|
Options Outstanding
|
Exercise Price $
|
Expiry Date
|
|
1,406,600
|
0.55
|
October 31, 2021
|
|
1,400,833
|
1.15
|
July 31, 2022
|
|
200,000
|
1.57
|
December 7, 2022
|
|
1,812,001
|
2.15
|
February 21, 2024
|
|
4,819,434
|
$ 1.37
|
|
(c) RSUs
The outstanding RSUs as at the date of this MD&A are summarized as follows:
|
RSUs Outstanding
|
Grant Date Price $
|
|
1,064,600
|
$ 4.70
|
RISK FACTORS
The Company is subject to many risks which are outlined in its Annual Information Form and NI 43-101 technical report which are available on SEDAR at www.sedar.com. Please review in particular “Political and Economic Risks in Bolivia” section under Risk Factors in the Annual Information Form in light of the recent political instability and social unrest in Bolivia following the general elections held on October 20, 2019. In addition, please refer to the Financial Instruments Section for the analysis of financial risk factors. During the current quarter, emerging risks related to the COVID-19 pandemic, which has resulted in profound health and economic impacts globally to date and presents future risks and uncertainties that are largely unknown as at the date of this MD&A.
COVID-19
The current outbreak of COVID-19 pandemic could have a material adverse effect on the Company’s business and operations, as well as impacting global economic conditions. COVID-19 had spread to regions where the Company has operations and offices. Government efforts to control the spread of the virus have resulted in temporary suspensions of our operations in Bolivia and reduced corporate activities in Canada. The international response to the spread of COVID-19 has led to significant restrictions on travel, temporary business closures, quarantines, global stock and financial market volatilities, labour shortage and delay in logistics, and a general reduction in consumer activities. All of these could affect commodity prices, interest rates, credit risk, social security and inflation. Such public health crisis at the moment or in the future may negatively affect the Company's operations along with the operations of its suppliers, contractors, service providers and local communities.
While the COVID-19 pandemic has already had significant, direct impacts on the Company’s operations and business, the extent to which the pandemic will continue to impact our operations are highly uncertain and cannot be predicted with confidence as at the date of this MD&A. These uncertainties include, but are not limited to, the duration of the outbreak, Bolivian and Canadian governments’ mandates to curtail the spreading of the virus, community and social stabilities, the Company’s ability to resume operations efficiently or economically. It is also uncertain whether the Company will be able to maintain an adequate financial condition and have sufficient capital, or have the ability to raise capital. Any of these uncertainties, and others, could have further material adverse effect on the Company’s business and operations.
FORWARD LOOKING STATEMENTS
Except for statements of historical fact relating to the Company, certain information contained herein constitutes forward-looking statements. Forward-looking statements are frequently characterized by words such as “plan”, “expect”, “project”, “intend”, “believe”, “anticipate”, and other similar words, or statements that certain events or conditions “may” or “will” or “can” occur. Forward-looking statements are based on the opinions and estimates of management on the date the statements are made, and are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking statements. These factors include global economic and social impact of COVID-19, the fluctuating equity prices, bond prices, commodity prices, calculation of resources, reserves and mineralization, foreign exchange risks, interest rate risk, foreign investment risk, loss of key personnel, conflicts of interest, dependence on management, uncertainties relating to the availability and costs of financing needed in the future and other factors described in this MD&A. Although the forward-looking statements contained in this MD&A are based upon what management believes are reasonable assumptions, there can be no assurance that actual results will be consistent with these forward-looking statements. All forward-looking statements in this MD&A are qualified by these cautionary statements. Accordingly, readers should not place undue reliance on such statements. Other than specifically required by applicable laws, the Company is under no obligation and expressly disclaims any such obligation to update or alter the forward-looking statements whether as a result of new information, future events or otherwise except as may be required by law. These forward- looking statements are made as of the date of this MD&A.
Additional information relating to the Company can be obtained under the Company’s profile on SEDAR at www.sedar.com, and on the Company’s website at www.newpacificmetals.com.
No securities regulatory authority has expressed an opinion about these securities and it is an offence to claim otherwise. This short form prospectus constitutes a public offering of these securities only in those jurisdictions where they may be lawfully offered for sale and therein only by persons permitted to sell such securities. These securities have not been and will not be registered under the United States Securities Act of 1933, as amended (the "U.S. Securities Act") or any state securities laws. These securities may not be offered or sold in the United States absent registration or exemptions from registration under such laws. See "Plan of Distribution".
Information has been incorporated by reference in this short form prospectus from documents filed with securities commissions or similar authorities in Canada. Copies of the documents incorporated herein by reference may be obtained on request without charge from the corporate secretary of New Pacific Metals Corp. at Suite 1750 – 1066 West Hastings Street, Vancouver, British Columbia, Canada, V6E 3X1, by faxing a written request to (604) 669-9387, or by calling (604) 633-1368, and are also available electronically at www.sedar.com.
SHORT FORM PROSPECTUS
NEW PACIFIC METALS CORP.
4,238,000 Common Shares
This short form prospectus ("prospectus") qualifies the distribution (the "Offering") of 4,238,000 common shares (the "Offered Shares") in the capital of New Pacific Metals Corp. (the "Company") at a price of $5.90 per Offered Share (the "Offering Price") for gross proceeds of $25,004,200. The Offering is being made pursuant to the terms of an underwriting agreement dated May 25, 2020 (the "Underwriting Agreement") between the Company and BMO Nesbitt Burns Inc., as sole underwriter (the "Underwriter"). See "Plan of Distribution".
|
|
Price $5.90 per Common Share
|
|
|
|
|
|
|
|
|
|
|
|
Net Proceeds to the
|
|
|
|
Price to the Public
|
|
Underwriter's Fee(1)
|
|
|
Company(2)
|
|
Per Common Share
|
$5.90
|
$0.354
|
$5.546
|
|
Total(3)
|
$25,004,200
|
$1,500,252
|
$23,503,948
|
Notes:
(1) In consideration of the services rendered by the Underwriter in connection with the Offering, the Company has agreed to pay the Underwriter a cash fee equal to 6% of the gross proceeds of the Offering (including in respect of any exercise of the Over-Allotment Option (as defined below)) (the "Underwriter's Fee").
(2) Before deducting the expenses related to this Offering, estimated at $380,000, which, together with the Underwriter's Fee, will be paid by the Company from the proceeds of the Offering. See "Use of Proceeds".
(3) The Company has granted to the Underwriter an over-allotment option (the "Over-Allotment Option"), exercisable in whole or in part at any time and from time to time until the date that is 30 days from and including the Closing Date (as defined below), to purchase up to an additional 635,700 Offered Shares on the same terms as set forth above to cover over-allotments, if any, and for market stabilization purposes. If the Over-Allotment Option is exercised in full, the total price to the public, Underwriter's Fee and net proceeds to the Company before deducting estimated expenses of $380,000 will be $28,754,830, $1,725,289.80 and $27,029,540.20, respectively.
This prospectus also qualifies the grant of the Over-Allotment Option and the distribution of the Offered Shares issuable upon the exercise of the Over-Allotment Option. See "Plan of Distribution". A purchaser who acquires Offered Shares forming part of the Underwriter's over-allocation position acquires those securities under this prospectus, regardless of whether the over- allocation position is ultimately filled through the exercise of the Over-Allotment Option or secondary market purchases. All references to "Offered Shares" in this prospectus include any Common Shares (as defined below) issued upon any exercise of the Over-Allotment Option.
The following table sets out the maximum number of securities that may be issued by the Company to the Underwriter pursuant to the Over-Allotment Option granted to the Underwriter.
|
Underwriter's Position
|
|
Maximum Size
|
|
Exercise Period
|
|
Exercise Price
|
|
|
|
|
|
|
|
|
|
Over-Allotment Option
|
|
635,700 Offered Shares
|
|
Up to 30 days from the
|
|
$5.90 per Offered Share
|
|
|
|
|
|
Closing Date
|
|
|
The Offering Price was determined by arm's length negotiation between the Company and the Underwriter with reference to the prevailing market price of the common shares of the Company (the "Common Shares") on the TSX Venture Exchange (the "TSXV"). The Underwriter, as principal, conditionally offers the Offered Shares, subject to prior sale, if, as and when issued by the Company and accepted by the Underwriter in accordance with the conditions contained in the Underwriting Agreement referred to under "Plan of Distribution".
Subject to applicable laws, the Underwriter may, in connection with the Offering, effect transactions which stabilize or maintain the market price of the Common Shares at levels other than those which might otherwise prevail on the open market. Such transactions, if commenced, may be discontinued at any time. The Underwriter may offer the Offered Shares at a price lower than that stated above. See "Plan of Distribution".
The Common Shares are listed on the TSXV under the symbol "NUAG". On May 19, 2020, the last trading day prior to the public announcement of the Offering, the closing price of the Common Shares on the TSXV was $6.50 per Common Share. On June 2, 2020, the last trading day prior to the filing of this prospectus, the closing price of the Common Shares on the TSXV was $5.69 per Common Share. The TSXV has conditionally approved the listing of the Offered Shares distributed under this prospectus on the TSXV. Such listing will be subject to the Company fulfilling all of the listing requirements of the TSXV on or before the Closing Date.
An investment in the Offered Shares should be considered speculative due to various factors, including the nature of the Company's business. The risk factors outlined or incorporated by reference in this prospectus should be carefully reviewed and considered by prospective purchasers in connection with their investment in the Offered Shares. See "Forward-Looking Statements" and "Risk Factors".
Subscriptions for Offered Shares will be received subject to rejection or allotment in whole or in part and the right is reserved to close the subscription books at any time without notice. The closing of the Offering is expected to occur on or about June 9, 2020, or such later date as the Company and the Underwriter may agree (the "Closing Date"), however the Offered Shares are to be taken up by the Underwriter, if at all, on or before a date that is not later than 42 days after the date of the receipt for the final prospectus.
It is expected that the Company will arrange for an instant deposit of the Offered Shares to or for the account of the Underwriter with CDS Clearing and Depository Services Inc. ("CDS") or its nominee on the Closing Date, against payment of the aggregate purchase price for the Offered Shares. A purchaser of Offered Shares will receive only a customer confirmation from the registered dealer from or through which Offered Shares are purchased unless specifically requested or required. See "Plan of Distribution".
In a separate transaction on May 19, 2020, Pan American Silver Corp. ("Pan American") agreed to sell to the Underwriter an aggregate of 8,000,000 Common Shares (the "Block Trade Shares") at the Offering Price, by way of a bought block trade, for gross proceeds of $47,200,000 (the "Concurrent Block Trade"). The net proceeds of the Concurrent Block Trade were paid to Pan American. The Block Trade Shares will be resold to the public by the Underwriter. The Block Trade Shares are not, nor are they required to be, qualified by this prospectus, and will consequently not be subject to the purchasers' statutory rights of withdrawal and rescission described in this prospectus. See "Plan of Distribution".
Purchasers are advised that it may not be possible for investors to enforce judgments obtained in Canada against any person or company that is incorporated, continued or otherwise organized under the laws of a foreign jurisdiction or resides outside of Canada, even if the party has appointed an agent for service of process.
Certain legal matters relating to the Offered Shares will be passed upon by Bennett Jones LLP, on behalf of the Company, and by Borden Ladner Gervais LLP, on behalf of the Underwriter.
In this prospectus, references to the "Company" refer to New Pacific Metals Corp. and/or, as applicable, one or more of its subsidiaries. Unless otherwise stated, references to "dollars" and "$" in this prospectus are to Canadian dollars.
The Company is neither a "connected issuer" nor a "related issuer" of the Underwriters as defined in National Instrument 33- 105 – Underwriting Conflicts.
The principal business office and registered office of the Company is located at Suite 1750 – 1066 West Hastings Street, Vancouver, British Columbia V6E 3X1.
ABOUT THIS PROSPECTUS
No person is authorized by the Company to provide any information or to make any representation other than as contained in this prospectus in connection with the issue and sale of the Offered Shares. Prospective purchasers should rely only on the information contained or incorporated by reference in this prospectus in connection with the purchase of the Offered Shares. Information in this prospectus updates and modifies information incorporated by reference herein. Prospective purchasers should assume that the information appearing in this prospectus is accurate only as of the date on the front of such documents and that information contained in any document incorporated by reference is accurate only as of the date of that document unless specified otherwise. The Company's business, financial condition, financial performance and prospects may have changed since those dates.
Purchasers are required to inform themselves about, and to observe any restrictions relating to, any offering or distribution of our securities under this prospectus.
Market data and certain industry forecasts used in this prospectus and the documents incorporated by reference in this prospectus were obtained from market research, publicly available information and industry publications. The Company believes that these sources are generally reliable, but neither the Company nor the Underwriter have independently verified such information.
ELIGIBILITY FOR INVESTMENT
In the opinion of Bennett Jones LLP, counsel to the Company, and Borden Ladner Gervais LLP, counsel to the Underwriter, based on the current provisions of the Income Tax Act (Canada) (together with regulations thereunder, the "Tax Act"), the Offered Shares, if issued on the date hereof, would constitute a "qualified investment" under the Tax Act for a trust governed by a registered retirement savings plan ("RRSP"), a registered retirement income fund ("RRIF"), a registered disability savings plan ("RDSP"), a registered education savings plan ("RESP"), a tax-free savings account ("TFSA") or a deferred profit sharing plan, each as defined in the Tax Act, provided that the Common Shares are listed on a "designated stock exchange" as defined in the Tax Act (which currently includes the TSXV) or the Company is otherwise a "public corporation" (other than a mortgage investment corporation) within the meaning of the Tax Act.
Notwithstanding that the Offered Shares may be a qualified investment for a trust governed by an RRSP, RRIF, RESP, RDSP or TFSA (each, a "Registered Plan"), the annuitant of an RRSP or RRIF, the subscriber under an RESP or the holder of a TFSA or RDSP, as the case may be, (the "Controlling Individual") will be subject to a penalty tax in respect of Offered Shares held in the Registered Plan if the Offered Shares are a "prohibited investment" (as defined in the Tax Act) for the particular Registered Plan. The Offered Shares will be a "prohibited investment" for a Registered Plan if the Controlling Individual
(a) does not deal at arm's length with the Company for purposes of the Tax Act, or (b) has a "significant interest" (as defined in subsection 207.01(4) of the Tax Act) in the Company. In addition, the Offered Shares will not be a "prohibited investment" if the Offered Shares are "excluded property" for purposes of the prohibited investment rules for a Registered Plan.
Prospective purchasers who intend to hold the Offered Shares in a Registered Plan should consult their own tax advisors having regard to their own particular circumstances.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this prospectus and the documents incorporated by reference herein constitute forward-looking information or forward-looking statements under applicable securities laws (collectively, "forward-looking statements"). These statements relate to future events or future performance, business prospects or opportunities of the Company that are based on forecasts of future results, estimates of amounts not yet determined and assumptions of management made in light of management's experience and perception of historical trends, current conditions and expected future developments. All statements other than statements of historical fact may be forward-looking statements. Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or performance (often, but not always, using words or phrases such as "seek", "anticipate", "plan", "continue", "estimate", "expect", "may", "will", "project", "predict", "forecast", "potential", "targeting", "intend", "could", "might", "should", "believe" and similar expressions) are not statements of historical fact and may be "forward-looking statements".
These forward-looking statements are based on the beliefs of the Company's management as well as on assumptions, which management believes to be reasonable based on information currently available at the time such statements were made. However, there can be no assurance that the forward-looking statements will prove to be accurate.
Examples of forward-looking statements in this prospectus and the documents incorporated by reference herein include, but are not limited to, statements in respect of: termination of the Offering upon the maximum amount of sales of Offered Shares being completed thereunder; sales of Offered Shares under the Offering; the use of net proceeds of the Offering; the Company's intention to complete the Offering on the terms and conditions described herein; the Company's intentions regarding the use of the remainder of the proceeds from the 2019 Offering (as defined below); the listing of the Offered Shares on the TSXV; the resale of the Block Trade Shares (as defined below) to the public by the Underwriter; the anticipated effect of the Offering on the performance of the Company; the participation of Silvercorp (as defined below) in the Offering; the plans and expectations for the Silver Sand Project, the Silverstrike Project and the Tagish Lake Gold Project (each as defined below); the plans and expenditures related to the Company's 2020-2021 Silver Sand Exploration Program (as defined below), construction of an associated exploration camp, and the 2020-2021 Additional Exploration Programs (as defined below); the intended approach and timing of resuming field operations in Bolivia; and the projections contained in the Amended and Restated Technical Report (as defined below), including mineral resource estimates, resource grade and sensitivity to metal prices.
By their nature, forward-looking statements are based on assumptions and involve known and unknown risks, uncertainties, and other factors that may cause the actual results, performance, or achievements of the Company to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. Forward- looking statements are subject to a variety of risks, uncertainties, and other factors that could cause actual events or results to differ from those expressed or implied by the forward-looking statements, including, without limitation: public health crises (such as the COVID-19 (as defined below) pandemic); the ongoing impact of COVID-19 on the Company and its ability to resume operations in Bolivia; investing in the Common Shares; discretion in the use of proceeds of the Offering; the ability to raise additional funds; volatility of the market price for the Common Shares generally; general business, economic, competitive, political, regulatory and social uncertainties; silver, lead, copper and gold price volatility; uncertainty related to mineral exploration properties; risks related to the ability to finance the continued exploration of mineral properties; risks related to factors beyond the control of the Company; risks and uncertainties associated with exploration and mining operations; risks related to the ability to obtain adequate financing for planned development activities; lack of infrastructure at mineral exploration properties; risks and uncertainties relating to the interpretation of drill results and the geology, grade and continuity of mineral deposits; uncertainties related to title to mineral properties and the acquisition of surface rights; risks related to governmental action, decrees and regulations, including those related to COVID-19 and environmental laws and regulations and liability and obtaining permits and licences; future changes to environmental laws and regulations; unknown environmental risks from past activities; commodity price fluctuations; risks related to reclamation activities on mineral properties; risks related to political instability and unexpected regulatory change; currency fluctuations; influence of third party stakeholders; conflicts of interest; risks related to dependence on key individuals; risks related to the involvement of some of the directors and officers of the Company with other natural resource companies; enforceability of claims; the ability to maintain adequate control over financial reporting; disruptions or changes in the credit or security markets; actual results of current exploration activities; mineral reserve and mineral resource estimate risk; actual results of current reclamation activities; conclusions of economic evaluations; changes in project parameters as plans continue to be refined; changes in labour costs or other costs of production; labour disputes and other risks of the mining industry; delays in obtaining governmental approvals or financing or in the completion of development or construction activities; the ability to renew existing licenses or permits or obtain required licenses and permits; increased infrastructure and/or operating costs; risks of not meeting production and cost targets; discrepancies between actual and estimated production; metallurgical recoveries; mining operational and development risk; litigation risks; speculative nature of silver exploration; global economic climate; dilution; environmental risks; community and non-governmental actions; and regulatory risks. This list is not exhaustive of the factors that may affect any of the forward- looking statements of the Company.
Forward-looking statements are statements about the future and are inherently uncertain. Actual results could differ materially from those projected in the forward-looking statements as a result of the matters set out generally and certain economic and business factors, some of which may be beyond the control of the Company. Further, these statements are only current as of the date hereof or of the date of the documents incorporated herein by reference, unless otherwise indicated, as the case may be. Important risk factors are identified in this prospectus under the heading "Risk Factors" and in the AIF (as defined below) under the heading "Item 4.2 - Risk Factors". Should one or more of these risks and uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described. Proposed investors are cautioned against attributing undue certainty to forward-looking statements. The Company does not undertake to update or supplement any of these forward-looking statements as a result of changing circumstances or otherwise, and the Company disclaims any obligation to do so, except as required by applicable laws. For all of these reasons, such forward-looking statements included in, or incorporated by reference into, this prospectus should not be unduly relied upon.
3
FINANCIAL INFORMATION
The Annual Financial Statements and Interim Financial Statements (each as defined below), which are incorporated by reference herein, have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board ("IFRS") and are reported in Canadian dollars.
TECHNICAL INFORMATION
The Company has identified the Silver Sand Project (as defined below) as its material mineral project for the purposes of National Instrument 43-101 – Standards of Disclosure for Mineral Projects ("NI 43-101"). The disclosure in this prospectus and the documents incorporated by reference herein of a scientific or technical nature for the Silver Sand Project is supported by the amended and restated technical report prepared in accordance with NI 43-101 titled "Technical Report - Silver Sand Deposit Mineral Resource Report (Amended)" dated June 3, 2020 and with an effective date of January 16, 2020 (the "Amended and Restated Technical Report") and prepared by AMC Mining Consultants (Canada) Ltd ("AMC Consultants"). The Amended and Restated Technical Report was filed on SEDAR on June 3, 2020 under the Company's profile at www.sedar.com.
DOCUMENTS INCORPORATED BY REFERENCE
Information has been incorporated by reference in this prospectus from documents filed with securities commissions or similar authorities in every province of Canada except Québec. Copies of the documents incorporated by reference in this prospectus and not delivered with this prospectus may be obtained on request without charge from the Corporate Secretary of the Company at Suite 1750 – 1066 West Hastings Street, Vancouver, British Columbia, Canada, V6E 3X1, by faxing a written request to (604) 669-9387, or by calling (604) 663-1368, or electronically through SEDAR at www.sedar.com. The following documents, filed with the securities commissions or similar regulatory authorities in every province of Canada, except Québec, are specifically incorporated by reference and form an integral part of this prospectus:
(a) the annual information form of the Company for the fiscal year ended June 30, 2019, dated September 20, 2019 (the "AIF");
(b) the audited annual consolidated financial statements of the Company as at and for the years ended June 30, 2019 and 2018, together with the notes thereto and the independent auditor's report thereon (the "Annual Financial Statements");
(c) the management's discussion and analysis of the Company for the years ended June 30, 2019 and 2018;
(d) the unaudited condensed consolidated interim financial statements of the Company for the three and nine months ended March 31, 2020 and 2019, together with the notes thereto (the "Interim Financial Statements");
(e) the management's discussion and analysis of the Company for the three and nine months ended March 31, 2020 and 2019;
(f) the management information circular of the Company dated October 29, 2019, in connection with the annual meeting of the shareholders of the Company held on November 29, 2019;
(g) the material change report dated October 8, 2019 with respect to the announcement of a bought-deal prospectus offering of Common Shares for gross proceeds of $15,000,000 (the "October 2019 Financing");
(h) the material change report dated October 25, 2019 with respect to the closing of the October 2019 Financing;
4
(i) the material change report dated November 19, 2019 with respect to the appointment of Dr. Mark Cruise as Chief Operating Officer of the Company;
(j) the material change report dated April 27, 2020 with respect to the resignation of Dr. Rui Feng as Chief Executive Officer of the Company and the appointment of Dr. Mark Cruise as Chief Executive Officer of the Company;
(k) the material change report dated May 19, 2020 with respect to the announcement of the first mineral resource estimate at the Silver Sand Project;
(l) the material change report dated May 19, 2020 with respect to the announcement of the Offering;
(m) the material change report dated May 25, 2020 with respect to the filing of the technical report prepared in accordance with NI 43-101 titled "Technical Report - Silver Sand Deposit Mineral Resource Report" dated May 25, 2020 and with an effective date of January 16, 2020 (the "Original Technical Report");
(n) the material change report dated May 28, 2020 with respect to the appointment of Dr. Mark Cruise as an additional director of the Company;
(o) the Amended and Restated Technical Report; and
(p) the marketing materials of the Company dated May 19, 2020 with respect to the Offering ("Marketing Materials").
Any document of the type referred to in Section 11.1 of Form 44-101F1 – Short Form Prospectus filed by the Company with a securities commission or similar regulatory authority in Canada after the date of this prospectus and prior to the termination of the distribution shall be deemed to be incorporated by reference into this prospectus.
Any statement contained in this prospectus or in a document incorporated or deemed to be incorporated by reference in this prospectus shall be deemed to be modified or superseded for the purposes of this prospectus to the extent that a statement contained herein or in any subsequently filed document which also is or is deemed to be incorporated by reference in this prospectus modifies or supersedes that statement. Any statement so modified or superseded shall not constitute a part of this prospectus except as so modified or superseded. The modifying or superseding statement need not state that it has modified or superseded a prior statement or include any information set forth in the document that it modifies or supersedes. The making of a modifying or superseding statement shall not be deemed an admission for any purposes that the modified or superseded statement, when made, constituted a misrepresentation, an untrue statement of a material fact or an omission to state a material fact that is required to be stated or that is necessary to make a statement not misleading in light of the circumstances in which it was made.
MARKETING MATERIALS
The Marketing Materials are not part of this prospectus to the extent that the contents of the Marketing Materials have been modified or superseded by a statement contained in this prospectus. Any "template version" of "marketing materials" (each as defined in National Instrument 41-101 — General Prospectus Requirements), filed after the date of this prospectus and before the termination of the distribution under the Offering is deemed to be incorporated by reference into this prospectus.
NEW PACIFIC METALS CORP.
The following description of the Company is derived from selected information about the Company contained in the documents incorporated by reference herein and does not contain all of the information about the Company and its business.
Business Information
The Company is an exploration and development company which owns the concessions comprising the Silver Sand project (the "Silver Sand Project") in the Potosí Department, Bolivia, the Silverstrike project (the "Silverstrike Project") in La Paz Department, Bolivia and the Tagish Lake gold project (the "Tagish Lake Gold Project") in the Yukon, Canada. The Company is primarily focused on the development of the Silver Sand Project, the Company's material property under NI 43-101.
5
Recent Developments
The following is a summary of recent developments involving the Company since September 20, 2019, being the date of the AIF:
• On October 2, 2019, the Company announced the October 2019 Financing. The October 2019 Financing closed on October 25, 2019 and an aggregate of 4,312,500 Common Shares were issued for gross proceeds of $17,250,000.
• On November 19, 2019, the Company announced the appointment of Dr. Mark Cruise as Chief Operating Officer of the Company.
• On December 2, 2019, the Company announced that each of Dr. Rui Feng, Jack Austin, David Kong, Greg Hawkins and Martin Wafforn had been re-elected as directors of the Company at the Company's annual general meeting.
• On December 4, 2019, the Company announced that it had acquired a 98% interest in the Silverstrike Project, which is located approximately 150 kilometers southwest of La Paz, by making a one-time cash payment of US$1,350,000 to the vendors thereof.
• On December 19, 2019, the Company announced that it had expanded the land package for the Silver Sand Project by acquiring a 100% interest in a special temporary authorization ("ATE") located immediately north of the Silver Sand Project by making a one-time cash payment of US$200,000 to the third party vendors thereof.
• On April 14, 2020, the Company announced the first independent mineral resource estimate for the Silver Sand Project. The estimate was provided by AMC Consultants.
• On April 27, 2020, the Company announced that Dr. Rui Feng had stepped down as Chief Executive Officer of the Company and that Dr. Mark Cruise had been appointed as the Chief Executive Officer of the Company.
• On May 25, 2020, the Company filed the Original Technical Report.
• On May 26, 2020, the Company announced that Silvercorp Metals Inc. ("Silvercorp") had indicated its intent to participate in the Offering by purchasing Common Shares to maintain its pro rata interest of 28.8% of the outstanding Common Shares pursuant to its participation right and further increase its interest by 100,000 Common Shares, for an aggregate of 1,320,710 Common Shares.
• On May 28, 2020, the Company announced that Dr. Mark Cruise had been appointed as an additional director of the Company.
• On June 3, 2020, the Company filed the Amended and Restated Technical Report.
Description of the Silver Sand Project
The disclosure set out below regarding the Silver Sand Project is based on, without material modification or revision, the disclosure in the executive summary of the Amended and Restated Technical Report. The Amended and Restated Technical Report is available for review under the Company's SEDAR profile at www.sedar.com. The Amended and Restated Technical Report contains more detailed information and qualifications than are set out below and readers are encouraged to review the Amended and Restated Technical Report. This summary is subject to all of the assumptions, information and qualifications set forth therein.
Executive Summary
The Amended and Restated Technical Report provides an initial Mineral Resource estimate on the Silver Sand Property (also referred to as the "Property" or the "Silver Sand Property"). The Amended and Restated Technical Report was prepared by AMC Consultants of Vancouver, Canada on behalf of the Company in accordance with the requirements of NI 43-101 for filing on SEDAR.
6
The Company, through its wholly-owned subsidiaries, acquired exploration and mining rights over an aggregate area of approximately 60 square kilometres (km2) covering the Silver Sand deposit and its surrounding areas. The Silver Sand area has been intermittently mined for silver from narrow high-grade mineralized veins in the Cretaceous sandstone since early to mid- 1500s.
Property description and ownership
The Property is situated in the Colavi District of Potosí Department in southwestern Bolivia, 25 kilometres (km) north-east of Potosí city, the department capital. The approximate geographic center of the Property is 19°22' 4.97" S latitude and 65°31' 22.93" W longitude at an elevation of 4,072 metres (m) above sea level. According to the current 2014 and 2016 mining laws, exploration and mining rights in Bolivia are granted by the Jurisdictional Mining Administrative Authority (Autoridad Jurisdiccional Administrativa Minera) ("AJAM") through Administrative Mining Contracts ("AMCs") between an operator and AJAM. Operators can also acquire interests in exploration and mining rights by signing Mining Production Contracts ("MPCs") on areas controlled by the state-owned mining company, Corporación Minera de Bolivia ("COMIBOL"), who holds these rights.
The Company, through its three wholly-owned subsidiaries, Empresa Minera Alcira S.A., Empresa Jisas-Jardan SRL, and Empresa El Cateador SRL, collectively hold exploration and mining agreements over an approximate 60 km2 contiguous area. The total area under 100% control of the Company is 5.42 km2 after the claim consolidation and conversion procedures are complete. This process is completed for the Silver Sand south block, which hosts the Mineral Resource area. The remaining area incorporates MPC claims consisting of 29 ATEs and 201 cuadriculas for a total area of about 57 km2 surrounding the Silver Sand core area. The AMC-covered and MPC-covered areas are collectively referred to as the "Silver Sand Property" or "Property" in the Amended and Restated Technical Report.
Geology and mineralization
The Silver Sand Property is located in the south section of the polymetallic tin belt in the Eastern Cordillera of the Central Andes, Bolivia. Evidence of historical mining activities such as abandoned mining adits and mining villages can be seen across the Property. Bedrock in the Property area mainly consists of weakly deformed Cretaceous continental sandstone, siltstone, and mudstone and strongly deformed Paleozoic marine sedimentary rocks. The Cretaceous sedimentary sequence forms an open syncline which plunges gently north-northwest and is bound to the southwest and northeast by northwest trending faults. The dominant Cretaceous sedimentary sequence within the Property is divided into the lower La Puerta Formation and the upper Tarapaya Formation. The La Puerta Formation consists of sandstones and unconformably overlies the highly folded Paleozoic marine sedimentary rocks. The Tarapaya Formation conformably overlies the La Puerta sandstones in the central part of the Property and comprises siltstones and mudstones intercalated with minor sandstone. Both the Cretaceous and Paleozoic sedimentary sequences are intruded by numerous small Miocene subvolcanic dacitic porphyry intrusions.
Silver mineralization is hosted by faults, fractures, fissures, and crackle breccia zones in the Cretaceous La Puerta brittle sandstone and porphyritic dacitic dikes, laccolith, and stocks. In the mineralized sandstone, open spaces are filled with silver- containing sulphosalts and sulphides in forms of sheeted veins, stockworks, and veinlets, as well as breccia fillings and minor disseminations. Most silver mineralization in the Property is structurally controlled with secondary rheological controls. The intensity of mineralization is dependent on the density of various mineralized vein structures developed in the brittle host rocks. The most common silver-bearing minerals include freibergite, miargyrite, polybasite, bournonite, andorite and boulangerite. The mineralized zones have been irregularly oxidized which in areas can result in significant mixed oxide and sulphide zones due to the strong local influence of sub-vertical fractures. Oxide minerals are dominated by jarosite, goethite and minor hematite resulting pervasive staining within sandstones, and pseudomorphing of sulphide minerals within veins.
A total of ten mineralized prospects have been identified across the Property to date. These include the Silver Sand deposit and the El Fuerte, Snake Hole, North Plain, San Antonio, Esperanza, Jisas, El Bronce, Mascota, and Aullagas occurrences. Silver Sand and Snake Hole have been defined or tested by drilling. The other eight prospects have been defined by rock chip and grab sampling of ancient and more recent artisanal mine workings and dumps. Four mineralization types have been recognized in the Property, including (1) sandstone-hosted silver mineralization, (2) dacitic porphyry-hosted silver mineralization, (3) hydrothermal breccia-hosted silver mineralization, and (4) manto-type tin and base metal mineralization. The first three mineralization types are considered to have been developed in an epithermal environment during the late stage of the Cenozoic orogenic movement in the Eastern Cordillera. They are typical of the Bolivian polymetallic vein-type deposits represented by the giant Cerro Rico de Potosí silver mine in Potosí. The manto-type tin and base metal mineralization was formed by metosomatic replacement associated with a mesothermal environment during the early stage of the Cenozoic orogenic event.
7
Status of exploration
Before the acquisition of the Property by the Company in 2017, the previous owner drilled eight diamond drillholes for a total of 2,334m of HQ size core between 2012 and 2015 at the Silver Sand deposit, within the core area of the Property. Limited surface and underground sampling were also conducted by the previous owner. Since October 2017, the Company has carried out an extensive property-scale reconnaissance investigation program by surface and underground sampling of the mineralization outcrops and the accessible ancient underground mine works across the Property. A total of 904 rock chip samples were collected from 19 separate outcrops by the Company since 2017. Continuous chip samples were collected at 1.5m intervals along lines roughly perpendicular to the strike direction of the mineralization zones. Sample lines covered a total length of 1,340m. Most of the sampled outcrops are located above or near old mine works.
The Company has also mapped and sampled 42 historical mine workings comprising 4,912m of mine tunnel. A total of 964 continuous chip samples have been collected at 1m intervals along walls of available tunnels that cut across the mineralized zones. Mine dumps from historical mining activities are scattered across a significant portion of the Property. The Company has collected a total of 1,339 grab samples from historical mine dumps. The majority of samples collected were remnants of high-grade narrow veins extracted from underground mining activity. Of the 1,339 samples collected from historical mine dumps to date, 572 samples (43%) returned assay results between 32 and 3,290 grams per ton (g/t) silver (Ag) with an average grade of 190 g/t Ag. Assay results of underground chip samples and surface mine dump grab samples show that silver mineralization widely occurs in the wall rocks of the previously mined-out high-grade veins in the abandoned ancient underground mining works.
Drilling
From October 2017 to December 2019, the Company conducted intensive diamond drilling programs over the Silver Sand core area to define the spatial extension of the mineralization. It drilled 386 HQ diamond holes for a total metreage of 97,610m in the core area of the Property. Holes were first drilled at 50m-by-50m grid to delineate the spatial extensions of the major mineralized zones defined by surface and underground sampling. Later drilling, on a nominal 25m-by-25m grid, infilled defined areas of mineralization.
All holes were drilled from the surface. Drillholes were drilled up to 545m deep at inclinations between -45° and -80° towards azimuths of 060° (~NE) and 220° (~SW) to intercept the principal trend of mineralized vein structures. The drilling programs have covered an area of approximately 1,600m long in the north-south direction and 800m wide in the east-west direction and have defined silver mineralization at the Silver Sand deposit over an oblique strike length of 2km, a collective width of 650m and to a depth of 250m below surface. Drill coring was completed using conventional HQ (64 millimetre (mm) diameter) equipment and 3m drill rods. Core recovery from the Company's drill programs varies between 0% (voids and overburden) and 100%, averaging 97%. More than 92% of core intervals have a core recovery of greater than 95%. Drill core containing visible mineralization is wrapped in paper to minimize damage during transport.
Sample preparation, assay, and QA/QC
The Company has developed and implemented good standard procedures for sample preparation, analytical, and security protocols. The Company manages all aspects of sampling from the collection of samples to sample delivery to the laboratory. All samples are stored and processed at the Company's Betanzos facility located approximately 1.5 hours drive from the Silver Sand deposit. This facility is surrounded by a brick wall, has a locked gate and is monitored by video surveillance and security guard 24 hours a day, seven days a week. Within the facility, there are separate and locked areas for core logging, sampling, and storage.
Core, chip, and grab samples are shipped in securely sealed bags to ALS Global in Oruro, Bolivia for preparation. At the preparation lab, samples are processed using the following procedures: (1) crush to 70% less than 2mm; (2) riffle split off 250 grams (g); and (3) pulverize split to better than 85% passing a 75-micron sieve. The pulverized pulps are shipped to ALS Global in Lima, Peru for geochemical analysis. Sample analysis in 2017 and 2018 comprised an aqua regia digest followed by Inductively Coupled Plasma ("ICP") Atomic Emission Spectroscopy analysis of silver, lead, and zinc (ALS code OG46). Assay results greater than 1,500g/t Ag were sent for fire assay and gravimetric finish analysis. The Company changed its analysis protocol in 2019 to include systematic multielement analysis. All samples were sent for an initial 51 element ICP mass spectroscopy analysis (ALS code ME-MS41) with over limit procedures in place.
8
Drill programs completed on the Property between 2017 and 2019 have included Quality Assurance / Quality Control ("QA/QC") monitoring programs which have incorporated the insertion of certified reference materials ("CRMs"), blanks, and duplicates into the sample streams, and umpire (check) assays at a separate laboratory. AMC Consultants has compiled and reviewed the available QA/QC data for 345 drillholes where assays have been received. The Company has included CRMs, blank, and coarse reject umpire (check) assays as part of routine analysis at slightly less than the preferred rates of 5%. Field duplicate samples consisting of quarter core have also been included but comprise less than 1% of all samples.
The Company has used four different CRMs throughout the project history. Three CRMs were used in the 2019 program, which monitored the approximate cut-off grade and grades below and above the average grade. In previous years, CRMs did not monitor the cut-off grade. CRMs generally show reasonable analytical accuracy; however, two of the four CRMs do not perform within certified control limits, with an excessive number of failures. AMC Consultants postulates that poor CRM performance may be due to the CRMs being certified using a four-acid digest but analyzed using aqua-regia. AMC Consultants recommends that follow up work be completed prior to further use of these CRMs. Blank sample results are considered acceptable and show that no significant contamination has occurred during sample preparation and analysis. Quarter core field duplicate samples show sub-optimal performance which suggest that mineralization is heterogeneous, that sample errors are occurring during the sampling process, or a combination of both factors. Duplicate samples are biased on average 11% lower than the original sample. AMC Consultants speculates that the friable nature of silver sulphosalts may result in sample loss during the core cutting and sampling process, resulting in progressive decrease in sample grade with each successive stage of processing, and an overall net underestimation of metal. AMC Consultants recommends that this be investigated. Umpire (check) coarse reject samples have been sent to a third-party laboratory to confirm the accuracy of the primary laboratory. Umpire assay results show sub-optimal precision however this may be in part due to additional sub-sampling variance incurred during sampling of the coarse rejects. AMC Consultants recommends future umpire samples be sent as pulp samples.
The Qualified Person ("QP") considers sample preparation, analytical and security protocols employed by the Company to be acceptable. The QP has reviewed the QA/QC procedures used by the Company including CRMs, blank, duplicate and umpire data and has made some recommendations. The QP does not consider these to have a material impact on the Mineral Resource estimate and considers the assay database to be adequate for Mineral Resource estimation.
Metallurgical testing
A metallurgical testwork program started in 2018 examined several metallurgical composites of Oxide, Transition, and Sulphide mineralization from two areas of the Silver Sand deposit. The composites were prepared from samples of available half-core. A geometallurgical sampling approach was used and was designed to highlight the effect of differences in silver grade, degree of oxidation, and lithology.
Four independent geometallurgical testwork programs (mineral characterization, comminution, froth flotation, and cyanide leaching) were carried out on the different metallurgical composites. Six metallurgical domains were identified for the flotation and leaching testwork and six geological domains were branded for the comminution work. Comminution, flotation, and leaching programs were completed by SGS Mineral Services in Lima, Peru, while the mineral characterization work was completed by the Research Center for Mining and Metallurgy and Oruro Technical University both in Bolivia.
The results of the testwork suggest that the mineralized materials from the Silver Sand Project would be amenable to processing using conventional flotation or large-scale whole ore cyanidation at atmospheric pressure. This preliminary metallurgical testing program has demonstrated that good silver extraction rates are possible using these simple extraction methods and that further improvements and refinements should be possible in future programs after fine-tuning the various test parameters. Highlights of the completed test program are as follows:
• Composite samples of Sulphide, Transition, and Oxide mineralization were submitted for laboratory-scale rougher- scavenger flotation testing and this achieved up to 96.0%, 86.8%, and 92.0% silver recovery respectively.
• Composite samples of Sulphide, Transition, and Oxide mineralization were submitted for bottle roll cyanidation testing and this achieved up to 96.7%, 97.0%, and 96.3% silver extraction respectively.
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• Samples of oxide mineralization were submitted for coarse column leach cyanidation testing and this achieved up to 88.3% silver extraction.
• High recoveries achieved during cyanidation tests indicate that silver-bearing minerals within the sulphide and transition composite samples tested can be considered non-refractory in nature.
• Composite samples were found to be mostly in the soft to medium grindability range with low to medium values of Abrasion Index (Ai).
Development and operations
There are no mining or metal recovery operations underway by the Company or the prior owner at the Property. There are a few local contract miners conducting underground, small-scale, artisanal mining intermittently on the Property. Evidence of historic mining, commencing in Spanish Colonial times, is demonstrated by numerous adits, declines, pits and drifts, rail tracks, and small-scale dumps scattered around the Property. There are no known records of past production from these activities.
Mineral Resources
The Mineral Resource estimate was completed using 330 drillholes on the Property comprising 85,391m of diamond core and 58,420 assays. Grade interpolation was completed using ordinary kriging. Silver, lead, zinc, gallium, and indium were estimated but only silver is reported below as metallurgical work has yet to be done on the other metals.
The mineralization domain was built by the Company using Leapfrog Geo 4.0 software. The mineralization domain was reviewed and accepted by the QP with some changes, including separating the domain into two areas based on vein orientation. The QP estimated into these domains and also estimated a background block model that was combined with the domain mineralization to form the final block model. The Company performed 4,033 density measurements on the core drilled on the Property. As the mineralization is hosted in one rock type, after reviewing the density data, the QP assigned two density measurements to the block model based on the mean density inside and outside of the mineralized domains. The mineralized sandstone was assigned a bulk density of 2.54 tons per cubic metre (t/m3) and the unmineralized sandstone was assigned a bulk density of 2.50 t/m3.
The pit-constrained Mineral Resources are reported for blocks above a conceptual pit shell based on a US$18.70/ounce silver price and within the AMC claim boundary. Pit optimization allowed minor waste to extend outside the Company's 100% owned claim boundary to the NE and SW. The cut-off applied for reporting the pit-constrained Mineral Resources is 45 g/t Ag. Assumptions made to derive a cut-off grade included mining costs, processing costs and recoveries, and were obtained from comparable industry situations. The model is depleted for historical mining activities.
The Mineral Resource for the Silver Sand deposit has been estimated by Ms Dinara Nussipakynova, P.Geo., Principal Geologist of AMC Consultants, who takes responsibility for the estimate. Mineral Resources that are not Mineral Reserves do not have demonstrated economic viability.
Table 1.1 Conceptual pit-constrained Mineral Resource as of 31 December 2019
|
Resource category
|
Tonnes (Mt)
|
Ag (g/t)
|
Ag (Moz)
|
|
|
|
|
|
|
Measured
|
8.4
|
159
|
43.05
|
|
|
|
|
|
|
Indicated
|
26.99
|
130
|
112.81
|
|
|
|
|
|
|
Measured & Indicated
|
35.39
|
137
|
155.86
|
|
|
|
|
|
|
Inferred
|
9.84
|
112
|
35.55
|
Source: AMC Mining Consultants (Canada) Ltd.
Notes:
• CIM Definition Standards (2014) were used for reporting the Mineral Resources.
• The QP is Dinara Nussipakynova, P.Geo. of AMC Consultants.
• Mineral Resources are constrained by an optimized pit shell developed at a metal price of US$18.70/oz Ag and recovery of 90% Ag (cost and other assumptions shown in Table 1.2 below).
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• Cut-off grade is 45 g/t Ag.
• Mineral Resources are reported inside the AMC claim boundary.
• Pit optimization allows waste to extend outside the claim to the NE and SW.
• Mineral resources that are not mineral reserves do not have demonstrated economic viability.
• Drilling results up to 31 December 2019.
• The numbers may not compute exactly due to rounding.
Table 1.2 Cut-off grade and conceptual pit parameters
|
Input
|
Units
|
Value
|
|
|
|
|
|
Silver Price
|
US$/oz Ag
|
18.70
|
|
Silver process recovery
|
%
|
90
|
|
Payable silver
|
%
|
97
|
|
Dilution factor
|
%
|
10
|
|
Mining recovery factor
|
%
|
100
|
|
Mining cost
|
US$/t mined
|
2.00
|
|
Process cost
|
US$/t minable material > COG
|
10.00
|
|
G&A cost
|
US$/t minable material > COG
|
2.00
|
|
Slope angle
|
degrees
|
45
|
Source: AMC Mining Consultants (Canada) Ltd.
Notes:
• Sustaining capital cost has not been included.
• Measured, Indicated and Inferred Mineral Resources included.
The QP is not aware of any known environmental, permitting, legal, taxation, socioeconomic, marketing, or other similar factors that could materially affect the stated Mineral Resource estimates. Regarding title, the QP is aware that the ATEs, where the Mineral Resource is located, are in the process of being consolidated and converted into one concession. An AMC with AJAM has been signed but is yet to be registered with the mining register, notarized, and published in the mining gazette. AMC Consultants sees no reason for these final conversion steps not to occur. Regarding political risk, during and after the Fall 2019 elections, civil unrest across the country resulted in road blockages and strikes by local groups. Roads to the Property were blocked during this temporary event. New elections are currently scheduled to be held in 2020, which may again result in temporary civil unrest. In the past, former political leaders have caused Bolivia to nationalize privately owned mines. Globally mining laws are subject to change from time to time.
Mineral Reserves
There are neither historical nor current Mineral Reserves on the Property.
Conclusions
Silver mineralization at the Property occurs in ten areas: Silver Sand, El Fuerte, Snake Hole, North Plain, San Antonio, Esperanza, Jisas, El Bronce, Mascota, and Aullagas. The mineralization identified in the Property belongs to the Bolivian polymetallic vein-type deposits represented by the giant Cerro Rico de Potosí silver mine in Potosí.
The Silver Sand deposit is defined by exploration drilling and has a conceptual pit-constrained Mineral Resource using a 45 g/t Ag cut-off of Measured and Indicated Resources of 35.39 million tonnes grading 137 g/t silver; and Inferred Mineral Resource of 9.84 million tonnes grading 112 g/t silver. Ms Dinara Nussipakynova, P.Geo. of AMC Consultants takes responsibility for these estimates. Logging, mapping, sampling, and analyzing procedures of the Company's on-going exploration programs follow common industry practice. Results of QA/QC programs are deemed acceptable by the QP. The results of a preliminary metallurgical test program suggest that the mineralized materials from the Silver Sand Property would be amenable to processing using conventional flotation or whole ore cyanidation at atmospheric pressure at a large scale.
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Risks and opportunities relating to this project are discussed below.
Risks
Mineral Resources are not Mineral Reserves and do not have demonstrated economic viability. There is a degree of uncertainty attributable to the estimation of Mineral Resources. Until Mineral Resources are actually mined and processed, the quantity of mineralization and grades must be considered as estimates only. The QP notes that the current Mineral Resource is constrained within a conceptual open pit that allows minor waste, but not mineralization, to extend onto the MPC area. Constraining both the waste and mineralization to the AMC ground reduces the contained silver ounces in the Measured and Indicated category from 155.9 Moz to 142.2 Moz and in the Inferred category from 35.6 Moz to 27.4 Moz. Engineering, geotechnical and hydrogeological studies, at a sufficient level to convert Mineral Resources to Mineral Reserves, are necessary before the impact of these risks and uncertainties to the project's potential economic viability can be reasonably quantified. Operating in South America can be associated with political risk. In the past, former political leaders have caused Bolivia to nationalize privately owned mines. Global mining laws are subject to change from time to time.
Opportunities
Potential opportunities for the Silver Sand Project include:
• The current Mineral Resource is constrained within an open pit that allows waste, but not mineralization, to extend onto the MPC area. Extending the pit to allow for the extraction of both waste and mineralization in the MPC area increases the contained silver ounces in the Measured and Inferred category from 155.9 Moz to 170.3 Moz and in the Inferred category from 35.6 Moz to 49.7 Moz.
• Expansion and upgrading of the Silver Sand deposit through additional drilling.
• Significant exploration potential within an emerging silver district, which contains numerous showings and evidence of silver-rich, polymetallic mineralization including historic workings.
Recommendations
Quality Assurance / Quality Control
With respect to density, the QP recommends that the Company incorporate: (a) the regular use of a density standard; (b) weigh samples following immersion to ensure that the sample is not absorbing water; and (c) send a portion of samples to a third- party laboratory for density measurement.
With respect to CRMs, the QP recommends that the Company: (a) adjust CRM monitoring criteria such that assay batches with two consecutive CRMs outside two standard deviations, or one CRM outside of three standard deviations are investigated and, if necessary, re-analyze the batch; (b) purchase an additional CRM at the average grade (130 g/t Ag) of the deposit which has been certified using similar digestion methodology; (c) investigate performance issues with CRMs CDN-ME-1603 and CDN- ME-1605 if these are to be used in future programs; and (d) re-evaluate the use of ME-MS41 analytical method.
With respect to blanks, the QP recommends that the Company: (a) adjust blank insertion procedures to also include the insertion of blank material immediately after visible high-grade silver intercepts or, alternatively, request quartz wash samples be inserted by the laboratory; and (b) if ALS method ME-MS41 is to be used for ongoing routine analysis: (i) test an additional 10 – 20 samples from the new blank quarry site to establish a background value; and (ii) establish an appropriate (lower) blank failure limit for ME-MS41 analysis.
With respect to duplicates, the QP recommends that the Company: (a) implement investigative work to understand duplicate sample bias; and (b) ensure that all future programs include at least 5% duplicate samples including field duplicates, coarse (crush) duplicates, and pulp duplicates to enable the various stages of sub-sampling to be monitored.
With respect to umpire samples, the QP recommends that the Company: (a) submit pulp samples (rather than coarse reject) so that umpire samples only monitor analytical accuracy and variance; and (b) include CRMs at the average grade and higher grades in umpire sample submissions.
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Mineral Resource
For future Mineral Resource modelling it is useful to determine the extent of the historical mining on the Property. The QP recommends that the Company: (a) conduct a professional survey of the underground cavities if it is safe to do so; (b) continue to record in logs if the drilling hits voids; (c) conduct a survey of the waste dumps in order to check the volumes of mined-out areas; (d) conduct structural analysis of available data and complete initial structural/geotechnical drilling as required; and (e) update the 3D geological model to include detailed geology–deposit oxidation domaining and structures.
Mineral Resource expansion and conversion
The Silver Sand deposit as currently defined remains open for expansion. There has been no modern district scale exploration. It is recommended that future exploration, resource expansion, and definition drilling: (a) test the newly defined Snake Hole prospect located approximately 600m east of the Silver Sand deposit; (b) test and/or convert areas of known silver mineralization and or structural extensions within, adjacent to and / or not captured by the current conceptual open pit design;
(c) test the northern structural extension of the Main Zone of the Silver Sand deposit; (d) test the downdip/deeper extents below the Main Zone and the area between the Main and South Zones of the deposit; and (e) conduct an initial drill test on the Silver Sand North Block ~ El Bronce and Jisas targets.
Metallurgical testwork development
A second phase of metallurgical testwork is recommended to build on and improve the metallurgical characterization work completed to date. Further technical de-risking and metallurgical optimization would be the objectives. This phase of testwork would include the following items:
• Selection of representative samples, using core material from metallurgical holes plus coarse rejects from other areas of the deposit. Good spatial coverage and representation of different geometallurgical units are required.
• Chemical characterization (ICP scans) of composites.
• Physical characterization including comminution tests.
• Quantitative mineralogical characterization using QEMScan.
• Flotation testwork, including rougher kinetic tests, batch cleaner tests, and locked cycle tests.
• Characterization of final flotation test products, including scans for deleterious elements.
• Whole ore leaching testwork, including bottle roll tests to assess leach kinetics after grinding, vat leach tests and column leach tests, to assess vat and heap leach kinetics at various coarse sizes.
• Cyanide destruction tests.
• Environmental tests, including ARD and metal leaching tests on flotation tailings samples.
• Environmental baseline studies
• Limited environmental studies have been completed to date. Given the long-lead times for environmental studies it is recommended that the Company commence environmental baselines studies as a matter of urgency.
Community and social studies
It is recommended that community and social studies are continued and expanded to levels appropriate for the potential scale and technical status of the project.
District scale exploration
Complete initial district scale exploration including geological mapping, sampling, and target generation over the Property. Contingent on results and necessary approvals drill testing may be warranted.
Costs
The costs for the recommended programs including contingency are tabulated below in Table 1.3.
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Table 1.3 Budget for the recommended programs in U.S. dollars
|
Account category
|
Budget totals (US$)
|
|
Betanzos camp costs (repairs, cook/meals, fuel, supplies, and logistics)
|
400,000
|
|
|
|
|
Geology and project administration (contractors, consultants)
|
300,000
|
|
|
|
|
Systems (health and safety/database)
|
150,000
|
|
|
|
|
Diamond drilling (26,000 m)
|
3,100,000
|
|
|
|
|
Assay (21,000 samples)
|
1,000,000
|
|
|
|
|
Technical consulting and reporting (NI 43-101 PEA technical report and resource estimate)
|
200,000
|
|
|
|
|
Metallurgical test work
|
220,000
|
|
|
|
|
Environmental baseline studies
|
560,000
|
|
|
|
|
Community and social studies programs
|
425,000
|
|
|
|
|
Contingency (10%)
|
635,500
|
|
|
|
|
Grand total
|
6,990,500
|
For additional information on the Silver Sand Project, refer to the Amended and Restated Technical Report.
Intercorporate Relationships
The corporate structure of the Company and its subsidiaries, as of the date hereof, is as follows:
14
CONSOLIDATED CAPITALIZATION
Other than as set forth in the table below, there have been no material changes in the share or loan capital of the Company, on a consolidated basis, since the date of the Interim Financial Statements. The following table represents the Company's share capital as at March 31, 2020 (i) before giving effect to the Offering, (ii) after giving effect to the Offering, and (iii) after giving effect to the Offering assuming the exercise of the Over-Allotment Option in full:
|
|
|
|
|
|
As at March 31, 2020
|
|
|
As at March 31, 2020
|
|
As at March 31, 2020
|
|
after giving effect to the
|
|
|
|
|
Offering, assuming
|
|
|
before giving effect to
|
|
after giving effect to the
|
|
exercise of Over-
|
|
|
the Offering
|
|
Offering
|
|
Allotment Option in full
|
|
Share Capital
|
$167,452,932
|
|
$190,576,880
|
|
$194,102,472
|
|
|
|
|
|
|
Common Shares
|
147,760,851
|
151,998,851
|
152,634,551
|
|
|
|
|
|
|
Stock Options
|
4,942,961
|
4,942,961
|
4,942,961
|
|
|
|
|
|
|
Restricted Share Units
|
1,064,600
|
1,064,600
|
1,064,600
|
|
|
|
|
|
|
Fully Diluted Issued and Outstanding
|
153,768,412
|
158,006,412
|
158,642,112
|
USE OF PROCEEDS
Assuming the Over-Allotment Option is not exercised, the net proceeds of the Offering will be approximately $23,123,948 after deducting the Underwriter's Fee of $1,500,252 and the estimated expenses of the Offering. See "Plan of Distribution". Assuming the Over-Allotment Option is not exercised (in whole or in any part), the net proceeds are expected to be used to advance exploration and development at the Company's wholly-owned Silver Sand Project and other regions and projects in Bolivia outside of the Silver Sand Project as follows:
|
Proceeds(1)
|
|
|
|
|
|
Offering
|
$25,004,200
|
|
|
|
|
Underwriter's Fee
|
$1,500,252
|
|
|
|
|
Estimated expenses of the Offering
|
$380,000
|
|
|
|
|
Net Proceeds
|
$23,123,948
|
|
|
|
|
Use of Proceeds
|
|
|
|
|
|
2020–2021 Exploration Program for Silver Sand Project(2)
|
|
|
|
|
|
Drilling of 26,000 meters
|
$4,300,000
|
|
|
|
|
Assaying and sampling of 21,000 samples
|
$1,400,000
|
|
|
|
|
Other field operation expenditures
|
$2,100,000
|
|
|
|
|
Advanced studies
|
$1,400,000
|
|
|
|
|
Community relations and social studies
|
$600,000
|
|
|
|
|
Exploration camp construction
|
$5,000,000
|
|
|
|
|
Subtotal for Silver Sand Project
|
$14,800,000
|
15
|
2020–2021 Exploration Programs for Other Regions and Projects in Bolivia
|
|
|
|
|
|
Drilling of 34,000 meters
|
$5,750,000
|
|
|
|
|
Assaying and sampling of 34,000 samples
|
$2,250,000
|
|
|
|
|
Other field operating expenditures
|
$323,948
|
|
|
|
|
Subtotal for other exploration programs
|
$8,323,948
|
|
|
|
|
Total
|
$23,123,948
|
___________________
Note:
(1) Assuming the Over-Allotment Option is not exercised (in whole or in any part).
(2) The amounts referenced in Table 1.3 have been grouped together and a foreign exchange rate of US$1.00 = C$1.40 was used to convert such amounts, with rounding to the nearest hundred thousand.
The Company plans to conduct the additional 26,000 meter drill program at the Silver Sand Project from July 2020 to December 2021 (the "2020-2021 Silver Sand Exploration Program"). Estimated expenditures for the 2020-2021 Silver Sand Exploration Program include: (a) $4.4 million of direct drilling costs at a cost of $170/m; (b) $1.4 million for 21,000 samples at cost of $67 per sample; (c) $2 million for other field operation expenditures, including, but not limited to, road constructions, vehicle and equipment purchases, camp services, and salaries and benefits for employees; (d) $1.4 million related to various advanced studies, including a Preliminary Economic Assessment (PEA) study, metallurgical testwork, and environmental baseline study; and (e) $0.6 million in community relations and social studies, including a socio-economic baseline study, donations and other support programs to the local communities. In conjunction with the 2020-2021 Silver Sand Exploration Program, the Company plans to work on the construction of an exploration camp during the same period. The exploration camp will be designed to host 150 personnel along with a large capacity of drill core storage. Design and construction costs for the exploration camp are budgeted to be approximately $5 million. The Amended and Restated Technical Report provides an estimated budget of US$6,990,500 for the programs recommended at the Silver Sand Project; however the Company expects additional funds, as set forth in the table above, to be required for the construction of the exploration camp, that are not addressed in the Amended and Restated Technical Report.
The Company also plans to carry out exploration programs outside of the Silver Sand Project area in Bolivia from July 2020 to December 2021 (the "Additional 2020-2021 Exploration Programs") including, but not limited to, the Company's Silverstrike Project area and regions north of the Silver Sand Project. Estimated expenditures for the Additional 2020-2021 Exploration Programs include: (a) $5.75 million of direct drilling costs at a cost of $170/m; (b) $2.25 million for 34,000 samples at cost of $67 per sample; and (c) $0.32 million for other field operation expenditures, including, but not limited to, road constructions, vehicle and equipment purchases, camp services, and salaries and benefits for employees.
The extent to which the Company pursues the Additional 2020-2021 Exploration Program in respect of other regions and projects in Bolivia will depend, among other things, on the amount of proceeds raised in the Offering and is secondary to the Company's proposed exploration and development program at the Silver Sand Project. The Company's technical staff, under the direction of Alex Zhang, P. Geo., VP of Exploration of the Company and a "qualified person" for the purposes of NI 43- 101, have considered and recommended the 2020-2021 Silver Sand Exploration Program and the Additional 2020-2021 Exploration Programs for other regions and projects in Bolivia in accordance with the Company's strategic plan, which has been duly considered and approved by the Company's management and board of directors.
While the COVID-19 pandemic has already had significant, direct impacts on the Company's operations and business as described in the management's discussion and analysis of the Company for the three and nine months ended March 31, 2020 and 2019, the extent to which the pandemic will continue to impact the Company's operations (including those in Bolivia) are highly uncertain and cannot be predicted with confidence as at the date of this prospectus. It is possible that the commencement of the 2020-2021 Silver Sand Exploration Program, construction of the associated exploration camp or the Additional 2020-2021 Exploration Programs could be delayed due to the COVID-19 pandemic. Any such delays would push back the applicable start and/or completion dates. See "Risk Factors – Public Health Crises" for additional information.
16
In the event the Over-Allotment Option is exercised in whole or in part, proceeds will be used to cover any costs of the 2020- 2021 Silver Sand Exploration Program, the construction of the exploration camp and the Additional 2020-2021 Exploration Programs that exceed the net proceeds received by the Company from the Offering (excluding from the exercise of the Over- Allotment Option), working capital and general corporate purposes.
The Company intends to use the proceeds of the Offering as described above. However, there may be circumstances where, for sound business reasons, a reallocation of the net proceeds may be necessary, including for working capital and general corporate purposes. The actual amount that the Company spends in connection with each of the intended uses of proceeds may vary significantly from the description above and will depend on a number of factors, including those referred to under "Risk Factors –Discretion in Use of Proceeds".
Working capital as at March 31, 2020 was $39,652,082. Estimated working capital as at May 31, 2020 was approximately $38,200,000. Material changes for working capital during the period ended May 31, 2020 were related to approximately $1.85 million spent on operations in Bolivia and corporate overhead, offset by $395,000 received from dividends, interest and stock option exercises.
The Company had negative cash flow from operating activities for the financial year ended June 30, 2019 and the nine months ended March 31, 2020. To the extent that the Company has negative cash flow from operating activities in future periods, the Company may need to use a portion of the proceeds from any offering to fund such negative cash flow. See "Risk Factors – Negative Cash Flow from Operating Activities".
On October 25, 2019, the Company closed an offering of Common Shares for net proceeds of approximately $16.2 million (the "2019 Offering"). A portion of the proceeds of the 2019 Offering has been used by the Company to advance exploration and development of the Silver Sand Project, as set out in the table below, and the Company intends to use the remainder of the proceeds from the 2019 Offering to cover any costs of the 2020-2021 Silver Sand Exploration Program, the construction of the exploration camp and the Additional 2020-2021 Exploration Programs that exceed the net proceeds received by the Company from the Offering, working capital and general corporate purposes.
|
|
|
|
|
Approximate Actual
|
|
Use of Proceeds Items
|
|
Original Estimated
|
|
Expenditure to March 31,
|
|
|
Expenditure
|
|
2020
|
|
|
|
|
|
Drilling of 55,000m of diamond core
|
$8,167,000
|
$6,668,473
|
|
Assaying and sampling of 53,854 samples
|
$2,655,000
|
$2,426,510
|
|
Equipment
|
$697,000
|
$349,874
|
|
Site Expenses
|
$414,000
|
$659,081
|
|
Community relations
|
$148,000
|
$168,059
|
|
Concession renewal
|
$2,000
|
$1,833
|
|
Metallurgical testing
|
$270,000
|
$130,659
|
|
Technical report
|
$338,000
|
$342,327
|
|
Overhead office costs
|
$3,055,000
|
$2,911,006
|
|
Total
|
$15,746,000
|
$13,657,822
|
17
DESCRIPTION OF SECURITIES BEING DISTRIBUTED
This prospectus qualifies the distribution of the Offered Shares offered pursuant to the terms of the Underwriting Agreement.
The Company is authorized to issue an unlimited number of Common Shares. As of March 31, 2020, there were 147,760,851 Common Shares issued and outstanding, 4,942,961 Common Shares issuable upon exercise of outstanding stock options ("Options") and 1,064,600 Common Shares which may be issuable upon the settlement of outstanding restricted share units ("RSUs") (the Company intends to settle RSUs by the issuance of Common Shares as soon as practicable after the vesting date, but retains the discretion under the Company's incentive plan, to settle the RSUs in cash or in shares).
Holders of Common Shares are entitled to receive notice of any meetings of shareholders of the Company, and to attend and to cast one vote per Common Share held at all such meetings. Holders of Common Shares are entitled to receive on a pro rata basis such dividends on the Common Shares, if any, as and when declared by the board of directors of the Company at its discretion, paid in money or property or by issuing fully paid Common Shares of the Company, and, upon the liquidation, dissolution or winding up of the Company, are entitled to receive on a pro rata basis the net assets of the Company after payment of debts and other liabilities, in each case subject to the rights, privileges, restrictions and conditions attaching to any other series or class of shares ranking senior in priority to or on par with, the holders of Common Shares with respect to dividends or liquidation. The Common Shares do not carry any pre-emptive, subscription, redemption or conversion rights, nor do they contain any sinking or purchase fund provisions.
PRIOR SALES
For the 12-month period before the date of this prospectus, the Company has issued the following Common Shares, or securities exchangeable or convertible into Common Shares:
Common Shares
The following table summarizes issuances of Common Shares by the Company for the 12-month period prior to the date of this prospectus:
|
Date of Issuance
|
|
Number of Common Shares
|
|
Price Per Common Share
|
|
August 23, 2019
|
|
291,000
|
|
$1.58
|
|
October 25, 2019
|
|
4,312,500
|
|
$4.00
|
In addition to the Common Shares referenced in the table above, an aggregate of 848,066 Common Shares were issued in connection with the exercise of outstanding Options for the 12-month period prior to the date of this prospectus. The exercise price for such Options ranged between $0.55 and $2.15, resulting in aggregate gross proceeds of $995,236.
Options
No Options were granted by the Company during the 12-month period prior to the date of this prospectus.
Restricted Share Units
The Company intends to settle RSUs by the issuance of Common Shares as soon as practicable after the vesting date, but retains the discretion under the Company's incentive plan, to settle the RSUs in cash or in Common Shares. The following table summarizes grants of RSUs by the Company for the 12-month period prior to the date of this prospectus:
|
Date of Grant
|
|
Number of RSUs
|
|
Settlement Date
|
|
December 2, 2019
|
|
266,150
|
|
June 2, 2020
|
|
December 2, 2019
|
266,150
|
|
December 2, 2020
|
|
December 2, 2019
|
266,150
|
|
June 2, 2021
|
|
December 2, 2019
|
266,150
|
|
December 2, 2021
|
18
MARKET FOR SECURITIES
The Common Shares are currently listed on the TSXV under the trading symbol "NUAG". The following table sets forth the reported intraday high and low prices and the trading volume for the Common Shares on the TSXV for the 12-month period prior to the date of this prospectus. As of the date of this prospectus, the Company had 147,884,378 Common Shares issued and outstanding. On June 2, 2020, the last full trading day prior to the date of this prospectus, the closing price of the outstanding Common Shares on the TSXV was $5.69 per Common Share.
|
Month
|
|
Monthly High Price
|
|
Monthly Low Price
|
|
Monthly Volume
|
|
June 1 – 2, 2020
|
|
$5.89
|
|
$5.63
|
292,645
|
|
May 2020
|
$7.17
|
$5.04
|
5,103,972
|
|
April 2020
|
$6.46
|
$4.07
|
6,743,738
|
|
March 2020
|
$5.78
|
$2.34
|
4,886,509
|
|
February 2020
|
$6.78
|
$4.74
|
3,002,182
|
|
January 2020
|
$6.98
|
$5.61
|
4,344,293
|
|
December 2019
|
$5.99
|
$4.60
|
1,951,768
|
|
November 2019
|
$4.96
|
$4.23
|
1,971,111
|
|
October 2019
|
$4.63
|
$4.09
|
2,671,947
|
|
September 2019
|
$6.71
|
$2.75
|
4,128,885
|
|
August 2019
|
$3.00
|
$2.35
|
1,076,518
|
|
July 2019
|
$2.52
|
$2.21
|
202,467
|
|
June 2019
|
$2.55
|
$1.91
|
1,280,261
|
PLAN OF DISTRIBUTION
Offering
Under the terms of the Underwriting Agreement between the Company and the Underwriter, the Company has agreed to sell, and the Underwriter has agreed to purchase from the Company, on the Closing Date, subject to the terms and conditions contained in the Underwriting Agreement, 4,238,000 Offered Shares at the Offering Price, payable in cash to the Company against delivery of the Offered Shares. The Offering Price was determined by arm's length negotiation between the Company and the Underwriter with reference to the prevailing market price of the Common Shares on the TSXV.
The Company has granted to the Underwriter the Over-Allotment Option, which is exercisable in whole or in part at any time and from time to time up to 30 days after the Closing Date to purchase up to an additional 635,700 Offered Shares on the same terms as set forth above to cover over-allotments, if any, and for market-stabilization purposes. This prospectus qualifies the grant of the Over-Allotment Option and the distribution of the Offered Shares on the exercise of the Over-Allotment Option. A purchaser who acquires Offered Shares forming part of the Underwriter's over-allocation position acquires those Offered Shares under this prospectus, regardless of whether the over-allocation position is ultimately filled through the exercise of the Over-Allotment Option or secondary market purchases.
The obligations of the Underwriter under the Underwriting Agreement may be terminated at its discretion on the basis of "disaster out" (including related to a material adverse development related to COVID-19 or escalation thereof after May 19, 2020), "material change out", "regulatory out" or may also be terminated upon the occurrence of certain stated events. The Underwriter is, however, obligated to take up and pay for all of the Offered Shares if any of the Offered Shares are purchased under the Underwriting Agreement. Pursuant to the Underwriting Agreement, the Company has agreed to indemnify the Underwriter and its affiliates and their respective directors, officers, agents and employees against certain liabilities, including liabilities under applicable Canadian securities legislation, and expenses and to contribute to payments that the Underwriter may be required to make in respect thereof.
The expenses of this Offering, not including the Underwriter's Fee, are estimated to be $380,000 and are payable by the Company. The aggregate Underwriter's Fee will be $1,500,252 ($0.354 per Common Share or 6% of the gross proceeds, assuming no exercise of the Over-Allotment Option). If the Over-Allotment Option is exercised in full, the aggregate Underwriter's Fee will be $1,725,289.80.
19
The Underwriter reserves the right to appoint other registered dealers (or other dealers duly licensed in their respective jurisdictions) to assist in the Offering, who may or may not be offered part of the Underwriter's Fee.
The Company has agreed not to directly or indirectly issue any Common Shares or securities or other financial instruments convertible into or having the right to acquire Common Shares (other than pursuant to rights or obligations under securities or instruments outstanding or in accordance with the Company's option and incentive plans) or enter into any agreement or arrangement under which the Company acquires or transfers to another, in whole or in part, any of the economic consequences of ownership of Common Shares, whether that agreement or arrangement may be settled by the delivery of Common Shares or other securities or cash, or agree to become bound to do so, or disclose to the public any intention to do so, for a period from May 19, 2020 until 90 days following the Closing Date without the Underwriter's prior written consent, which consent will not be unreasonably withheld. The Company has also agreed to deliver lock-up agreements executed by each of the Company's executive officers and directors pursuant to which they agree, prior to the Closing Date, not to sell, or agree to sell (or announce any intention to do so), any Common Shares or securities exchangeable or convertible into Common Shares for a period from May 19, 2020 until 90 days following the Closing Date without the Underwriter's prior written consent, which consent will not be unreasonably withheld.
The TSXV has conditionally approved the listing of the Offered Shares distributed under this prospectus on the TSXV. Such listing will be subject to the Company fulfilling all of the listing requirements of the TSXV on or before the Closing Date.
The Underwriter proposes to offer the Offered Shares initially at the Offering Price. After the Underwriter has made a reasonable effort to sell all of the Offered Shares at the Offering Price, the Offering Price may be decreased and may be further changed from time to time to an amount not greater than the Offering Price, and the compensation realized by the Underwriter will be decreased by the amount that the aggregate price paid by the purchasers for the Offered Shares is less than the gross proceeds to be paid by the Underwriter to the Company.
Subscriptions will be reserved subject to rejection or allotment in whole or in part and the right is reserved to close the subscription books at any time without notice. It is expected that the Company will arrange for an instant deposit of the Offered Shares to or for the account of the Underwriter with CDS or its nominee on the Closing Date, against payment of the aggregate purchase price for the Offered Shares. A purchaser of Offered Shares will receive only a customer confirmation from the registered dealer from or through which Offered Shares are purchased unless specifically requested or required.
The Offering is being made in every province of Canada, except Québec. This prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any of the Offered Shares in the United States. The Offered Shares to be issued pursuant to the Offering have not been registered under the U.S. Securities Act, or any state securities laws, and may not be offered, sold or delivered within the United States unless registered under the U.S. Securities Act and applicable state securities laws or an exemption from registration is available. Accordingly, with respect to the U.S. Securities Act, the Offered Shares may be offered and sold only: (a) to qualified institutional buyers as that term is defined in Rule 144A under the U.S. Securities Act; and (b) outside of the United States in reliance on Regulation S under the U.S. Securities Act. As used herein, the term "United States" has the meaning given to it in Regulation S under the U.S. Securities Act. Because of these restrictions and those described below, potential purchasers in the United States are advised to consult legal counsel prior to making any offer, resale, pledge or other transfer of the Offered Shares offered hereby.
In addition, until 40 days after the commencement of the Offering, an offer or sale of the Offered Shares within the United States by any dealer, whether or not participating in the Offering, may violate the registration requirements of the U.S. Securities Act if such other offer or sale is made otherwise than in accordance with an available exemption from the registration requirements under the U.S. Securities Act. Any Offered Shares sold on the basis of an exemption to the registration requirements of the U.S. Securities Act into the United States will be restricted securities within the meaning of Rule 144(a)(3) under the U.S. Securities Act and may only be offered, sold, pledged or otherwise transferred pursuant to certain exemptions from the registration requirements of the U.S. Securities Act and any applicable state securities laws.
Pursuant to rules and policy statements of certain Canadian securities regulators, the Underwriter may not, at any time during the period of distribution, bid for or purchase Offered Shares for its own account or for accounts over which it exercises control or direction. The foregoing restrictions are subject to certain exceptions including: (i) a bid for or purchase of Offered Shares if the bid or purchase is made through the facilities of the TSXV in accordance with the Universal Market Integrity Rules of the Investment Industry Regulatory Organization of Canada (IIROC); (ii) a bid or purchase on behalf of a client, other than certain prescribed clients, provided that the client's order was not solicited by the Underwriter or if the client's order was solicited, the solicitation occurred before the commencement of a prescribed restricted period; and (iii) a bid or purchase to cover a short position entered into prior to the commencement of a prescribed restricted period. In connection with this Offering, the Underwriter may over-allot or effect transactions that stabilize or maintain the market price of the Offered Shares at levels other than those which otherwise might prevail on the open market, including: short sales; purchases to cover positions created by short sales; imposition of penalty bids; syndicate covering transactions and stabilizing transactions. As a result of these activities, the price of the Common Shares may be higher than the price that otherwise might exist in the open market.
20
No offer or sale of the Offered Shares may be made in any jurisdiction except in compliance with the applicable laws thereof. Persons receiving this prospectus are responsible for informing themselves about and observing any restrictions as to the Offering and the distribution of this prospectus.
Concurrent Block Trade
In a separate transaction on May 19, 2020, Pan American agreed to sell to the Underwriter an aggregate of 8,000,000 Block Trade Shares at the Offering Price, by way of a bought block trade, for gross proceeds of $47,200,000. The net proceeds of the Concurrent Block Trade were paid to Pan American. The Block Trade Shares will be resold to the public by the Underwriter. The Block Trade Shares are not, nor are they required to be, qualified by this prospectus, and will consequently not be subject to the purchasers' statutory rights of withdrawal and rescission described in this prospectus. Block Trade Shares may be acquired from the Underwriter by purchasers who acquire Offered Shares qualified by this prospectus and Block Trade Shares in a single or related transactions, in which case only the sale of Offered Shares qualified by this prospectus will be subject to the purchaser's statutory rights of withdrawal and rescission described in this prospectus.
RISK FACTORS
An investment in the Company is speculative and involves a high degree of risk due to the nature of the Company's business and the present stage of its development. The following risk factors, as well as risks not currently known to the Company, could materially adversely affect the Company's future business, operations and financial condition and could cause them to differ materially from the estimates described in forward-looking statements contained herein. In addition to the information set out below and elsewhere in this prospectus, including in the section entitled "Forward-Looking Statements", investors should carefully consider the risk factors set out in the AIF under the heading "Item 4.2 - Risk Factors" and other documents that are incorporated by reference in this prospectus. By their nature, forward-looking statements involve numerous assumptions and known and unknown risks and uncertainties, of both a general and specific nature, that could cause actual results to differ materially from those suggested by the forward-looking statements or contribute to the possibility that predictions, forecasts or projections will prove to be materially inaccurate. Prospective investors should carefully consider the following risk factors along with the other matters set out herein:
Risks Related to the Offering
Discretion in Use of Proceeds
The Company intends to use the net proceeds of the Offering to achieve its stated business objective as set forth under "Use of Proceeds". Management of the Company maintains broad discretion to spend the proceeds in ways that it deems most efficient and may use the net proceeds other than as described and in ways that an investor may not consider desirable. As a result, an investor will be relying on the judgment of management for the application of the net proceeds of the Offering. The application of the proceeds to various items may not necessarily enhance the value of the Common Shares. The failure to apply the net proceeds as set forth under "Use of Proceeds" or the failure of the Company to achieve its stated business objectives set forth in such section, could adversely affect the Company's business and, consequently, could adversely affect the price of the Common Shares on the open market.
21
Negative Cash Flow from Operating Activities
The Company has not yet achieved positive operating cash flow, and the Company will continue to experience negative cash flow from operations in the foreseeable future. The Company has incurred net losses in the past and may incur losses in the future unless it can derive sufficient revenues from its business. Such future losses could have an adverse effect on the market price of the Common Shares, which could cause investors to lose part or all of their investment.
Future Sales or Issuances of Securities
The market price of the Common Shares could decline as a result of issuances of securities by the Company or sales by the Company's existing shareholders of Common Shares in the market, or the perception that these sales could occur. Sales of Common Shares by shareholders might also make it more difficult for the Company to sell equity securities at a time and price that the Company deems appropriate. Sales or issuances of substantial numbers of Common Shares, or the perception that such sales could occur, may adversely affect prevailing market prices of the Common Shares. With any additional sale or issuance of Common Shares, investors will suffer dilution to their voting power and the Company may experience dilution in its earnings per share.
Additional Financing
The continued development of the Silver Sand Project will require additional financing. The failure to raise or procure such additional funds or the failure to achieve positive cash flow could result in the delay or indefinite postponement of the Company's business objectives. There can be no assurance that additional capital or other types of financing will be available if needed or that, if available, will be on terms acceptable to the Company. If additional funds are raised by offering equity securities, existing shareholders could suffer significant dilution.
Volatility of Market Price of the Common Shares
The market price of the Common Shares may be volatile and subject to wide fluctuations in response to numerous factors, many of which are beyond the Company's control. This volatility may affect the ability of holders of Common Shares to sell their securities at an advantageous price. Market price fluctuations in the Common Shares may be due to the Company's operating results failing to meet expectations of securities analysts or investors in any period, downward revision in securities analysts' estimates, adverse changes in general market conditions or economic trends, acquisitions, dispositions or other material public announcements by government and regulatory authorities, the Company or its competitors, along with a variety of additional factors. These broad market fluctuations may adversely affect the market price of the Common Shares.
Financial markets have at times historically experienced significant price and volume fluctuations that have particularly affected the market prices of equity securities of companies and that have often been unrelated to the operating performance, underlying asset values or prospects of such companies. Accordingly, the market price of the Common Shares may decline even if the Company's operating results, underlying asset values or prospects have not changed. Additionally, these factors, as well as other related factors, may cause decreases in asset values that are deemed to be other than temporary, which may result in impairment losses. There can be no assurance that continuing fluctuations in price and volume will not occur. If such increased levels of volatility and market turmoil continue, the Company's operations could be adversely impacted and the trading price of the Common Shares may be materially and adversely affected.
Dilution
Additional financing needed to continue funding the development and operation of the Company may require the issuance of additional securities of the Company. The issuance of additional securities and the exercise of common share purchase warrants, stock options and other convertible securities will result in dilution of the equity interests of any persons who are or may become holders of Common Shares.
Ratification of Mining Production Contract
As part of the Silver Sand Project's expansion plan, the Company entered into a MPC with COMIBOL in January 2019 to explore and potentially mine the area adjoining the Silver Sand Project. The MPC remains subject to ratification by the Plurinational Legislative Assembly of Bolivia. There is no assurance that the Company will be successful in obtaining ratification of the MPC in a timely manner or at all, or that they will be obtained on reasonable terms. The Company cannot predict the government's positions on foreign investment, mining concessions, land tenure, environmental regulation, community relations, or taxation. A change in government positions on these issues could adversely affect the ratification of the MPC and the Company's business.
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Public Health Crises
Global financial conditions and the global economy in general have, at various times in the past and may in the future, experience extreme volatility in response to economic shocks or other events, such as the ongoing situation concerning the COVID‐19 novel coronavirus ("COVID‐19"). Many industries, including the mining industry, are impacted by volatile market conditions in response to the widespread outbreak of epidemics, pandemics or other health crises. Such public health crises and the responses of governments and private actors can result in disruptions and volatility in economies, financial markets and global supply chains as well as declining trade and market sentiment and reduced mobility of people, all of which could impact commodity prices, interest rates, credit ratings, credit risk and inflation.
As at the date hereof, the global reactions to the spread of COVID‐19 have led to, among other things, significant restrictions on travel and gatherings of individuals, quarantines, temporary business closures and a general reduction in consumer activity. While these effects are expected to be temporary, the duration of the disruptions to business internationally and the related financial impact cannot be estimated with any degree of certainty at this time. In addition, the increasing number of individuals infected with COVID‐19 could result in a widespread global health crisis that could adversely affect global economies and financial markets, resulting in a protracted economic downturn that could have an adverse effect on the demand for precious metals and the Company's future prospects.
In particular, the continued spread of COVID‐19 globally could materially and adversely impact the Company's business, including without limitation, employee health, workforce availability and productivity, limitations on travel, supply chain disruptions, increased insurance premiums, the availability of industry experts and personnel, restrictions to the Company's exploration and drilling programs and/or the timing to process drill and other metallurgical testing and the slowdown or temporary suspension of operations at some or all of the Company's properties. Any such disruptions or closures could have a material adverse effect on the Company's business. In addition, parties with whom the Company does business or on whom the Company is reliant may also be adversely impacted by the COVID‐19 crisis which may in turn cause further disruption to the Company's business. Any long-term closures or suspensions may also result in the loss of personnel or the workforce in general as employees seek employment elsewhere. The impact of COVID‐19 and government responses thereto may also continue to have a material impact on financial results and could constrain the Company's ability to obtain equity or debt financing in the future, which may have a material and adverse effect on its business, financial condition and results of operations.
The Company's 2020 drill campaign at the Silver Sand Project was impacted by the COVID-19 pandemic during the first quarter of 2020. The Company took immediate steps to protect the health and safety of its employees and ensure full compliance of national quarantine and social distancing rules imposed by the Bolivian and Canadian governments, including temporary suspension of the 2020 drill campaign since the latter part of March 2020. A total of 2,388m of drilling was completed before the suspension. The Company's exploration and development projects are currently under care and maintenance procedures until such time as is appropriate to resume the operations. Meanwhile, as part of the Company's ongoing community and social responsibility program, the Company has donated medical, hygiene, and food supplies to local communities and the Company has designed and implemented appropriate protocols to protect the health and safety of our workforce and communities. The Company intends to resume field operations, including the 2020 drill campaign, when authorized and safe to do so, on a phased approach following health guidelines and government decrees in Bolivia.
While the COVID-19 pandemic has already had significant, direct impacts on the Company's operations and business, the extent to which the pandemic will continue to impact the Company's operations (including those in Bolivia) are highly uncertain and cannot be predicted with confidence as at the date of this prospectus. These uncertainties include, but are not limited to, the duration of the outbreak, Bolivian and Canadian governments' mandates to curtail the spreading of the virus, community and social stabilities, the Company's ability to resume operations (including the 2020 drill campaign at the Silver Sand Project and the activities relating to the 2020-2021 Silver Sand Exploration Program, construction of the associated exploration camp, and the 2020-2021 Additional Exploration Programs, as described under the heading "Use of Proceeds") efficiently or economically. Any of these uncertainties, and others, could have further material adverse effect on the Company's business and operations.
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AUDITORS, TRANSFER AGENT AND REGISTRAR
The auditor of the Company is Deloitte LLP, Chartered Professional Accountants, located at 939 Granville Street, Vancouver, British Columbia, V6Z 1L3.
The transfer agent and registrar for the Common Shares is Computershare Trust Company of Canada at its principal offices in Vancouver, British Columbia.
LEGAL MATTERS
Certain Canadian legal matters related to the offering of securities under this prospectus will be passed upon by Bennett Jones LLP, on behalf of the Company and Borden Ladner Gervais LLP, on behalf of the Underwriter.
INTERESTS OF EXPERTS
Information of a scientific or technical nature contained in and incorporated by reference in this prospectus is based upon the Amended and Restated Technical Report authored by Adrienne Ross, P.Geo., B.Sc., Ph.D., Dinara Nussipakynova, P.Geo., B.Sc., M.Sc. and Simeon Robinson, P.Geo. of AMC Mining Consultants (Canada) Ltd. and A. Holloway, P.Eng., B.Sc.Met. of AGP Mining Consultants Inc., all of whom are independent of the Company. To the knowledge of the Company, as at the date of this prospectus, the aforementioned firms and persons, as respective groups, beneficially own, directly or indirectly, less than 1% of the outstanding securities of the Company.
As at the date of this prospectus, the "designated professionals" (as such term is defined in Form 51-102F2 – Annual Information Form) of each of Bennett Jones LLP and Borden Ladner Gervais LLP, as respective groups, beneficially own, directly or indirectly, less than 1% of the outstanding securities of the Company.
Deloitte LLP is independent with respect to the Company within the meaning of the rules of professional conduct of the Chartered Professional Accountants of British Columbia.
STATUTORY RIGHT OF WITHDRAWAL AND RESCISSION
Securities legislation in certain of the provinces of Canada provides purchasers with the right to withdraw from an agreement to purchase securities. This right may be exercised within two business days after receipt or deemed receipt of this prospectus and any amendment. In several of the provinces, the securities legislation further provides a purchaser with remedies for rescission or, in some jurisdictions, revisions of the price or damages if the prospectus and any amendment contains a misrepresentation or is not delivered to the purchaser, provided that the remedies for rescission, revision of the price or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser's province. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser's province for the particulars of these rights or consult with a legal adviser.
Only the sale of Offered Shares under this prospectus is subject to the above purchaser's statutory rights of withdrawal and rescission. The Block Trade Shares that may be reoffered by the Underwriter to purchasers during the course of the Offering are not, nor are they required to be, qualified by this prospectus, and are consequently not subject to the above purchasers' statutory rights of withdrawal and rescission. See "Plan of Distribution".
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CERTIFICATE OF NEW PACIFIC METALS CORP.
Dated: June 3, 2020
This short form prospectus, together with the documents incorporated by reference, constitutes full, true and plain disclosure of all material facts relating to the securities offered by this short form prospectus as required by the securities legislation of each of the provinces of Canada except Québec.
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NEW PACIFIC METALS CORP.
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(signed) "Mark Cruise"
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(signed) "Jalen Yuan"
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Dr. Mark Cruise
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Jalen Yuan
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Chief Executive Officer
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Chief Financial Officer
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ON BEHALF OF THE BOARD OF DIRECTORS
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(signed) "Jack Austin"
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(signed) "David Kong"
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Jack Austin
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David Kong
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Director
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Director
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CERTIFICATE OF THE UNDERWRITER
Dated: June 3, 2020
To the best of our knowledge, information and belief, this short form prospectus, together with the documents incorporated by reference, constitutes full, true and plain disclosure of all material facts relating to the securities offered by this short form prospectus as required by the securities legislation of in each of the provinces of Canada except Québec.
BMO NESBITT BURNS INC.
(signed) "Carter Hohmann"
Carter Hohmann
Managing Director
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AMC Mining Consultants (Canada) Ltd.
BC0767129
200 Granville Street, Suite 202
Vancouver BC V6C 1S4
Canada
T +1 604 669 0044
E vancouver@amcconsultants.com
W amcconsultants.com
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Technical Report
Silver Sand Deposit Mineral Resource Report (Amended)
New Pacific Metals Corp.
Potosí, Bolivia
In accordance with the requirements of National Instrument 43-101 “Standards of Disclosure for Mineral Projects” of the Canadian Securities Administrators
Qualified Persons:
A. Ross, P.Geo., B.Sc., Ph.D.
D. Nussipakynova, P.Geo., B.Sc., M.Sc.
S. Robinson, P.Geo., B.Sc.
A. Holloway, P.Eng. B.Eng.(Hons)
AMC Project 719020
Effective date 16 January 2020
Original issue date 25 May 2020
Amended date 3 June 2020
1 Summary
1.1 Introduction
This Technical Report (the Report) provides an initial Mineral Resource estimate on the Silver Sand Property (the Property or Silver Sand Property), Potosí Department, Bolivia. The Report has been prepared by AMC Mining Consultants (Canada) Ltd. (AMC Consultants) of Vancouver, Canada on behalf of New Pacific Metals Corp. (New Pacific).
New Pacific, through its wholly owned subsidiaries acquired exploration and mining rights over an aggregate area of approximately 60 square kilometres (km2) covering the Silver Sand deposit and its surrounding areas. The Silver Sand area has been intermittently mined for silver from narrow high-grade mineralized veins in the Cretaceous sandstone since early to mid-1500‘s.
The Report has been prepared in accordance with the requirements of National Instrument 43-101 (NI 43-101), “Standards of Disclosure for Mineral Projects” of the Canadian Securities Administrators (CSA) for lodgement on CSA’s “System for Electronic Document Analysis and Retrieval” (SEDAR).
1.2 Property description and ownership
The Property is situated in the Colavi District of Potosí Department in southwestern Bolivia, 25 kilometres (km) north-east of Potosí city, the department capital. The approximate geographic center of the Property is 19°22’ 4.97” S latitude and 65°31’ 22.93” W longitude at an elevation of 4,072 metres above sea level (masl).
According to the current 2014 and 2016 mining laws, exploration and mining rights in Bolivia are granted by the Jurisdictional Mining Administrative Authority (Autoridad Jurisdiccional Administrativa Minera, AJAM) through Administrative Mining Contracts (AMC) between an operator and AJAM. Operators can also acquire interests in exploration and mining rights by signing Mining Production Contracts (MPC) on areas controlled by the state-owned mining company, Corporación Minera de Bolivia (COMIBOL), who holds these rights.
New Pacific, through its three wholly owned subsidiaries Empresa Minera Alcira S.A. (Alcira), Empresa Jisas – Jardan SRL, and Empresa El Cateador SRL, collectively hold exploration and mining agreements over an approximate 60 km2 contiguous area. The total area under 100% control of New Pacific is 5.42 km2 after the claim consolidation and conversion procedures are complete. This process is completed for the Silver Sand south block which hosts the Mineral Resource area. The remaining area incorporates MPC claims consisting of 29 Temporary Special Authorizations (ATEs) and 201 cuadriculas for a total area of about 57 km2 surrounding the Silver Sand core area. The AMC-covered and MPC-covered areas are collectively referred to as the Silver Sand Property or Property in this report.
1.3 Geology and mineralization
The Silver Sand Property is located in the south section of the polymetallic tin belt in the Eastern Cordillera of the Central Andes, Bolivia. Evidence of historical mining activities such as abandoned mining adits and mining villages can be seen across the Property.
Bedrock in the Property area mainly consists of weakly deformed Cretaceous continental sandstone, siltstone, and mudstone and strongly deformed Paleozoic marine sedimentary rocks. The Cretaceous sedimentary sequence forms an open syncline which plunges gently NNW and is bound to the SW and NE by NW trending faults.
The dominant Cretaceous sedimentary sequence within the Property is divided into the lower La Puerta Formation and the upper Tarapaya Formation. The La Puerta Formation consists of sandstones and unconformably overlies the highly folded Paleozoic marine sedimentary rocks. The Tarapaya Formation conformably overlies the La Puerta sandstones in the central part of the Property and comprises siltstones and mudstones intercalated with minor sandstone.
Both the Cretaceous and Paleozoic sedimentary sequences are intruded by numerous small Miocene subvolcanic dacitic porphyry intrusions.
Silver mineralization is hosted by faults, fractures, fissures, and crackle breccia zones in the Cretaceous La Puerta brittle sandstone and porphyritic dacitic dikes, laccolith, and stocks. In the mineralized sandstone, open spaces are filled with silver-containing sulphosalts and sulphides in forms of sheeted veins, stockworks, and veinlets, as well as breccia fillings and minor disseminations. Most silver mineralization in the Property is structurally controlled with secondary rheological controls. The intensity of mineralization is dependent on the density of various mineralized vein structures developed in the brittle host rocks.
The most common silver-bearing minerals include freibergite, miargyrite, polybasite, bournonite, andorite and boulangerite. The mineralized zones have been irregularly oxidized which in areas can result in significant mixed oxide and sulphide zones due to the strong local influence of sub-vertical fractures. Oxide minerals are dominated by jarosite, goethite and minor hematite resulting pervasive staining within sandstones, and pseudomorphing of sulphide minerals within veins.
A total of ten mineralized prospects have been identified across the Property to date. These include the Silver Sand deposit and the El Fuerte, Snake Hole, North Plain, San Antonio, Esperanza, Jisas, El Bronce, Mascota, and Aullagas occurrences. Silver Sand and Snake Hole have been defined or tested by drilling. The other eight prospects have been defined by rock chip and grab sampling of ancient and more recent artisanal mine workings and dumps.
Four mineralization types have been recognized in the Property, including (1) sandstone-hosted silver mineralization, (2) dacitic porphyry-hosted silver mineralization, (3) hydrothermal breccia-hosted silver mineralization, and (4) manto-type tin and base metal mineralization. The first three mineralization types are considered to have been developed in an epithermal environment during the late stage of the Cenozoic orogenic movement in the Eastern Cordillera. They are typical of the Bolivian polymetallic vein-type deposits represented by the giant Cerro Rico de Potosí silver mine in Potosí. The manto-type tin and base metal mineralization was formed by metosomatic replacement associated with a mesothermal environment during the early stage of the Cenozoic orogenic event.
1.4 Status of exploration
Before the acquisition of the Property by New Pacific in 2017, the previous owner drilled eight diamond drillholes for a total of 2,334 m of HQ size core between 2012 and 2015 at the Silver Sand deposit, within the core area of the Property. Limited surface and underground sampling were also conducted by the previous owner.
Since October 2017, New Pacific has carried out an extensive property-scale reconnaissance investigation program by surface and underground sampling of the mineralization outcrops and the accessible ancient underground mine works across the Property.
A total of 904 rock chip samples were collected from 19 separate outcrops by New Pacific since 2017. Continuous chip samples were collected at 1.5 m intervals along lines roughly perpendicular to the strike direction of the mineralization zones. Sample lines covered a total length of 1,340 m. Most of the sampled outcrops are located above or near old mine works.
New Pacific has also mapped and sampled 42 historical mine workings comprising 4,912 m of mine tunnel. A total of 964 continuous chip samples have been collected at 1 m intervals along walls of available tunnels that cut across the mineralized zones.
Mine dumps from historical mining activities are scattered across a significant portion of the Property. New Pacific has collected a total of 1,339 grab samples from historical mine dumps. The majority of samples collected were remnants of high-grade narrow veins extracted from underground mining activity. Of the 1,339 samples collected from historical mine dumps to date, 572 samples (43%) returned assay results between 32 and 3,290 grams per ton (g/t) Ag with an average grade of 190 g/t Ag.
Assay results of underground chip samples and surface mine dump grab samples show that silver mineralization widely occurs in the wall rocks of the previously mined-out high-grade veins in the abandoned ancient underground mining works.
1.5 Drilling
From October 2017 to December 2019, New Pacific conducted intensive diamond drilling programs over the Silver Sand core area to define the spatial extension of the mineralization. It drilled 386 HQ diamond holes for a total metreage of 97,610 m in the core area of the Property. Holes were first drilled at 50 m x 50 m grid to delineate the spatial extensions of the major mineralized zones defined by surface and underground sampling. Later drilling, on a nominal 25 x 25 m grid, infilled defined areas of mineralization.
All holes were drilled from the surface. Drillholes were drilled up to 545 m deep at inclinations between -45° and -80° towards azimuths of 060° (~NE) and 220° (~SW) to intercept the principal trend of mineralized vein structures.
The drilling programs have covered an area of approximately 1,600 m long in the north-south direction and 800 m wide in the east-west direction and have defined silver mineralization at the Silver Sand deposit over an oblique strike length of 2 km, a collective width of 650 m and to a depth of 250 m below surface.
Drill coring was completed using conventional HQ (64 millimetre (mm) diameter) equipment and 3 m drill rods. Core recovery from New Pacific drill programs varies between 0% (voids and overburden) and 100%, averaging 97%. More than 92% of core intervals have a core recovery of greater than 95%.
Drill core containing visible mineralization is wrapped in paper to minimize damage during transport.
1.6 Sample preparation, assay, and QA/QC
New Pacific has developed and implemented good standard procedures for sample preparation, analytical, and security protocols.
New Pacific manages all aspects of sampling from the collection of samples to sample delivery to the laboratory. All samples are stored and processed at the company’s Betanzos facility located approximately 1.5 hours drive from the Silver Sand deposit. This facility is surrounded by a brick wall, has a locked gate and is monitored by video surveillance and security guard 24 hours a day, seven days a week. Within the facility, there are separate and locked areas for core logging, sampling, and storage.
Core, chip, and grab samples are shipped in securely sealed bags to ALS Global in Oruro, Bolivia for preparation. At the preparation lab, samples are processed using the following procedures: (1) crush to 70% less than 2 mm; (2) riffle split off 250 g; and (3) pulverize split to better than 85% passing a 75-micron sieve. The pulverized pulps are shipped to ALS Global in Lima, Peru for geochemical analysis.
Sample analysis in 2017 and 2018 comprised an aqua regia digest followed by Inductively Coupled Plasma (ICP) Atomic Emission Spectroscopy (AES) analysis of Ag, Pb, and Zn (ALS code OG46). Assay results greater than 1,500 g/t Ag were sent for fire assay and gravimetric finish analysis. New Pacific changed its analysis protocol in 2019 to include systematic multielement analysis. All samples were sent for an initial 51 element ICP mass spectroscopy (MS) analysis (ALS code ME-MS41) with over limit procedures in place.
Drill programs completed on the Property between 2017 and 2019 have included Quality Assurance / Quality Control (QA/QC) monitoring programs which have incorporated the insertion of certified reference materials (CRMs), blanks, and duplicates into the sample streams, and umpire (check) assays at a separate laboratory. AMC Consultants has compiled and reviewed the available QA/QC data for 345 drillholes where assays have been received.
New Pacific has included CRMs, blank, and coarse reject umpire (check) assays as part of routine analysis at slightly less than the preferred rates of 5%. Field duplicate samples consisting of quarter core have also been included but comprise less than 1% of all samples.
New Pacific has used four different CRMs throughout the project history. Three CRMs were used in the 2019 program which monitored the approximate cut-off grade and grades below and above the average grade. In previous years CRMs did not monitor the cut-off grade. CRMs generally show reasonable analytical accuracy; however, two of the four CRMs do not perform within certified control limits, with an excessive number of failures. AMC Consultants postulates that poor CRM performance may be due to the CRMs being certified using a four-acid digest but analyzed using aqua-regia. AMC Consultants recommends that follow up work be completed prior to further use of these CRMs.
Blank sample results are considered acceptable and show that no significant contamination has occurred during sample preparation and analysis.
Quarter core field duplicate samples show sub-optimal performance which suggest that mineralization is heterogeneous, that sample errors are occurring during the sampling process, or a combination of both factors. Duplicate samples are biased on average 11% lower than the original sample. AMC Consultants speculates that the friable nature of silver sulphosalts may result in sample loss during the core cutting and sampling process, resulting in progressive decrease in sample grade with each successive stage of processing, and an overall net underestimation of metal. AMC Consultants recommends that this be investigated.
Umpire (check) coarse reject samples have been sent to a third-party laboratory to confirm the accuracy of the primary laboratory. Umpire assay results show sub-optimal precision however this may be in part due to additional sub-sampling variance incurred during sampling of the coarse rejects. AMC Consultants recommends future umpire samples be sent as pulp samples.
The Qualified Person (QP) considers sample preparation, analytical and security protocols employed by New Pacific to be acceptable. The QP has reviewed the QA/QC procedures used by New Pacific including CRMs, blank, duplicate and umpire data and has made some recommendations. The QP does not consider these to have a material impact on the Mineral Resource estimate and considers the assay database to be adequate for Mineral Resource estimation.
1.7 Metallurgical testing
A metallurgical testwork program started in 2018 examined several metallurgical composites of Oxide, Transition, and Sulphide mineralization from two areas of the Silver Sand deposit. The composites were prepared from samples of available half-core. A geometallurgical sampling approach was used and was designed to highlight the effect of differences in silver grade, degree of oxidation, and lithology.
Four independent geometallurgical testwork programs (mineral characterization, comminution, froth flotation, and cyanide leaching) were carried out on the different metallurgical composites. Six metallurgical domains were identified for the flotation and leaching testwork and six geological domains were branded for the comminution work. Comminution, flotation, and leaching programs were completed by SGS Mineral Services in Lima, Peru, while the mineral characterization work was completed by the Research Center for Mining and Metallurgy (CIMM) and Oruro Technical University (UTO) both in Bolivia.
The results of the testwork suggest that the mineralized materials from the Silver Sand Project would be amenable to processing using conventional flotation or large-scale whole ore cyanidation at atmospheric pressure. This preliminary metallurgical testing program has demonstrated that good silver extraction rates are possible using these simple extraction methods and that further improvements and refinements should be possible in future programs after fine-tuning the various test parameters. Highlights of the completed test program are as follows:
• Composite samples of Sulphide, Transition, and Oxide mineralization were submitted for laboratory-scale rougher-scavenger flotation testing and this achieved up to 96.0%, 86.8%, and 92.0% silver recovery respectively.
• Composite samples of Sulphide, Transition, and Oxide mineralization were submitted for bottle roll cyanidation testing and this achieved up to 96.7%, 97.0%, and 96.3% silver extraction respectively.
• Samples of oxide mineralization were submitted for coarse column leach cyanidation testing and this achieved up to 88.3% silver extraction.
• High recoveries achieved during cyanidation tests indicate that silver-bearing minerals within the sulphide and transition composite samples tested can be considered non-refractory in nature.
• Composite samples were found to be mostly in the soft to medium grindability range with low to medium values of Abrasion Index (Ai).
1.8 Development and operations
There are no mining or metal recovery operations underway by New Pacific or the prior owner at the Property. There are a few local contract miners conducting underground, small-scale, artisanal mining intermittently on the Property. Evidence of historic mining, commencing in Spanish Colonial times, is demonstrated by numerous adits, declines, pits and drifts, rail tracks, and small-scale dumps scattered around the Property. There are no known records of past production from these activities.
1.9 Mineral Resources
The Mineral Resource estimate was completed using 330 drillholes on the Property comprising 85,391 m of diamond core and 58,420 assays. Grade interpolation was completed using ordinary kriging (OK). Silver, lead, zinc, gallium, and indium were estimated but only silver is reported below as metallurgical work has yet to be done on the other metals.
The mineralization domain was built by New Pacific using Leapfrog Geo 4.0 software. The mineralization domain was reviewed and accepted by the QP with some changes, including separating the domain into two areas based on vein orientation. The QP estimated into these domains and also estimated a background block model that was combined with the domain mineralization to form the final block model.
New Pacific performed 4,033 density measurements on the core drilled on the Property. As the mineralization is hosted in one rock type, after reviewing the density data, the QP assigned two density measurements to the block model based on the mean density inside and outside of the mineralized domains. The mineralized sandstone was assigned a bulk density of 2.54 t/m3 and the unmineralized sandstone was assigned a bulk density of 2.50 t/m3.
The pit-constrained Mineral Resources are reported for blocks above a conceptual pit shell based on a US$18.70/ounce silver price and within the AMC claim boundary. Pit optimization allowed minor waste to extend outside New Pacific’s 100% owned claim boundary to the NE and SW.
The cut-off applied for reporting the pit-constrained Mineral Resources is 45 g/t silver. Assumptions made to derive a cut-off grade included mining costs, processing costs and recoveries and were obtained from comparable industry situations. The model is depleted for historical mining activities.
The Mineral Resource for the Silver Sand deposit has been estimated by Ms Dinara Nussipakynova, P.Geo. Principal Geologist of AMC Consultants, who takes responsibility for the estimate.
Mineral Resources that are not Mineral Reserves do not have demonstrated economic viability.
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Table 1.1
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Conceptual pit-constrained Mineral Resource as of 31 December 2019
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Resource category
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Tonnes (Mt)
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Ag (g/t)
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Ag (Moz)
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Measured
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8.4
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159
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43.05
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Indicated
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26.99
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130
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112.81
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Measured & Indicated
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35.39
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137
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155.86
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Inferred
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9.84
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112
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35.55
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Notes:
• CIM Definition Standards (2014) were used for reporting the Mineral Resources.
• The QP is Dinara Nussipakynova, P.Geo. of AMC Consultants.
• Mineral Resources are constrained by an optimized pit shell developed at a metal price of US$18.70/oz Ag and recovery of 90% Ag (costs and other assumptions shown in Table 1.2 below).
• Cut-off grade is 45 g/t Ag.
• Mineral Resources are reported inside the AMC claim boundary.
• Pit optimization allows waste to extend outside the claim to the NE and SW.
• Mineral resources that are not mineral reserves do not have demonstrated economic viability.
• Drilling results up to 31 December 2019.
• The numbers may not compute exactly due to rounding.
Source: AMC Mining Consultants (Canada) Ltd.
Table 1.2 Cut-off grade and conceptual pit parameters
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Input
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Units
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Value
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Silver price
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US$/oz Ag
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18.70
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Silver process recovery
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%
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90
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Payable silver
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%
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97
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Dilution factor
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%
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10
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Mining recovery factor
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%
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100
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Mining cost
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US$/t mined
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2.00
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Process cost
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US$/t minable material > COG
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10.00
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G&A cost
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US$/t minable material > COG
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2.00
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Slope angle
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degrees
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45
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Notes:
• Sustaining capital cost has not been included.
• Measured, Indicated and Inferred Mineral Resources included.
• Source: AMC Mining Consultants (Canada) Ltd.
The QP is not aware of any known environmental, permitting, legal, taxation, socioeconomic, marketing, or other similar factors that could materially affect the stated Mineral Resource estimates.
Regarding title, the QP is aware that the ATEs, where the Mineral Resource is located, are in the process of being consolidated and converted into one concession. An Administrative Mining Contracts (AMC) with AJAM has been signed but is yet to be registered with the mining register, notarized, and published in the mining gazette. AMC Consultants sees no reason for these final conversion steps not to occur.
Regarding political risk, during and after the Fall 2019 elections, civil unrest across the country resulted in road blockages and strikes by local groups. Roads to the Property were blocked during this temporary event. New elections are currently scheduled to be held in 2020 which may again result in temporary civil unrest. In the past, former political leaders have caused Bolivia to nationalize privately owned mines. Globally mining laws are subject to change from time to time.
1.10 Mineral Reserves
There are neither historical nor current Mineral Reserves on the Property.
1.11 Conclusions
Silver mineralization at the Property occurs in ten areas: Silver Sand, El Fuerte, Snake Hole, North Plain, San Antonio, Esperanza, Jisas, El Bronce, Mascota, and Aullagas. The mineralization identified in the Property belongs to the Bolivian polymetallic vein-type deposits represented by the giant Cerro Rico de Potosí silver mine in Potosí.
The Silver Sand deposit is defined by exploration drilling and has a conceptual pit-constrained Mineral Resource using a 45 g/t Ag cut-off of Measured and Indicated Resources of 35.39 million tonnes grading 137 g/t silver; and Inferred Mineral Resource of 9.84 million tonnes grading 112 g/t silver. Ms Dinara Nussipakynova, P.Geo. of AMC Consultants takes responsibility for these estimates.
Logging, mapping, sampling, and analyzing procedures of New Pacific’s on-going exploration programs follow common industry practice. Results of QA/QC programs are deemed acceptable by the QP.
The results of a preliminary metallurgical test program suggest that the mineralized materials from the Silver Sand Property would be amenable to processing using conventional flotation or whole ore cyanidation at atmospheric pressure at a large scale.
Risks and opportunities relating to this project are discussed below.
1.11.1 Risks
Mineral Resources are not Mineral Reserves and do not have demonstrated economic viability. There is a degree of uncertainty attributable to the estimation of Mineral Resources. Until Mineral Resources are actually mined and processed, the quantity of mineralization and grades must be considered as estimates only.
The QP notes that the current Mineral Resource is constrained within a conceptual open pit that allows minor waste, but not mineralization, to extend onto the MPC area. Constraining both the waste and mineralization to the AMC ground reduces the contained silver ounces in the Measured and Indicated category from 155.9 Moz to 142.2 Moz and in the Inferred category from 35.6 Moz to 27.4 Moz.
Engineering, geotechnical and hydrogeological studies, at a sufficient level to convert Mineral Resources to Mineral Reserves, are necessary before the impact of these risks and uncertainties to the project’s potential economic viability can be reasonably quantified.
Operating in South America can be associated with political risk. In the past, former political leaders have caused Bolivia to nationalize privately owned mines. Global mining laws are subject to change from time to time.
1.11.2 Opportunities
Potential opportunities for the project include:
• The current Mineral Resource is constrained within an open pit that allows waste, but not mineralization, to extend onto the MPC area. Extending the pit to allow for the extraction of both waste and mineralization in the MPC area increases the contained silver ounces in the Measured and Inferred category from 155.9 Moz to 170.3 Moz and in the Inferred category from 35.6 Moz to 49.7 Moz.
• Expansion and upgrading of the Silver Sand deposit through additional drilling.
• Significant exploration potential within an emerging silver district which contains numerous showings and evidence of silver-rich, polymetallic mineralization including historic workings.
1.12 Recommendations
1.12.1 Quality Assurance / Quality Control
With respect to density, the QP recommends that New Pacific:
• Incorporate the regular use of a density standard.
• Weigh samples following immersion to ensure that the sample is not absorbing water.
• Send a portion of samples to a third-party laboratory for density measurement.
With respect to CRMs, the QP recommends that New Pacific:
• Adjust CRM monitoring criteria such that assay batches with two consecutive CRMs outside two standard deviations, or one CRM outside of three standard deviations are investigated and, if necessary, re-analyze the batch.
• Purchase an additional CRM at the average grade (130 g/t Ag) of the deposit which has been certified using similar digestion methodology.
• Investigate performance issues with CRMs CDN-ME-1603 and CDN-ME-1605 if these are to be used in future programs.
• Re-evaluate the use of ME-MS41 analytical method.
With respect to blanks, the QP recommends that New Pacific:
• Adjust blank insertion procedures to also include the insertion of blank material immediately after visible high-grade silver intercepts. Alternatively, request quartz wash samples be inserted by the laboratory.
• If ALS method ME-MS41 is to be used for ongoing routine analysis:
⎯ Test an additional 10 – 20 samples from the new blank quarry site to establish a background value.
⎯ Establish an appropriate (lower) blank failure limit for ME-MS41 analysis.
With respect to duplicates, the QP recommends that New Pacific:
• Implement investigative work to understand duplicate sample bias.
• Ensure that all future programs include at least 5% duplicate samples including field duplicates, coarse (crush) duplicates, and pulp duplicates to enable the various stages of sub-sampling to be monitored.
With respect to umpire samples, the QP recommends that New Pacific:
• Submit pulp samples (rather than coarse reject) so that umpire samples only monitor analytical accuracy and variance.
• Include CRMs at the average grade and higher grades in umpire sample submissions.
1.12.2 Mineral Resource
For future Mineral Resource modelling it is useful to determine the extent of the historical mining on the Property. The QP recommends that New Pacific:
• Conduct a professional survey of the underground cavities if it is safe to do so.
• Continue to record in logs if the drilling hits voids.
• Conduct a survey of the waste dumps in order to check the volumes of mined-out areas.
• Conduct structural analysis of available data and complete initial structural / geotechnical drilling as required.
• Update the 3D geological model to include detailed geology – deposit oxidation domaining and structures.
1.12.3 Mineral Resource expansion and conversion
The Silver Sand deposit as currently defined remains open for expansion. There has been no modern district scale exploration. It is recommended that future exploration, resource expansion, and definition drilling:
• Test the newly defined Snake Hole prospect located approximately 600 m east of the Silver Sand deposit.
• Test and / or convert areas of known silver mineralization and or structural extensions within, adjacent to and / or not captured by the current conceptual open pit design.
• Test the northern structural extension of the Main Zone of the Silver Sand deposit.
• Test the downdip / deeper extents below the Main Zone and the area between the Main and South Zones of the deposit.
• Conduct an initial drill test on the Silver Sand North Block ~ El Bronce and Jisas targets.
1.12.4 Metallurgical testwork development
• A second phase of metallurgical testwork is recommended to build on and improve the metallurgical characterization work completed to date. Further technical de-risking and metallurgical optimization would be the objectives. This phase of testwork would include the following items:
⎯ Selection of representative samples, using core material from metallurgical holes plus coarse rejects from other areas of the deposit. Good spatial coverage and representation of different geometallurgical units are required.
⎯ Chemical characterization (ICP scans) of composites.
⎯ Physical characterization including comminution tests.
⎯ Quantitative mineralogical characterization using QEMScan.
⎯ Flotation testwork, including rougher kinetic tests, batch cleaner tests, and locked cycle tests.
⎯ Characterization of final flotation test products, including scans for deleterious elements.
⎯ Whole ore leaching testwork, including bottle roll tests to assess leach kinetics after grinding, vat leach tests and column leach tests, to assess vat and heap leach kinetics at various coarse sizes.
⎯ Cyanide destruction tests.
⎯ Environmental tests, including ARD and metal leaching tests on flotation tailings samples.
1.12.5 Environmental baseline studies
Limited environmental studies have been completed to date. Given the long-lead times for environmental studies it is recommended that New Pacific commence environmental baselines studies as a matter of urgency.
1.12.6 Community and social studies
It is recommended that community and social studies are continued and expanded to levels appropriate for the potential scale and technical status of the project.
1.12.7 District scale exploration
Complete initial district scale exploration including geological mapping, sampling, and target generation over the Property. Contingent on results and necessary approvals drill testing may be warranted.
1.12.8 Costs
The costs for the recommended programs including contingency are tabulated below in Table 1.3.
Table 1.3 Budget for the recommended programs
|
Account category
|
Budget totals (US$)
|
|
Betanzos Camp Costs (Repairs, cook / meals, fuel, supplies, and logistics)
|
400,000
|
|
Geology & Project Administration (Contractors, Consultants)
|
300,000
|
|
Systems (Health & Safety / Database)
|
150,000
|
|
Diamond Drilling (26,000 m)
|
3,100,000
|
|
Assay (21,000 samples)
|
1,000,000
|
|
Technical Consulting & Reporting (NI 43-101 PEA technical report and resource estimate)
|
200,000
|
|
Metallurgical Test Work
|
220,000
|
|
Environmental baseline studies
|
560,000
|
|
Community & Social Studies and Programs
|
425,000
|
|
Contingency – 10%
|
635,500
|
|
|
|
|
Grand total
|
6,990,500
|
2 Introduction
2.1 General and terms of reference
AMC Mining Consultants (Canada) Ltd. (AMC Consultants) was commissioned by New Pacific Metals Corp. (New Pacific) to prepare an independent Technical Report (2020 Technical Report) on the Silver Sand project (Property or Silver Sand Property). The 2020 Technical Report has been prepared to a standard which is in accordance with the requirements of National Instrument 43-101, Standards of Disclosure for Mineral Projects (NI 43-101), of the Canadian Securities Administrators (CSA) for lodgment on CSA’s System for Electronic Document Analysis and Retrieval (SEDAR). The previous Technical Report on the Property titled “NI 43-101 Technical Report Silver Sand Property Potosí, Bolivia”, has an effective date of 31 August 2019.
2.2 The Issuer
New Pacific is a Canadian Mining Issuer, in the business of exploring and developing precious metal mining properties in South America and Canada. Through its three wholly owned subsidiaries Empresa Minera Alcira S.A. (Alcira), Empresa Jisas – Jardan SRL, and Empresa El Cateador SRL, New Pacific collectively holds exploration and mining agreements over an approximate 60 square kilometres (km2) contiguous area. The Silver Sand project is located in Potosí Department, Bolivia.
New Pacific is listed on the TSX Venture Exchange (symbol NUAG.V) and the OTCQX (symbol NUPMF).
2.3 Report authors
The names and details of persons who prepared, or who have assisted the Qualified Persons (QPs) in the preparation of this report, are listed in Table 2.1.
Table 2.1 Persons who prepared or contributed to this Technical Report
|
Qualified Persons responsible for the preparation of this Technical Report
|
|
Qualified Person
|
Position
|
Employer
|
Independent
of New
Pacific
|
Date of
last site
visit
|
Professional
designation
|
Sections of
Report
|
|
Dr A. Ross
|
Geology Manager /
Principal Geologist
|
AMC Mining
Consultants
(Canada) Ltd.
|
Yes
|
No visit
|
P.Geo. (BC)
|
2-10, 15, 16,
18-24, Part of 1,
25, 26, and 27
|
|
Ms D.
Nussipakynova
|
Principal Geologist
|
AMC Mining
Consultants
(Canada) Ltd.
|
Yes
|
8-11 Aug
2019
|
P.Geo. (BC)
|
12, 14, Part of 1,
25, 26, and 27
|
|
Mr A. Holloway
|
Principal Process
Engineer
|
AGP Mining
Consultants
Inc.
|
Yes
|
14-16 Jan
2020
|
P.Eng. (ON)
|
13, 17, Part of 1,
25, 26, and 27
|
|
Mr S. Robinson
|
Senior Geologist
|
AMC Mining
Consultants
(Canada) Ltd.
|
Yes
|
No visit
|
P.Geo. (BC)
|
11, Part of 1, 25,
26, and 27
|
|
Other Experts who assisted the Qualified Persons in the preparation of this Technical Report
|
|
Expert
|
Position
|
Employer
|
Independent
of New Pacific
|
Visited site
|
Sections of
Report
|
|
Mr R. Jiang
|
Consulting Geologist
|
Independent
|
Yes
|
1-12 Aug 2019
|
4 to 11, and 23
|
|
Mr S. Robinson
|
Senior Geologist
|
AMC Mining
Consultants
(Canada) Ltd.
|
Yes
|
No visit
|
7 to 10
|
|
Mr Y. (Alex) Zhang
|
Vice President,
Exploration
|
New Pacific Metals
Corp.
|
No
|
Ongoing
|
1 to 11, and 23
|
NI 43-101 requires at least one QP to inspect the Property. AMC likes to ensure that a QP from each scientific discipline visits the site. As AMC geologist, Ms Dinara Nussipakynova visited the Property, site visits by the other two geologists, Mr Simeon Robinson and Dr Adrienne Ross, were not deemed necessary.
AMC Consultants acknowledges the numerous contributions from New Pacific in the preparation of this report and is particularly appreciative of prompt and willing assistance of Mr Ruijin Jiang, Mr Y. (Alex) Zhang, and Dr Mark Cruise.
Ms Dinara Nussipakynova visited the Silver Sand Property in August 2019. All aspects of the project were examined by the QPs, including drill core, drilling and core processing procedures, initial Quality Assurance / Quality Control (QA/QC) procedures, and database management.
2.4 Sources of information
In preparing this report, AMC Consultants has relied on various geological maps, reports, and other technical information provided by New Pacific. AMC Consultants has reviewed and analyzed the data provided and drawn its own conclusions augmented by its direct field observations. The key information used in this report is listed in Section 27 References, at the end of this report.
New Pacific’s internal technical information reviewed by AMC Consultants was adequately documented, comprehensive and of good technical quality. It was gathered, prepared and compiled by competent technical persons. New Pacific’s external technical information was prepared by a reputable company and AMC Consultants has no reason to doubt its validity. AMC Consultants used its professional judgement and made recommendations in this report where it deems further work is warranted.
2.5 Other
This report includes the tabulation of numerical data which involves a degree of rounding for the purpose of resource estimation. AMC Consultants does not consider any rounding of the numerical data to be material to the project.
All currency amounts and commodity prices are stated in US dollars unless otherwise stated. Quantities are stated in metric (SI) units. Commodity weights of measure are in grams (g) or percent (%) unless otherwise stated.
A draft of the report was provided to New Pacific for checking for factual accuracy. The report is effective at 16 January 2020.
3 Reliance on other experts
The QPs have relied, in respect of legal aspects, upon the work of the Experts listed below. To the extent permitted under NI 43-101, the QPs disclaim responsibility for the relevant section of the Report.
• Experts: Carlos Pinto (Partner) and Mattias Garrón (Senior Associate), Ferrere Law Offices, La Paz, Bolivia, as advised in a letter to AMC Consultants with an effective date of 16 January 2020.
• Report, opinion, or statement relied upon: information on mineral tenure and status, royalty obligations, Mineral Resources tax, etc.
• Extent of reliance: full reliance following a review by the QPs.
• Portion of Technical Report to which disclaimer applies: Section 4.3.
4 Property description and location
4.1 Property location
The Silver Sand Property is situated in the Colavi District of Potosí Department in south-western Bolivia, 25 kilometres (km) north-east of Potosí city, the department capital. The approximate geographic centre of the Property is 19°22’ 4.97” S latitude and 65°31’ 22.93” W longitude at an elevation of 4,072 m above sea level. The location of the Property is shown in Figure 4.1.
Figure 4.1 Location of Silver Sand Property
Note: Cerro de Potosí is an alternate name for Cerro Rico.
Source: New Pacific Metals Corp. 2019.
4.2 Bolivian Regulatory framework
The following section on the Bolivian Regulatory framework borrows from Aguirre (2019) and Bufete Aguirre Soc. Civ. (2017).
4.2.1 Overview
Bolivia began opening the mining industry to private investment in the 1980s. In 1997 a complete new Mining Code, governing most matters relating to mining activities was enacted. The 1997 Code followed the concession system considering mining concessions as real estate property which as such could be transferred, contributed to the capital of companies, mortgaged, bartered, sold, and subject to inheritance laws under the Civil Code.
A new and complete Mining and Metallurgy Law No 535 was introduced on 28 May 2014 (the 2014 Mining Law), to replace the 1997 Mining Code. The 2014 Mining Law was modified by Law No. 845 of 24 October 2016 (the 2016 Mining Law) by Bolivian Congress.
The 2014 and 2016 Mining Laws set out rules in relation to:
• The procedures for the granting of new mining rights.
• The procedures for a change from the old mining concession system to the new system of Administrative Mining Contract (AMC) mandated by the new legislation based on the Constitution.
4.2.2 Exploration and mining rights
Exploration and mining rights in Bolivia are granted by the Ministry of Mines and Metallurgy through the Jurisdictional Mining Administrative Authority (Autoridad Jurisdiccional Administrativa Minera; AJAM). Under the new Mining Laws, tenure is granted as either an AMC or an exploration license. Tenure held under previous legislation was converted to Temporary Special Authorizations (ATEs), formerly known as “mining concessions”, under the new Mining Laws. These ATEs are required to be consolidated to new 25-hectare sized cuadriculas (concessions) and converted to AMCs. AMCs created by conversion recognize existing rights of exploration and / or exploitation and development, including treatment, foundry refining, and / or trading.
AMCs have a fixed term of 30 years and can be extended for a further 30 years if certain conditions are met. Each contract requires ongoing work and the submission of plans to AJAM.
Exploration licenses are valid for a maximum of five years and provide the holder with the first right of refusal for an AMC.
In specific areas, mineral tenure is owned by the Bolivian state mining corporation, Corporación Minera de Bolivia (COMIBOL). In these areas development and production agreements can be obtained by entering into a Mining Production Contract (MPC) with COMIBOL.
4.2.3 Environment protection
Depending on the nature and scope of the activities to be conducted, the operator may need specific licenses or dispensations from the environmental authorities under the Ministry of Environment and Water or the Departmental Governorships. This applies to projects that may require consultation with a population that could be affected by the project.
The main law governing environmental protection, in general, is Law 1333 of 27 April 1992, which is regulated by various Supreme Decrees of the Executive Branch. The special Decree containing the mining rules is of primary importance. Strict parameters must be followed for the protection of the environment. Breach of environmental obligations may even trigger criminal liabilities under the Constitution.
Licenses must be updated depending on the changes as triggered by the ongoing activities and operations. An Environmental Impact Assessment (EIA) is normally required in order to obtain the appropriate license. Specialized environmental authorities follow up and control compliance. As required under the licenses, any impact on the environment must be notified to the authorities. Remediation measures and rehabilitation projects are compulsory. For mine closure, the operator must create a financial reserve that is maintained on an annual basis. A final closure study on the effect on the environment would be required in due time. Under a special law known as the “Mother Earth Law”, a certain requirement of restitution must be met.
4.3 Silver Sand Property
New Pacific’s Silver Sand Property encompasses a combination of 100% owned concessions (ATEs and AMCs) and an MPC with COMIBOL which gives the company access to approximately 60 km2, in this emerging silver district.
Figure 4.2 Mineral concessions and MPC area
Notes: MPC Area = Mining Production Contract with the Bolivian Mining
Corporation, NUAG Property= 100% New Pacific owned mineral tenure.
Source: New Pacific Metals Corp. 2020.
4.3.1 100% owned New Pacific tenure
The Silver Sand Property presently comprises 17 ATEs (being converted to one AMC) covering an area of 3.17 km2, acquired in the original property purchase, and are held through Silver Sand’s 100% owned subsidiary Alcira. In addition, New Pacific acquired 100% interest in three continuous mineral concessions called Jisas, Jardan and El Bronce originally owned by third party private entities. These three concessions, when converted to AMCs, will total 2.25 km2. The Jisas and Jardan concessions were acquired in July 2018 and are held through 100% owned subsidiary Empresa Jisas - Jardan SRL. The El Bronce concession was acquired in late 2019 and is held through 100% owned subsidiary Empresa El Cateador SRL. The total area under full control of the Company will be 5.42 km2 after the consolidation and conversion procedures are complete. This process is completed for the Silver Sand south block which hosts the Mineral Resource area.
Table 4.1 summarizes New Pacific’s Silver Sand Mineral Tenure.
|
Table 4.1
|
Mineral tenure controlled by New Pacific
|
|
|
|
|
Concession
number
|
National
registry
|
Name
|
Concession
type
|
Size of
original ATE
(hectares)
|
Titleholder
|
Duration
|
|
4694
|
503‐01271
|
La Sombra
|
ATE
|
66
|
Empresa
Minera Alcira
S.A.
|
30 years
|
|
4695
|
503‐01275
|
San Marcos Evangelista
|
ATE
|
16
|
30 years
|
|
4696
|
503‐02424
|
El Carmen
|
ATE
|
6
|
30 years
|
|
4697
|
503‐01276
|
Escuadra
|
ATE
|
35
|
30 years
|
|
4698
|
503‐02423
|
Perfecta
|
ATE
|
16
|
30 years
|
|
4699
|
503‐01270
|
Reintegrante
|
ATE
|
3
|
30 years
|
|
4700
|
503‐01269
|
Félix
|
ATE
|
10
|
30 years
|
|
4701
|
502‐01266
|
Seis de Agosto
|
ATE
|
6
|
30 years
|
|
4702
|
503‐02425
|
Olvidada
|
ATE
|
15
|
30 years
|
|
4703
|
503‐01267
|
Moria
|
ATE
|
20
|
30 years
|
|
4704
|
503‐01268
|
El Rodero
|
ATE
|
37
|
30 years
|
|
4705
|
503‐01272
|
Kirigin
|
ATE
|
10
|
30 years
|
|
4706
|
503‐02426
|
San Antonio
|
ATE
|
8
|
30 years
|
|
4707
|
503‐02427
|
Nieves
|
ATE
|
8
|
30 years
|
|
4708
|
503‐02428
|
Londres
|
ATE
|
8
|
30 years
|
|
4709
|
503‐01273
|
Santa Micaela
|
ATE
|
31
|
30 years
|
|
4710
|
503‐01274
|
Bertha
|
ATE
|
20
|
30 years
|
|
13235
|
503-02753
|
Jisas
|
ATE
|
125
|
Empresa Jisas – Jardan SRL
|
30 years from signing AMC
30 years from signing AMC
|
|
13257
|
503-02734
|
Jardan
|
ATE
|
50
|
|
11313
|
503-03740
|
El Bronce
|
ATE
|
6
|
Empresa El Cateador SRL
|
30 years from signing AMC
|
|
20
|
Totals
|
|
|
496
|
|
|
Notes:
• There is no expiry date for the previously issued mineral permits in Bolivia.
• Once the ATEs are fully converted to AMCs, they will be valid for 30 years and can be extended for an additional 30 years.
• The size of claims listed in the table are the original ATE size. The size of claims can change during the conversion process to AMCs. The report text refers to the AMC size.
• The Quota Purchase agreement with the former shareholders of Cateador will need to be registered with Registry of Commerce.
In accordance with the new Mining Laws, New Pacific (through Alcira) submitted all required documents for the consolidation and conversion of the original 17 concessions, which comprise the core of the Silver Sand Project, to cuadriculas and AMC to AJAM. Conversion was initially approved by AJAM in February 2018. On 6 January 2020, Alcira signed an AMC with AJAM pursuant to which the 17 ATEs were consolidated into one concession with an area of 3.1656 km2. This AMC is yet to be registered with the mining register, notary process and published in the mining gazette.
4.3.2 Mining production contract
New Pacific, through Alcira, entered into an MPC with COMIBOL on 11 January 2019. The MPC covers 29 ATEs and 201 cuadriculas for a total area of about 57 km2 surrounding the Silver Sand core area. For COMIBOL to obtain mining rights over such areas, AJAM will have to grant them by way of AMCs in accordance with Bolivian mining laws. In addition, the MPC must be ratified by the Congress of Bolivia (Congress) to be valid and enforceable.
Once the MPC has been ratified by Congress, the MPC with COMIBOL will be valid for 15 years which may be automatically renewed for an additional 15 year term and potentially, subject to submission of an acceptable work plan, for an additional 15 year term for a total of 45 years. According to the terms of the MPC, the Company has an investment commitment of US$6M during the first five years of exploration. The Company will pay COMIBOL a 4% gross sales value if the mineral concessions covered by the MPC are commercially exploited at a future date.
4.3.3 Environmental permits
New Pacific has successfully obtained environment permits from local authorities to conduct mineral exploration and drilling activities in the mineral concessions fully owned by the Company and the MPC areas owned by COMIBOL. There are no known significant factors or risks that might affect access or title, or the right or ability to perform work on the Property, including permitting and environmental liabilities to which the project is subject.
4.3.4 Land holding costs
AJAM employs a special tax unit (STU), that is indexed to the “Unidad de Fomento a la Vivienda”, to calculate the annual fee which mineral concession holders have to pay to the government. Depending on the type and size of mineral concessions, the number of STUs varies between 375 and 692 STUs per cuadricula. In 2019, each STU was equivalent to 2 Bolivianos. Note that the STU may change slightly year by year.
For the year 2019, the Company paid to the government the annual fees of 11,644 Bolivianos (US$1,687) for the 17 ATEs of the original Silver Sand concession, 6,468 Bolivianos (US$937) for the 7 cuadriculas of Jisas Jardan concessions, and 3,215 Bolivianos, (US$466) for 7 ATEs of the 29 ATEs covered by the MPC with COMIBOL. The Company does not have to pay any fees to the government for the remaining 22 ATEs owned by COMIBOL and covered by the MPC as the 22 ATEs are nationalized concessions. However, according to the terms of MPC, the Company will have to pay the annual fees to the government when COMIBOL is granted the 201 cuadriculas by AJAM. In addition, the Company will pay COMIBOL a management fee of US$10,000 per month for all the concessions covered by the MPC upon ratification.
4.3.5 Surface rights
As per the 2014 Mining Law, holders of mining rights may obtain surface rights (i) through administrative agreements entered into with AJAM. In addition, surface rights may be obtained on third-party contract areas and by neighbouring properties by the following means: i) agreement between parties; ii) payment of compensation; and iii) compliance with the regulations and procedures for authorization. Once surface rights are obtained, holders of mining rights may build treatment plants, dams and tailings, infrastructure and other infrastructure necessary to carry out mining activities. New Pacific has not yet obtained surface land rights.
4.3.6 Royalties and encumbrances
For the MPC, if commercial production commences, the Company will pay COMIBOL a 4% gross sales value of all minerals produced from the MPC areas.
AMCs are subject to the following royalties and duties:
(i) Mining royalty: The royalty is applicable to all mining actors and applies to the exploitation of mineral resources and non-renewable metals pursuant to the Mining Law. The royalty is established according to the status of the mineral (raw, refined, etc.), on whether the mineral will be exported, and international mineral prices. The royalty applicable to silver pre- concentrates, concentrates, complexes, precipitates, bullion or molten bar and refined ingot is as shown in Table 4.2.
Table 4.2 Royalty applicable to silver in MPC
|
Official silver price per troy ounce (US$)
|
Aliquot (%)
|
|
Greater than $8.00
|
6
|
|
From $4.00 to $8.00
|
0.75 * official silver price
|
|
Less than $4.00
|
3
|
(ii) Mining Patent: Is a requirement for the mining operator to continue holding mining rights over the mining area. Patents are calculated according to the size of the area under the exploration license or contract, as set out in the 2014 Mining Law. Failure to pay for the patents will trigger the loss of the underlying exploration or mining rights.
With the exception of political risk discussed in Section 14 and the need for final execution of some land agreements, AMC Consultants is not aware of other significant factors and risks which may affect access, title or right to perform work on the Property.
5 Accessibility, climate, local resources, infrastructure, and physiography
5.1 Accessibility
The Silver Sand Property is located approximately 30 km north-east of the Cerro Rico de Potosí silver and base metal mine, 46 km south-west of the city of Sucre, and 25 km north-west of city of Potosí. The Property is accessed from Sucre and Potosí by travelling along a paved highway to the community of Don Diego, and then north from Don Diego along a 27 km, maintained, all-weather gravel road. Don Diego is accessed by driving 129 km to south-west from Sucre, or 29 km to the north-east from Potosí along paved Highway 5. Key roads and locations are shown in Figure 4.1.
Sucre has a population of 250,000 and is the constitutional capital of Bolivia and the capital city of Chuquisaca department (a department is the largest administrative division in Bolivia). Potosí has a population of 141,000 and is the capital city of Potosí department. Sucre is connected to major Bolivian cities and beyond by highways and commercial air flights. From Potosí, the Pan American highway provides access to La Paz, the capital city of Bolivia. Chilean port cities of Arica and Iquique can be accessed from Potosí via all-weather roads.
Figure 5.1 shows the administrative location of and transportation access to the Property.
Figure 5.1 Administrative location and transportation access of Silver Sand Property
Source: Provided by New Pacific 2019 adapted from Geology.com.
5.2 Physiography
Bolivia is divided into five north-west-trending physiographic zones as shown in Figure 5.2. These include, from west to east; the Western Cordillera (or Cordillera Occidental), the Altiplano, the Eastern Cordillera (or Cordillera Oriental), the Sub-Andean, and the Amazon Basin to the east.
Figure 5.2 Physiographic zones of Bolivia
Notes: Amazon Basin=green, Sub-Andean=red, Eastern Cordillera=white, Altiplano=gray, Western Cordillera=white. Red outlines represent country borders.
Source: New Pacific 2019 - Adapted from Wikipedia: Geography of Bolivia.
The Property is situated approximately within the central section of the Eastern Cordillera zone and consists of rolling hills with elevation ranging from 3,900 to 4,100 metres above sea level (masl).
5.3 Climate and vegetation
Due to the high elevation, the Property area has a cold, semi-arid desert climate despite the region’s location approximately 19 degrees south of the equator. Vegetation on the Property is poorly developed and mainly consists of sparsely scattered low grasses and shrubs. In valleys below 4,000 m elevation, some eucalyptus trees are grown. Animals such as alpacas, llamas, vicunas and guanacos are common in the Cordillera Oriental and the local peoples herd llamas and alpacas for food and wool.
Figure 5.3 shows a climate map of Bolivia and Figure 5.4 shows a vegetation map of Bolivia.
Figure 5.3 Climate map of Bolivia
Source: World Köppen Classification. Enhanced, modified, and vectorized by Ali Zifan. 20 February 2016.
Figure 5.4 Vegetation map of Bolivia
Source: U.S. Central Intelligence Agency 1971.
Temperatures on the Property are relatively constant year-round with daily maximums between 14.8°Celsius (C) and 20.5°C. Minimum temperatures range between -5.6°C and 5.1°C. Minimum temperatures are typically below freezing between May and September.
The region experiences a rainy season in the warmer summer months from December to ~mid-April which contributes approximately 80% of the average annual precipitation of 393 millimetres (mm). The driest period is from May to August with very little precipitation.
None of these climate factors preclude operations from being conducted on a year-round basis.
Table 5.1 shows the annual weather averages in the Potosí area.
Table 5.1 Annual weather averages in Potosí area
|
|
Jan
|
Feb
|
Mar
|
Apr
|
May
|
Jun
|
Jul
|
Aug
|
Sep
|
Oct
|
Nov
|
Dec
|
|
Avg. temperature (°C)
|
10.6
|
10.9
|
10.6
|
8.4
|
8
|
4.6
|
5.4
|
6.6
|
8.5
|
11
|
12.4
|
11.9
|
|
Min. temperature (°C)
|
4.1
|
4.6
|
4.1
|
0.3
|
-1.2
|
-5.6
|
-4.6
|
-3.1
|
-0.6
|
2
|
4.3
|
5.1
|
|
Max. temperature (°C)
|
17.2
|
17.2
|
17.2
|
16.5
|
17.2
|
14.8
|
15.5
|
16.4
|
17.6
|
20.1
|
20.5
|
18.7
|
|
Precipitation (mm)
|
102
|
79
|
50
|
13
|
3
|
2
|
0
|
3
|
9
|
21
|
34
|
77
|
|
Source: Data adapted from www.climate-data.org.
|
|
|
|
|
|
|
|
|
|
5.4 Local resources and infrastructures
Intensive mining for silver, tin, lead, and zinc has occurred in various locations around the city of Potosí ever since the discovery of the large silver deposit Cerro Rico de Potosí (the Rich Hill) in 1545. As a result, many residents of Potosí are employed in mines or mining-related businesses, providing a potential source of workers and services that may be needed at the Property.
A high voltage power line services the adjacent Canutillos mine to the west, and the Colavi mine north-west of the Property respectively. Both Canutillos and Colavi mines are adjacent to the Silver Sand Property boundary and are discussed in Section 23.
Water has not been a concern at the Property, though the greater Potosí area has experienced a drought in recent years. Water for domestic use can be obtained from a small lake, approximately
3.5 km north-west of the Property. Water for drilling can be sourced from nearby drainages. The previous owner, Ningde Jungie Mining Industry Co. Ltd. recorded groundwater at the Property, however, additional work is required to determine whether there is sufficient water present to supply future production scenarios.
There is currently no infrastructure on site.
6 History
Modern exploration on the Property commenced in 2009. The project history has been compiled from Birak (2017), Redwood (2018), Sugaki et al. (1983), and New Pacific (2017).
6.1 Property ownership
In 2009, Ningde Jungie Mining Industry Co. Ltd., (NJ Mining) purchased Alcira, owner of the Silver Sand Project, from Empresa Minera Tirex Ltda, a private Bolivia mining company. New Pacific entered into an agreement to acquire Alcira from NJ Mining, pursuant to the terms announced on 10 April 2017. The acquisition was finalized on the 20 July 2017.
New Pacific subsequently acquired 100% interests of a local private company who owns the mineral rights of two additional concessions (Jisas and Jardan) in July 2018. No exploration work was completed on the two concessions.
In January 2019, an MPC was signed between New Pacific’s subsidiary Alcira and COMIBOL securing access to an additional 57 km2 of prospective property surrounding the original Silver Sand concessions.
In December 2019, New Pacific acquired 100% interests of Empresa El Cateador SRL, a local company which owns the mineral rights to a single ATE (El Bronce) located to the north of the Property. No exploration work was ever completed on this concession.
6.2 Mining
Mining activity has been carried out on the Silver Sand Property and adjacent areas by various operators intermittently since the early 16th century. There are widespread small mine workings and numerous abandoned miners’ villages on the Property. Machacamarca, a historic silver mine on the Property, was mined from colonial times until the price declined in about 1890. Since then, local mining activities have focused on tin mineralization at the adjacent Colavi and Canutillos mines.
Historical mining activities on the Property mainly targeted high-grade vein structures.
Records of historical mine production are not available.
6.3 Exploration
Despite the long history of mining on the Silver Sand Property and its adjacent areas, there has been little modern systematic exploration work recorded prior to 2009. The only documented exploration campaign was completed by NJ Mining between 2009 and 2015.
NJ Mining carried out a comprehensive exploration program across the Property. Exploration work comprised geological mapping, surface and underground sampling, trenching and drilling as shown in Table 6.1. All exploration samples were analyzed at NJ Mining’s lab facilities near Potosí, Bolivia for silver and, in some cases, tin.
Table 6.1 Exploration work completed by NJ Mining from 2009 to 2015
|
Type of exploration
|
Work completed
|
|
1:5,000 geological mapping
|
3.15 km2
|
|
1:1,000 geological traverse surveying
|
7,272 m in 15 NE-SW exploration lines
|
|
Topographic survey
|
8 survey points
|
|
Mapping historic workings
|
208 m
|
|
Diamond core drilling and logging
|
2,334 m in 8 holes
|
|
Trenching
|
40 m
|
|
Reconnaissance mapping
|
292 points
|
|
Reconnaissance sampling
|
1,202 samples
|
|
Mineralogy and lithology identification
|
19 thin sections
|
|
Petrography study
|
9 thin sections
|
|
Channel sampling
|
1,628 m with 546 samples
|
|
Core sampling
|
504 samples
|
|
Specific gravity measurement
|
31 samples
|
|
QA/QC
|
215 samples
|
Six silicified mineralization zones (Zone I, II, III, IV, IX, and X) were defined from results of the previous exploration program. Zone I mineralization was defined over an area 1,500 m in length and up to 125 m in width as shown in Figure 6.1.
Figure 6.1 Mineralization zones defined in previous exploration programs
Source: New Pacific 2019 adopted from Birak 2017.
6.3.1 Surface and underground channel sampling
NJ Mining collected channel samples from both surface outcrop and abandoned underground workings. Surface channel samples were completed along 100 m spaced, south-west trending exploration lines (sections), designed to target north-west trending mineralization zones. Surface and underground samples were collected between Lines 76 and 50 over a strike length of 1,300 m Section lines are shown in Figure 6.1 above.
Both surface and underground channel samples were taken from a 10 centimetre (cm) wide, 2 - 3 cm deep channel cut horizontally into rock with a diamond saw. Individual samples represented 1 to 2.5 m along the channel. An example of sampling channels from Zone 1 is shown in Figure 6.2.
Figure 6.2 Historical channel sampling from Zone I, Silver Sand Property
Source: New Pacific Metals Corp. 2019.
Significant results from channel sampling are presented in Table 6.2.
Table 6.2 Selected result of historical surface channel sampling program
|
Section* number
|
Sample location
|
Zone intersected
|
Interval (m)
|
Average silver
grade (g/t)
|
Number of
samples
|
|
50
|
Surface
|
Zone I
|
62.7
|
174
|
31
|
|
54
|
Surface
|
Zone I
|
112
|
127
|
59
|
|
58
|
Surface
|
Zone I
|
83
|
93
|
44
|
|
Underground
|
Zone II
|
21.4
|
263
|
10
|
|
|
|
62
|
Surface
|
Zone I
|
90.7
|
233
|
48
|
|
Underground
|
Zone I
|
72.1
|
207
|
36
|
|
|
|
66
|
Surface
|
Zone I
|
71.9
|
145
|
38
|
|
70
|
Surface
|
Zone I
|
33.8
|
131
|
18
|
|
Surface
|
Zone II
|
6.7
|
141
|
4
|
|
|
|
72
|
Surface
|
Zone III
|
16.9
|
198
|
9
|
|
Note: *Relative locations of exploration lines are shown in Figure 10.1.
|
|
|
6.3.2 Test drilling
NJ Mining conducted two test drill programs consisting of a total of eight diamond holes to evaluate the spatial extensions of the mineralization zones defined at the surface. Table 6.3 shows a summary of the 2012 and 2015 drilling programs completed by NJ Mining.
Table 6.3 Summary of previous drilling programs
|
Drillhole ID
|
Collar location (UTM)
|
Collar
elevation (m)
|
Length (m)
|
Azimuth
(degree)
|
Dip angle
(degree)
|
Year
|
|
Easting
|
Northing
|
|
ZK4601
|
234,617.28
|
7,856,785.18
|
4,094.90
|
313.1
|
241
|
‐76
|
|
|
ZK5401
|
234,824.67
|
7,856,443.33
|
4,063.80
|
413.7
|
243
|
‐75
|
2015
|
|
ZK5402
|
234,510.12
|
7,856,267.07
|
3,991.10
|
546.6
|
0
|
‐90
|
|
|
|
ZK6601
|
235,057.10
|
7,855,869.01
|
3,926.00
|
284.3
|
258
|
‐76
|
|
|
Subtotal = 1,557.7 m
|
|
|
|
|
|
|
|
ZK5601
|
234,681.33
|
7,856,244.63
|
3,962.40
|
242
|
61
|
‐76
|
|
|
ZK6401
|
234,808.24
|
7,855,854.01
|
4,005.90
|
314.5
|
64
|
‐73
|
2012
|
|
ZK4002
|
234,504.00
|
7,857,063.00
|
4,092.00
|
155.3
|
0
|
‐90
|
|
|
|
ZK4801
|
234,708.00
|
7,856,719.00
|
4,052.00
|
64.8
|
0
|
‐90
|
|
|
Subtotal = 776.6 m
|
|
|
|
|
|
|
|
Total = 2,334.3 m
|
|
|
|
|
|
|
In 2012, two short, vertical diamond drillholes (DDHs) ZK4002 and ZK4801, targeting the shallow dipping tin mineralization, were drilled from the hanging wall of Zone I but did not intersect silver mineralization. Two angled holes ZK5601 and ZK6401 drilled in the same period but in the footwall of Zone I did not intercept silver mineralization.
Four holes were drilled in 2015. Three angled holes ZK4601, ZK5401, and ZK6601 drilled from the hanging wall of Zone I mineralization intersected significant silver mineralization. One vertical hole ZK5402 collared in the footwall missed the silver mineralization zones. The mineralization intersections from the three historical drillholes are listed in Table 6.4.
Table 6.4 Results of historical drill intersections
|
Hole number
|
Section
number
|
Average sample
length (m)
|
Mineralized interval
|
|
From (m)
|
To (m)
|
Length (m)
|
Ag (g/t)
|
|
ZK4601
|
46
|
1.28
|
83.3
|
85.6
|
2.3
|
60
|
|
|
122
|
277.2
|
155.2
|
179
|
|
Incl.
|
122
|
145.4
|
23.4
|
261
|
|
Incl.
|
170.9
|
231.3
|
60.4
|
266
|
|
Incl.
|
258.6
|
277.2
|
18.6
|
290
|
|
ZK5401
|
54
|
1.27
|
151.1
|
346.4
|
195.3
|
168
|
|
Incl.
|
151.1
|
177.9
|
26.8
|
302
|
|
Incl.
|
195.2
|
249.5
|
54.3
|
303
|
|
Incl.
|
304
|
321.7
|
17.7
|
284
|
|
Incl.
|
336.4
|
346.4
|
10
|
321
|
|
ZK6601
|
66
|
1.33
|
51.9
|
243.2
|
191.3
|
246
|
|
Incl.
|
51.9
|
108.1
|
56.2
|
329
|
|
Incl.
|
132.1
|
182.6
|
50.5
|
316
|
|
Incl.
|
200.3
|
243.2
|
42.9
|
283
|
6.4 Historical Resource and Reserve estimate
There are no known historical estimates of Mineral Resources or Mineral Reserves at the Property.
7 Geological setting and mineralization
7.1 Regional geology and metallogeny
7.1.1 Geotectonic framework of Bolivia
The regional geological and tectonic framework of Bolivia can be divided into six geotectonic belts . From east to west these comprise: the Precambrian Shield, the Chaco-Beni Plains, the Subandean Zone, the Eastern Cordillera, the Altiplano, and the Western Cordillera. These are shown in Figure 7.1.
Four of these geotectonic belts form part of the Central Andes and are discussed in more detail below.
Figure 7.1 Bolivian geotectonic framework
Source: New Pacific Metals Corp. 2019. Adapted from Arce-Burgoa and Goldfarb 2009.
7.1.2 Geology of Central Andes
The Bolivian Central Andes comprise the four western geotectonic belts (Arce-Burgoa and Goldfarb 2009). These belts were configured by the Mesozoic-Cenozoic orogeny as a result of persistent compressive deformation from the subduction of the oceanic Nazca plate beneath the South American plate since the Cretaceous period. The geology of these major belts is described herein from east to west.
7.1.2.1 Subandean Belt
The Subandean Belt is a series of north- and north-west-trending mountain ranges with elevations ranging from 500 to 2,000 masl. The bedrock of the Subandean belt consists of Paleozoic marine siliciclastic sedimentary rocks and Mesozoic and Tertiary continental sedimentary rocks.
7.1.2.2 Eastern Cordillera Belt
The Eastern Cordillera (Cordillera Oriental) comprises a series of mountain chains which attain elevations in excess of 4,000 masl. The bedrock of the Eastern Cordillera is comprised of up to 10 km thick, intensively deformed sequences of Paleozoic marine clastic sedimentary rocks and thinner (<3 km), less-deformed Cretaceous and Cenozoic continental sedimentary rock sequences. Granodiorite and adamellite (quartz monzonite) plutonic rocks occur as batholiths and laccoliths in the northern part of the Eastern Cordillera. Permian to Triassic igneous rocks found in the middle and southern parts of the cordillera are mainly hypabyssal and volcanic rocks occurring as stocks and volcanic necks that intruded the Paleozoic sedimentary sequences. Tertiary andesitic volcanic rocks and related hypabyssal rocks associated with the Andean orogenic movement are seen along the western portion of the Eastern Cordillera.
7.1.2.3 Altiplano Belt
The Altiplano Belt is a 130 km wide, series of intermontane, continental basins, forming a high plateau at elevations between 3,600 and 4,100 masl (Arce-Burgoa and Goldfarb 2009). The Altiplano belt comprises Proterozoic to Paleozoic basement which is covered by vast volcanic rocks and continental sediments. Miocene-aged andesitic volcanic rocks occur in the southern portion of the belt. Miocene to Pliocene rhyolitic pyroclastic rocks occur in the northern part of the belt. Continental sediments have been deposited from Cretaceous to recent times.
7.1.2.4 Western Cordillera Belt
The Western Cordillera (Cordillera Occidental) is an active volcanic mountain chain consisting of spaced Miocene and Quaternary andesitic volcanoes and small volcanic centres that have erupted through a sequence of Cenozoic and Cretaceous rocks. Volcanic cones rise over 2,000 m above the general land surface, reaching elevations in excess of 6,000 masl (Lamb et al. 1997).
The Western Cordillera is extensively covered by Miocene to recent volcanic rocks erupted along the uplifting axis in the N-S direction. Continental sediments lie between the volcanic bodies.
7.1.3 Regional metallogeny of Central Andes
The Bolivian Central Andes is characterized by a diverse series of deposits and metallogenic belts as shown in Figure 7.2. These include the Miocene to Pliocene red-bed copper deposits, epithermal Ag-Au-Pb-Zn-Cu deposits in the Altiplano and Western Cordillera, the Mesozoic and Cenozoic tin belt, the Paleozoic gold antimony belt and the lead-zinc belt in the Eastern Cordillera (Arce-Burgoa and Goldfarb 2009).
Figure 7.2 Bolivian metallogenic belts
Source: New Pacific Metals Corp. 2019. Adapted from Arce-Burgoa and Goldfarb 2009.
The Bolivian Tin Belt is a 900 km long, north-west to north-south trending belt containing significant deposits of tin, silver and tungsten related to orogenic and magmatic processes which occurred between the late Paleozoic and late Tertiary. Pluton related Sb-W mineralization occurs within Triassic-Jurassic and Miocene aged rocks in the northern portion of the belt. Pluton related Sn-W and volcanic rock associated Sn-Ag-Pb-Zn mineralization occur within Miocene to Pliocene aged rocks in the central and southern portion of the belt (Rivas 1979).
Deposits of the tin belt can be divided into four groups (Arce-Burgoa and Goldfarb 2009):
1 Porphyry-associated tin deposits.
2 Volcanic rock-associated Sn-Ag-Pb-Zn deposits which includes bonanza-type Ag and Sn.
3 Sedimentary rock-hosted Sn-Ag-Pb-Zn deposits.
4 Distinct pluton-related Sn-Au-W-Zn deposits.
Groups 2 and 3 are collectively defined as Bolivian polymetallic vein deposits which are mainly located in the southern half of the Bolivian Tin Belt (Arce-Burgoa 2009).
Bolivian polymetallic vein-type ore deposits are considered to be genetically related to Miocene and Pliocene subvolcanic intrusions. Mineralization occurs as veins, veinlet, stockwork, and disseminated ores hosted in Paleozoic and Mesozoic sedimentary rocks, Cenozoic volcanic rocks, and Paleozoic to Mesozoic plutons. The shallower erosion levels in the southern part of the belt results in the partial preservation of the upper silver-rich parts of deposits.
Two world-classsilver and tin deposits, the Cerro Rico de Potosí deposit, considered to be the largest silver deposit in the world, and the Llallagua deposit, considered to be the largest vein-type tin deposit discovered to date, both belong to the Bolivian polymetallic vein type. The Silver Sand Property is located about 30 km north-east of the Cerro Rico de Potosí deposit and 150 km south-east of the Llallagua deposit within the same tin metallogenic belt. Figure 7.3 shows the major deposits in the Bolivian Tin Belt.
Figure 7.3 Major deposits in the Bolivian Tin Belt
Source: New Pacific Metals Corp. Adapted from Dietrich et al. 2000.
7.2 Property geology and mineralization
7.2.1 Property geology
The Property is located in the polymetallic tin belt in the Eastern Cordillera. Evidence of historical mining activities such as abandoned mining adits and mining villages can be seen across the Property.
The general geology of the Property is presented in Figure 7.4.
Figure 7.4 General geology of Silver Sand property
Notes: NUAG Property = New Pacific Metals Corp 100 owned property.
Source: New Pacific Metals Corp. 2020.
Figure 7.5 presents a stratigraphic column for the Silver Sand Property.
Figure 7.5 Stratigraphic column
Source: New Pacific Metals Corp. 2019.
The oldest rocks observed within the Property comprise Ordovician to Silurian marine, clastic sediments which have been intensely folded and faulted.
The Paleozoic basement is unconformably overlain by weakly deformed, lower Cretaceous continental sandstone, siltstone and mudstone. These Mesozoic rocks form an open syncline which plunges gently NNW and is bound to the SW and NE by NW trending faults. The unconformity between Mesozoic rocks and deformed Paleozoic basement is observed in the south-east part of the Property as shown in Figure 7.6.
Figure 7.6 Unconformity and thrust fault contacts
Source: New Pacific Metals Corp. 2019.
The Cretaceous sedimentary sequence within the Property is divided into the lower La Puerta Formation and the upper Tarapaya Formation.
The La Puerta Formation consists of a sequence of mixed aeolian and fluvial sandstones exhibiting distinct massive, bedded, cross-bedded and bioturbated units which unconformably overlies the Paleozoic basement. The Tarapaya Formation conformably overlies the La Puerta sandstones in the central part of the Property and comprises red siltstones and mudstones intercalated with minor sandstone.
Several Miocene aged subvolcanic porphyritic dacite intrusions occur within Cretaceous and Paleozoic sequences. A porphyritic dacite laccolith is exposed overlying the Cretaceous Tarapaya siltstones at the landmark San Cristobal Hill at Mascota located in the approximate centre of the Property. This laccolith is similar to that hosting polymetallic systems in the southern tin belt. Porphyritic dacite dikes are also exposed in mine workings along the eastern Cretaceous Paleozoic thrust contact. Elongate stocks up to 5 km in length are recorded to the east of the Cretaceous sequence within Paleozoic basement.
A number of andesitic breccias with phreatic, crackle, and hydrothermal textures are recorded at the Property. A large, oval body of andesitic diatreme breccia cross-cutting La Puerta Formation sandstone is seen in outcrop close to the west side of the major Silver Sand mineralization zone in the southern portion of the Property. Geological mapping has defined this zone over an area of approximately 300 m in length and 200 m in width along an NNE orientation. A separate ENE-striking sub-vertical hydrothermal breccia dike of about 13 m in width is seen in outcrop at Aullagas, central to the Property and about 500 m west of the diatreme outcrop. This unit has welded tuff and sandstone clasts and is cemented by abundant limonite (Figure 7.7).
Figure 7.7 Hydrothermal breccia at Aullagas
Source: New Pacific Metals Corp. 2019.
7.2.2 Mineralization
A total of ten mineralized prospects have been identified across the Property to date. These include the Silver Sand deposit and the El Fuerte, Snake Hole, North Plain, San Antonio, Esperanza, Jisas, El Bronce, Mascota, and Aullagas occurrences. These occurrences are shown in Figure 7.4. Silver Sand and Snake Hole have been defined or tested by drilling. The other eight prospects have been defined by rock chip and grab sampling of ancient and recent artisanal mine workings and dumps.
Exploration work completed by New Pacific has to date identified four distinct styles of mineralization across the Silver Sand Property. These styles include silver mineralization hosted within sandstone, porphyritic dacite, and hydrothermal breccias, and manto style (replacement along bedding planes) tin mineralization within calcareous horizons.
Table 7.1 summarizes the style of mineralization for each mineral occurrence. Each style is described in more detail below.
Table 7.1 Mineral occurrences and styles of mineralization
|
Style of mineralization
|
Mineral occurrence
|
|
Sandstone-hosted silver
|
Silver Sand, El Fuerte, San Antonio, Snake Hole, Esperanza, North Plain, and Jisas
|
|
Porphyritic dacite-hosted silver
|
Mascota, El Bronce
|
|
Hydrothermal breccia- hosted silver
|
Aullagas
|
|
Manto-type tin mineralization
|
Tarapaya siltstone and mudstone covered areas
|
7.2.2.1 Sandstone-hosted silver mineralization
Sandstone-hosted silver mineralization is the most prevalent style of mineralization at the Silver Sand Property occurring almost exclusively within the La Puerta sandstone. This style structurally controlled with secondary rheological controls. The intensity of mineralization is dependent on the density of various mineralized vein structures developed in the brittle host rocks.
Sandstone-hosted silver mineralization is recognized at the main Silver Sand deposit and at the El Fuerte, San Antonio, Snake Hole, North Plain, Esperanza, and Jisas occurrences.
This style of mineralization comprises silver-containing sulphosalts and sulphides occurring within sheeted veins, stockworks, veinlets, breccia infill and disseminated within host rocks. Different styles of mineralization are shown in Figure 7.8. The most common silver-bearing minerals include freibergite [(Ag,Cu,Fe)12(Sb,As)4S13], miargyrite [AgSbS2], polybasite [(Ag,Cu)6(Sb,As)2S7] [Ag9CuS4], bournonite [PbCuSbS3] (some lattices of copper may be replaced by silver), andorite [PbAgSb3S6], and boulangerite [Pb5Sb4S11] (some lattices of lead may be replaced by silver).
Figure 7.8 Silver mineralization in drill cores
Source: New Pacific Metals Corp. 2019.
Sandstone-hosted silver mineralization is believed to be controlled by north-west and north-trending sub-vertical fractures that form zones of several tens to hundreds of metres in width.
The current exploration drilling program has been focused on the Silver Sand deposit. Mineralization at Silver Sand has been traced for more than 1,500 m along strike, to a maximum width of about 500 m and a dip extension of more than 200 m. Figure 7.9 is a cross section through the deposit illustrating the dip extension and strike extent of the deposit.
Other occurrences have been defined by chip sampling of mineralized outcrops and grab sampling of mining dumps. The El Fuerte and Snake Hole zones have been traced along a strike length of more than 1,000 m with grab samples analyzed for silver. This strike length is defined by the distribution of old mine working and sampling results of silver assays along structures.
Figure 7.9 Cross Section 5250, Silver Sand Zone
Note: Mineralization is presented schematically. See figures in Section 14 for modelled mineralization zones.
Source: New Pacific Metals Corp. 2019.
7.2.2.2 Porphyritic dacite hosted silver mineralization
Silver mineralization within porphyritic dacite is observed at the Mascota and the El Bronce zones. At these occurrences extensive artisanal mining activities have focused on porphyritic dacite stocks and laccoliths.
Strong alteration and well-developed stockwork are seen within outcrops of porphyritic dacite as shown in Figure 7.10. Systematic grab sampling on mining dumps have returned silver grade from 50 to 500 grams per ton (g/t) Ag. The El Bronce zone has been traced with grab sampling for more than 1,000 m along strike. The zone is defined by silver assays > 50 parts per million (ppm). In the Jisas area, tin mining is also conducted along north-east-trending veins in porphyritic intrusions at Chiaraque.
Figure 7.10 Stockworks in altered porphyritic dacite
Source: New Pacific Metals Corp. 2019.
7.2.2.3 Hydrothermal breccia-hosted silver mineralization
Hydrothermal breccia hosted silver mineralization is observed in the Aullagas zone. Based on surface mapping, the Aullagas zone occurs within a north-east-trending dike-like breccia body of about 40 m in length and 13 m width, hosted by bleached sandstone. Breccia fragments consist of ignimbrite and sandstone cemented with highly ferruginous material. Surface grab samples have returned silver grades from 50 to 298 g/t Ag. Further investigation is needed to define the size and potential of the mineralized hydrothermal breccia. It is possibly a mineralized breccia pipe or diatreme.
7.2.2.4 Manto-type tin mineralization
Manto-type tin mineralization on the Property occurs as metasomatic replacement of the calcareous horizons in the siltstone and mudstone at the base of the Tarapaya Formation. Very fine-grained cassiterite is accompanied by abundant pyrite and lesser ankerite, siderite, and barite in the stratiform manto. Historically, and as early as 1890, artisanal mining of the manto-type tin mineralization occurred at the contact between the La Puerta sandstone and the Tarapaya siltstone and mudstone on the Property. Some drillholes in the current exploration drilling program have also intersected the manto-type mineralization horizon in the north part of the Silver Sand deposit.
7.2.3 Relative timing of hydrothermal alteration and mineralization
Magmatic and hydrothermal processes active on the Property are proposed to have occurred as two separate events within a single metallogenic epoch associated with the most recent orogenic event within the Eastern Cordillera. The initial event comprised an early stage of alteration and mineralization associated with a deep heat and fluid source (intrusion) within a mesothermal environment. This was followed by uplift and erosion of the Eastern Cordillera during Cenozoic orogenic events, and epithermal style mineralization.
The initial phase of metasomatic activity resulted in manto-type tin mineralization of selected calcareous horizons within the Tarapaya siltstone and mudstone package. The manto-type mineralization comprised high-temperature minerals indicative of a mesothermal environment including cassiterite, pyrite, magnetite, ankerite, siderite, and barite.
The underlying La Puerta sandstone was also intensely altered during this event. Metasomatic fluids resulted in the leaching of ferruginous cement from the sandstone, pervasive sericitization and silicification and introduction of pyrite veinlets and disseminated pyrite and sphalerite. Collectively, this alteration changed the rheological properties of the La Puerta sandstone units providing structural preparation for subsequent metasomatic events.
Progressive uplifting and erosion of the Eastern Cordillera during the Cenozoic orogenic events resulted in a transition to an epithermal environment. Hydrothermal activities during this time led to extensive fracturing, hydrothermal brecciation, and reactivation of earlier structures in the brittle sandstone and porphyritic intrusions and deposition of silver sulphides and sulphosalts. North-west trending fractures and faults with moderate to high-angle dips are thought to have acted as conduits for mineralizing fluids. This mineralization was superimposed on rocks altered during the initial hydrothermal event.
This hypothesis is supported by Rivas (1979) who noted the porphyritic dacite dikes displace manto-style mineralization at the Colavi mine. At the Silver Sand deposit, veins of silver sulphides and sulphosalts crosscut earlier pyrite veinlets, and pyrite in druses are coated with later silver minerals. Silver mineralization zones are spatially associated with porphyritic dacite intrusions but are formed at a later stage than the intrusion. The mineralized hydrothermal breccia at Aullagas suggests that silver mineralization and hydrothermal brecciation may have happened simultaneously. The abundance of low-temperature silver sulphosalts in silver veins and the widespread mineralized hydrothermal and structural breccia suggest an epithermal environment.
7.2.4 Oxidation
Mineralized zones on the Property have been oxidized to a vertical depth of more than 210 m in places. The base of oxidation is commonly irregular resulting in significant mixed oxide and sulphide zones due to the strong local influence of fractures. Oxide minerals are dominated by jarosite, goethite and minor hematite resulting pervasive staining within sandstones, and pseudomorphing of sulphide minerals within veins.
Figure 7.11 shows an example of oxidized mineralization exposed in an adit.
Figure 7.11 Oxidized mineralization exposed in adit
Source: New Pacific Metals Corp. 2019.
8 Deposit types
Silver and base metal mineralization in the Silver Sand Property was formed during the regional uplifting and erosion process associated with the Tertiary orogenic events in the Eastern Cordillera. The genetic model of silver and tin mineralization in the Property is a magmatic-hydrothermal system related to a deep-seated magmatic centre. The ore-forming processes in the Property are outlined as follows:
1 Tin-bearing hydrothermal solutions derived from the magmatic centre moved upwards through major faults cutting through the Paleozoic and Mesozoic sedimentary sequences in a mesothermal environment at the early stage of orogeny.
2 The ductile and impermeable red siltstone and mudstone of the Tarapaya Formation overlying the porous and permeable La Puerta sandstone acted as a barrier to the upward movement of the high-temperature tin-bearing hydrothermal solutions. This early hydrothermal activity resulted in the extensive sericitization and silicification of the La Puerta sandstone and the formation of the stratiform metasomatic replacement (manto-type) tin and base metal mineralization at the base of the Tarapaya siltstone and mudstone.
3 With persistent uplifting and erosion, the hydrothermal system evolved into an epithermal environment and subvolcanic activities developed in the Property area. Porphyritic dacite rocks intruded Paleozoic and Mesozoic sedimentary sequences and displaced the manto-type mineralization in the Tarapaya siltstone and mudstone. The subvolcanic activities likely caused intensive fracturing, faulting, and brecciating of the previously bleached brittle La Puerta sandstone.
4 Following the dacitic porphyry intrusions, silver-rich, and tin-bearing hydrothermal fluid migrated though faults, fractures, and breccia structures in the La Puerta sandstone and porphyritic dacite intrusions both beneath and above the Tarapaya Formation. This later stage hydrothermal activity is characterized by typical epithermal features such as hydrothermal brecciation and a low-temperature mineral assemblage.
5 The continuous uplifting and erosion of the region has exposed the mineralization and resulted in oxidation of the mineralized zones along deep-seated fractures.
The stratiform metasomatic replacement tin mineralization formed in the earlier hydrothermal event is manto-type tin and base metal mineralization which is unique in the Bolivia Tin Belt. The silver and tin mineralization formed in the later hydrothermal event is typical of the Bolivian polymetallic vein-type deposits represented by the giant Cerro Rico de Potosí silver mine. The Bolivian polymetallic vein-type mineralization in the Property includes three subtypes, the sandstone-hosted, the subvolcanic-hosted, and the hydrothermal breccia-hosted mineralization.
A conceptual model of mineralization controls in the Property is established from the above discussion and is shown in Figure 8.1.
Figure 8.1 Conceptual model of mineralization controls at Silver Sand Property
Source: New Pacific Metals Corp. 2020.
9 Exploration
Since acquiring the Property in October 2017, New Pacific exploration work has focused on geological mapping and collection of samples from surface outcrop, historical mine dumps, and accessible historical underground workings. Samples collected from outcrop and underground workings were primarily collected at 1 to 1.5 m intervals along sample lines. Representative grab samples were taken from historical mine dumps.
A total of 3,207 rock chips samples were collected during this time.
Table 9.1 summarizes New Pacific exploration activities completed at Silver Sand between October 2017 and December 2019.
Table 9.1 Summary of underground and surface sampling programs
|
Sample type
|
Total samples
|
Comments
|
|
Surface samples
|
904
|
Rock chips from channels, 19 outcrops. Total channel length 1,340 m
|
|
Mine dump samples
|
1,339
|
Grab samples from historic mine dumps
|
|
Underground samples
|
964
|
Rock chip samples from channels, 4,912 m of underground development in 42 workings.
|
|
Total
|
3,207
|
|
Figure 9.1 shows the distribution of the abandoned artisanal adits and mine dumps across the Property. New Pacific has sampled all mine dumps and accessible adits with silver mineralization. Areas mined for tin mineralization over the Tarapaya formation rocks have not been systematically sampled.
Figure 9.1 Location of historic adits and mine dumps
Source: New Pacific Metals Corp. 2020.
9.1 Surface chip sampling
A total of 904 rock chip samples were collected from 19 separate outcrops by New Pacific since 2017. The majority of outcrops were located above or proximal to historical workings. Samples were collected at 1.5 m intervals along sample lines oriented approximately perpendicular to the strike direction of mineralization. An example is shown in Figure 9.2. Sample lines covered a total length of 1,340 m.
For each sample, the sample type, location, and a description of the lithology, alteration and mineralization were recorded by New Pacific personnel using Microsoft Excel (Excel) worksheet. Geological and structural mapping was also completed at this time. Assay data is compiled and stored in Excel. Geological and assay data are then compiled onto a geological plan map. Figure 9.2 shows a typical compilation map with assay results.
Of the 904 samples collected to date 67 samples (7%) returned a grade between 30 and 840 g/t Ag and an average grade of 14 g/t Ag.
Figure 9.2 Outcrop map with surface surveying and sampling results
Source: New Pacific Metals Corp.
9.2 Dump sampling
Mine dumps from historical mining activities are scattered across a significant portion of the Property. These provide valuable insight into subsurface mineralization and geology.
New Pacific collected a total of 1,339 grab samples from historical mine dumps. The majority of samples collected were remnants of high-grade narrow veins extracted from underground mining activity.
Of the 1,339 samples collected from historical mine dumps to date, 572 samples (43%) returned assay results between 32 and 3,290 g/t Ag with an average grade of 190 g/t Ag.
9.3 Underground chip sampling
The Property encompasses significant historical underground mine workings which date back to the 16th century. A number of adits and tunnels provide access to underground workings from the surface. New Pacific has surveyed all safe and readily accessible tunnels within a 2 km wide and 6 km long area encompassing the mineralized La Puerta sandstone, and porphyritic dacite dykes and intrusions. Mine workings have typically focused on high-grade veins.
New Pacific has mapped and sampled 42 historical mine workings comprising 4,912 m of mine tunnels. A total of 964 continuous chip samples have been collected at 1-2 m intervals along walls of available tunnels that cut across the mineralized zones.
New Pacific geological personnel record geological features on both a map and in an Excel worksheet. Assay results are compiled in Excel. A compilation map comprising the surveyed mine workings, geology and assay data is subsequently collated. An example of underground mapping and sampling is presented in Figure 9.3.
Figure 9.3 Underground mapping and sampling
Source: New Pacific Metals Corp.
Table 9.2 provides a summary of the results of underground sampling.
Table 9.2 Selected underground sampling results of the Silver Sand Property
|
Name of adit
|
Length
(m)
|
Sample
type
|
Number
of
samples
|
Mineralized samples
|
Host rock
|
|
Number
|
Grade range
Ag (g/t)
|
Average
grade Ag
(g/t)
|
|
El Fuerte Adit 2
|
73
|
Chips
|
7
|
5
|
86-589
|
261
|
Sandstone
|
|
Jesus Adit Lower
|
145
|
Chips
|
31
|
14
|
31-2710
|
371
|
Sandstone
|
|
Jisas Jarden Adit 1
|
275
|
Chips
|
35
|
18
|
31-281
|
108
|
Sandstone, Porphyry
|
|
North Porphyry Adit Lower
|
385
|
Chips
|
45
|
36
|
30-1365
|
220
|
Porphyry
|
|
North Porphyry Adit Upper
|
290
|
Chips
|
16
|
11
|
31-812
|
219
|
Porphyry
|
|
PD_25
|
250
|
Chips
|
98
|
26
|
33-666
|
114
|
Sandstone
|
|
PD_62
|
177
|
Chips
|
77
|
24
|
34-750
|
179
|
Sandstone
|
|
Snake Hole Principle Adit 1
|
188
|
Chips
|
8
|
6
|
85-433
|
251
|
Sandstone
|
|
Snake Zone Adit 3
|
82
|
Chips
|
4
|
4
|
34-495
|
164
|
Sandstone
|
|
South Adit 1
|
300
|
Chips
|
47
|
10
|
34-767
|
240
|
Sandstone
|
|
South Adit 4 Level 1-4
|
113
|
Chips
|
23
|
23
|
38-1500
|
583
|
Sandstone
|
|
Esperanza Adit 1
|
55
|
Chips
|
13
|
8
|
75-830
|
337
|
Sandstone
|
|
Esperanza Adit 2
|
153
|
Chips
|
41
|
19
|
39-568
|
150
|
Sandstone
|
|
Esperanza Adit 3
|
195
|
Chips
|
24
|
10
|
32-536
|
234
|
Sandstone
|
|
El Bronce Main Adit 1 Upper
|
120
|
Chips
|
11
|
7
|
37-785
|
331
|
Porphyry
|
|
El Bronce Adit 2
|
30
|
Chips
|
9
|
7
|
49-318
|
108
|
Porphyry
|
|
El Fuerte Adit 1
|
100
|
Chips
|
12
|
8
|
34-214
|
100
|
Sandstone
|
9.4 Exploration results
Assay results of underground chip samples and surface mine dump grab samples suggest historical mining focused on high-grade veins within the core of the mineralized system and that in-situ mineralized material exists outside of the principal or main veins. This material forms continuous mineralized zones from several metres to several tens of metres in width in bleached sandstone and porphyritic dacite.
Exploration results collected to date show comparable average grades between the underground chip samples and the grab samples from historical waste dumps. Surface rock chip sample grades are consistently lower. The significant difference of silver grades between underground and surface chip samples may be the result of oxidation and leaching of silver sulphides and sulphosalts from the host rocks.
A summary of exploration results from surface rock chip samples, waste dump samples and underground chip samples is presented in Table 9.3. Mineralized samples listed in the table below are samples with > 30 g/t silver.
Table 9.3 Summary of underground and surface sampling programs
|
Sample type
|
Total
samples
|
Average Ag grade
of all samples (g/t)
|
Number of
mineralized samples
|
Grade Ag
range (g/t)
|
Average Ag grade of
mineralized samples (g/t)
|
|
Surface samples
|
904
|
14
|
67
|
30-840
|
141
|
|
Mine dump samples
|
1339
|
85
|
572
|
32-3290
|
190
|
|
Underground samples
|
964
|
80
|
339
|
31-2710
|
211
|
Note: Mineralized samples are samples with > 30 g/t silver.
10 Drilling
This section describes diamond drill programs completed by New Pacific at the Property between October 2017 and December 2019. Drilling completed by previous operators is discussed in Section 6 History.
10.1 Drilling overview
In total, New Pacific has completed 386 diamond core drillholes for a total of 97,619 m. Drilling programs were completed in two major campaigns. The initial campaign comprised drilling of the main Silver Sand target area between October 2017 and December 2018. This program was designed to test areas with anomalous surface and underground rock chip results and resulted in the discovery of the main Silver Sand zone. Ongoing drilling resulted in a nominal 50 x 50 m spaced drill grid over an area of 1,600 m x 800 m at Silver Sand. A second drilling campaign completed between April 2019 and December 2019 comprised infill drilling of key portions of the Silver Sand deposit to a nominal 25 x 25 m grid, as well as exploration drilling at the Snake Hole prospect, discussed in Section 10.5.
Drill statistics by year are presented in Table 10.1.
Table 10.1 New Pacific drilling by year
|
Year
|
Phase
|
Silver Sand
|
Snake Hole
|
Total
|
|
Holes
|
Metres
|
Holes
|
Metres
|
Holes
|
Metres
|
|
2017
|
Phase 1 drilling
|
18
|
5,020
|
-
|
-
|
18
|
5,020
|
|
2018
|
177
|
49,991
|
-
|
-
|
177
|
49,991
|
|
2019
|
Phase 2 drilling
|
167
|
36,651
|
24
|
5,957
|
191
|
42,607
|
|
Total
|
|
362
|
91,662
|
24
|
5,957
|
386
|
97,619
|
Note:
• Table predominantly refers to drilling inside the 100% owned New Pacific mineral tenure as shown in Figure 10.1.
• Numbers may not compute exactly due to rounding.
Source: AMC Mining Consultants (Canada) Ltd. 2020, based on data provided by New Pacific Metals Corp.
A local drill grid has been developed across the Property, comprising 100 m spaced drill sections orientated 060°-240° and numbered from 32 in the north-west, to 80 in the south-east (Figure 10.1). Drillhole IDs comprise a prefix which reflects the drillhole section, followed by a drillhole number. Drillholes have been drilled up to 545 m deep at inclinations between -45° and -80° towards azimuths of 060° (~NE) and 240° (~SW) to intercept the principal trend of mineralized vein structures.
Figure 10.1 shows the location of New Pacific drillholes completed at the Silver Sand Property.
Figure 10.1 Location map of drillholes in Silver Sand area
Note: Section lines represent cross sections shown in Section 10.4.3.
Source: New Pacific Metals Corp. 2020.
10.2 Drilling procedures
Diamond drill programs completed at the Property were designed and managed by New Pacific personnel. Drilling was completed by contract drilling companies Leduc Drilling SRL and Maldonado Exploraciones both out of La Paz, Bolivia.
Drillhole collars are located by New Pacific geologists using a Real-Time Kinematic differential GPS and marked with a wooden stake. The site is then cleared, and sumps constructed to manage drill water and cuttings. The drill is then positioned by the drill contractor and the drill alignment (inclination and azimuth) confirmed by New Pacific geologists. Drilling operations are carried out as two separate shifts, 24 hours per day, seven days per week.
Core drilling is completed using conventional HQ (64 mm diameter) equipment and 3 m drill rods. Core is placed in plastic core boxes by the drill contractor. Core blocks are placed at the end of each drill run (rod) marking the core recovery and drillhole depth by the drill contractor. Each core box is marked with the drillhole ID and the corresponding from and to depths.
At the completion of each drillhole, PVC casing is placed by the drill contractor in the drillhole. New Pacific personnel subsequently construct a concrete monument and mark the collar with the drillhole ID, depth, dip, azimuth, and date as shown in Figure 10.2.
Figure 10.2 Silver Sand drilling
Notes: Left: Drill rig in operation at Silver sand. Right: Collar monument after drillhole completion.
Source: AMC Mining Consultants (Canada) Ltd. 2019.
10.2.1 Drillhole deviation surveys
Drillhole deviation surveys are completed by the drilling contractor using a multishot REFLEX EZ-SHOT downhole survey tool. Drillholes are surveyed at a depth of approximately 20 m, and on approximately 30 m intervals as drilling progresses. A second set of downhole surveys are completed once the hole is complete on 30 m intervals as the drill rods are pulled out of the hole.
10.2.2 Core processing and logging
New Pacific personnel visit each drill at least once daily to monitor drillhole progress. Core boxes are sorted and placed in order to enable core blocks and depths to be checked. Preliminary logging is then completed which comprises completing a “quick log” of major geological features, marking of natural breaks, and analyzing veins with a portable XRF for silver concentrations. Prior to transportation, individual segments of core are sequentially numbered, and the core box is photographed as part of the chain of custody. Core containing visible mineralization is also wrapped in paper to minimize core damage during transport. Lids are placed on core boxes prior to transport.
Core boxes are transported by New Pacific personnel to the company’s Betanzos core processing facility on a daily basis following preliminary processing at site.
On arrival at the core yard, the core boxes are checked and recorded in a core handover form that is signed by the receiver. Core boxes are then moved to the logging shack where detailed logging, processing, and sampling is completed. Logging data is collected by filling in paper templates which are later transferred to an Excel Database.
New Pacific’s core logging process comprises the following:
• Core is cleaned and drill core segments are pieced together.
• The length of core for each drill run is measured and recovery calculated.
• Drillhole depths are marked on the core.
• Rock quality designation (RQD) is calculated and basic geotechnical features are noted (rock hardness, fracture frequency).
• A geological log is completed using a New Pacific paper template. The geological log includes a graphic log and captures oxidation, lithology, alteration, structure, and mineralization information using codes established by New Pacific.
• A geologist determines core to be sampled and marks sample intervals and a cutting line based on the observed mineralization, structure, and lithology.
• Density samples are collected from one in every 15 samples and measured at a dedicated density measuring station using water immersion and the Archimedes principle.
• Prior to core cutting, photographs of wet core are taken using a high definition camera for the entire hole.
• Core is cut in half using a diamond core saw and sampling is completed.
• Core boxes are then stored at the company’s Betanzos secure facility.
• Samples are dispatched to the laboratory on a weekly basis.
Sampling, shipment, and security protocols are described in Section 11 of this report.
10.3 Sample recovery
Core recovery from New Pacific drill programs varies between 0% (voids and overburden) and 100%, averaging 97%. More than 92% of core intervals have a core recovery of greater than 95%.
10.4 Silver Sand drill programs
10.4.1 2017 – 2018 Exploration drilling
The 2017 – 2018 phase one drill program was designed to test the depth and continuity of mineralization delineated by surface mapping and sampling in the Silver Sand area. Positive drill results led to ongoing drilling and the definition of numerous north-northwest striking and moderate to steeply west dipping zones of silver mineralization. The program resulted in a nominal drill spacing of 50 x 50 m over a 1,600 x 800 m area. Ninety seven percent of drillholes (190 out of 195) encountered silver mineralization.
10.4.2 2019 Definition drilling
A phase two drill program commenced in April 2019. This program was designed to infill existing drilling within the Silver Sand deposit, and to assess the potential strike extensions of major mineralized zones beneath the Tarapaya Formation north of Section 44. The phase two 2019 drill program comprised the drilling of 167 drillholes for a total of 36,651 m. Drillholes ranged from 86 to 365 m in depth, averaging 225 m.
As of 31 December 2019, assay results had been received for 135 of the 167 drillholes completed at Silver Sand in 2019. These assay results confirm the continuity of mineralization delineated in the phase one drilling and have been used in the Mineral Resource estimation.
10.4.3 Drilling results
Drill programs completed between October 2017 and December 2019 have defined silver mineralization at the Silver Sand deposit over an oblique strike length of 2 km, a collective width of 650 m and to a depth of 250 m below surface. Silver mineralization occurs predominantly associated with sheeted veins, stockworks and veinlets within altered La Puerta sandstone. Within the core of the system, where vein intensity is greatest, mineralized zones are relatively continuous along strike and to depth, reaching thicknesses of up to 300 m. The core portion of the system shows strong continuity. Mineralization outside of the core occurs as discontinuous pods and lenses often only multiple metres thick.
North of this Section 60 mineralized zones generally dip 60° to the west. Drilling in this area typically intersects up to 50 m of red Cretaceous Tarapaya Formation before intersecting massive, white, altered and mineralized La Puerta sandstone. The contact between the Tarapaya and La Puerta Formations commonly contains massive pyrite which is up to 2 m thick. Historical mining activity does not appear to be widespread in this area.
South of Section 60, massive, altered, and fractured La Puerta sandstone is exposed at surface, zones of silver mineralization typically dip 45° to the west and historical mining activity appears to extensive.
Figure 10.3 shows both a plan view and three-dimensional (3D) perspective of the mineralization. Figure 10.4 to Figure 10.7 presents representative cross sections throughout the deposit.
Figure 10.3 Silver Sand mineralization – plan and 3D perspective
Source: AMC Mining Consultants (Canada) Ltd. 2020.
Figure 10.4 Cross Section 4400, Silver Sand area
Note: Grade shell and mineralized intercepts are > 30 g/t Ag.
Source: New Pacific Metals Corp. 2020.
Figure 10.5 Cross Section 5050, Silver Sand area
Note: Grade shell and mineralized intercepts are > 30 g/t Ag.
Source: New Pacific Metals Corp. 2020.
Figure 10.6 Cross Section 5250, Silver Sand area
Note: Grade shell and mineralized intercepts are > 30 g/t Ag.
Source: New Pacific Metals Corp. 2020.
Figure 10.7 Cross Section 5600, Silver Sand area
Note: Grade shell and mineralized intercepts are > 30 g/t Ag.
Source: New Pacific Metals Corp. 2020.
10.5 Snake Hole drilling
New Pacific’s Snake Hole prospect is located approximately 600 m east of the Silver Sand deposit. This prospect comprises a 1 km long NNW-SSE trend comprising extensive historical artisanal mining activities and mine dumps. Historical workings are developed in bleached sandstone and suggest mineralization is between a few metres and up to 100 m wide. Previous sampling of workings and dumps in this Snake Hole area by New Pacific returned numerous assay results between 100 g/t Ag and 300 g/t Ag. Geological mapping also suggested that mineralized structures extend north-west towards the company’s Jisas prospect.
A total of 24 HQ diamond drillholes totaling 5,957 m were completed to assess sub-surface mineralization within the Snake Hole prospect area between August and December 2019. Drillholes were completed on a drilling grid at a 50 m spacing along the NNW-SSE structure. Each section was drilled with at least one drillhole at an inclination between 40° and 80°. The majority of drillholes were drilled towards an azimuth of 060°, four holes were drilled towards 240° and two drillholes were drilled towards 285° and 195° respectively as part of a drill fan. Drillhole locations are presented in Figure 10.8. Drillhole collar information is presented in Table 10.2.
Figure 10.8 Location of drillholes, Snake Hole Prospect
Source: New Pacific Metals Corp. 2020.
Table 10.2 Collar details – Snake Hole Prospect
|
Hole ID
|
East (m)
|
North (m)
|
Elevation (m)
|
Depth (m)
|
Azimuth (°)
|
Dip (°)
|
|
DSS425006
|
235,307.58
|
7,857,352.57
|
3,854.85
|
350.10
|
059
|
-60
|
|
DSS4614
|
235,411.62
|
7,857,242.32
|
3,833.49
|
280.90
|
060
|
-64
|
|
DSS4815
|
235,468.75
|
7,857,153.62
|
3,829.60
|
304.70
|
061
|
-50
|
|
DSS4816
|
235,468.26
|
7,857,153.35
|
3,829.55
|
269.00
|
061
|
-65
|
|
DSS485011
|
235,494.17
|
7,857,121.58
|
3,824.97
|
310.40
|
061
|
-45
|
|
DSS5015
|
235,531.80
|
7,857,081.46
|
3,814.70
|
292.25
|
060
|
-45
|
|
DSS505016
|
235,564.09
|
7,857,039.71
|
3,805.84
|
287.30
|
063
|
-44
|
|
DSS505017
|
235,562.28
|
7,857,038.76
|
3,805.82
|
224.70
|
063
|
-80
|
|
DSS5216
|
235,594.50
|
7,857,002.24
|
3,797.39
|
263.30
|
062
|
-45
|
|
DSS5217
|
235,592.52
|
7,857,001.39
|
3,797.46
|
287.70
|
059
|
-80
|
|
DSS5218
|
235,592.95
|
7,857,001.73
|
3,797.49
|
230.60
|
062
|
-64
|
|
DSS5219
|
235,593.55
|
7,857,002.16
|
3,797.55
|
224.70
|
240
|
-79
|
|
DSS5221
|
235,593.08
|
7,857,001.84
|
3,797.60
|
251.60
|
239
|
-65
|
|
DSS525020
|
235,613.00
|
7,856,960.05
|
3,795.01
|
260.30
|
058
|
-45
|
|
DSS5419
|
235,634.12
|
7,856,915.86
|
3,792.87
|
248.30
|
060
|
-46
|
|
DSS5420
|
235,631.59
|
7,856,912.69
|
3,792.83
|
254.10
|
239
|
-40
|
|
DSS545012
|
235,654.97
|
7,856,865.25
|
3,794.96
|
236.30
|
067
|
-46
|
|
DSS5609
|
235,678.73
|
7,856,819.46
|
3,796.09
|
197.30
|
060
|
-46
|
|
DSS565004
|
235,707.19
|
7,856,777.10
|
3,801.70
|
206.30
|
061
|
-50
|
|
DSS5809
|
235,840.47
|
7,856,810.03
|
3,715.87
|
200.10
|
241
|
-41
|
|
DSS5810
|
235,840.45
|
7,856,811.46
|
3,715.71
|
116.10
|
196
|
-41
|
|
DSS5811
|
235,839.48
|
7,856,811.93
|
3,715.72
|
164.10
|
286
|
-41
|
|
DSS5812
|
235,734.31
|
7,856,735.69
|
3,809.59
|
236.30
|
062
|
-53
|
|
DSS5813
|
235,730.69
|
7,856,733.81
|
3,809.74
|
260.10
|
242
|
-41
|
Note: Coordinate system: WGS 84, UTM20 S.
Source: AMC Mining Consultants (Canada) Ltd., based on information provided by New Pacific Minerals Corp.
10.5.1 Drilling results
As of 16 January 2020, assay results for 19 of 24 drillholes have been received by New Pacific. Fifteen of 19 drillholes contain significant, structurally controlled, sandstone hosted silver mineralization. Silver mineralization occurs as coarse silver sulphosalts (freibergite) which is hosted in fractures of bleached sandstones associated with disseminated pyrite. The grade and thickness of mineralization appears to increase towards the north.
Highlights of drillhole intersections for assays from all holes received to 16 January 2020 and above 30 g/t Ag are listed in Table 10.3. Drillhole intercepts are the weighted average of sample lengths and grades of all samples within the intercept. Intercepts may include some assays less than 30 g/t Ag.
Table 10.3 Drilling results from the Snake Hole area
|
Hole ID
|
Section
|
Including
|
From (m)
|
To (m)
|
Downhole
length (m)
|
Ag (g/t)
|
Pb (%)
|
Zn (%)
|
|
DSS5015
|
50
|
|
126.76
|
132.21
|
5.45
|
67
|
0.05
|
0.05
|
|
DSS505016
|
5050
|
|
110.75
|
132.95
|
22.20
|
38
|
0.09
|
0.09
|
|
Including
|
110.75
|
112.15
|
1.40
|
311
|
0.09
|
0.06
|
|
DSS505017
|
5050
|
|
No significant results
|
|
DSS5216
|
52
|
|
59.68
|
60.75
|
1.07
|
116
|
0.01
|
0.00
|
|
100.62
|
101.77
|
1.15
|
109
|
0.03
|
0.01
|
|
130.70
|
133.00
|
2.30
|
41
|
0.09
|
1.06
|
|
DSS5217
|
52
|
|
149.48
|
160.60
|
11.12
|
761
|
0.20
|
0.05
|
|
DSS5218
|
52
|
|
60.50
|
132.94
|
72.44
|
279
|
0.06
|
0.04
|
|
Including
|
84.95
|
117.91
|
32.96
|
517
|
0.10
|
0.06
|
|
DSS5219
|
52
|
|
No significant results
|
|
DSS5221
|
52
|
|
No significant results
|
|
DSS525020
|
5250
|
Including
|
29.90
|
68.30
|
38.40
|
143
|
0.03
|
0.01
|
|
36.80
|
43.00
|
6.20
|
749
|
0.09
|
0.03
|
|
104.00
|
133.82
|
29.82
|
49
|
0.06
|
0.06
|
|
DSS5419
|
54
|
|
35.30
|
36.77
|
1.47
|
212
|
0.07
|
0.00
|
|
114.84
|
116.00
|
1.16
|
122
|
0.03
|
0.56
|
|
125.47
|
126.97
|
1.50
|
405
|
0.24
|
0.31
|
|
DSS5420
|
54
|
|
30.28
|
32.75
|
2.47
|
37
|
0.00
|
0.00
|
|
DSS545012
|
5450
|
|
47.86
|
54.93
|
7.07
|
233
|
0.03
|
0.00
|
|
DS5609
|
56
|
|
110.30
|
116.13
|
5.83
|
50
|
0.01
|
0.00
|
|
130.80
|
134.00
|
3.20
|
158
|
0.06
|
0.01
|
|
DSS565004
|
5650
|
|
42.28
|
44.50
|
2.22
|
313
|
0.08
|
0.00
|
|
104.12
|
113.50
|
9.38
|
35
|
0.00
|
0.00
|
|
DSS5809
|
58
|
|
No significant results
|
|
DSS5810
|
58
|
|
17.50
|
21.00
|
3.50
|
74
|
0.01
|
0.01
|
|
DSS5811
|
58
|
|
11.70
|
21.00
|
9.30
|
30
|
0.06
|
0.00
|
|
DSS5812
|
58
|
|
27.04
|
28.33
|
1.29
|
134
|
0.08
|
0.00
|
|
108.38
|
119.00
|
10.62
|
62
|
0.00
|
0.00
|
|
DSS5813
|
58
|
|
57.87
|
59.10
|
1.23
|
92
|
0.04
|
0.01
|
Note: True width is 50% to 80% of downhole length based on geological understanding to date.
Figure 10.9 shows intersected mineralization zones across Section 52.
Figure 10.9 Cross Section 52, Snake Hole Prospect
Source: New Pacific Metals Corp. 2020.
10.5.2 Drilling conclusions
At this time there are no known drilling, sampling or recovery factors that could impact the accuracy and reliability of the results. Due to fine-grained mineralization occurring on fractures, there is the possibility of loss of mineralization during the drilling, transportation and core handling processes, which may lead underestimation of the grade. This is further supported in Sections 11 and 13.
AMC recommends that New Pacific consider drilling twin holes using triple tube diamond core or RC drilling to evaluate whether loss of vein material is also occurring during drilling and sampling processes.
11 Sample preparation, analyses, and security
This section describes the sampling methods, analytical techniques and assay QA/QC protocols employed at the Silver Sand Property between October 2017 and December 2019. All exploration programs were managed by New Pacific, and all work was carried out in accordance with New Pacific’s internal procedures.
11.1 Sampling methods
11.1.1 Rock chip sampling
Rock chip samples were collected by New Pacific from surface outcrop and underground workings. In both cases, continuous samples were collected from sample lines across mineralization using a hammer and chisel. Surface outcrop sample lines were orientated approximately perpendicular to the strike of mineralization and samples were collected at 1.5 m intervals. Underground samples were collected at 1.0 – 2.0 m intervals from the walls of accessible tunnels that cross-cut mineralization.
In both instances, samples were collected in plastic bags. Sample information was recorded in a sample tag book pre-numbered with a unique sample identifier and multiple tear off tags. One sample tag is included in the plastic bag with the sample, before the bag is sealed. The sample number is also written on each bag with a permanent indelible marker.
11.1.2 Grab sampling
Grab samples were collected by New Pacific from waste rock dumps generated by historical mining operations. Samples were collected randomly from the waste dumps. The number of samples collected was dependent on the size of the dump.
11.1.3 Drillhole sampling
All drilling completed at the Property between 2017 and 2019 was completed by contract diamond drillers using HQ (64 mm) sized downhole equipment. Drilling, logging, and core processing procedures are described in detail in Section 10 of this report.
Core sampling was completed by New Pacific personnel at the company’s core facility in Betanzos as part of the core processing workflow. After core is logged, sample intervals are identified by the geologists based on visual parameters. Individual sample intervals are physically marked out on the core using an indelible marker or crayon at intervals between 1.0 and 1.5 m lengths and respecting geological, structural and alteration contacts and poor sample recovery (voids, sample loss) as appropriate. Sampling intervals typically extend above and below the visually mineralized zone by 2 m. Core intervals with no recovery due to core loss or intersection of historic mine workings are identified and recorded.
During this sampling process the geologist records the hole ID and relevant interval distance of the sample in a sample tag book pre-numbered with a unique sample identifier and two tear-off tags. A cut line is also marked along the core axis with a marker of crayon by geologists at this time.
After the core has been photographed, core to be sampled is cut in half along the cut line using a diamond saw. Half of the core is then collected consistently from one side of the cutting line and placed into sample bags pre-labelled with a corresponding unique sample number. Sample intervals are cross checked with the sample tag book and the pre-labelled sample bag. The outer portion of the tear off sample tag is affixed to the core box at the start of the sample interval and the inner tear-off tag is placed into the sample bag.
Once sampling is complete, the geologist reviews the samples and seals the plastic sample bags with staples and tape. QA/QC samples are inserted into the sample sequence and sample bags are then placed into large poly-weave sample bags for transportation to the laboratory. Individual sample batches comprise up to 100 samples.
Figure 11.1 New Pacific Betanzos core logging and sampling facility
Notes: Left: core logging area, Right: diamond core saws.
Source: AMC Mining Consultants (Canada) Ltd.
11.2 Sample shipment and security
New Pacific manages all aspects of sampling from the collection of samples to sample delivery to the laboratory. All samples are stored and processed at the company’s Betanzos facility located approximately 1.5 hours drive from the Silver Sand deposit. This facility is surrounded by a brick wall, has a locked gate and is monitored by video surveillance and security guard 24 hours a day, seven days a week. Within the facility, there are separate and locked areas for core logging, sampling, and storage.
Drilling samples are collected from the drill site at the Property at least every 24 hours as part of routine site inspections and drill management completed by site geologists. Geological “quick logs”, portable XRF analyses and photographs of each core box are completed during the site inspection and before core boxes are transported.
Samples are transported from the Betanzos facility to the laboratory in Oruro, Bolivia for sample preparation. This is done on a weekly basis by New Pacific personnel. Sample shipments typically comprise up to 800 samples.
Figure 11.2 New Pacific Betanzos core processing facility
Notes: Left: core processing facility security, Right: core storage.
Source: AMC Mining Consultants (Canada) Ltd.
11.3 Sample preparation and analysis
All drill core, chip and grab samples collected by New Pacific between October 2017 and December 2019 were dispatched to ALS laboratories (ALS) in Oruro, Bolivia for sample preparation, and then to ALS in Lima, Peru for geochemical analysis. ALS Oruro and ALS Lima are part of ALS Global – an independent commercial laboratory specializing in analytical geochemistry services. Both labs are certified in accordance with the International Organization for Standardization (ISO) and International Electrotechnical Commission (IES) “General requirements for the competence of testing and calibration laboratories” (ISO/IES 17025:2017).
All samples are prepared in accordance with ALS preparation code PREP-31 which involves crushing samples to 70% less than 2 mm, riffle splitting off 250 g and then pulverizing the split sample to better than 85% passing a 75 µm (micron) sieve.
All pulp samples are then transferred to ALS Lima for sample analysis. A summary of analytical methods used is presented in Table 11.1.
Sample analysis in 2017 and 2018 comprised an aqua regia digest followed by Inductively Coupled Plasma (ICP) Atomic Emission Spectroscopy (AES) analysis of Ag, Pb, and Zn (ALS code OG46). Samples returning assay results greater than 1,500 g/t Ag (over-limit samples) were analyzed by fire assay and gravimetric finish (ALS code Ag-GRA21). New Pacific subsequently requested all pulp samples with Ag values greater than 5 ppm be analyzed using an ICP-OES 38 element analysis (Actlabs Skyline Peru SAC code VH-ME-ICP4). This approach was taken primarily to understand the impact of potential credit elements gallium and indium.
New Pacific changed its analysis protocol in 2019 to include systematic multielement analysis. All samples were sent for an initial 51 element ICP mass spectroscopy (MS) analysis (ALS code ME-MS41). Over-limit samples (>100 g/t Ag, or >10,000 ppm Pb or >10,000 ppm Zn) were then analyzed by ALS code OG46. Samples with Ag results which exceeded the upper limit of detection of the OG46 analysis (>1500 g/t) were then subsequently analyzed by fire assay and gravimetric analysis (Ag-GRA21).
Table 11.1 summarizes analysis used by New Pacific in 2017 – 2018 and 2019.
Table 11.1 New Pacific sample analysis
|
Drill
campaign
|
ALS analysis
code *
|
Elements
|
Detection range
|
Description
|
Protocol notes
|
|
2017 – 2018
|
Ag-OG46
Pb-OG46
Zn-OG46
|
Ag
Pb
Zn
|
1-1,500 ppm
0.001-20%
0.01-10%
|
0.4 g sample
Aqua-regia digest
ICP-AES analysis
|
Initial analysis
Ag samples > 1,500 ppm
analyzed by AG-GRA21
|
|
Ag-GRA21
|
Ag
|
5-10,000 ppm
|
30 g sample
Fire assay
gravimetric analysis
|
Over limit analysis
|
|
VH-ME-ICP4
(Actlabs)
|
Ag
Pb, Zn
35 other elements
|
0.2-100 ppm
2-10,000 ppm
variable
|
0.5 g sample
Aqua-regia digest
ICP-OES analysis
|
Subsequent analysis
completed on pulps with
Ag >=5ppm
|
|
2019
|
ME-MS41
|
Ag
Pb
Zn
48 other elements
|
0.01-100 ppm
0.2-10,000 ppm
2-10,000 ppm
variable
|
0.5 g sample
Aqua-regia digest
ICP-MS analysis
|
Initial analysis
Over limit samples
analyzed by OG-46
|
|
Ag-OG46
Pb-OG46
Zn-OG46
|
Ag
Pb
Zn
|
1-1,500 ppm
0.001-20 %
0.01-10 %
|
0.4 g sample
Aqua-regia digest
ICP-AES analysis
|
(Over limit analysis #1)
Ag samples > 1,500 ppm
analyzed by Ag-GRA21
|
|
Ag-GRA21
|
Ag
|
5-10,000 ppm
|
30 g sample
Fire assay,
gravimetric analysis
|
(Over limit analysis #2)
|
Note: * Unless otherwise stated.
Source: Compiled by AMC Mining Consultants (Canada) Ltd.
11.4 Bulk density
Density measurements are completed by New Pacific personnel as part of routine core processing procedures. Samples are selected in both mineralized and non-mineralized areas at a rate of 1 in every 15 samples. Measurements are completed at a dedicated density weigh station using the Archimedes principle, whereby water displacement is used to approximate volume. Density is calculated by dividing the dry weight by the calculated volume. This method is considered to be appropriate for competent, non-porous core samples. Weighing scale calibration is completed regularly as part of the density sampling program.
AMC Consultants recommends New Pacific improve density QA/QC procedures by:
• Incorporating the regular use of a density standard.
• Weighing samples following immersion to ensure that the sample is not absorbing water.
• Sending a portion of samples to a third-party laboratory for density measurement.
11.5 Quality Assurance / Quality Control
New Pacific has established QA/QC procedures which cover sample collection and processing at the Silver Sand Property. All drilling programs completed on the Property incorporate the insertion of certified reference materials (CRMs), blanks, and duplicates into the sample stream on a batch by batch basis. AMC Consultants completed a detailed review of QA/QC protocols during a site visit in 2019. The following discussion is based on AMC Consultants’ findings from the site visit and an independent review of drilling and QA/QC databases associated with the 345 drillholes from which assays have been received at the effective date of the Mineral Resource.
New Pacific monitors Ag, Pb, and Zn assay values in CRMs, blanks and duplicates however only the results of silver are discussed in this report as lead and zinc are not components of the Mineral Resource.
A summary of QA/QC samples included during the 2017 – 2019 program is presented in Table 11.2. Table 11.3 summarizes the insertion rate of these QA/QC samples.
Table 11.2 Silver Sand QA/QC samples by year 1
|
Year 2
|
Drill samples
|
CRMs 3
|
Blanks
|
field duplicates
(¼ core)
|
Coarse reject
umpire duplicates
|
|
2017
|
3,337
|
172
|
165
|
16
|
173
|
|
2018
|
34,728
|
1,747
|
1,694
|
208
|
1,615
|
|
2019
|
22,677
|
1,001
|
1,012
|
243
|
1,063
|
|
Total
|
60,742
|
2,920
|
2,871
|
467
|
2,851
|
Notes:
1 Based on 345 drillholes with assay results.
2 Year drillhole was commenced.
3 CRM statistics excludes CRMs submitted with umpire duplicate samples. Source: Compiled by AMC Mining Consultants (Canada) Ltd.
Table 11.3 Silver Sand QA/QC insertion rates 1
|
Year 2
|
CRMs 3
|
Blanks
|
Field duplicates
(¼ core)
|
Coarse reject
umpire duplicates
|
Total QA/QC
|
|
2017
|
5.2%
|
4.9%
|
0.5%
|
5.2%
|
15.8%
|
|
2018
|
5.0%
|
4.9%
|
0.6%
|
4.7%
|
15.2%
|
|
2019
|
4.4%
|
4.5%
|
1.1%
|
4.7%
|
14.6%
|
|
Overall
|
4.8%
|
4.7%
|
0.8%
|
4.7%
|
15.0%
|
Notes:
1 Based on 345 drillholes with assay results.
2 Year drillhole was commenced.
3 CRM statistics excludes CRMs submitted with umpire duplicate samples. Source: Compiled by AMC Mining Consultants (Canada) Ltd.
11.5.1 Certified Reference Materials
11.5.1.1 Description
Four different CRMs were used by New Pacific in the 2017 – 2019 drill programs. All CRMs were supplied by CDN Resource Laboratories of Langley, British Columbia, Canada and certified for Ag, Pb, and Zn analysis by four-acid digest and ICP. All CRMs have a relative standard deviation (RSD) of less than 5%.
Details of CRMs used at Silver Sand are presented in Table 11.4.
Table 11.4 Silver Sand CRMs (2017 – 2019)
|
CRM
|
Ag (g/t)
|
|
Number of CRMs inserted by year
|
|
Expected value
|
SD
|
2017
|
2018
|
2019
|
|
CDN-ME-1501
|
34.6
|
1.15
|
0
|
0
|
265
|
|
CDN-ME-1603
|
86
|
1.5
|
0
|
999
|
496
|
|
CDN-ME-1810
|
154
|
4.5
|
0
|
0
|
240
|
|
CDN-ME-1605
|
274
|
4.5
|
172
|
748
|
0
|
Notes: All CRM values shown are certified for four-acid digest and ICP analysis, SD=standard deviation.
Source: Compiled by AMC Mining Consultants (Canada) Ltd. 2020.
CRMs are supplied as both 100 g individual sealed packages and in bulk 1 kg containers. New Pacific personnel package bulk material into 100 g ‘zip-lock’ bags for insertion into the sample stream. Disposable gloves and spoons are used to ensure contamination does not occur during this process.
New Pacific’s internal procedures require that one CRM is inserted for every 20 samples. CRM performance is monitored on a batch by batch basis. New Pacific considers CRMs with laboratory assay results outside of three standard deviations (as stipulated on the CRM certificate) to have failed. Failed samples are investigated by New Pacific and sample batches are re-analyzed as required. For ME-MS41 analysis, New Pacific accepts assay results within 10% plus 2 times the detection limit of the expected value of the CRM, based on internal discussions with ALS. New Pacific has re-assayed two sample batches.
11.5.1.2 AMC Consultants discussion
CRMs contain standard, predetermined concentrations of material (Ag) which are inserted into the sample stream to check the analytical accuracy of the laboratory. AMC Consultants recommends an insertion rate of at least 5% of the total samples assayed. CRMs should be monitored on a batch by batch basis and remedial action taken immediately if required. For each economic mineral, AMC Consultants recommends the use of at least three CRMs with values:
• At the approximate cut-off grade of the deposit.
• At the approximate expected grade of the deposit.
• At a higher grade.
A total of 2,920 CRMs were submitted between 2017 and 2019 representing an average overall insertion rate of 4.8%.
The average grade of the Silver Sand open pit Mineral Resource is approximately 130 g/t Ag at a 45 g/t Ag cut-off grade. AMC Consultants considers CDN-ME-1501 (34.6 g/t Ag) to be appropriate to monitor the analytical accuracy at the cut-off grade of the deposit. CDN-ME-1603 (86 g/t Ag) and CDN-ME-1810 (154 g/t Ag) monitor analytical accuracy below and above the average grade. CDN-ME-1605 (274 g/t Ag) monitors analytical accuracy at higher grades, however this CRM was not used beyond the 2018 program. AMC Consultants notes that there was no CRM used in 2017 or 2018 to monitor laboratory accuracy at the cut-off and average grades. While there is presently no individual CRM monitoring the average grade of the deposit, AMC Consultants considers CDN-ME-1603 and CND-ME-1810 to adequately cover the anticipated grade ranges and provide confidence in analytical results.
AMC Consultants typically recommends re-assaying batches where two consecutive CRMs in a batch occur outside two standard deviations (warning), or one CRM occurs outside of three standard deviations (fail) of the expected value described on the assay certificate.
Control charts are commonly used to monitor the analytical performance of an individual CRM over time. CRM assay results are plotted in order of analysis. Control lines are also plotted on the chart for the expected value of the CRM, two standard deviations above and below the expected value, and three standard deviations above and below the expected value. These charts show analytical drift, bias, trends and irregularities occurring at the laboratory over time. Table 11.5 presents detail on CRM performance. Figure 11.3 to Figure 11.5 present CRM control charts for silver. Control charts include control lines for two and three standard deviations. New Pacific’s control limits of 10% of the CRM value plus two times the detection limit have been included for comparative purposes.
Table 11.5 Silver Sand CRM results using AMC Consultants criteria (2017 – 2019)
|
CRM ID
|
Expected
value (Ag)
|
SD
|
Number
of assays
|
Low warning
(-2SD)
|
High warning
(+2SD)
|
Low fail
(-3SD)
|
High fail
(+3SD)
|
Fail %
(>3SD)
|
|
CDN-ME-1501
|
34.6 g/t
|
1.15
|
265
|
9
|
5
|
1
|
2
|
1.1
|
|
CDN-ME-1603
|
86 g/t
|
1.5
|
1,495
|
118
|
31
|
66
|
21
|
5.4
|
|
CDN-ME-1810
|
154 g/t
|
4.5
|
240
|
5
|
3
|
0
|
0
|
0
|
|
CDN-ME-1605
|
274 g/t
|
4.5
|
920
|
73
|
13
|
24
|
3
|
2.9
|
Notes: SD=standard deviation.
Source: Compiled by AMC Mining Consultants (Canada) Ltd. 2020.
Figure 11.3 Control chart for CDN-ME-1501 (Ag)
Source: Compiled by AMC Mining Consultants (Canada) Ltd. 2020.
Figure 11.4 Control chart for CDN-ME-1603 (Ag)
Source: Compiled by AMC Mining Consultants (Canada) Ltd. 2020.
Figure 11.5 Control chart for CDN-ME-1810 (Ag)
Source: Compiled by AMC Mining Consultants (Canada) Ltd. 2020.
Figure 11.6 Control chart for CDN-ME-1605 (Ag)
Notes: CRM CDN-ME-1605 not used past 2018.
Source: Compiled by AMC Mining Consultants (Canada) Ltd. 2020.
Table 11.6 Comparison between CRM values and analytical results
|
|
CRM
|
Analytical results
|
Comparison
|
|
CRM
|
Expected Ag
value (ppm)
|
SD
|
Number of
assays
|
Mean
|
SD
|
Mean vs
expected
|
SD of results
vs expected
|
|
CDN-ME-1501
|
34.6
|
1.2
|
265
|
34.4
|
1.2
|
99.4%
|
102%
|
|
CDN-ME-1603
|
86
|
1.5
|
1,495
|
85.1
|
2.4
|
98.9%
|
157%
|
|
CDN-ME-1810
|
154
|
4.5
|
240
|
153.2
|
4.3
|
99.5%
|
96%
|
|
CDN-ME-1605
|
274
|
4.5
|
920
|
270.9
|
6.7
|
98.9%
|
150%
|
Source: Compiled by AMC Mining Consultants (Canada) Ltd. 2020.
AMC Consultants notes the following with respect to CRMs:
• With the exception of CRM CDN-ME-1501, the control limits defined by 10% of the expected CRM value plus two times the detection limit (used for ME-MS41) are somewhat greater than three standard deviations. AMC Consultants considers these limits too wide to adequately monitor laboratory performance.
• CRMs used at Silver Sand generally show overall acceptable analytical accuracy.
• CRMs CDN-ME-1501 and CDN-ME-1810 show acceptable analytical precision, exhibiting low failure rates and with the majority of results falling within the control limits (three standard deviations). The mean and standard deviation of analytical results approximate the certified performance criteria and provide confidence in analytical results at the deposit cut-off grade and at higher grades (150 g/t Ag).
• CDN-ME-1603 shows poor analytical precision with a significant number of analytical results occurring outside of two standard deviations and 5.4% of samples occurring outside of three standard deviations (failure limits). Prior to the change in analytical protocols (May 2019) samples analyzed by ALS method OG46 showed slight negative bias (2% low), with common negative bias fails. The change to ALS method ME-MS41 in May 2019 increased the spread of analytical results (standard deviation) resulting in both negative and positive fails. The average standard deviation of analytical results is ~1.5 times greater than the certified value (Table 11.6).
• CRM CDN-ME-1605 also shows sub-optimal analytical precision with a significant number of analytical results occurring outside of two standard deviations and 2.9% of samples occurring outside three standard deviations (failure limits). While the average analytical results of CDN-ME-1605 are only ~1% lower than the certified mean, the majority of samples outside control limits are negatively biased. The standard deviation of analytical results is ~1.5 times greater than the certified value.
• The excessive number of warnings and failures occurring in CDN-ME-1603 and CDN-ME-1605 is concerning and should be further investigated prior to continued use. Standard deviations of analytical results from these CRMs is 1.5 times greater than the between laboratory standard deviation provided by the CRM supplier. AMC Consultants notes that CRMs were certified using a four-acid digest but that methods OG46 and ME-MS41 comprise an aqua-regia digest. This difference in sample digestion may explain poor CRM performance.
11.5.1.3 AMC Consultants recommendations for CRMs
AMC Consultants makes the following recommendations regarding CRMs at the Silver Sand Project:
• Adjust CRM monitoring criteria such that assay batches with two consecutive CRMs outside two standard deviations, or one CRM outside of three standard deviations are investigated and if necessary, re-analyze the batch.
• Purchase an additional CRM at the average grade (130 g/t Ag) of the deposit which has been certified using similar digestion methodology.
• Investigate performance issues with CRMs CDN-ME-1603 and CDN-ME-1605 if these are to be used in future programs. This could be done by preparing several separate sample batches comprising 20 – 30 CRMs each and comprising at least two different CRMs in random order. Each batch should then be sent to both the primary laboratory and at least one other laboratory. If results occur outside of certified performance criteria, expected values and standard deviation can be calculated from laboratory results and used as performance criteria.
• Ensure that CRMs are monitored in real time on a batch by batch basis, and that remedial action is taken immediately as issues are identified.
• Ensure CRM warning, failure, and remedial action is documented.
• Re-evaluate the use of ME-MS41 analytical method. If this method is to be used going forward it is recommended that the OG46 over-limit threshold be dropped from 100 g/t Ag to a level below the anticipated cut-off grade.
11.5.2 Blank samples
11.5.2.1 Description
New Pacific uses material collected from quarry sites, local to the deposit as the source of coarse blank material. Cobble to boulder sized material is collected from a quarry site and broken with hammers into cm sized pieces by New Pacific personnel for insertion into the sample stream.
Two different sources have been used as blank material. Limestone from a quarry site near Betanzos was used as the initial source of blank material, however this was changed in July 2018 after receiving numerous results with elevated base metals. A new blank quarry site was subsequently sourced approximately 30 km west of Silver Sand. Blank material collected from this quarry comprises red quartz sandstone of similar age and composition to that hosting mineralization at Silver Sand. Five grab samples from this quarry site were sent for analysis at ALS using ME-MS41. Results ranged between 0.01 and 0.04 g/t Ag, averaging 0.02 g/t Ag.
New Pacific internal procedures require that one coarse blank is inserted for every 20 samples. New Pacific considers blank samples with assay results above 1.3 g/t Ag as a warning and samples above 2.4 g/t Ag to have failed. These control limits have been developed by New Pacific after reviewing analytical data, removing outliers and calculating the average background grade and standard deviation of blank material. The warning and fail limits are set at three times the standard deviation, and six times the standard deviation of background samples respectively. Commencing in August 2019 New Pacific implemented a procedure for laboratory follow up. Assays from blank samples that exceed the warning limit are investigated by New Pacific personnel and followed up as necessary. Assays from blank samples that exceed the fail limit are discussed with the laboratory and re-analyzed as required. New Pacific has implemented investigative work on two batches where blank material exceeded the fail criteria.
11.5.2.2 AMC Consultants discussion
Coarse blanks test for contamination during both sample preparation and assaying. Blanks should be inserted in each batch sent to the laboratory. In AMC Consultants’ opinion, when using typical ore grade analytical methods 80% of coarse blanks should be less than three times the detection limit.
A total of 2,871 coarse blank samples have been inserted since 2017, representing an overall insertion rate of 4.7%. Blank samples are included regularly in each batch of samples.
According to New Pacific criteria, a total of 125 warnings and 42 fails have occurred. This represents an overall failure rate of 1%. Collectively 97% of blank samples are less than 1.3 g/t Ag.
Table 11.7 Silver Sand blank performance
|
Year
|
Total
|
<1.3 g/t Ag
(pass)
|
1.4 g/t - 2.4 g/t Ag
(warning)
|
>2.4 g/t Ag
(fail)
|
|
2017
|
31
|
29
|
2
|
0
|
|
2018
|
1,684
|
1,541
|
106
|
34
|
|
2019
|
1,159
|
1,134
|
17
|
8
|
|
Total
|
2,871
|
2,704
|
125
|
42
|
Notes: Includes samples analyzed by ALS methods OG46 and ME-MS41.
Source: Compiled by AMC Mining Consultants (Canada) Ltd. 2020.
Figure 11.7 Blank control chart
Notes: Includes samples analyzed by ALS methods OG46 and ME-MS41; blank sourced changed in July 2018.
Source: Compiled by AMC Mining Consultants (Canada) Ltd. 2020.
AMC Consultants notes that the New Pacific failure criteria for samples analyzed by ALS method OG46 is 2.4 times the Ag detection limit. For samples analyzed by ALS method ME-MS41 the same failure criteria have been applied. ME-MS41 has been employed to enable an assessment of gallium and indium, and results in a very low Ag detection limit. AMC Consultants acknowledges that applying a failure limit of three times this detection limit (0.01 g/t Ag) may not be practical for ore grade level analysis but recommends the failure criteria level be reduced from its current level of 2.4 g/t Ag if ME-MS41 is to be used on an ongoing basis.
AMC Consultants notes that consistent monitoring and follow up of blank samples has only been completed and clearly documented since mid-2019. Two sample investigations have since been completed. This included investigations into blank samples with reported assays of 9.27 g/t Ag and
3.27 g/t Ag in August and October 2019 respectively. In both cases, samples before and after the failed blank were re-analyzed. Contamination was found to have occurred during sample preparation, from a preceding high-grade Ag interval.
In AMC Consultants’ opinion the blank monitoring procedures implemented by New Pacific are adequate to identify significant sample contamination during sample preparation and analysis. Blank samples show no significant systematic levels of contamination.
11.5.2.3 AMC Consultants recommendations
AMC Consultants makes the following recommendations regarding blank samples:
• Continue to include blanks in every batch of samples submitted at a rate of at least 1 in every 20 samples (5%).
• Adjust blank insertion procedures to also include the insertion of blank material immediately after visible high-grade silver intercepts. Alternatively, request quartz wash samples be inserted by the laboratory.
• Ensure that blanks are consistently monitored in real time on a batch by batch basis and that remedial action is taken as issues arise.
• Ensure that all blank sample follow up is recorded.
• If ALS method ME-MS41 is to be used for ongoing routine analysis:
⎯ Test an additional 10 – 20 samples from the new blank quarry site to establish a background value.
⎯ Establish an appropriate (lower) blank failure limit for ME-MS41 analysis.
11.5.3 Duplicate samples
11.5.3.1 Description
New Pacific has submitted a total of 467 quarter core field duplicate samples since 2017. Duplicate samples are selected once assay results have been received to ensure that duplicate samples encompass the entire grade range. Duplicate samples are collected by cutting the remaining half core in half. One portion of the quarter core is submitted for duplicate analysis, and the remaining portion of quarter core is returned to the core tray.
11.5.3.2 AMC Consultants discussion
Field duplicates monitor sampling variance, sample preparation and analytical variance, and geological variance.
AMC Consultants recommends that field, coarse and pulp duplicate samples be selected over the entire range of grades seen at the Project to ensure that the geological heterogeneity is understood. However, the majority of duplicate samples should be selected from zones of mineralization. Unmineralized or very low-grade samples should not form a significant portion of duplicate sample programs as analytical results approaching the stated limit of lower detection are commonly inaccurate, and do not provide a meaningful assessment of variance.
Duplicate data can be assessed using a variety of approaches. AMC Consultants typically assesses duplicate data using scatterplots and relative paired difference (RPD) plots. These plots measure the absolute difference between a sample and its duplicate. For field duplicates it is desirable to achieve 80 to 85% of the pairs having less than 20% RPD between the original assay and check assay. In these analyses, AMC Consultants excludes pairs with a mean of less than 15 times the lower limit of analytical detection. Removing these low values ensures that there is no undue influence on the RPD plots due to the higher variance of grades expected near the lower detection limit, where precision becomes poorer (Long et al. 1997).
New Pacific’s field duplicates comprise between 0.5% and 1.1% of samples submitted per year and represents 0.8% of the total drill samples. Duplicate samples have been taken from samples between 0.01 g/t Ag and 1,430 g/t Ag. Approximately 10% of duplicates are from less than 30 g/t Ag, ~ 50% are from 30 – 150 g/t Ag and the remaining ~ 40% are from higher grades. A total of 321 of the 438 sample batches (74% of batches) include duplicate samples.
AMC Consultants compared the original and field duplicate assays for 421 sample pairs where the original and duplicate assay were analyzed by ALS method code OG46, and 15 times the detection limit of 1 g/t Ag. RPD and scatter plots are presented in Figure 11.8.
Figure 11.8 Silver Sand field duplicate RPD and scatter plot
RPD and scatter plots show a relatively poor correlation between duplicate sample pairs with only 34% of samples occurring within 20% RPD. On average, original samples have a 11% higher grade than their duplicate pair. The poor correlation between original and duplicate samples suggests that mineralization is heterogenous, that sample errors are occurring during the sampling process, or a combination of both factors. Investigative work should be completed to understand the poor repeatability of samples and the source of the sample bias. AMC Consultants speculates that the friable nature of silver sulphosalts may result in loss of portions of the mineralized veins during the core cutting and sampling process, resulting in progressive decrease in sample grade with each stage of processing, and an overall net underestimation of metal. Further work is necessary to confirm this.
11.5.3.3 AMC Consultants recommendations
AMC Consultants makes the following recommendations:
• Implement investigative work to understand duplicate sample bias. This should include:
⎯ Submission of coarse (crush) duplicates samples from laboratory rejects.
⎯ Submission of fine (pulp) duplicates from laboratory pulps.
⎯ Complete screen size analysis or polished section petrology to understand the nature and size distribution of silver mineralization.
⎯ In future programs consider submitting field duplicates as half core rather than quarter core to assess sub-sampling error.
⎯ Consider drilling twin holes using triple tube diamond core or RC drilling to evaluate the deposit variance on a local scale and whether loss of vein material is occurring during drilling and sampling processes.
• Ensure that all future programs include at least 5% duplicate samples including field duplicates, coarse (crush) duplicates, and pulp duplicates to enable the various stages of sub-sampling to be monitored.
11.5.4 Umpire samples
11.5.4.1 Description
New Pacific has submitted a total of 2,851 coarse reject samples to Actlabs Skyline in Lima, Peru for check assay analysis. Actlabs Skyline is an independent geochemical laboratory certified according to ISO 9001:2015. Samples appear to have been randomly selected encompassing Ag grades between 0.01 and 1,430 g/t Ag.
11.5.4.2 AMC Consultants discussion
Umpire laboratory duplicates are typically pulp samples sent to a separate laboratory to assess the accuracy of the primary laboratory (assuming the accuracy of the umpire laboratory). These duplicates measure analytical variance and pulp sub-sampling variance. Umpire duplicates should comprise around 5% of assays. In AMC Consultants’ opinion, 80% of umpire duplicates should be within 10% RPD.
AMC Consultants notes that umpire samples submitted by New Pacific comprised coarse rejects as opposed to pulp rejects. New Pacific’s umpire samples therefore monitor sample variance associated with the sampling of the reject, sampling of the pulp and analytical variance.
New Pacific’s umpire duplicate samples comprise between 4.7% and 5% of samples each year. AMC Consultants compared the original and umpire duplicate assays for 2,064 sample pairs where the original and duplicate assay were 15 times the detection limit of 1 g/t Ag. RPD and scatter plots are presented in Figure 11.9. These show no sample bias and sub-optimal precision with only 62% of umpire duplicates being within 10% RPD. The sub-optimal performance may be due to additional sub-sampling variance incurred during sampling of the reject.
Figure 11.9 Silver Sand umpire duplicate RPD and scatter plot
11.5.4.3 AMC Consultants recommendations
AMC Consultants makes the following recommendations regarding umpire samples:
• Maintain current level of umpire samples.
• Submit pulp samples (rather than coarse reject) so that umpire samples only monitor analytical accuracy and variance.
• Include CRMs at the average grade and higher grades in umpire sample submissions.
11.6 Conclusions
New Pacific has developed and implemented sound procedures which manage sample preparation, analytical and security procedures.
Drilling programs completed on the Property between 2017 and 2019 have included QA/QC monitoring programs which have incorporated the insertion of CRMs, blanks, and duplicates into the sample streams, and umpire (check) assays at a separate laboratory. AMC Consultants has compiled and reviewed the available QA/QC data for 345 drillholes where assays have been received.
New Pacific has included CRMs, blank, and coarse reject umpire (check) assays as part of routine analysis at slightly less than the preferred rate of 5%. Field duplicate samples consisting of quarter core have also been included but comprise less than 1% of all samples.
New Pacific has used four different CRMs throughout the project history. Three CRMs were used in the 2019 program which monitored the approximate cut-off grade and grades below and above the average grade. Previous years did not monitor the cut-off grade. CRMs generally show reasonable analytical accuracy; however, two of the four CRMs do not perform within certified control limits, with an excessive number of failures. AMC Consultants postulates that poor CRM performance may be due to the CRMs being certified using a four-acid digest but analyzed using aqua-regia. AMC Consultants recommends that follow up work be completed prior to further use of these CRMs.
Blank sample results are considered acceptable and indicate that no significant contamination has occurred during sample preparation and analysis.
Quarter core field duplicate samples show sub-optimal performance which suggest that mineralization is heterogenous, that sample errors are occurring during the sampling process, or a combination of both factors. Duplicate samples are biased on average 11% lower than the original sample. AMC Consultants speculates that the friable nature of silver sulphosalts may result in sample loss during the core cutting and sampling process, resulting in progressive decrease in sample grade with each successive stage of processing, and an overall net underestimation of metal. AMC Consultants recommends that this be investigated.
Umpire (check) coarse reject samples have been sent to a third-party laboratory to confirm the accuracy of the primary laboratory. Umpire assay results show sub-optimal precision however this may be in part due to additional sub-sampling variance incurred during sampling of the coarse reject. AMC Consultants recommends future umpire samples be sent as pulp samples.
The QP for Section 11, Simeon Robinson, P.Geo., considers sample preparation, analytical, and security protocols employed by New Pacific to be acceptable. The QP has reviewed the QA/QC procedures used by New Pacific including CRMs, blank, duplicate and umpire data and has made some recommendations. The QP does not consider these to have a material impact on the Mineral Resource estimate and considers the assay database to be adequate for Mineral Resource estimation.
12 Data verification
Dinara Nussipakynova, P.Geo. of AMC Consultants, completed a site visit to the Project between 8 – 11 August 2019, and during the inspection the following activities were carried out:
• Review of field site of Silver Sand Project.
• Review of drilling and core processing procedures.
• Review of New Pacific QA/QC procedures.
• Review of randomly selected core from two drillholes (DSS422501 and DSS522506).
• Inspected the core processing facility and core storage in Betanzos.
• Held discussions with several staff on site.
• Held discussions on database management procedures.
• Observed two operating drill rigs.
• Reviewed the drill management process adopted by New Pacific.
After the site visit, the QP undertook random cross-checks of assay results in the database with original assay results on the assay certificates returned from ALS (Bolivia) and Actlabs (Peru). This verification consisted of comparing 3,616 of the 58,420 assay results in the database to those in the certificates. This is approximately 6.2% of the total samples. One typing error was detected. The QP also undertook a random cross check of the original collar and survey measurements for 18 drillholes and compared them to the database. This represented 5.5% of the total drillholes. No errors were detected.
The QP considers the database fit-for-purpose and in the QP’s opinion, the geological data provided by New Pacific for the purposes of Mineral Resource estimation were collected in line with industry best practice as defined in the CIM Exploration Best Practice Guidelines and the CIM Mineral Resource, Mineral Reserve Best Practice Guidelines. As such, the data are adequate for use in the estimation of Mineral Resources.
13 Mineral processing and metallurgical testing
13.1 Introduction
The metallurgical testwork completed to date on samples of mineralization from the Silver Sand deposit suggests that the majority of silver-bearing minerals are amenable to extraction using simple mineral processing techniques at reasonable grind sizes. A program of scoping level testwork was completed in 2018 and 2019 at the SGS Lima metallurgical facilities in Peru, with support work by Centro de Investigacion Minero Metalurgico (CIMM) (managed by the Corporacion Minera de Bolivia) and Universidad Técnica de Oruro (UTO).
Highlights of the 2018/19 metallurgical program are given below:
• Samples of Oxide, Transition, and Sulphide mineralization, (hereafter referred to as Oxide, Transition, and Sulphide) were submitted for laboratory-scale rougher-scavenger flotation testing and this work achieved up to 92.0%, 86.8%, and 96.0%, silver recovery respectively.
• Samples of Oxide, Transition, and Sulphide were submitted for bottle roll cyanidation testing and this achieved up to 96.3%, 97.0%, and 96.7% silver extraction respectively.
• Samples of Oxide were submitted for coarse column leach cyanidation testing and this achieved up to 88.3% silver extraction.
• Samples submitted for comminution testing were found to be mostly in the soft to medium grindability range with low to medium values of Abrasion Index (Ai).
The metallurgical efficiency with which a mineral processing plant might recover metals into a saleable product can have a significant impact on the potential for economic extraction. The mineral resource estimate used a constrained pit shell calculation that included a 90% metallurgical recovery assumption for silver and this is considered reasonable by the QP given the testwork results presented in this section. It should be noted however that the metallurgical program discussed below is preliminary in nature and is therefore limited in its ability to represent the deposit by the preliminary nature of the tested samples.
13.2 Initial metallurgical study – SGS Lima, 2018 13.2.1 Sample selection
Approximately 400 kg of core and coarse reject material were selected from a population of samples generated by the 2018 drilling program. The selected material was used to compile various composites of Oxide, Transition, and Sulphide from two discrete areas of the Silver Sand deposit.
An initial geometallurgical characterization was defined by metallurgists, which considered differences in silver grade, degree of oxidation, and lithology. Given that lithology type is mainly sandstone, the set of geometallurgical composites assembled represented a specific oxidation level and a silver grade (high or low) only:
• MET1: Oxide <100 g/t of Ag
• MET2: Transition <100 g/t of Ag
• MET3: Sulphide <100 g/t of Ag
• MET4: Oxide >100 g/t of Ag
• MET5: Transition >100 g/t of Ag
• MET6: Sulphide >100 g/t of Ag
In addition, six geological domains (GEO) were defined to describe different physical properties, based on rock lithology, degree of oxidation, and degree of alteration:
• GEO1: Transition, sandstone-hosted, weak alteration
• GEO2: Transition, sandstone-hosted, intense alteration
• GEO3: Sulphide, sandstone-hosted, weak alteration
• GEO4: Sulphide, sandstone-hosted, intense alteration
• GEO5: Oxide, sandstone-hosted, very weak alteration
• GEO6: Oxide, siltstone-hosted, very weak alteration
Sampling protocols were developed by a team of New Pacific site geologists and an independent metallurgist. The QP was not present for this exercise but has subsequently reviewed the details of the work and is generally satisfied with the approach. The sampling of material focused on the achievement of two objectives:
1 Capture the extent of geometallurgical variability within two zones of the deposit.
2 Collect sufficient mass to enable preliminary metallurgical testwork, including column leach tests.
Sample material for each MET and GEO domain, for two discrete zones within the deposit (named Zone 1 and Zone 2, or Z1 and Z2), was selected from the initial 400-kg of available mass. However, the sub-samples selected for the various metallurgical programs (such as mineralogy, size fraction assaying, flotation or cyanidation) for each particular domain and zone were not replicate sub samples. This means that, for example, the Zone 1 Oxide high grade (>100 g/t Ag) sample submitted to the flotation program is not a duplicate of the Zone 1 Oxide high grade sample submitted to the cyanidation program. Direct comparison of results for a particular domain is therefore not possible. The QP has reviewed the sampling protocols and the subsequent selection of sub-samples and finds the work to be acceptable for a preliminary metallurgical program. The sampling allows for a preliminary assessment of metallurgy by domain, but further work on more spatially diverse composite sets is recommended in order to complement the domain results and to verify that the metallurgical assumptions hold true.
Four independent testwork programs were carried out on these composites as described within this section. The work programs included mineral characterization, comminution, froth flotation and cyanide leaching. Crushed material from each of six metallurgical domains (MET1 to MET6) were identified for flotation and leaching testwork, while coarser samples of ½ core from the six geological domains (GEO1 to GEO6) were submitted for the comminution testwork.
Comminution, flotation, and leaching programs were completed by SGS Mineral Services in Lima, Peru, while the mineral characterization work was completed by the CIMM and UTO in Bolivia. Results from the individual testwork programs are summarized below.
13.2.2 Mineral characterization testwork
An initial program of mineral characterization was completed, which included the following tests:
• Size fraction assays.
• Heavy liquids testing.
• Quantitative mineralogy, using QEMScan.
These tests were completed on crushed charges of composite MET1-6 material from two discrete areas of the deposit (i.e. 12 composite charges in total). Composite details and characterization test results are given below.
13.2.2.1 Size fraction assaying
Twelve 2-kg composites, corresponding to the six “MET” domains for each of the two zones (Zone 1 or “Z1” and Zone 2 or “Z2”), were prepared for size fraction assays (SFAs) as shown in Table 13.1 below.
Table 13.1 SFA head assays title
|
ID
|
Type
|
DDH
|
From-To (m)
|
Silver grade, from
interval assays (g/t)
|
Silver grade from
SFAs (g/t)
|
|
MET-1, Z1
|
LG Oxide
|
6802
|
208.5-213.0
|
48
|
58.4
|
|
MET-2, Z1
|
LG Trans.
|
6802
|
127.8-133.4
|
56
|
56.4
|
|
MET-3, Z1
|
LG Sulphide
|
6608
|
239.2-246.1
|
50
|
57.0
|
|
MET-4, Z1
|
HG Oxide
|
6802
|
87.5-92.8
|
217
|
223.1
|
|
MET-5, Z1
|
HG Trans.
|
6608
|
131.9-138.7
|
145
|
156.4
|
|
MET-6, Z1
|
HG Sulphide
|
6608
|
103.7-109.0
|
189
|
158.7
|
|
MET-1, Z2
|
LG Oxide
|
5407
|
117.4-121.0
|
45
|
48.0
|
|
MET-2, Z2
|
LG Trans.
|
505001
|
68.3-74.3
|
55
|
53.6
|
|
MET-3, Z2
|
LG Sulphide
|
505001
|
120.8-124.6
|
42
|
56.8
|
|
MET-4, Z2
|
HG Oxide
|
505001
|
78.9-82.2
|
185
|
183.0
|
|
MET-5, Z2
|
HG Trans.
|
5002
|
262.1-265.3
|
147
|
152.8
|
|
MET-6, Z2
|
HG Sulphide
|
5407
|
70.1-73.6
|
131
|
111.7
|
Comparing the silver grade calculated using core sample interval assays with the grade calculated using size fraction assay results shows good agreement, adding confidence to the results.
Each of the twelve composites was split into two 1-kg charges, with 1-kg used for size fraction assaying and 1-kg used for heavy liquid testing (discussed in the following section). For the size fraction assay work, each 1-kg charge was screened into seven size fractions, before weighing and assaying each fraction to obtain a distribution of silver content by size. Mass splits to the seven size fractions are given in Table 13.2 below.
Table 13.2 Mass fractions by size in percent
|
Sample
|
Size fraction, microns
|
|
+2000
|
-2000 +1150
|
-1150 +600
|
-600 +300
|
-300 +150
|
-150 +75
|
-75
|
|
MET-1, Z1
|
8.1
|
13.3
|
8.5
|
5.9
|
19.3
|
19.5
|
25.4
|
|
MET-2, Z1
|
10.3
|
11.4
|
8.3
|
7.0
|
9.8
|
24.4
|
28.9
|
|
MET-3, Z1
|
9.5
|
12.6
|
8.5
|
6.2
|
17.3
|
19.4
|
26.5
|
|
MET-4, Z1
|
17.1
|
10.8
|
8.3
|
7.0
|
8.6
|
21.9
|
26.3
|
|
MET-5, Z1
|
14.2
|
10.5
|
7.2
|
6.2
|
10.9
|
18.3
|
32.6
|
|
MET-6, Z1
|
13.0
|
10.2
|
7.1
|
11.7
|
10.5
|
18.6
|
28.8
|
|
MET-1, Z2
|
25.7
|
10.9
|
9.3
|
12.7
|
12.1
|
12.2
|
17.0
|
|
MET-2, Z2
|
19.6
|
13.2
|
10.3
|
8.2
|
10.0
|
15.4
|
23.4
|
|
MET-3, Z2
|
15.0
|
11.8
|
8.0
|
9.5
|
24.3
|
14.9
|
16.6
|
|
MET-4, Z2
|
19.4
|
10.7
|
7.6
|
4.5
|
11.1
|
21.0
|
25.7
|
|
MET-5, Z2
|
13.7
|
12.1
|
8.7
|
13.7
|
20.2
|
10.8
|
20.9
|
|
MET-6, Z2
|
17.6
|
10.1
|
9.6
|
15.4
|
13.5
|
11.3
|
22.6
|
The mass distribution shows that after crushing, the samples show a slight preference towards fines generation, although this can be a function of the crushing methodology as well as the physical characteristics of the sample.
When each of the fractions is assayed for silver the metal distribution by size can be calculated. As seen in Figure 13.1 below, the silver shows a very strong tendency to concentrate into the finest size fraction (-75 microns) in almost every composite. This concentration effect gives rise to an upgrade in silver content of approximately 2.5 to 3 times within the finest fraction.
Although the upgrading effect is considered a potentially useful physical characteristic, it should also be noted that industrial scale size separations in the sub 100 micron range are expected to have lower separation efficiencies.
Figure 13.1 Silver distribution by size fraction
Source: AGP Mining Consultants Inc. 2019.
13.2.2.2 Heavy liquid testing
Six of the geometallurgical composites (MET 1 – 6 from one area of the deposit) were again sized into seven fractions and each fraction was then subjected to a simple density separation test that used organic heavy liquid at a density of 2.58 kilograms per litre (kg/L) to separate material based on density. This test is referred to as a Heavy Liquid Separation (HLS) test.
The two products generated for each HLS test were assayed for silver to allow calculation of a metal distribution by size and by density.
In this test, the “sinks” product describes the denser fraction (i.e. greater than 2.58 kg/L) and the “Floats” product describes the less dense fraction (less than 2.58 kg/L). The average mass, grade and metal distributions for each size fraction is given in Table 13.3 for the Oxide, Transition, and Sulphide samples.
Table 13.3 HLS test results, average by oxidation level
|
Size fraction
|
Average of Oxide samples
|
Average of Transition samples
|
Average of Sulphide samples
|
|
% mass
to sinks
|
Ag grade
in sinks
|
% of Ag
to sinks
|
% mass
to sinks
|
Ag grade
in sinks
|
% of Ag
to sinks
|
% mass
to sinks
|
Ag grade
in sinks
|
% of Ag
to sinks
|
|
+2000
|
12.4
|
139
|
23.4
|
11.7
|
59
|
7.2
|
32.4
|
176
|
44.7
|
|
-2000 +1150
|
6.4
|
156
|
16.1
|
14.5
|
53
|
17.4
|
32.7
|
55
|
35.8
|
|
-1150 +600
|
9.1
|
166
|
23.2
|
15.4
|
77
|
30.7
|
33.6
|
61
|
46.4
|
|
-600 +300
|
11.0
|
325
|
65.4
|
10.9
|
883
|
89.7
|
23.5
|
194
|
80.8
|
|
-300 +150
|
4.1
|
1015
|
84.8
|
6.3
|
1204
|
80.7
|
5.6
|
1091
|
76.9
|
|
-150 +75
|
13.9
|
193
|
67.2
|
18.0
|
113
|
99.9
|
19.3
|
148
|
77.7
|
|
-75
|
11.5
|
1346
|
56.2
|
15.4
|
382
|
27.5
|
15.8
|
399
|
27.9
|
|
Total
|
10.1
|
438
|
50.5
|
14.0
|
255
|
40.2
|
21.7
|
198
|
47.4
|
Notes:
• HLS=heavy liquid separation.
• % of Ag to sinks refers to silver metal.
What is noteworthy here is that on average, approximately 46% of the total silver was concentrated into just 15% of the mass as a dense “sinks” fraction. Table 13.3 highlights how the upgrading effect was more pronounced within the finer size fractions, and with the more oxidized samples.
The additional upgrading seen in the finer fractions is illustrated clearly in Figure 13.2 below, which plots the average size fraction mass (blue) and metal distributions (orange) for Oxide, Transition, Sulphide and all tests combined. The series of charts illustrates how for the -600 um fractions, approximately 80% of silver was concentrated into less than 20% of the mass (average of all samples). The upgrading effect was significant in the -75 micron oxide fraction but was also most pronounced in the finer fractions of the transition samples. Sulphide samples also showed a tendency to upgrade well in the fines, but not to the same extent as the Oxide and Transition samples.
This gravity concentration effect was not observed in any of the coarser (+600 micron) size fractions and this is believed to be due to the lower levels of silver mineral liberation likely in these fractions.
The fine crushing (to roughly 2-3 mm) carried out as part of normal sample preparation processes appears to have liberated a significant fraction of the silver mineralization, allowing a simple laboratory scale gravity separation process (heavy liquids) to concentrate silver to a fine, high grade product.
Figure 13.2 Average mass and silver recovery to sinks
Source: AGP Mining Consultants Inc. 2019.
13.2.2.3 Quantitative mineralogy
A program of quantitative mineralogy was initiated at CIMM using high-grade composite samples of Oxide, Transition, and Sulphide material from two discrete areas of the deposit (i.e. six samples in total). Composites were prepared using samples of coarse reject taken from several DDHs in the deposit, as shown in Table 13.4 below.
Table 13.4 QEMScan samples
|
ID
|
Type
|
# of DDH’s
|
Silver grade, from interval
assays (g/t)
|
Silver grade from
QEMScan (g/t)
|
|
MET 4 -1
|
HG Oxide
|
1
|
217
|
n/a
|
|
MET 5 -1
|
HG Trans.
|
1
|
145
|
n/a
|
|
MET 6 -1
|
HG Sulphide
|
1
|
189
|
n/a
|
|
MET 4 -2
|
HG Oxide
|
1
|
198
|
n/a
|
|
MET 5 -2
|
HG Trans.
|
1
|
147
|
n/a
|
|
MET 6 -2
|
HG Sulphide
|
1
|
131
|
n/a
|
As the material tested was sampled from only one hole per composite, this preliminary mineralogical program can be considered to represent only a snapshot of the possible mineralogical textures in situ at the deposit. Future work programs are encouraged to measure more representative samples so as to enable a more robust mineralogical analysis.
Bulk composition
Each of the six composites was pulverized, and then sized into four size fractions: +106 µm, +74-106 µm, +38-74 µm, -38 µm. Mineralogical analysis was completed on each fraction for each composite, thereby enabling the assessment of size by size mineral information.
Mineral composition data is given in the following tables, for the first three samples only.
Table 13.5 MET 4-1 (Oxide) mineral composition
|
Mineral name
|
Minerals composition by QEMScan, % w/w
|
|
+ 106 µm
|
-106 µm +74 µm
|
-74 µm +38 µm
|
- 38 µm
|
Total
|
|
Goethite
|
0.097
|
0.002
|
0.009
|
0.016
|
0.068
|
|
Pyrite
|
0.001
|
0.004
|
0.019
|
0.128
|
0.020
|
|
Quartz
|
74.34
|
93.47
|
86.96
|
46.19
|
73.87
|
|
Sphalerite
|
0.003
|
0.004
|
0.014
|
0.061
|
0.012
|
|
Hematite
|
14.13
|
3.930
|
8.650
|
29.43
|
14.555
|
|
Barite
|
0.021
|
0.059
|
0.136
|
0.149
|
0.054
|
|
Anorthoclase
|
0.437
|
0.010
|
0.009
|
0.030
|
0.296
|
|
Cassiterite
|
0.086
|
0.096
|
0.362
|
0.607
|
0.186
|
|
Argentite
|
0.010
|
0.013
|
0.034
|
0.262
|
0.046
|
|
Rutile
|
0.168
|
0.169
|
0.627
|
0.913
|
0.316
|
|
Augelite
|
0.111
|
0.065
|
0.120
|
0.265
|
0.128
|
|
Oligoclase
|
10.60
|
2.180
|
3.050
|
21.90
|
10.442
|
|
Galena
|
0.000
|
0.000
|
0.017
|
0.012
|
0.003
|
|
Other
|
0
|
0.001
|
0.001
|
0.034
|
0.005
|
|
Total
|
100
|
100
|
100
|
100
|
100
|
|
% mass of total
|
66.3
|
9.6
|
11.0
|
13.1
|
100
|
Table 13.6 MET 5-1 (Transition) mineral composition
|
Mineral name
|
Minerals composition by QEMScan, % w/w
|
|
+ 106 µm
|
-106 µm +74 µm
|
-74 µm +38 µm
|
- 38 µm
|
Total
|
|
Goethite
|
0.406
|
0.139
|
0.028
|
0.011
|
0.277
|
|
Pyrite
|
0.576
|
0.361
|
0.444
|
0.338
|
0.505
|
|
Quartz
|
86.629
|
93.211
|
91.947
|
66.513
|
84.71
|
|
Sphalerite
|
0.127
|
0.125
|
0.162
|
0.515
|
0.191
|
|
Hematite
|
2.909
|
1.351
|
3.073
|
12.579
|
4.287
|
|
Barite
|
0.001
|
0.002
|
0.012
|
0.020
|
0.005
|
|
Anorthoclase
|
2.624
|
1.148
|
0.239
|
0.034
|
1.816
|
|
Anglesite
|
0.019
|
0.013
|
0.009
|
0.031
|
0.019
|
|
Calcite
|
0.003
|
0.001
|
0.001
|
0.001
|
0.002
|
|
Galena
|
0.021
|
0.011
|
0.020
|
0.086
|
0.030
|
|
Cassiterite
|
0.003
|
0.000
|
0.007
|
0.029
|
0.007
|
|
Argentite
|
0.020
|
0.012
|
0.016
|
0.353
|
0.070
|
|
Rutile
|
0.280
|
0.288
|
0.914
|
0.998
|
0.465
|
|
Augelite
|
0.022
|
0.009
|
0.010
|
0.090
|
0.030
|
|
Oligoclase
|
6.353
|
3.316
|
3.102
|
18.398
|
7.575
|
|
Other
|
0.007
|
0.013
|
0.016
|
0.004
|
0.008
|
|
Total
|
100
|
100
|
100
|
100
|
100
|
|
% mass of total
|
64.0
|
9.0
|
11.4
|
15.5
|
100.0
|
Table 13.7 MET 6-1 (Sulphide) mineral composition
|
Mineral name
|
Minerals composition by QEMScan, % w/w
|
|
+ 106 µm
|
-106 µm +74 µm
|
-74 µm +38 µm
|
- 38 µm
|
Total
|
|
Goethite
|
0.001
|
0.000
|
0.002
|
0.005
|
0.002
|
|
Pyrite
|
6.191
|
2.166
|
1.824
|
1.278
|
4.466
|
|
Quartz
|
85.140
|
92.257
|
90.512
|
58.429
|
81.43
|
|
Sphalerite
|
0.340
|
0.261
|
0.424
|
1.167
|
0.495
|
|
Hematite
|
4.173
|
1.647
|
2.786
|
6.798
|
4.289
|
|
Barite
|
0.015
|
0.000
|
0.002
|
0.005
|
0.010
|
|
Anorthoclase
|
0.014
|
0.010
|
0.018
|
0.035
|
0.018
|
|
Anglesite
|
0.012
|
0.014
|
0.018
|
0.101
|
0.029
|
|
Chalcopyrite
|
0.032
|
0.009
|
0.010
|
0.011
|
0.024
|
|
Chalcocite
|
0.120
|
0.050
|
0.076
|
0.204
|
0.125
|
|
Galena
|
0.227
|
0.150
|
0.246
|
0.795
|
0.327
|
|
Cassiterite
|
0.199
|
0.034
|
0.088
|
0.245
|
0.181
|
|
Argentite
|
0.173
|
0.005
|
0.011
|
0.207
|
0.147
|
|
Rutile
|
0.142
|
0.186
|
0.641
|
0.998
|
0.358
|
|
Augelite
|
0.011
|
0.015
|
0.022
|
0.084
|
0.026
|
|
Oligoclase
|
3.207
|
3.183
|
3.313
|
29.615
|
8.071
|
|
Other
|
0.003
|
0.010
|
0.006
|
0.020
|
0.006
|
|
Total
|
100
|
100
|
100
|
100
|
100
|
|
% mass of total
|
62.1
|
8.5
|
11.0
|
18.4
|
100.0
|
Clearly, these samples are mostly composed of quartz (74 - 85%), with hematite varying between 4 - 14% content and oligoclase between 7 – 10%. Other minerals are mostly trace, except pyrite (4.5%) in the sulphide composite.
Silver mineralogy
Argentite was the main silver mineral identified by this QEMScan study, with traces of freibergite, jalpaite and argentopyrite noted also. Further work in this area is recommended to properly develop the characterization of silver minerals in different areas of the deposit.
13.2.3 Comminution testing
Four of the six GEO composites were subjected to an initial program of laboratory scale comminution scoping tests, including Crushing Work Index (CWi) tests, Bond Ball Mill Work Index (BWi) tests, and Ai tests.
The various GEO samples selected for the comminution program are given in Table 13.8 below.
Table 13.8 Comminution test samples
|
Comp
|
DDH
|
m to from
|
Type
|
Host
|
Silica alteration
|
|
GEO 1-1
|
4404
|
179.8 – 195.5
|
Transition
|
Sandstone
|
Weak
|
|
GEO 4-1
|
5006
|
100.8 – 110.4
|
Sulphide
|
Sandstone
|
Strong
|
|
GEO 5-1
|
465002
|
4.0 – 16.8
|
Oxide
|
Sandstone
|
Very Weak
|
|
GEO 6-1
|
7001
|
11.1 – 19.3
|
Oxide
|
Siltstone
|
Very Weak
|
|
GEO 1-2
|
5807
|
186.8-200
|
Transition
|
Sandstone
|
Weak
|
|
GEO 4-2
|
5204
|
139.6 – 148.9
|
Sulphide
|
Sandstone
|
Strong
|
|
GEO 5-2
|
505001
|
308.7 – 320.0
|
Oxide
|
Sandstone
|
Very Weak
|
Each of these GEO samples was subjected to a CWi test, a BWi test and an Ai test. A summary of the comminution test results is presented in Table 13.9 below.
Table 13.9 Comminution test data
|
Test
|
Units
|
GEO 1-1
|
GEO 4-1
|
GEO 5-1
|
GEO 6-1
|
GEO 1-2
|
GEO 4-2
|
GEO 5-2
|
|
Crushing Work Index
|
kWh/t
|
5.60
|
9.94
|
4.82
|
9.42
|
5.19
|
11.26
|
10.50
|
|
Ball Mill Work Index
|
kWh/t
|
10.5
|
15.9
|
4.1
|
4.8
|
6.8
|
11.9
|
5.7
|
|
Abrasion Index
|
g
|
0.193
|
0.536
|
0.059
|
0.125
|
0.163
|
0.463
|
0.138
|
CWi testing reported energy consumptions of between 4.82 and 11.26 kWh/t which represents a wide range of crushability. This is reflective of the diversity in mineral type, host rock and the level of silica alteration noted in these different samples.
BWi measurements varied from 4.1 kilowatt-hours per ton (kWh/t) to 15.9 kWh/t with the majority of samples measuring less than 12.0 kWh/t. It can be said then that in general, the samples tested fell into the soft or medium competency category for grinding. The single “hard” sulphide sample (GEO 4-1) was selected specifically for its high degree of siliceous alteration, and this characteristic should be carefully mapped within the deposit as the project develops, so as to completely understand the likely variability in ball mill grinding energy requirements.
Ai test measurements varied from a very low 0.06 g (oxide sandstone) to a moderate / high value of 0.54 g (sulphide sandstone). The abrasion characteristics of material mined and processed will have a dramatic impact on the wear of steel tools and comminution surfaces, such as shovels, truck beds, crusher liners, and mill liners, so in general the wear cost of mining and processing the less siliceous areas of the deposit will be lower on average. In general, the oxide and transition zones of the deposit appear to be less siliceous and can therefore be considered to be of low abrasivity.
13.2.4 Flotation testing
Three high-grade metallurgical composites representing Oxide, Transition, and Sulphide were prepared for a program of scoping level froth flotation testwork, consisting of a total of 23 rougher-scavenger tests. The bench scale tests examined the effect of changing a variety of conditions, such as grind size, reagent recipe, reagent dosages and slurry pH. The impact of these changes is discussed herein.
FLOATMET composites were prepared using samples of half core taken from several holes in the deposit, as shown in Table 13.10 below.
Table 13.10 FLOATMET samples
|
ID
|
Type
|
# of DDH’s
|
Silver grade, from interval
assays (g/t)
|
Silver grade from head
assay (g/t)
|
|
FLOATMET 4
|
HG Oxide
|
8
|
141
|
201
|
|
FLOATMET 5
|
HG Trans.
|
9
|
137
|
123
|
|
FLOATMET 6
|
HG Sulphide
|
8
|
132
|
123
|
The assays correlate well, except the HG Oxide composite (FLOATMET 4).
The three composites were assayed for silver, base metals, and sulphur content. Measured grades for each are shown in Table 13.11 below.
Table 13.11 Flotation program head assays
|
Composite ID
|
Head assay
|
|
Ag (g/t)
|
Stot (%)
|
Cu (%)
|
Pb (%)
|
Zn (%)
|
|
Oxide (Z1 FLOATMET 4)
|
201
|
0.12
|
0.006
|
0.108
|
0.003
|
|
Transition (Z1 FLOATMET 5)
|
123
|
1.01
|
0.02
|
0.391
|
0.010
|
|
Sulphide (Z1 FLOATMET 6)
|
124
|
1.63
|
0.03
|
0.217
|
0.812
|
The presence of lead and zinc sulphide minerals in the sulphide composite is apparent from these head assays. Copper levels are low for all samples. Additionally, the sulphur grade relative to copper, lead and zinc content suggests that an iron sulphide is also present in the sulphide composite (likely pyrite).
In general, the flotation performance of the three composites was very good, with high silver recoveries achieved using a simple bulk sulphide flotation collector (Potassium Isobutyl Xanthate).
The flotation testwork results discussed below are all singleton tests, and as such, the comparison of results and conclusions drawn therefrom, should all be considered preliminary. In preliminary flotation testing, experimental and assay error can mask the effect of a tested variable (such as grind). In future tests, the main conclusions of optimization tests should be verified using best practice replicate flotation testing methods.
13.2.4.1 Sulphide composite (FLOATMET 6)
In total, nine rougher scavenger flotation tests were carried out on the sulphide (FLOATMET 6) composite. The work tested different grind targets, different pulp pH levels, and a variety of different reagents. Initial tests ran for 12 minutes, but subsequent tests all ran for 20 minutes in order to fully capture flotation kinetic data.
Results of the nine sulphide tests are given in Table 13.12 below.
The change in grind from 80% passing 105 µm to 80% passing 74 µm had negligible impact on flotation performance, but a coarser grind (80% passing 150 µm or coarser) was not tested to check on the drop off in performance. This should be attempted during future work programs.
Good recoveries were seen with most reagents, and the addition of potassium amyl xanthate (PAX) alone, at around 30 – 45 g/t dosage, was adequate. The addition of lime for a pH change to 9.0 did not appear to improve the silver recovery significantly, although this should not be discounted as the maximum recovery value was achieved using lime (giving an insignificant improvement over the natural pH test).
Table 13.12 Summary of results for flotation (FLOATMET 6)
|
Test
|
Flotation conditions
|
% recovery
|
|
Time (min)
|
P80 (µm)
|
Collector mix / dose
|
Pulp pH
|
Gas
|
Mass (%)
|
Ag (%)
|
Ssul (%)
|
|
3
|
12
|
105
|
PAX 30 g/t
|
Natural
|
Air
|
6.7
|
92.8
|
97.8
|
|
4
|
12
|
74
|
PAX 30 g/t
|
Natural
|
Air
|
7.5
|
93.8
|
96.6
|
|
6
|
20
|
74
|
PAX 45 g/t
|
Natural
|
Air
|
10.4
|
95.5
|
97.2
|
|
8
|
20
|
74
|
PAX 45 g/t
|
9.0
|
Air
|
10.0
|
96.0
|
98.4
|
|
12
|
20
|
74
|
PAX 30 g/t + SIPX 15 g/t
|
Natural
|
Air
|
9.4
|
94.9
|
97.3
|
|
13
|
20
|
74
|
PAX 30 g/t + DANA468 15 g/t
|
Natural
|
Air
|
9.1
|
94.2
|
97.4
|
|
14
|
20
|
74
|
PAX 30 g/t + OX100 15 g/t
|
Natural
|
Air
|
9.8
|
94.8
|
97.3
|
|
17
|
20
|
74
|
OX100 45 g/t + PAX 15 g/t
|
Natural
|
Air
|
15.0
|
94.8
|
96.5
|
|
18
|
20
|
74
|
PAX 60 g/t
|
Natural
|
Air
|
11.5
|
95.0
|
97.2
|
Maximum silver recovery for the sulphide composite test series was 96.0% - achieved with a grind of 80% -74 µm and with a concentrate mass pull of 10%.
A good amount of fast floating silver mineral is present under these conditions, with 94% silver recovery achieved after 8 minutes of flotation.
13.2.4.2 Transition composite (FLOATMET 5)
In total, nine rougher scavenger flotation tests were carried out on the transition (FLOATMET 5) composite. The work tested similar conditions to the sulphide composites, with changed grind targets, different pulp pH levels, and a variety of different reagents. Initial tests ran for 12 minutes, but subsequent tests all ran for 20 minutes in order to fully capture flotation kinetic data.
Results of the nine transition tests are given in Table 13.13 below.
In contrast to the sulphide composite, a change in grind from 80% passing 105 µm to 80% passing 74 µm had a significant impact on flotation performance, suggesting that silver mineralization might be finer in this sample compared to the sulphide sample.
Reasonable silver recoveries were seen with most reagents, although somewhat lower in general than the sulphide composite. The addition of PAX at 45 g/t dosage and with pulp pH at 9.0 gave a silver recovery that was almost 11% less than the sulphide composite (85.2% recovery vs 96.0% recovery). Mass pull under these conditions was less for the FLOATMET 5 composite, at 7.3% compared to 10.0% for the FLOATMET 6 composite. Further tests to examine this difference should be completed during future flotation programs.
As with the sulphide composite, addition of lime for a pH change to 9.0 did not appear to improve the silver recovery significantly, although the sulphur recovery improved slightly.
Table 13.13 Summary of results for flotation (FLOATMET 5)
|
Test
|
Flotation conditions
|
% recovery
|
|
Time (min)
|
P80 (µm)
|
Collector mix / dose
|
Pulp pH
|
Gas
|
Mass (%)
|
Ag (%)
|
Ssul (%)
|
|
1
|
12
|
105
|
PAX 30 g/t
|
Natural
|
Air
|
4.1
|
73.5
|
92.1
|
|
2
|
12
|
74
|
PAX 30 g/t
|
Natural
|
Air
|
4.9
|
78.7
|
93.0
|
|
5
|
20
|
74
|
PAX 45 g/t
|
Natural
|
Air
|
7.8
|
85.1
|
92.4
|
|
7
|
20
|
74
|
PAX 45 g/t
|
9.0
|
Air
|
7.3
|
85.2
|
94.8
|
|
9
|
20
|
74
|
PAX 30 g/t + SIPX 15 g/t
|
Natural
|
Air
|
6.2
|
83.1
|
93.0
|
|
10
|
20
|
74
|
PAX 30 g/t + DANA468 15 g/t
|
Natural
|
Air
|
8.5
|
85.2
|
93.4
|
|
11
|
20
|
74
|
PAX 30 g/t + OX100 15 g/t
|
Natural
|
Air
|
10.2
|
86.8
|
94.8
|
|
15
|
20
|
74
|
OX100 45 g/t + PAX 15 g/t
|
Natural
|
Air
|
8.7
|
81.8
|
89.9
|
|
16
|
20
|
74
|
OX100 45 g/t + PAX 15 g/t
|
9.0
|
Air
|
11.8
|
84.6
|
93.9
|
13.2.4.3 Oxide composite (FLOATMET 4)
In total, five rougher scavenger flotation tests were carried out on the oxide (FLOATMET 4) composite. The work tested conditions more suitable for oxide flotation with raised pulp pH, use of nitrogen as the aerating gas, and sulphide / oxide collectors including OX100 – an alkyl hydroxamate collector commonly used for oxide copper flotation. All tests ran for 20 minutes.
Results of the five Oxide tests are given in Table 13.14 below.
Table 13.14 Summary of results for flotation (FLOATMET 4)
|
Test
|
Flotation conditions
|
% recovery
|
|
Time (min)
|
P80 (µm)
|
Collector mix / dose
|
Pulp pH
|
Gas
|
Mass (%)
|
Ag (%)
|
Ssul (%)
|
|
19
|
20
|
74
|
PAX 45 g/t + OX100 15 g/t
|
9.0
|
Air
|
6.5
|
89.9
|
46.0
|
|
20
|
20
|
105
|
PAX 45 g/t + OX100 15 g/t
|
9.0
|
Air
|
5.3
|
88.5
|
40.7
|
|
21
|
20
|
74
|
PAX 45 g/t + OX100 20 g/t
|
9.0
|
N2
|
18.4
|
92.0
|
49.9
|
|
22
|
20
|
74
|
PAX 60 g/t
|
9.0
|
Air
|
11.0
|
91.3
|
43.8
|
|
23
|
20
|
74
|
PAX 60 g/t
|
9.0
|
N2
|
18.5
|
91.2
|
50.3
|
Test 22 included a finer grind and a higher dose of PAX (a strong sulphide collector). Air was used for aeration. These standard sulphide flotation conditions gave a good silver recovery of 91.3% which could be considered surprising. A higher recovery was achieved using nitrogen gas and the OX100 as a secondary collector, but this slight improvement (92.0% Ag recovery) appears to have been achieved primarily as a result of higher concentrate mass pull (18.4% vs 11.0% in Test 22).
13.2.4.4 Concentrate product quality
Rougher concentrates from FLOATMET 5 and FLOATMET 6 tests were composited and submitted for ICP Scan, as shown in Table 13.15 below.
Table 13.15 ICP Scan, FLOATMET concentrates
|
Element
|
Unit
|
FLOATMET 5 - rougher
concentrates
|
FLOATMET 6 -rougher
concentrates
|
|
Al
|
%
|
4.07
|
3.45
|
|
Ca
|
%
|
0.10
|
0.08
|
|
Fe
|
%
|
13.7
|
14.1
|
|
K
|
%
|
1.46
|
1.19
|
|
Mg
|
%
|
0.03
|
0.03
|
|
Na
|
%
|
0.31
|
0.39
|
|
P
|
%
|
0.06
|
0.05
|
|
S
|
%
|
9.24
|
>10
|
|
Ti
|
%
|
0.07
|
0.06
|
|
As
|
ppm
|
2096
|
2582
|
|
Ba
|
ppm
|
204
|
106
|
|
Be
|
ppm
|
<0.5
|
<0.5
|
|
Bi
|
ppm
|
26
|
84
|
|
Cd
|
ppm
|
7
|
221
|
|
Co
|
ppm
|
24
|
37
|
|
Cr
|
ppm
|
655
|
869
|
|
Cu
|
ppm
|
1851
|
3520
|
|
Ga
|
ppm
|
36
|
31
|
|
La
|
ppm
|
10
|
7
|
|
Li
|
ppm
|
7
|
6
|
|
Mn
|
ppm
|
183
|
185
|
|
Mo
|
ppm
|
61
|
93
|
|
Nb
|
ppm
|
6
|
9
|
|
Ni
|
ppm
|
293
|
419
|
|
Pb
|
ppm
|
>10000
|
>10000
|
|
Sb
|
ppm
|
491
|
3612
|
|
Sc
|
ppm
|
2
|
1
|
|
Sn
|
ppm
|
65
|
613
|
|
Sr
|
ppm
|
381
|
239
|
|
Tl
|
ppm
|
<2
|
2
|
|
V
|
ppm
|
39
|
28
|
|
W
|
ppm
|
22
|
25
|
|
Y
|
ppm
|
2
|
3
|
|
Zn
|
ppm
|
1154
|
>10000
|
13.2.4.5 Flotation summary
These initial scoping tests show that silver minerals can be efficiently concentrated using relatively simple froth flotation conditions. Flotation concentrates containing 2,500 – 3,000 g/t silver were produced quickly, without using a cleaner flotation stage. Concentrate mass pulls are somewhat high however, and these could likely be improved via use of a scavenger-cleaner circuit.
Concentrates from the sulphide and transition leach tests were composited and tested for minor elements by ICP. These show slightly elevated arsenic and antimony in addition to the lead, zinc, and copper that have all recovered to the concentrate. Further flotation work is recommended before conclusions are drawn regarding concentrate quality.
13.2.5 Cyanide leach testing
13.2.5.1 Leaching samples
Four LEACHMET composites of Oxide, Transition, and Sulphide were prepared using samples of half core taken from several holes in the deposit for cyanide leaching work as summarized in Table 13.16 below.
Table 13.16 LEACHMET samples
|
ID
|
Type
|
# of DDH’s
|
Silver grade, from interval
assays (g/t)
|
Silver grade from head
assay (g/t)
|
|
LEACHMET 1
|
LG Oxide
|
25
|
29
|
29
|
|
LEACHMET 4
|
HG Oxide
|
15
|
125
|
132
|
|
LEACHMET 5
|
HG Trans.
|
8
|
129
|
157
|
|
LEACHMET 6
|
HG Sulphide
|
9
|
137
|
124
|
The estimated assays (from interval assays) correlate well with the measured silver head assays. The four LEACHMET composites were crushed, blended, and assayed for silver, base metals, and total sulphur content. Measured grades for each are shown in Table 13.17 below.
Table 13.17 Bottle roll composite details
|
Composite ID
|
Head assay
|
|
Ag (g/t)
|
Stot (%)
|
Cu (%)
|
Pb (%)
|
Zn (%)
|
|
LEACHMET 1
|
29
|
0.15
|
0.010
|
0.062
|
0.008
|
|
LEACHMET 4
|
132
|
0.21
|
0.009
|
0.055
|
0.003
|
|
LEACHMET 5
|
157
|
1.45
|
0.040
|
0.120
|
0.343
|
|
LEACHMET 6
|
124
|
2.13
|
0.031
|
0.089
|
0.054
|
Although these composites were prepared using different samples to the FLOATMET composites, the grades compare quite well. The low levels of copper would not be expected to present metallurgical complications when it comes to cyanide consumption.
13.2.5.2 Bottle roll testing
The bottle roll testwork program comprised of a battery of 33 individual scoping tests, each running for 72 hours and using a variety of conditions (grind sizes, cyanide solution strength, dissolved oxygen (DO) levels, and pulp temperatures) to further define the metallurgical characteristics of these Silver Sand mineralization samples.
A variety of results were obtained from the work, as listed in Table 13.18 (LEACHMET 6), Table 13.19 (LEACHMET 5), Table 13.20 (LEACHMET 4), and Table 13.21 (LEACHMET 1) below.
Very high silver extractions (greater than 96%) were achieved for the sulphide and transition composites when intensive cyanidation conditions were used (oxygen sparging plus elevated pulp temperature). Oxide composite performance was more variable, with silver extractions between 81% and 96% achieved under similar conditions.
These leaching results are in general very encouraging and further optimization testwork is recommended to better characterize the deposit.
Table 13.18 LEACHMET 6 bottle roll test results
|
Test #
|
Grind P80
|
% Sol. strength
|
Consumption (kg/t)
|
Pulp temp
|
Sparge
|
% extraction
|
|
(µm)
|
NaCN
|
NaCN
|
CaO
|
(℃)
|
gas
|
Ag
|
Cu
|
|
|
|
4
|
50
|
0.10
|
4.00
|
0.78
|
21
|
Air
|
81.8
|
59.9
|
|
5
|
74
|
0.10
|
3.47
|
0.65
|
21
|
Air
|
76.4
|
54.1
|
|
6
|
105
|
0.10
|
3.39
|
0.65
|
21
|
Air
|
75.8
|
55.4
|
|
9
|
50
|
0.30
|
5.16
|
0.78
|
26
|
O2
|
93.6
|
66.9
|
|
10
|
50
|
0.30
|
10.18
|
0.79
|
57
|
O2
|
96.7
|
73.7
|
|
13
|
74
|
0.05
|
2.46
|
2.16
|
21
|
Air
|
58.4
|
55.8
|
|
14
|
74
|
0.20
|
4.90
|
1.43
|
21
|
Air
|
83.8
|
57.7
|
|
18
|
74
|
0.30
|
3.66
|
1.05
|
27
|
O2
|
92.8
|
71.7
|
|
19
|
74
|
0.40
|
4.59
|
1.05
|
26
|
O2
|
94.0
|
72.5
|
The LEACHMET 6 (HG Sulphide) might be expected to perform poorly in a cyanide leaching environment, but in this case, silver extractions of up to 96.7% were achieved using high cyanide concentration, a fine grind, elevated temperature, and oxygen sparging (Test 10). Without oxygen sparging, the extraction appeared to be limited to 83.8% (Test 14). The oxidation of sulphides appears to be an important factor in the process. Increasing leach temperature to 57°C improved performance further.
Leach kinetics for Test 10 were a little slow, with 87.5% extraction calculated after 24 hours.
A similar battery of tests was completed for the LEACHMET 5 (HG Transition) composite, with good results also.
Table 13.19 LEACHMET 5 bottle roll test results
|
Test #
|
Grind P80
(µm)
|
% Sol. strength
|
Consumption (kg/t)
|
Pulp temp
(℃)
|
Sparge
gas
|
% extraction
|
|
NaCN
|
NaCN
|
CaO
|
Ag
|
Cu
|
|
1
|
50
|
0.10
|
4.31
|
0.85
|
21
|
Air
|
67.6
|
65.7
|
|
2
|
74
|
0.10
|
3.56
|
0.65
|
21
|
Air
|
61.4
|
60.2
|
|
3
|
105
|
0.10
|
3.04
|
0.65
|
21
|
Air
|
56.6
|
31.2
|
|
7
|
50
|
0.30
|
5.26
|
0.78
|
26
|
O2
|
94.0
|
72.9
|
|
8
|
50
|
0.30
|
9.78
|
0.78
|
56
|
O2
|
97.0
|
81.6
|
|
11
|
74
|
0.05
|
2.76
|
1.99
|
21
|
Air
|
47.9
|
55.4
|
|
12
|
74
|
0.20
|
6.29
|
1.60
|
21
|
Air
|
75.7
|
65.7
|
|
16
|
74
|
0.30
|
3.66
|
1.05
|
28
|
O2
|
93.5
|
74.8
|
|
17
|
74
|
0.40
|
4.15
|
1.05
|
30
|
O2
|
93.3
|
71.1
|
As with the sulphide composite, LEACHMET 5 achieved a very high silver extraction rate (97.0%) using elevated temperature, high cyanide concentrations, a fine grind, and oxygen sparging (Test 8). Without oxygen sparging, the silver extraction appeared to be limited to 75.7% (Test 12).
Leach kinetics for Test 8 were reasonable, with 92.5% Ag extraction calculated after 24 hours and 97.0% after 72 hours.
The two oxide composites, LEACHMET 4 and LEACHMET 1, would be expected to perform well. Indeed, with oxygen sparging and high cyanide concentrations, both composites provided good silver extractions at a 74 micron grind (compared to sulphide and transition composites, in which maximum extraction was achieved at a 50 micron grind).
Table 13.20 LEACHMET 4 bottle roll test results
|
Test #
|
Grind P80
(µm)
|
% Sol. strength
|
Consumption (kg/t)
|
Pulp
temp (℃)
|
Sparge
gas
|
% extraction
|
|
NaCN
|
NaCN
|
CaO
|
Ag
|
Cu
|
|
23
|
105
|
0.05
|
1.79
|
1.96
|
28
|
Air
|
65.5
|
25.7
|
|
24
|
74
|
0.05
|
2.09
|
2.02
|
27
|
Air
|
66.4
|
29.2
|
|
25
|
50
|
0.05
|
2.32
|
2.03
|
28
|
Air
|
69.0
|
34.7
|
|
28
|
74
|
0.15
|
4.69
|
0.46
|
27
|
Air
|
83.4
|
31.0
|
|
29
|
74
|
0.30
|
5.38
|
0.39
|
28
|
Air
|
86.7
|
31.2
|
|
32
|
74
|
0.30
|
3.94
|
0.78
|
27
|
O2
|
95.6
|
27.4
|
|
33
|
74
|
0.30
|
5.08
|
0.78
|
59
|
O2
|
96.3
|
34.5
|
Table 13.21 LEACHMET 1 bottle roll test results
|
Test #
|
Grind P80
(µm)
|
% Sol. strength
|
Consumption (kg/t)
|
Pulp
temp (℃)
|
Sparge
gas
|
% extraction
|
|
NaCN
|
NaCN
|
CaO
|
Ag
|
Cu
|
|
20
|
105
|
0.05
|
1.99
|
1.60
|
26
|
Air
|
59.1
|
40.1
|
|
21
|
74
|
0.05
|
2.13
|
1.86
|
28
|
Air
|
71.1
|
38.8
|
|
22
|
50
|
0.05
|
2.21
|
1.86
|
28
|
Air
|
77.5
|
41.1
|
|
26
|
74
|
0.15
|
4.55
|
0.84
|
28
|
Air
|
74.1
|
45.1
|
|
27
|
74
|
0.30
|
5.95
|
0.59
|
27
|
Air
|
78.2
|
45.7
|
|
30
|
74
|
0.30
|
4.53
|
0.79
|
29
|
O2
|
81.0
|
47.9
|
|
31
|
74
|
0.30
|
6.71
|
0.78
|
59
|
O2
|
81.6
|
48.5
|
13.2.5.3 Bottle roll summary
These initial scoping tests show that silver minerals can be efficiently extracted using intensive cyanidation conditions in bottle rolls. The best results for each composite are given in Table 13.22 below.
Table 13.22 Bottle roll test results summary
|
Composite ID & test #
|
Grind P80
(µm)
|
% Sol. strength
|
Consumption(kg/t)
|
Temp
(℃)
|
Sparge
gas
|
% extraction
|
|
NaCN
|
NaCN
|
CaO
|
Ag
|
Cu
|
|
LEACHMET 1, Test 31
|
74
|
0.30
|
6.71
|
0.78
|
59
|
O2
|
81.6
|
48.5
|
|
LEACHMET 4, Test 33
|
74
|
0.30
|
5.08
|
0.78
|
59
|
O2
|
96.3
|
34.5
|
|
LEACHMET 5, Test 8
|
50
|
0.30
|
9.78
|
0.78
|
56
|
O2
|
97.0
|
81.6
|
|
LEACHMET 6, Test 10
|
50
|
0.30
|
10.2
|
0.79
|
57
|
O2
|
96.7
|
73.7
|
Very high silver extractions (greater than 96%) were achieved for the sulphide and transition composites when intensive cyanidation conditions were used (oxygen sparging plus elevated pulp temperature). Oxide composite performance was more variable, with silver extractions between 81% and 96% achieved under similar conditions.
Although these results are based on 72 hours of leaching, they are in general very encouraging and further optimization testwork is recommended to increase leach kinetics and to better characterize the deposit.
13.2.5.4 Column leach testing
Four column leach tests were completed on the two oxide samples, using coarser material than the bottle roll work (crushed to 100% passing 12.7 mm). Each column test ran for 75 days and the DO level was maintained at 20 – 30 ppm throughout all tests.
Figure 13.3 Column leaching test setup
Source: AGP Mining Consultants Inc. 2019.
The tests were carried out in 100 mm diameter columns, with a bed height of 1.5 m and irrigation rates of 7 and 10 L/h/m2.
The cyanide solution at 0.4% strength (%w/w) was prepared at the nominal NaCN concentration and lime added to maintain a pH of 10.5.
The feed solutions were pumped continuously and constantly to the top of the columns at the specified irrigation rate, and the feed solution was monitored for temperature, DO, and oxidation-reduction potential (ORP).
Results for the four column tests, together with a summary of silver extraction kinetic curves are given below in Figure 13.4.
Table 13.23 Column leach test results summary
|
Composite ID
|
Mesh of
grind (mm)
|
% Sol.
strength
|
Solution rate
(L/h/m2)
|
Consumption
(kg/t)
|
% extraction (calculated
from PLS concs)
|
|
NaCN
|
NaCN
|
CaO
|
Ag
|
Cu
|
|
LEACHMET 1
|
-12.7
|
0.40
|
7.0
|
6.3
|
1.4
|
75.3
|
45.8
|
|
LEACHMET 1
|
-12.7
|
0.40
|
10.0
|
8.6
|
1.6
|
84.4
|
45.1
|
|
LEACHMET 4
|
-12.7
|
0.40
|
7.0
|
6.4
|
1.4
|
88.3
|
29.3
|
|
LEACHMET 4
|
-12.7
|
0.40
|
10.0
|
8.1
|
1.6
|
86.6
|
29.4
|
Figure 13.4 Column leach kinetic curves
Source: AGP Mining Consultants Inc. 2019.
These column leach results indicate that heap leaching may be a viable process route for the deposit and might be suitable for processing the lower grade oxide material. The laboratory work was conducted on fairly fine material (-1/2”), so should be expected to give better results than for coarser industrial scale heap leaches. The kinetic curves shown above demonstrate how the recovery was still increasing at the end of the test, so higher recoveries would likely be achievable with longer leach times.
14 Mineral Resource estimates
The Mineral Resources for the Silver Sand deposit have been estimated by Ms Dinara Nussipakynova, P.Geo., of AMC Consultants, who takes responsibility for the estimate.
The estimate is dated 31 December 2019 and is the first Mineral Resource estimate on the deposit. The data used in this estimate includes results of all drilling carried out on the Property to 31 December 2019.
The estimation was carried out in Datamine™ software. Interpolation was carried out using ordinary kriging (OK) for both mineralized domains and the background model.
The result of the current estimate is summarized in Table 14.1. The following metals were estimated; silver, lead, zinc, gallium, and indium. Only silver is reported below as metallurgical work has yet to be done on the other metals to demonstrate economics. The model is depleted for historical mining activities.
Mineral Resources that are not Mineral Reserves do not have demonstrated economic viability.
Table 14.1 Conceptual pit-constrained Mineral Resource as of 31 December 2019
|
Resource category
|
Tonnes (Mt)
|
Ag (g/t)
|
Ag (Moz)
|
|
Measured
|
8.40
|
159
|
43.05
|
|
Indicated
|
26.99
|
130
|
112.81
|
|
Measured & Indicated
|
35.39
|
137
|
155.86
|
|
Inferred
|
9.84
|
112
|
35.55
|
Notes:
• CIM Definition Standards (2014) were used for reporting the Mineral Resources.
• The QP Dinara Nussipakynova, P.Geo. of AMC Consultants.
• Mineral Resources are constrained by an optimized pit shell developed at a metal price of US$18.70/oz Ag and recovery of 90% Ag (cost and other assumptions shown in Table 14.10).
• Cut-off grade is 45 g/t Ag.
• Mineral Resources are reported inside the AMC claim boundary.
• Pit optimization allows waste to extend outside the claim to the NE and SW.
• Mineral resources that are not mineral reserves do not have demonstrated economic viability.
• Drilling results up to 31 December 2019.
• The numbers may not compute exactly due to rounding.
Source: AMC Mining Consultants (Canada) Ltd.
The QP is not aware of any known environmental, permitting, legal, taxation, socioeconomic, marketing, or other similar factors that could materially affect the stated Mineral Resource estimates.
Regarding title, the QP is aware that the 17 ATEs, where the Mineral Resource is located, are in the process of being consolidated and converted into one concession. An Administrative Mining Contract (AMC) with AJAM has been signed but is yet to be registered with the mining register, notary process and published in the mining gazette. AMC sees no reason for these final conversion steps not to occur.
Regarding political risk, during and after the Fall 2019 elections, civil unrest across the country resulted in road blockages and strikes by local groups. Roads to the Property were blocked during this temporary event. New elections are currently scheduled to be held in 2020 which may again result in temporary civil unrest. In the past, former political leaders have caused Bolivia to nationalize privately owned mines. Global mining laws are subject to change from time to time.
14.1 Data used
14.1.1 Drillhole database
The data used in the estimate consists of surface DDHs only. New Pacific maintains the resource database in a Microsoft Access database and provided data to AMC Consultants as Excel files. The number of holes and number of assays used in the AMC Consultants estimate, by year of drilling, are shown in Table 14.2.
Table 14.2 Drillhole data used in the estimate
|
Year drilled
|
No. of drillholes*
|
No. of assays
|
Metres drilled (m)
|
|
2017
|
18
|
3,337
|
5,020
|
|
2018
|
177
|
34,728
|
49,991
|
|
2019
|
135
|
20,355
|
30,379
|
|
Total
|
330
|
58,420
|
85,391
|
Notes:
• Drillholes are surface DDHs.
• Drill data to 31 December 2019.
• Numbers may not add due to rounding.
• Number of drillholes on the Property is 345 but only 330 are in the Mineral Resource area.
*Mineral Resource estimate used 34 drillholes collared on the COMIBOL ground to inform the block model.
Source: AMC Mining Consultants (Canada) Ltd.
14.1.2 Bulk density
New Pacific performed 4,033 density measurements on the core drilled on the Property. The collection of bulk density measurements is described in Section 11. As the mineralization is hosted in one rock type, after reviewing the density data, the QP assigned two density measurements to the block model based on the mean density inside and outside of the mineralized domains. These values are shown below in Table 14.3.
Table 14.3 Assigned bulk density
|
Area
|
No. of measurements
|
Assigned (t/m3)
|
|
Mineralized Sandstone
|
725
|
2.54
|
|
Unmineralized Sandstone
|
3,308
|
2.50
|
|
Total
|
4,033
|
|
14.2 Domain modelling
14.2.1 Lithological domains
The Silver Sand deposit is hosted in La Puerta Formation sandstones and is capped by the red siltstone of the Tarapaya Formation as discussed in Section 7. New Pacific provided the contact between these two formations. The contact was modelled in Leapfrog Geo 4.0. The contact was reviewed and accepted by the QP.
14.2.2 Mineralization domains
Building of the mineralization domain was also carried out by New Pacific. The wireframes of mineralization were built by the grade shell method in Leapfrog.
The mineralization domain was reviewed and accepted by the QP with some changes. The QP separated the domain into two areas termed West and Main domains, based on vein orientation. The wireframes were trimmed to address locally unconstrained implicit modelling issues and where Leapfrog had built shapes around one drillhole.
Figure 14.1 shows the mineralization domains in 3D space.
Visual checks were carried out by the QP to ensure that the constraining wireframes respected the raw data, and the QP also ran a preliminary indicator model to confirm the orientation of the domains.
Figure 14.1 3D view of mineralization domains looking north-east
Source: AMC Mining Consultants (Canada) Ltd.
14.2.3 Mined-out domains
New Pacific provided AMC Consultants with void solids that are interpreted to represent historical mining. The void solids were built by extrapolating voids encountered in drilling approximately halfway to the next drillhole. Surveying of the historical mining voids could not be undertaken due to safety issues.
The QP compared the provided solids with the drillhole database and found them to be acceptable.
14.3 Statistics and compositing
Sample lengths range from 0.14 m to 12.93 m within the resource area. The mean sample length is 1.44 m. Given this mean and considering the width of the mineralization, the QP chose to composite to 1.4 m lengths. Samples were composited by domain. Assays within the wireframe domains were composited starting at the first mineralized wireframe boundary from the collar and resetting at each new wireframe boundary. The residuals were discarded.
The silver assay data sets for both the West and Main mineralization domains were viewed on log probability plots, and also evaluated using the decile method. Capping was applied by domain to the composites as shown in Table 14.4.
Table 14.4 Grade capping for silver
|
Domain
|
Top cut
(Ag g/t)
|
Original mean
(Ag g/t)
|
New mean
(Ag g/t)
|
Number of
samples top cut
|
New mean grade
as % of original
|
|
West Domain
|
1,500
|
122
|
119
|
12
|
97.5%
|
|
Main Domain
|
1,500
|
153
|
143
|
61
|
93.5%
|
Source: AMC Mining Consultants (Canada) Ltd.
The raw, composited, and capped assay data for the mineralized domains are shown in Table 14.5.
Table 14.5 Statistics of raw, composited, and capped assay data
|
Domain
|
Statistic
|
Ag (g/t)
|
|
Raw
|
Composites
|
Capped
|
|
|
No. samples
|
2,547
|
2,179
|
2,179
|
|
|
Minimum
|
0.01
|
0
|
0
|
|
West Domain
|
Maximum
|
4,000
|
2,642
|
1,500
|
|
|
Mean
|
120
|
122
|
119
|
|
|
Coefficient variation
|
2.18
|
1.73
|
1.59
|
|
|
No. samples
|
7,360
|
6,201
|
6,201
|
|
|
Minimum
|
0
|
0
|
0
|
|
Main Domain
|
Maximum
|
16,194
|
11,252
|
1,500
|
|
|
Mean
|
153
|
153
|
143
|
|
|
Coefficient variation
|
2.95
|
2.30
|
1.67
|
Source: AMC Mining Consultants (Canada) Ltd.
14.4 Block model parameters
The parent block size was 5 mE x 5 mN x 5 mRL with sub-blocking employed. Sub-blocking resulted in minimum cell dimensions of 1.25 mE x 1.25 mN x 0.5 mRL.
The background mineralization being that outside the mineralization domains was estimated with a parent block dimension of 10 mE x 10 mN x 10 mRL. The background model was then merged with the domain model to form one model.
The block model dimensions and rotation for the merged model used for the estimate are shown in Table 14.6. The model was rotated counter-clockwise around the Z-axis.
Table 14.6 Block model parameters
|
Parameter
|
X
|
Y
|
Z
|
|
Origin (m)
|
234,650
|
7,855,150
|
3,600
|
|
Rotation angle (deg)
|
0
|
0
|
-30
|
|
No. of blocks
|
150
|
260
|
80
|
|
Source: AMC Mining Consultants (Canada) Ltd.
|
|
|
14.5 Variography and grade estimation
Variography was carried out on both the West and Main domains, and for the low-grade background model. The search distances for grade estimation were based on the variogram ranges.
Interpolation was carried out using the OK estimation method. A number of passes were employed, each using different search distances and passes as shown in Table 14.7 along with the minimum and maximum number of samples used for each pass.
Table 14.7 Grades interpolation search parameters for silver
|
Domain
|
Pass
|
X (m)
|
Y (m)
|
Z (m)
|
Rotation
angle
axis Z
|
Rotation
angle
axis Y
|
Rotation
angle
axis Z
|
Minimum
no. of
samples
|
Maximum
no. of
samples
|
Minimum
no. of
drillholes
|
|
|
1
|
65
|
65
|
15
|
15
|
160
|
145
|
6
|
16
|
NA
|
|
West
|
2
|
130
|
130
|
30
|
15
|
160
|
145
|
6
|
16
|
NA
|
|
|
3
|
195
|
195
|
45
|
15
|
160
|
145
|
3
|
12
|
NA
|
|
|
1
|
85
|
90
|
30
|
30
|
155
|
120
|
6
|
16
|
NA
|
|
Main
|
2
|
170
|
180
|
60
|
30
|
155
|
120
|
6
|
16
|
NA
|
|
|
3
|
255
|
270
|
90
|
30
|
155
|
120
|
3
|
16
|
NA
|
|
|
1
|
67
|
74
|
37
|
37
|
155
|
120
|
6
|
12
|
3
|
|
Background
|
2
|
134
|
148
|
74
|
37
|
155
|
120
|
4
|
12
|
2
|
|
|
3
|
201
|
222
|
111
|
37
|
155
|
120
|
2
|
12
|
1
|
Source: AMC Mining Consultants (Canada) Ltd.
The blocks inside the block model are coded by estimated silver, lead, zinc, gallium, indium, and an assigned bulk density value. Only silver, which has a proven metallurgical recovery method, is reported in the Mineral Resource statement.
14.6 Resource classification
Mineral Resource classification was completed using an assessment of geological and mineralization continuity, data quality, and data density. Search passes, which were different from those used to estimate grade, were used as an initial guide for classification. Wireframes were then generated manually to build coherent areas defining the different classes.
Interpolation for classification was carried out using the OK method. A number of passes were employed, each using different search distances and multiples as follows:
• Pass 1 = 1 x search distance
• Pass 2 = 2 x search distance
• Pass 3 = 3 x search distance
These are shown in Table 14.8 along with the minimum and maximum number of samples used for each pass.
Table 14.8 Class interpolation search parameters
|
Pass
|
X (m)
|
Y (m)
|
Z (m)
|
Minimum no.
of samples
|
Maximum no.
of samples
|
Minimum no.
of drillholes
|
|
1
|
30
|
30
|
10
|
8
|
24
|
4
|
|
2
|
60
|
60
|
20
|
6
|
20
|
3
|
|
3
|
90
|
90
|
30
|
4
|
20
|
2
|
|
Source: AMC Mining Consultants (Canada) Ltd.
|
|
|
|
|
Figure 14.2 shows a 3D view of the resource classification shells.
Figure 14.2 3D view of resource classification shells
14.7 Block model validation
The block model was validated in four ways. First, visual checks were carried out to ensure that the grades respected the raw assay data, and also lay within the constraining wireframes. Secondly, swath plots were reviewed. Thirdly, the estimate was statistically compared to the capped assay data, with satisfactory results. Lastly the OK estimate was compared to an inverse distance squared, and inverse distance cubed and a nearest neighbour estimate, also with acceptable results.
14.7.1 Visual checks
Figure 14.3 shows a plan view of the block model along with section lines. The Main domain contains the largest Measured plus Indicated tonnes. Examples of the drillhole composite silver grades compared to the block model estimated grades for the Main domain are shown in Figure 14.4 and Figure 14.5. The figure shows good agreement between the drillhole composite grades and the estimated block model grades.
Figure 14.5 and Figure 14.6 show examples of the drillhole composite silver grades compared to the block model estimated grades for the West domain. The figure shows good agreement between the drillhole composite grades and the estimated block model grades.
Figure 14.3 Plan view at 3950 mRL: block model and section lines
Figure 14.4 Main domain: block model versus drillhole grade Section 7250
Figure 14.5 West and Main domains: block model versus drillhole grade Section 72
Figure 14.6 West domain: block model versus drillhole grade Section 7050
14.7.2 Swath plots
Swath plots for the West domain and the Main domain for the combined Measured, Indicated, and Inferred mineralization are shown below in Figure 14.7 and Figure 14.8 respectively. In both domains there is acceptable agreement between drillhole and block model silver grades.
Figure 14.7 West domain swath plot
Source: AMC Mining Consultants (Canada) Ltd. 2020.
Figure 14.8 Main domain swath plot
Source: AMC Mining Consultants (Canada) Ltd. 2020.
14.7.3 Statistical comparison
Table 14.9 shows the statistical comparison on the composites versus the block model grades for silver.
Table 14.9 Statistical comparison of capped assay data and block model
|
Domain
|
Statistic
|
Ag (g/t)
|
|
Capped
|
Block model
|
|
|
No. samples
|
2,179
|
828,738
|
|
|
Minimum
|
0
|
18
|
|
West
|
Maximum
|
1500
|
714
|
|
|
Mean
|
119
|
114
|
|
|
Coeff. Var
|
1.63
|
0.50
|
|
|
No. samples
|
6,201
|
1,378,129
|
|
|
Minimum
|
0
|
10
|
|
Main
|
Maximum
|
1500
|
1,128
|
|
|
Mean
|
143
|
118
|
|
|
Coeff. Var
|
1.67
|
0.59
|
14.7.4 Comparison with other interpolation methods
The OK estimate was compared to an inverse distance squared, and inverse distance cubed and a nearest neighbour estimate, also with acceptable results.
14.8 Mineral Resource estimates
The pit-constrained Mineral Resources are reported for blocks above a conceptual pit shell based on a US$18.70/ounce silver price and Mineral Resources are reported within the AMC claim boundary. Pit optimization allowed waste to extend outside the AMC claim boundary into the MPC area to the NE and SW.
The cut-off applied for reporting the pit-constrained Mineral Resources is 45 g/t silver. Assumptions made to derive a cut-off grade included mining costs, processing costs and recoveries. These inputs were obtained from comparable industry situations and are shown in Table 14.10. The model is depleted for historical mining activities.
Table 14.10 Cut-off grade and conceptual pit parameters
|
Input
|
Units
|
Value
|
|
Silver price
|
US$/oz Ag
|
18.70
|
|
Silver process recovery
|
%
|
90
|
|
Payable silver
|
%
|
97
|
|
Dilution factor
|
%
|
10
|
|
Mining recovery factor
|
%
|
100
|
|
Mining cost
|
US$/t mined
|
2.00
|
|
Process cost
|
US$/t minable material > COG
|
10.00
|
|
G&A cost
|
US$/t minable material > COG
|
2.00
|
|
Slope angle
|
degrees
|
45
|
Notes:
• Sustaining capital cost has not been included.
• Measured, Indicated and Inferred Mineral Resources included.
• Source: AMC Mining Consultants (Canada) Ltd.
A summary of the Mineral Resource estimate is shown in Table 14.11.
Table 14.11 Conceptual pit-constrained Mineral Resource as of 31 December 2019
|
Resource category
|
Tonnes (Mt)
|
Ag (g/t)
|
Ag (Moz)
|
|
Measured
|
8.40
|
159
|
43.05
|
|
Indicated
|
26.99
|
130
|
112.81
|
|
Measured & Indicated
|
35.39
|
137
|
155.86
|
|
Inferred
|
9.84
|
112
|
35.55
|
Notes:
• CIM Definition Standards (2014) were used for reporting the Mineral Resources.
• The QP is Dinara Nussipakynova, P.Geo. of AMC Consultants.
• Mineral Resources are constrained by an optimized pit shell developed at a metal price of US$18.70/oz Ag and recovery of 90% Ag (cost and other assumptions shown in Table 14.10).
• Cut-off grade is 45 g/t Ag.
• Mineral Resources are reported inside the AMC claim boundary.
• Pit optimization allows waste to extend outside the claim to the NE and SW.
• Mineral resources that are not mineral reserves do not have demonstrated economic viability.
• Drilling results up to 31 December 2019.
• The numbers may not compute exactly due to rounding.
Source: AMC Mining Consultants (Canada) Ltd.
The results of reporting out of the block model at a range of cut-offs are shown in Table 14.12, with the preferred cut-off shown in bold text. The QP notes the Mineral Resource estimate is insensitive to cut-off grade.
Table 14.12 Mineral Resource estimates at a range of cut-off values
|
Resource category
|
Cut-off Ag (g/t)
|
Tonnes (Mt)
|
Ag (g/t)
|
Ag (Moz)
|
|
|
30
|
8.5
|
158
|
43.19
|
|
|
45
|
8.4
|
159
|
43.05
|
|
Measured
|
60
|
8.0
|
164
|
42.42
|
|
|
80
|
7.1
|
176
|
40.42
|
|
|
100
|
6.0
|
192
|
37.09
|
|
|
30
|
27.6
|
128
|
113.56
|
|
|
45
|
27
|
130
|
112.81
|
|
Indicated
|
60
|
25.3
|
135
|
109.97
|
|
|
80
|
21.2
|
148
|
100.5
|
|
|
100
|
16.6
|
164
|
87.31
|
|
|
30
|
10.6
|
107
|
36.47
|
|
|
45
|
9.8
|
112
|
35.55
|
|
Inferred
|
60
|
8.8
|
119
|
33.81
|
|
|
80
|
6.9
|
134
|
29.41
|
|
|
100
|
4.8
|
153
|
23.35
|
Notes:
• CIM Definition Standards (2014) were used for reporting the Mineral Resources.
• Mineral Resources are constrained by an optimized pit shell at a metal price of US$18.70/oz Ag and recovery of 90% Ag.
• Mineral Resources are shown at a range of silver cut-off values. The preferred cut-off grade of 45 g/t Ag shown in bold.
• Mineral Resources are reported inside the AMC claim boundary.
• Pit optimization allows waste to extend outside the claim to the NE and SW.
• Mineral Resources that are not Mineral Reserves do not have demonstrated economic viability.
• Drilling results up to 31 December 2019.
• The numbers may not compute exactly due to rounding. Source: AMC Mining Consultants (Canada) Ltd.
The QP notes that the current Mineral Resource is constrained within a conceptual open pit that allows waste, but not mineralization, to extend onto the MPC area. Extending the pit to allow for the extraction of both waste and mineralization in the MPC area increases the contained silver ounces in the Measured and Inferred category from 155.9 Moz to 170.3 Moz and in the Inferred category from 35.6 Moz to 49.7 Moz. Conversely, constraining both the waste and mineralization to the AMC ground reduces the contained silver ounces in the Measured and Inferred category from 155.9 Moz to 142.2 Moz and in the Inferred category from 35.6 Moz to 27.4 Moz.
14.9 Comparison with previous Mineral Resource estimate
This report discloses the first Mineral Resource on the Property, thus there is not any comparison.
14.10 Recommendations
For future Mineral Resource modelling it is useful to determine the extent of the historical mining on the Property. The QP recommends that New Pacific:
• Conduct a professional survey of the underground cavities if it safe to do so.
• Continue to record in logs if the drilling hits voids.
• Conduct a survey of the waste dumps in order to check the volumes of mined-out areas.
• Conduct structural analysis of available data and complete initial structural / geotechnical drilling as required.
• Update the 3D geological model to include detailed geology – deposit oxidation domaining and structures.
The Silver Sand deposit as currently defined remains open for expansion. There has been no modern district scale exploration. It is recommended that future exploration, resource expansion, and definition drilling:
• Test the newly defined Snake Hole prospect located approximately 600 m east of the Silver Sand deposit.
• Test and / or convert areas of known silver mineralization and or structural extensions within, adjacent to and / or not captured by the current conceptual open pit design.
• Test the northern structural extension of the Main Zone of the Silver Sand deposit.
• Test the downdip / deeper extents below the Main Zone and the area between the Main and South Zones of the deposit.
• Conduct an initial drill test on the Silver Sand North Block ~ El Bronce and Jisas targets.
15 Mineral Reserve estimates
As this is not an Advanced Property, this section is not addressed.
16 Mining methods
As this is not an Advanced Property, this section is not addressed.
17 Recovery methods
As this is not an Advanced Property, this section is not addressed.
18 Project infrastructure
As this is not an Advanced Property, this section is not addressed.
19 Market studies and contracts
As this is not an Advanced Property, this section is not addressed.
20 Environmental studies, permitting, and social or community impact
As this is not an Advanced Property, this section is not addressed.
21 Capital and operating costs
As this is not an Advanced Property, this section is not addressed.
22 Economic analysis
As this is not an Advanced Property, this section is not addressed.
23 Adjacent properties
COMIBOL, the state-owned Bolivian Mining Corporation, holds the exploration and mining rights of the adjacent areas surrounding the concessions owned by New Pacific. New Pacific acquired the exploration and mining rights of the direct neighbouring 57-km2 area around its concessions through a Mining Production Contract (see Section 4.2) with COMIBOL, except for a few operating mines which are subleased to small operators by COMIBOL. The Colavi mine to the north-west and the Canutillos mine to the west of the Property are two adjacent operating mines (see Figure 4.1).
23.1 Colavi Tin Polymetallic mine
Bedrock in the Colavi mine area consists of Ordovician shale and sandstone, and Cretaceous sandstone and dacitic tuffs. Some dacitic intrusive rocks are found in Ordovician and Cretaceous sequences as stocks, sills or dykes. Six manto-type mineralized horizons with thicknesses ranging from 0.8 to 1 m were concordantly developed in a horizon of calcareous sandstone within the Cretaceous red sandstone and tuffs sequence. The mineralized calcareous sandstone gently dips to the west and occupies an area of 2 km wide and 6 km long. Ore minerals are mainly composed of pyrite, hematite, and cassiterite. Sphalerite and galena are very rare, and quartz is absent. Volcanism and mineralization are closely related. Manto mineralization formed first associated with earlier magmatic intrusions, and dacite sills successively intruded the Cretaceous sedimentary sequence and displaced the manto-type mineralization. Later cassiterite veins occur in dacite (Rivas 1979; Sugaki et al. 1983).
Mining activities for tin at Colavi can be traced back to 1890. In 1912, the recorded production capacity of the mine was 100 tons per day and produced up to 5,000-ton ore grading more than 3% Sn (Redwood 2018). Production of the Colavi mine in June 1981 was 5,700 t ore grading 0.7% Sn. Mine workers hand-picked and screened the crude ore to produce 650 to 1,000 t semi-concentrate containing 2 – 3% Sn, per month (Sugaki et al. 1983).
The United Nations Development Program (UNDP) and Servicio Geologico de Bolivia (GEOBOL) jointly carried out a reconnaissance exploration for tin and silver at Colavi in 1989 and 1990 and estimated a potential resource of 3 to 5 million tons grading 0.5 to 0.9% Sn over a 4-km strike length (Redwood 2018). The QP has been unable to verify the reported resource and the resource is not indicative of the mineralization on the Property that is the subject of the Technical Report.
23.2 Canutillos Tin Polymetallic mine
Limited literature on Canutillos shows that COMIBOL began operation at the mine in 1964 and Empresa Minera Tirex Ltda began to conduct silver heap leach in 2010 (Redwood 2018). No exploration and production data are available from public sources.
24 Other relevant data and information
The QPs are not aware of any additional information or explanation that is necessary to make the Technical Report understandable and not misleading.
25 Interpretation and conclusions
Silver mineralization at the Property occurs in ten areas: Silver Sand, El Fuerte, Snake Hole, North Plain, San Antonio, Esperanza, Jisas, El Bronce, Mascota, and Aullagas. The mineralization identified in the Property belongs to the Bolivian polymetallic vein-type deposits represented by the giant Cerro Rico de Potosí silver mine in Potosí.
The Silver Sand deposit is defined by exploration drilling and has a conceptual pit-constrained Mineral Resource using a 45 g/t Ag cut-off of Measured and Indicated Resources of 35.39 million tonnes grading 137 g/t silver; and Inferred Mineral Resource of 9.84 million tonnes grading 112 g/t silver. Ms Dinara Nussipakynova, P.Geo. of AMC Consultants takes responsibility for these estimates.
Logging, mapping, sampling, and analyzing procedures of New Pacific’s on-going exploration programs follow common industry practice. Results of QA/QC programs are deemed acceptable by the QP.
The results of a preliminary metallurgical test program suggest that the mineralized materials from the Silver Sand Property would be amenable to processing using conventional flotation or whole ore cyanidation at atmospheric pressure at large scale.
Risks and opportunities relating to this project are discussed below.
25.1.1 Risks
Mineral Resources are not Mineral Reserves and do not have demonstrated economic viability. There is a degree of uncertainty attributable to the estimation of Mineral Resources. Until resources are actually mined and processed, the quantity of mineralization and grades must be considered as estimates only.
The QP notes that the current Mineral Resource is constrained within a conceptual open pit that allows minor waste, but not mineralization, to extend onto the MPC area. Constraining both the waste and mineralization to the AMC ground reduces the contained silver ounces in the Measured and Indicated category from 155.9 Moz to 142.2 Moz and in the Inferred category from 35.6 Moz to 27.4 Moz.
Engineering, geotechnical and hydrogeological studies done at a sufficient level to convert Mineral Resources to Mineral Reserves are necessary before the impact of these risk and uncertainties to the project’s potential economic viability can be reasonably quantified.
Operating in South America can be associated with political risk. In the past, former political leaders have caused Bolivia to nationalize privately owned mines. Global mining laws are subject to change from time to time.
25.1.2 Opportunities
Potential opportunities for the project include:
• The current Mineral Resource is constrained within an open pit that allows waste stripping, but not mineralization, to extend onto the MPC area. Extending the pit to allow for the extraction of both waste and mineralization in the MPC area increases the contained silver ounces in the Measured and Inferred category from 155.9 Moz to 170.3 Moz and in the Inferred category from 35.6 Moz to 49.7 Moz.
• Expansion and upgrading of the Silver Sand deposit through additional drilling.
• Significant exploration potential within an emerging silver district which contains numerous showings and evidence of silver-rich, polymetallic mineralization including historic workings.
26 Recommendations
26.1 Quality Assurance / Quality Control
With respect to density, the QP recommends that New Pacific:
• Incorporate the regular use of a density standard.
• Weigh samples following immersion to ensure that the sample is not absorbing water.
• Send a portion of samples to a third-party laboratory for density measurement.
With respect to CRMs, the QP recommends that New Pacific:
• Adjust CRM monitoring criteria such that assay batches with 2 consecutive CRMs outside two standard deviations, or one CRM outside of three standard deviations are investigated and if necessary, the batch is re-analyzed.
• Purchase an additional CRM at the average grade (130 g/t Ag) of the deposit which has been certified using similar digestion methodology.
• Investigate performance issues with CRMs CDN-ME-1603 and CDN-ME-1605 if these are to be used in future programs. This could be done by preparing several separate sample batches comprising 20 – 30 CRMs each and comprising at least two different CRMs in random order. Each batch should then be sent to both the primary laboratory and at least one other check laboratory. If results occur outside of certified performance criteria, expected values and standard deviation can be calculated from laboratory results and used as performance criteria.
• Ensure that CRMs are monitored in real time on a batch by batch basis, and that remedial action is taken immediately as issues are identified.
• Ensure CRM warning, failure and remedial action is documented.
• Re-evaluate the use of ME-MS41 analytical method. If this method is to be used going forward it is recommended that the OG46 over-limit threshold be dropped from 100 g/t Ag to a level below the anticipated cut-off grade.
With respect to blanks, the QP recommends that New Pacific:
• Continue to include blanks in every batch of samples submitted at a rate of at least 1 in every 20 samples (5%).
• Adjust blank insertion procedures to also include the insertion of blank material immediately after visible high-grade silver intercepts. Alternatively, request quartz wash samples be inserted by the laboratory.
• Ensure that blanks are consistently monitored in real time on a batch by batch basis and that remedial action is taken as issues arise.
• Ensure that all blank sample follow up is recorded.
• If ALS method ME-MS41 is to be used for ongoing routine analysis:
⎯ Test an additional 10 – 20 samples from the new blank quarry site to establish a background value.
⎯ Establish an appropriate (lower) blank failure limit for ME-MS41 analysis.
With respect to duplicates, the QP recommends that New Pacific:
• Implement investigative work to understand duplicate sample bias. This should include:
⎯ Submission of coarse (crush) duplicates samples from laboratory rejects.
⎯ Submission of fine (pulp) duplicates from laboratory pulps.
⎯ Complete screen size analysis or polished section petrology to understand the nature and size distribution of silver mineralization.
⎯ In future programs consider submitting field duplicates as half core rather than quarter core to assess sub-sampling error.
⎯ Consider drilling twin holes using triple tube diamond core or RC drilling to evaluate the deposit variance on a local scale and whether loss of vein material is occurring during drilling and sampling processes.
• Ensure that all future programs include at least 5% duplicate samples including field duplicates, coarse (crush) duplicates, and pulp duplicates to enable the various stages of sub-sampling to be monitored.
With respect to umpire samples, the QP recommends that New Pacific:
• Maintain current level of umpire samples.
• Submit pulp samples (rather than coarse reject) so that umpire samples only monitor analytical accuracy and variance.
• Include CRMs at the average grade and higher grades in umpire sample submissions.
26.2 Mineral Resource
For future Mineral Resource modelling it is useful to determine the extent of the historical mining on the Property. The QP recommends that New Pacific:
• Conduct a professional survey of the underground cavities if it safe to do so.
• Continue to record in logs if the drilling hits voids.
• Conduct a survey of the waste dumps in order to check the volumes of mined-out areas.
• Conduct structural analysis of available data and complete initial structural / geotechnical drilling as required.
• Update the 3D geological model to include detailed geology – deposit oxidation domaining and structures.
26.3 Mineral Resource expansion and conversion
The Silver Sand deposit as currently defined remains open for expansion. There has been no modern district scale exploration. It is recommended that future exploration, resource expansion, and definition drilling:
• Test the newly defined Snake Hole prospect located approximately 600 m east of the Silver Sand deposit.
• Test and / or convert areas of known silver mineralization and or structural extensions within, adjacent to and / or not captured by the current conceptual open pit design.
• Test the northern structural extension of the Main Zone of the Silver Sand deposit.
• Test the downdip / deeper extents below the Main Zone and the area between the Main and South Zones of the deposit.
• Conduct an initial drill test on the Silver Sand North Block ~ El Bronce and Jisas targets.
26.4 Metallurgical testwork development
• A second phase of metallurgical testwork is recommended to build on and improve the metallurgical characterization work completed to date. Further technical de- risking and metallurgical optimization would be the objectives. This testwork would include the following items:
⎯ Selection of representative samples, using core material from metallurgical holes plus coarse rejects from other areas of the deposit. Good spatial coverage and representation of different geometallurgical units is required.
⎯ Chemical characterization (ICP scans) of composites.
⎯ Physical characterization including comminution tests.
⎯ Quantitative mineralogical characterization using QEMScan.
⎯ Flotation testwork, including rougher kinetic tests, batch cleaner tests, and locked cycle tests.
⎯ Characterization of final flotation test products, including scans for deleterious elements.
⎯ Whole ore leaching testwork, including bottle roll tests to assess leach kinetics after grinding, vat leach tests and column leach tests, to assess vat and heap leach kinetics at various coarse sizes.
⎯ Cyanide destruction tests.
⎯ Environmental tests, including ARD and metal leaching tests on flotation tailings samples.
26.5 Environmental baseline studies
Limited environmental studies have been completed to date. Given the long-lead times for environmental studies it is recommended that New Pacific commence environmental baselines studies as a matter of urgency.
26.6 Community and social studies
It is recommended that community and social studies are continued and expanded to levels appropriate for the potential scale and technical status of the project.
26.7 District scale exploration
Complete initial district scale exploration including geological mapping, sampling, and target generation over the Property. Contingent on results and necessary approvals drilling testing may be warranted.
26.8 Costs
The costs for the recommended programs including contingency are tabulated below in Table 26.1.
Table 26.1 Budget for the recommended programs
|
Account category
|
Budget totals (US$)
|
|
|
|
|
Betanzos Camp Costs (Repairs, cook / meals, fuel, supplies, and logistics)
|
400,000
|
|
Geology & Project Administration (Contractors, Consultants)
|
300,000
|
|
Systems (Health & Safety / Database)
|
150,000
|
|
Diamond Drilling (26,000 m)
|
3,100,000
|
|
Assay (21,000 samples)
|
1,000,000
|
|
Technical Consulting & Reporting (NI 43-101 PEA technical report and resource estimate)
|
200,000
|
|
Metallurgical Test Work
|
220,000
|
|
Environmental baseline studies
|
560,000
|
|
Community & Social Studies and Programs
|
425,000
|
|
Contingency – 10%
|
635,500
|
|
Grand total
|
6,990,500
|
27 References
Section 2 references
Jiang, R., Holloway, A., & Zhang, Y. 2019, “NI 43-101 Technical Report on Silver Sand Project” for Potosí, Bolivia. 31 October 2019.
Section 4 references
Aguirre, F.B. 2019, Bufete Aguirre Soc. Civ., Mining in Bolivia: overview, Practical Law Country Q&A w-010-2113.
Bufete Aguirre Soc. Civ. 2017, Basics of Mining Law in Bolivia, GlobalMineTM Basics of Mining Law 2017, pp. 26-41.
Section 5 references
Jungie 2015, Ningde Jungie Mining Industry Co. Ltd., Exploration report for the Silver Sand Property, Potosí Department, Bolivia.
U.S. Central Intelligence Agency (CIA) in 1971, map no. 78499 1971, available from the website of The University of Texas at Austin (https://legacy.lib.utexas.edu/maps/bolivia.html).
Section 6 references
Birak, D.J. 2017, “NI 43-101 Technical Report on Silver Sand Project”, Potosí Department, Bolivia, 15 August 2017.
New Pacific Holdings Corp 2017, News Release, 10 April 2017.
Redwood, S.D. 2018, New Pacific Internal Report, A review on the Silver Sand Project, Potosí, Bolivia, 27 December 2018.
Sugaki, A., Ueno, H., Kitakaze, A., Hayashi, K., Shimada, N., Kusachi, I., & Sanjines, O. 1983, “Geological study on the polymetallic ore deposits in the Potosí district, Bolivia”, The Science Reports of the Tohoku University, Series III, Vol. XV, No. 3.
Section 7 references
Arce-Burgoa, O. & Goldfarb, R. 2009, Metallogeny of Bolivia, SEG Newsletter, No.79.
Dietrich, A., Lehmann, B., & Wallianos, A. 2000, Bulk rock and melt inclusion geochemistry of Bolivian tin porphyry systems, Economic Geology, Vol. 95, 2000, pp. 313–326.
Lamb, S., Hoke, L., Kennan, L., & Dewey, J. 1997, Cenozoic evolution of the Central Andes in Bolivia and northern Chile, Geological Society, London, Special Publications, Vol. 121, pp. 237-264.
Rivas, S. 1979, Geology of the principal tin deposits of Bolivia. Geological Society of Malaysia, Bulletin 11, December 1979, pp. 161-180.
Section 11 references
Long, S.D., Parker, H.M., & Françis-Bongarçon, D. 1997, “Assay quality assurance quality control programme for drilling projects at the prefeasibility to feasibility report level”, Prepared by Mineral Resources Development Inc. (MRDI) August 1997.
Section 23 references
Redwood, S.D. 2018, New Pacific Internal Report, A review on the Silver Sand Project, Potosí, Bolivia, 27 December 2018.
Rivas, S. 1979, Geology of the principal tin deposits of Bolivia. Geological Society of Malaysia, Bulletin 11, December 1979, pp. 161-180.
Sugaki, A., Ueno, H., Kitakaze, A., Hayashi, K., Shimada, N., Kusachi, I., & Sanjines, O. 1983, “Geological study on the polymetallic ore deposits in the Potosí district, Bolivia”, The Science Reports of the Tohoku University, Series III, Vol. XV, No. 3.
28 QP Certificates
CERTIFICATE OF AUTHOR
I, Adrienne A Ross, P.Geo., of Vancouver, British Columbia, do hereby certify that:
1 I am currently employed as a Geology Manager / Principal Geologist with AMC Mining Consultants (Canada) Ltd., with an office at Suite 202, 200 Granville Street, Vancouver British Columbia, V6C 1S4.
2 This certificate applies to the amended and restated technical report titled “Silver Sand Deposit Mineral Resource Report (Amended)” dated May 25, 2020, as amended and restated on June 3, 2020, with an effective date of January 16, 2020, (the “Amended and Restated Technical Report”) prepared for New Pacific Metals Corp. (“the Issuer”);
3 I am a graduate of the University of Alberta in Edmonton, Canada (Bachelors of Science (Hons) in Geology in 1991). I am a graduate of the University of Western Australia in Perth, Australia (Ph.D. in Geology). I am a registered member in good standing of the Association of Professional Engineers and Geoscientists of British Columbia (License #37418) and Alberta (Reg. #52751). I have practiced my profession for a total of 26 years since my graduation and have relevant experience in precious metal deposits.
I have read the definition of "qualified person" set out in National Instrument 43-101 (NI 43- 101) and certify that by reason of my education, affiliation with a professional association (as defined in NI 43-101) and past relevant work experience, I fulfill the requirements to be a "qualified person" for the purposes of NI 43-101;
4 I have not visited the Silver Sand Project;
5 I am responsible for Sections 2-10, 15 to 16, 18 to 24, and parts of 1, and 25-27 of the Amended and Restated Technical Report;
6 I am independent of the Issuer and related companies applying all of the tests in Section 1.5 of the NI 43-101;
7 I have not had prior involvement with the property that is the subject of the Amended and Restated Technical Report;
8 I have read NI 43-101, and the Amended and Restated Technical Report has been prepared in compliance with NI 43-101 and Form 43-101F1; and
9 As of the effective date of the Amended and Restated Technical Report and the date of this certificate, to the best of my knowledge, information and belief, this Amended and Restated Technical Report contains all scientific and technical information that is required to be disclosed to make the Amended and Restated Technical Report not misleading.
Effective Date: 16 January 2020
Signing Date: 3 June 2020
Original Signed and Sealed by
_____________________________
Adrienne Ross, P.Geo.
Geology Manager / Principal Geologist
AMC Mining Consultants (Canada) Ltd.
CERTIFICATE OF AUTHOR
I, Dinara Nussipakynova, P.Geo., of Vancouver, British Columbia, do hereby certify that:
1 I am currently employed as Principal Geologist with AMC Mining Consultants (Canada) Ltd., with an office at Suite 202, 200 Granville Street, Vancouver, British Columbia V6C 1S4;
2 This certificate applies to the amended and restated technical report titled “Silver Sand Deposit Mineral Resource Report (Amended)” dated May 25, 2020, as amended and restated on June 3, 2020, with an effective date of January 16, 2020, (the “Amended and Restated Technical Report”) prepared for New Pacific Metals Corp. (“the Issuer”);
3 I am a graduate of Kazakh National Polytechnic University (B.Sc. and M.Sc. in Geology, 1987). I am a member in good standing of the Engineers and Geoscientists of British Columbia (License #37412) and the Association of Professional Geoscientists of Ontario (License #1298). I have practiced my profession continuously since 1987 and have been involved in mineral exploration and mine geology for a total of 33 years since my graduation from university. My experience is principally in Mineral Resource estimation, database management, and geological interpretation.
I have read the definition of "qualified person" set out in National Instrument 43-101 (NI 43- 101) and certify that by reason of my education, affiliation with a professional association (as defined in NI 43-101) and past relevant work experience, I fulfill the requirements to be a "qualified person" for the purposes of NI 43-101;
4 I have visited the Silver Sand Project from 8-11 August 2019, 4 days;
5 I am responsible for Sections 12, 14, and parts of 1, 25, 26 and 27 of the Amended and Restated Technical Report;
6 I am independent of the Issuer and related companies applying all of the tests in Section 1.5 of the NI 43-101;
7 I have not had prior involvement with the property that is the subject of the Amended and Restated Technical Report;
8 I have read NI 43-101, and the Amended and Restated Technical Report has been prepared in compliance with NI 43-101 and Form 43-101F1; and
9 As of the effective date of the Amended and Restated Technical Report and the date of this certificate, to the best of my knowledge, information and belief, the Amended and Restated Technical Report contains all scientific and technical information that is required to be disclosed to make the Amended and Restated Technical Report not misleading.
Effective Date: 16 January 2020
Signing Date: 3 June 2020
Original Signed and Sealed by
_____________________________
Dinara Nussipakynova, P.Geo.
Principal Geologist
AMC Mining Consultants (Canada) Ltd.
CERTIFICATE OF AUTHOR
I, Simeon Robinson, P.Geo., of Vancouver, British Columbia, do hereby certify that:
1 I am currently employed as a Senior Geologist with AMC Mining Consultants (Canada) Ltd., with an office at Suite 202, 200 Granville Street, Vancouver British Columbia, V6C 1S4.
2 This certificate applies to the technical report titled “Silver Sand Deposit Mineral Resource Report (Amended)” dated May 25, 2020, as amended and restated on June 3, 2020, with an effective date of January 16, 2020, (the “Amended and Restated Technical Report”) prepared for New Pacific Metals Corp. (“the Issuer”);
3 I am a graduate of Curtin University of Technology, Kalgoorlie, Western Australia (Bachelor of Science – Mineral Exploration and Mining Geology, 2001). I have completed the Citation Program in Applied Geostatistics (University of Alberta, 2019). I am a registered member in good standing of the Association of Professional Engineers and Geoscientists of British Columbia (License #192869). I have practiced my profession for a total of 18 years since my graduation and have relevant experience in precious metal deposits.
I have read the definition of "qualified person" set out in National Instrument 43-101 (NI 43- 101) and certify that by reason of my education, affiliation with a professional association (as defined in NI 43-101) and past relevant work experience, I fulfill the requirements to be a "qualified person" for the purposes of NI 43-101;
4 I have not visited the Silver Sand Project;
5 I am responsible for Section 11 and parts of 1, and 25-27 of the Amended and Restated Technical Report;
6 I am independent of the Issuer and related companies applying all of the tests in Section 1.5 of the NI 43-101;
7 I have not had prior involvement with the property that is the subject of the Amended and Restated Technical Report;
8 I have read NI 43-101, and the Amended and Restated Technical Report has been prepared in compliance with NI 43-101 and Form 43-101F1; and
9 As of the effective date of the Amended and Restated Technical Report and the date of this certificate, to the best of my knowledge, information and belief, this Amended and Restated Technical Report contains all scientific and technical information that is required to be disclosed to make the Amended and Restated Technical Report not misleading.
Effective Date: 16 January 2020
Signing Date: 3 June 2020
Original Signed and Sealed by
_____________________________
Simeon Robinson, P.Geo.
Senior Geologist
AMC Mining Consultants (Canada) Ltd.
CERTIFICATE OF AUTHOR
I, Andrew Holloway, P.Eng., of Peterborough, Ontario, do hereby certify that:
1 I am currently employed as a Principal Process Engineer with AGP Mining Consultants Inc., located at #246-132K Commerce Park Dr., Barrie ON L4N 0Z7 Canada;
2 This certificate applies to the amended and restated technical report titled “Silver Sand Deposit Mineral Resource Report (Amended)” dated May 25, 2020, as amended and restated on June 3, 2020 with an effective date of January 16, 2020, (the “Amended and Restated Technical Report”) prepared for New Pacific Metals Corp. (“the Issuer”);
3 I graduated from The University of Newcastle upon Tyne, England, B.Eng. (Hons) Metallurgy, 1989. I am a registered member in good standing of the Association of Professional Engineers of Ontario, membership #100082475. I have practiced my profession in the mining industry continuously since graduation.
My relevant experience with respect to metallurgy, process engineering and mining project management includes 30 years’ experience in the mining sector covering mineral processing, process plant operation, design engineering, and operations and project management.
I have read the definition of "qualified person" set out in National Instrument 43-101 (NI 43- 101) and certify that by reason of my education, affiliation with a professional association (as defined in NI 43-101) and past relevant work experience, I fulfill the requirements to be a "qualified person" for the purposes of NI 43-101;
4 I have visited the Silver Sand Project from 14 - 16 January 2020 for three days;
5 I am responsible for Sections 13, 17, and parts of 1, and 25-27 of the Amended and Restated Technical Report;
6 I am independent of the Issuer and related companies applying all of the tests in Section 1.5 of the NI 43-101;
7 I have had prior involvement with the property that is the subject of the Amended and Restated Technical Report, acting as QP for previous NI 43-101 technical disclosures in 2019.
8 I have read NI 43-101, and the Amended and Restated Technical Report has been prepared in compliance with NI 43-101 and Form 43-101F1; and
9 As of the effective date of the Amended and Restated Technical Report and the date of this certificate, to the best of my knowledge, information and belief, this Amended and Restated Technical Report contains all scientific and technical information that is required to be disclosed to make the Amended and Restated Technical Report not misleading.
Effective Date: 16 January 2020
Signing Date: 3 June 2020
Original Signed and Sealed by
_____________________________
Andy Holloway, P.Eng.
Principal Process Engineer
AGP Mining Consultants Inc.
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T +44 1628 778 256
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E maidenhead@amcconsultants.com
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Registered Office: Ground Floor,
Unit 501 Centennial Park
Centennial Avenue
Elstree, Borehamwood
Hertfordshire, WD6 3FG United Kingdom
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CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2020 and 2019
(Expressed in Canadian Dollars)
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Deloitte LLP
939 Granville Street
Vancouver, BC V6Z1L3
Canada
Tel: 604-669-4466
Fax: 604-685-0395
www.deloitte.ca
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Independent Auditor’s Report
To the Shareholders of
New Pacific Metals Corp.
Opinion
We have audited the consolidated financial statements of New Pacific Metals Corp. (the “Company”), which comprise the consolidated statements of financial position as at June 30, 2020 and 2019, and the consolidated statements of income (loss), comprehensive income (loss), changes in equity and cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies (collectively referred to as the “financial statements”).
In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as at June 30, 2020 and 2019, and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”).
Basis for Opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards (“Canadian GAAS”). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Other Information
Management is responsible for the other information. The other information comprises:
• Management’s Discussion and Analysis
Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.
We obtained Management’s Discussion and Analysis prior to the date of this auditor’s report. If, based on the work we have performed on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact in this auditor’s report. We have nothing to report in this regard.
Responsibilities of Management and Those Charged with Governance for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with IFRS, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting process.
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian GAAS will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
As part of an audit in accordance with Canadian GAAS, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
The engagement partner on the audit resulting in this independent auditor’s report is Jayana Darras.
/s/ Deloitte LLP
Chartered Professional Accountants
Vancouver, British Columbia
August 25, 2020
New Pacific Metals Corp.
Consolidated Statements of Financial Position
(Expressed in Canadian dollars)
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Notes
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June 30, 2020
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June 30, 2019
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ASSETS
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
40,644,346
|
|
$
|
27,849,961
|
|
|
Short-term investments
|
3
|
|
20,633,772
|
|
|
10,942,898
|
|
|
Receivables
|
|
|
413,594
|
|
|
259,600
|
|
|
Deposits and prepayments
|
|
|
222,817
|
|
|
142,370
|
|
|
Assets held for distribution
|
17
|
|
11,849,971
|
|
|
-
|
|
|
|
|
|
73,764,500
|
|
|
39,194,829
|
|
|
Non-current Assets
|
|
|
|
|
|
|
|
|
Reclamation deposits
|
|
|
-
|
|
|
15,075
|
|
|
Other tax receivable
|
4
|
|
2,862,468
|
|
|
1,800,713
|
|
|
Equity investments
|
5
|
|
5,603,591
|
|
|
5,110,893
|
|
|
Plant and equipment
|
6
|
|
1,535,923
|
|
|
1,310,803
|
|
|
Mineral property interests
|
7
|
|
95,049,576
|
|
|
76,816,082
|
|
|
TOTAL ASSETS
|
|
$
|
178,816,058
|
|
$
|
124,248,395
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
8
|
$
|
1,573,474
|
|
$
|
1,621,403
|
|
|
Payable for mineral property acquisition
|
|
|
263,120
|
|
|
394,680
|
|
|
Due to a related party
|
9
|
|
84,742
|
|
|
89,189
|
|
|
Liabilities held for distribution
|
17
|
|
122,178
|
|
|
-
|
|
|
|
|
|
2,043,514
|
|
|
2,105,272
|
|
|
Non-current liabilities
|
|
|
|
|
|
|
|
|
Payable for mineral property acquisition
|
|
|
-
|
|
|
263,120
|
|
|
Total Liabilities
|
|
|
2,043,514
|
|
|
2,368,392
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
Share capital
|
10
|
|
191,563,628
|
|
|
150,005,738
|
|
|
Share-based payment reserve
|
|
|
22,057,385
|
|
|
19,978,062
|
|
|
Accumulated other comprehensive income
|
|
|
6,599,738
|
|
|
3,264,901
|
|
|
Deficit
|
|
|
(43,398,714
|
)
|
|
(51,331,013
|
)
|
|
Total equity attributable to the equity holders of the Company
|
|
|
176,822,037
|
|
|
121,917,688
|
|
|
|
|
|
|
|
|
|
|
|
Non-controlling interests
|
11
|
|
(49,493
|
)
|
|
(37,685
|
)
|
|
Total Equity
|
|
|
176,772,544
|
|
|
121,880,003
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND EQUITY
|
|
$
|
178,816,058
|
|
$
|
124,248,395
|
|
|
Approved on behalf of the Board:
|
|
|
|
|
|
(Signed) David Kong
|
|
|
Director
|
|
|
|
|
|
(Signed) Mark Cruise
|
|
|
Director
|
|
See accompanying notes to the consolidated financial statements
Page | 1
New Pacific Metals Corp.
Consolidated Statements of Income (Loss)
(Expressed in Canadian dollars)
|
|
|
|
Years Ended June 30,
|
|
|
|
Notes
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from investments
|
|
|
|
|
|
|
|
|
Gain (loss) on equity investments
|
5
|
$
|
1,605,982
|
|
$
|
(77,173
|
)
|
|
Fair value change and interest earned on bonds
|
3
|
|
(14,089
|
)
|
|
1,514,769
|
|
|
Dividend income
|
|
|
139,597
|
|
|
53,902
|
|
|
Interest income
|
|
|
30,024
|
|
|
40,893
|
|
|
|
|
|
1,761,514
|
|
|
1,532,391
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
Project evaluation and corporate development
|
|
|
276,677
|
|
|
38,935
|
|
|
Depreciation
|
|
|
16,106
|
|
|
11,999
|
|
|
Filing and listing
|
|
|
172,058
|
|
|
124,904
|
|
|
Investor relations
|
|
|
720,898
|
|
|
772,245
|
|
|
Professional fees
|
|
|
406,880
|
|
|
178,200
|
|
|
Salaries and benefits
|
|
|
1,778,673
|
|
|
930,962
|
|
|
Office and administration
|
|
|
688,844
|
|
|
287,964
|
|
|
Share-based compensation
|
10(b)
|
|
2,127,818
|
|
|
922,498
|
|
|
Loss before other income and expenses
|
|
|
(4,426,440
|
)
|
|
(1,735,316
|
)
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
Impairment recovery (impairment)of mineral property interests
|
7,17
|
|
11,714,944
|
|
|
(779,823
|
)
|
|
Foreign exchange gain (loss)
|
|
|
624,383
|
|
|
(64,491
|
)
|
|
Other income
|
|
|
-
|
|
|
6,875
|
|
|
|
|
|
12,339,327
|
|
|
(837,439
|
)
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
7,912,887
|
|
$
|
(2,572,755
|
)
|
|
|
|
|
|
|
|
|
|
|
Attributable to:
|
|
|
|
|
|
|
|
|
Equity holders of the Company
|
|
$
|
7,932,299
|
|
$
|
(2,420,904
|
)
|
|
Non-controlling interests
|
11
|
|
(19,412
|
)
|
|
(151,851
|
)
|
|
Net income (loss)
|
|
$
|
7,912,887
|
|
$
|
(2,572,755
|
)
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share attributable to the equity holders of the Company
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$
|
0.05
|
|
$
|
(0.02
|
)
|
|
Diluted earnings (loss) per share
|
|
$
|
0.05
|
|
$
|
(0.02
|
)
|
|
Weighted average number of common shares - basic
|
|
|
146,254,726
|
|
|
133,795,963
|
|
|
Weighted average number of common shares - diluted
|
|
|
150,688,553
|
|
|
133,795,963
|
|
See accompanying notes to the consolidated financial statements
Page | 2
New Pacific Metals Corp.
Consolidated Statements of Comprehensive Income (Loss)
(Expressed in Canadian dollars)
|
|
|
|
Years Ended June 30,
|
|
|
|
Notes
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
7,912,887
|
|
$
|
(2,572,755
|
)
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Items that may subsequently be reclassified to net income or loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustment, net of tax of $nil
|
|
|
3,342,441
|
|
|
(756,307
|
)
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of taxes
|
|
$
|
3,342,441
|
|
$
|
(756,307
|
)
|
|
|
|
|
|
|
|
|
|
|
Attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity holders of the Company
|
|
$
|
3,334,837
|
|
$
|
(723,051
|
)
|
|
|
|
|
|
|
|
|
|
|
Non-controlling interests
|
11
|
|
7,604
|
|
|
(33,256
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,342,441
|
|
$
|
(756,307
|
)
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss), net of taxes
|
|
$
|
11,255,328
|
|
$
|
(3,329,062
|
)
|
|
|
|
|
|
|
|
|
|
|
Attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity holders of the Company
|
|
$
|
11,267,136
|
|
$
|
(3,143,955
|
)
|
|
|
|
|
|
|
|
|
|
|
Non-controlling interests
|
|
|
(11,808
|
)
|
|
(185,107
|
)
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss), net of taxes
|
|
$
|
11,255,328
|
|
$
|
(3,329,062
|
)
|
See accompanying notes to the consolidated financial statements
Page | 3
New Pacific Metals Corp.
Consolidated Statements of Cash Flows
(Expressed in Canadian dollars)
|
|
|
|
Years Ended June 30,
|
|
|
|
Notes
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
7,912,887
|
|
$
|
(2,572,755
|
)
|
|
Add (deduct) items not affecting cash:
|
|
|
|
|
|
|
|
|
(Gain) loss on equity investments
|
5
|
|
(1,605,982
|
)
|
|
77,173
|
|
|
Fair value change and interest earned on bonds
|
3
|
|
14,089
|
|
|
(1,514,769
|
)
|
|
Interest income
|
|
|
(30,024
|
)
|
|
(40,893
|
)
|
|
Depreciation
|
|
|
16,106
|
|
|
11,999
|
|
|
(Impairment recovery) impairment on mineral property interest
|
7, 17
|
|
(11,714,944
|
)
|
|
779,823
|
|
|
Share-based compensation
|
10(b)
|
|
2,203,411
|
|
|
922,498
|
|
|
Unrealized foreign exchange (gain) loss
|
|
|
(624,383
|
)
|
|
64,491
|
|
|
Interest received
|
|
|
26,996
|
|
|
40,893
|
|
|
Changes in non-cash operating working capital
|
16
|
|
(126,524
|
)
|
|
(287,152
|
)
|
|
Net cash used in operating activities
|
|
|
(3,928,368
|
)
|
|
(2,518,692
|
)
|
|
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
Mineral property interest
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(11,578,718
|
)
|
|
(10,681,816
|
)
|
|
Acquisition of mineral concession
|
|
|
(2,436,160
|
)
|
|
(657,800
|
)
|
|
Plant and equipment
|
|
|
|
|
|
|
|
|
Additions
|
|
|
(308,292
|
)
|
|
(1,061,414
|
)
|
|
Short-term investments
|
|
|
|
|
|
|
|
|
Acquisition
|
3
|
|
(20,000,000
|
)
|
|
-
|
|
|
Proceeds on disposals
|
3
|
|
10,230,848
|
|
|
7,700,006
|
|
|
Coupon payments
|
3
|
|
399,499
|
|
|
853,076
|
|
|
Equity investments
|
|
|
|
|
|
|
|
|
Acquisition
|
5
|
|
(5,018,338
|
)
|
|
-
|
|
|
Proceeds on disposals
|
5
|
|
6,131,622
|
|
|
570,561
|
|
|
Changes in other tax receivable
|
|
|
(972,753
|
)
|
|
(1,089,956
|
)
|
|
Net cash used in investing activities
|
|
|
(23,552,292
|
)
|
|
(4,367,343
|
)
|
|
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common shares
|
|
|
39,931,491
|
|
|
20,140,534
|
|
|
Net cash provided by financing activities
|
|
|
39,931,491
|
|
|
20,140,534
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
343,554
|
|
|
(8,651
|
)
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents
|
|
|
12,794,385
|
|
|
13,245,848
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of the year
|
|
|
27,849,961
|
|
|
14,604,113
|
|
|
Cash and cash equivalents, end of the year
|
|
$
|
40,644,346
|
|
$
|
27,849,961
|
|
|
Supplementary cash flow information
|
16
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements
Page | 4
New Pacific Metals Corp.
Consolidated Statements of Changes in Equity
(Expressed in Canadian dollars, except for share figures)
|
|
|
|
Share capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Share-based
|
|
|
Accumulated other
|
|
|
|
|
|
attributable to the
|
|
|
Non-
|
|
|
|
|
|
|
|
|
common
|
|
|
|
|
|
payment
|
|
|
comprehensive
|
|
|
|
|
|
equity holders of
|
|
|
controlling
|
|
|
|
|
|
|
Notes
|
|
shares issued
|
|
|
Amount
|
|
|
reserve
|
|
|
income
|
|
|
Deficit
|
|
|
the Company
|
|
|
interests
|
|
|
Total equity
|
|
|
Balance, July 1, 2018
|
|
|
132,349,479
|
|
$
|
124,164,312
|
|
$
|
23,440,856
|
|
$
|
3,987,952
|
|
$
|
(48,910,109
|
)
|
$
|
102,683,011
|
|
$
|
147,422
|
|
$
|
102,830,433
|
|
|
Options exercised
|
|
|
333,333
|
|
|
282,827
|
|
|
(92,293
|
)
|
|
-
|
|
|
-
|
|
|
190,534
|
|
|
-
|
|
|
190,534
|
|
|
Warrants exercised
|
|
|
9,500,000
|
|
|
25,163,286
|
|
|
(5,213,286
|
)
|
|
-
|
|
|
-
|
|
|
19,950,000
|
|
|
-
|
|
|
19,950,000
|
|
|
Share-based compensation
|
|
|
-
|
|
|
-
|
|
|
922,498
|
|
|
-
|
|
|
-
|
|
|
922,498
|
|
|
-
|
|
|
922,498
|
|
|
Common shares issued to acquire mineral property interest
|
|
|
250,000
|
|
|
395,313
|
|
|
920,287
|
|
|
-
|
|
|
-
|
|
|
1,315,600
|
|
|
-
|
|
|
1,315,600
|
|
|
Net loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(2,420,904
|
)
|
|
(2,420,904
|
)
|
|
(151,851
|
)
|
|
(2,572,755
|
)
|
|
Currency translation adjustment
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(723,051
|
)
|
|
-
|
|
|
(723,051
|
)
|
|
(33,256
|
)
|
|
(756,307
|
)
|
|
Balance, June 30, 2019
|
|
|
142,432,812
|
|
$
|
150,005,738
|
|
$
|
19,978,062
|
|
$
|
3,264,901
|
|
$
|
(51,331,013
|
)
|
$
|
121,917,688
|
|
$
|
(37,685
|
)
|
$
|
121,880,003
|
|
|
Options exercised
|
10(b)
|
|
888,066
|
|
|
1,558,077
|
|
|
(525,175
|
)
|
|
-
|
|
|
-
|
|
|
1,032,902
|
|
|
-
|
|
|
1,032,902
|
|
|
Restricted share units vested
|
|
|
136,400
|
|
|
641,080
|
|
|
(641,080
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Common shares issued through bought deal financing
|
10(d)
|
|
8,550,500
|
|
|
38,898,589
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
38,898,589
|
|
|
-
|
|
|
38,898,589
|
|
|
Share-based compensation
|
10(b)
|
|
-
|
|
|
-
|
|
|
3,705,722
|
|
|
-
|
|
|
-
|
|
|
3,705,722
|
|
|
-
|
|
|
3,705,722
|
|
|
Common shares issued to acquire mineral property interest
|
10(c)
|
|
291,000
|
|
|
460,144
|
|
|
(460,144
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Net income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
7,932,299
|
|
|
7,932,299
|
|
|
(19,412
|
)
|
|
7,912,887
|
|
|
Currency translation adjustment
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
3,334,837
|
|
|
-
|
|
|
3,334,837
|
|
|
7,604
|
|
|
3,342,441
|
|
|
Balance, June 30, 2020
|
|
|
152,298,778
|
|
$
|
191,563,628
|
|
$
|
22,057,385
|
|
$
|
6,599,738
|
|
$
|
(43,398,714
|
)
|
$
|
176,822,037
|
|
$
|
(49,493
|
)
|
$
|
176,772,544
|
|
See accompanying notes to the consolidated financial statements
Page | 5
1. CORPORATE INFORMATION
New Pacific Metals Corp. along with its subsidiaries (collectively, the “Company” or “New Pacific”) is a Canadian mining issuer engaged in exploring and developing mineral properties in Bolivia, Canada and China. The Company is in the stage of exploring and developing its mineral properties and has not yet determined whether its mineral property interests contain economically recoverable mineral reserves. The underlying value and the recoverability of the amounts shown for mineral property interests are entirely dependent upon the existence of economically recoverable mineral reserves, the ability of the Company to obtain the necessary financing to complete the exploration and development of the mineral property interests, and future profitable production or proceeds from the disposition of the mineral property interests.
The Company is publicly listed on the Toronto Stock Exchange (“TSX”) under the symbol “NUAG” and on the OTCQX Best Market in the United States under the symbol “NUPMF”. The head office, registered address and records office of the Company are located at 1066 Hastings Street, Suite 1750, Vancouver, British Columbia, Canada, V6E 3X1.
2. SIGNIFICANT ACCOUNTING POLICIES
(a) Statement of Compliance
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”). The policies applied in these consolidated financial statements are based on IFRS in effect as of June 30, 2020.
These consolidated financial statements have been prepared on a going concern basis.
The consolidated financial statements of the Company as at and for the year ended June 30, 2020 were authorized for issue in accordance with a resolution of the Board of Directors (the “Board”) dated on August 25, 2020.
(b) Basis of Consolidation
These consolidated financial statements include the accounts of the Company and its wholly or partially owned subsidiaries.
Subsidiaries are consolidated from the date on which the Company obtains control up to the date of the disposition of control. Control is achieved when the Company has power over the subsidiary, is exposed or has rights to variable returns from its involvement with the subsidiary; and has the ability to use its power to affect its returns. For non-wholly-owned subsidiaries over which the Company has control, the net assets attributable to outside equity shareholders are presented as “non-controlling interests” in the equity section of the consolidated statements of financial position. Net income for the period that is attributable to the non-controlling interests is calculated based on the ownership of the non-controlling interest shareholders in the subsidiary.
Balances, transactions, income and expenses between the Company and its subsidiaries are eliminated on consolidation.
Page | 6
Details of the Company’s significant subsidiaries which are consolidated are as follows:
|
|
|
|
Proportion of ownership interest held
|
|
|
|
|
|
|
|
|
|
|
|
Country of
|
June 30,
|
June 30,
|
Mineral
|
|
Name of subsidiaries
|
Principal activity
|
incorporation
|
2020
|
2019
|
properties
|
|
New Pacific Offshore Inc.
|
Holding company
|
BVI (i)
|
100%
|
100%
|
|
|
SKN Nickel & Platinum Ltd.
|
Holding company
|
BVI
|
100%
|
100%
|
|
|
Glory Metals Investment Corp. Limited
|
Holding company
|
Hong Kong
|
100%
|
100%
|
|
|
New Pacific Investment Corp. Limited
|
Holding company
|
Hong Kong
|
100%
|
100%
|
|
|
New Pacific Andes Corp. Limited
|
Holding company
|
Hong Kong
|
100%
|
100%
|
|
|
Fortress Mining Inc.
|
Holding company
|
BVI
|
100%
|
100%
|
|
|
Minera Alcira S.A.
|
Mining company
|
Bolivia
|
100%
|
100%
|
Silver Sand
|
|
NPM Minerales S.A.
|
Mining company
|
Bolivia
|
100%
|
100%
|
|
|
Colquehuasi S.R.L.
|
Mining company
|
Bolivia
|
100%
|
100%
|
Silverstrike
|
|
Qinghai Found Mining Co., Ltd.
|
Mining company
|
China
|
82%
|
82%
|
RZY
|
|
Whitehorse Gold Corp.
|
Mining company
|
Canada
|
100%
|
N/A
|
|
|
Tagish Lake Gold Corp.
|
Mining company
|
Canada
|
100%
|
100%
|
TLG
|
|
(i) British Virgin Islands ("BVI")
|
|
|
|
|
|
(c) Foreign Currency Translation
The functional currency for each subsidiary of the Company is the currency of the primary economic environment in which the entity operates. The functional currency of the head office, Canadian subsidiaries and all intermediate holding companies is the Canadian dollar (“CAD”). The functional currency of all Bolivian subsidiaries is the US dollar (“USD”). The functional currency of the Chinese subsidiary is the Chinese Renminbi (“RMB”).
Foreign currency monetary assets and liabilities are translated into the functional currency using exchange rates prevailing at the balance sheet date. Foreign currency non-monetary assets are translated using exchange rates prevailing at the transaction date. Foreign exchange gains and losses are included in the determination of net income.
The consolidated financial statements are presented in CAD. The financial position and results of the Company’s entities are translated from functional currencies to CAD as follows:
- assets and liabilities are translated using exchange rates prevailing at the balance sheet date;
- income and expenses are translated using average exchange rates prevailing during the period; and
- all resulting exchange gains and losses are included in other comprehensive income.
The Company treats inter-company loan balances, which are not intended to be repaid in the foreseeable future, as part of its net investment. When a foreign entity is sold, the historical exchange differences plus the foreign exchange impact that arises on the transaction are recognized in the consolidated statement of income as part of the gain or loss on sale.
(d) Cash and Cash Equivalents
Cash and cash equivalents include cash, and short-term money market instruments that are readily convertible to cash with original terms of three months or less.
(e) Plant and Equipment
Plant and equipment are initially recorded at cost, including all directly attributable costs to bring the assets to the location and condition necessary for it to be capable of operating in the manner intended by
Page | 7
management. Plant and equipment are subsequently measured at cost less accumulated depreciation and applicable impairment losses. Depreciation is computed using the straight-line method based on the nature and estimated useful lives as follows:
|
Buildings
|
20 Years
|
|
Machinery
|
5 Years
|
|
Motor vehicles
|
5 Years
|
|
Office equipment and furniture
|
5 Years
|
|
Computer software
|
5 Years
|
Subsequent costs that meet the asset recognition criteria are capitalized while costs incurred that do not extend the economic useful life of an asset are considered repair and maintenance, which are accounted for as an expense recognized during the period. The Company conducts an annual assessment of the residual balances, useful lives, and depreciation methods being used for plant and equipment and any changes are applied prospectively.
Assets under construction are capitalized as construction-in-progress. The cost of construction-in- progress comprises of its purchase price and any costs directly attributable to bringing it into working condition for its intended use. Construction-in-progress assets are not depreciated until it is completed and available for use.
(f) Mineral Property Interests
The cost of acquiring mineral rights and properties either as an individual asset purchase or as part of a business combination is capitalized and represents the property’s fair value at the date of acquisition. Fair value is determined by estimating the value of the property’s reserves, resources and exploration potential.
Exploration and evaluation costs, incurred associated with specific mineral rights and properties prior to demonstrable technical feasibility and commercial viability of extracting a mineral resource, are capitalized.
The Company determines that a property is in the development stage when it has completed a positive economic analysis of the mineral deposit. Costs incurred in the development stage prior to commercial production are capitalized and included in the carrying amount of the related property in the period incurred. Proceeds from sales during this period, if any, are offset against costs capitalized.
(g) Impairment of Long-lived Assets
Long-lived assets, including mineral property interests, plant and equipment are reviewed and tested for impairment when indicators of impairment are considered to exist. Impairment assessments are conducted at the level of cash-generating units (“CGU”) or at the individual asset level, whichever is the lowest level for which identifiable cash inflows are largely independent of the cash flows of other assets. An impairment loss is recognized for any excess of carrying amount of a CGU over its recoverable amount, which is the greater of its fair value less costs to sell and value in use. For mineral properties and processing facilities, the recoverable amount is estimated as the discounted future net cash inflows expected to be derived from expected future production, metal prices, and net proceeds from the disposition of assets on retirement, less operating and capital costs. Impairment losses are recognized in the period they are incurred.
Page | 8
For exploration and evaluation assets, indication of impairment includes but is not limited to expiration of the right to explore, substantive expenditures in the specific area is neither budgeted nor planned, and exploration for and evaluation of mineral resources in the specific area have not led to the discovery of commercially viable quantities of mineral resources.
Impairment losses are reversed if there is evidence the loss no longer exists or has decreased. This reversal is recognized in net income in the period the reversal occurs limited by the carrying value that would have been determined, net of any depreciation, had no impairment charge been recognized in prior years.
(h) Share-based Payments
The Company grants share-based awards, including restricted share units (“RSUs”), performance share units (“PSUs”), and stock options to directors, officers, employees, and consultants.
For equity based awards, the fair value is charged to the consolidated statements of income and credited to equity, on a straight-line basis over the vesting period, after adjusting for the estimated number of awards that are expected to vest. The fair value of share units is determined based on quoted market price of our common shares at the date of grant. The fair value of the stock options granted to employees, officers, and directors is determined at the date of grant using the Black-Scholes option pricing model with market related input. The fair value of stock options granted to consultants is measured at the fair value of the services delivered unless that fair value cannot be estimated reliably, which then is determined using the Black-Scholes option pricing model. Stock options with graded vesting schedules are accounted for as separate grants with different vesting periods and fair values.
At each statement of financial position date prior to vesting, the cumulative expense representing the extent to which the vesting period has expired and management’s best estimate of the awards that are ultimately expected to vest is computed (after adjusting for non-market performance conditions). The movement in cumulative expense is recognized in the consolidated statements of income with a corresponding entry within equity. No expense is recognized for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vested irrespective of whether or not the market condition is satisfied, provided that all other performance conditions are satisfied.
(i) Income Taxes
Current tax for each taxable entity is based on the local taxable income at the local substantively enacted statutory tax rate at the balance sheet date and includes adjustments to taxes payable or recoverable in respect to previous periods.
Current tax assets and current tax liabilities are only offset if a legally enforceable right exists to set off the amounts, and the Company intends to settle on a net basis, or to realize the asset and settle the liability simultaneously.
Deferred tax is recognized using the liability method on temporary differences at the reporting date between the tax bases of assets and liabilities, and their carrying amounts for financial reporting purposes. Deferred tax assets are recognized for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses, can be utilized, except:
Page | 9
- where the deferred tax asset or liability relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
- in respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are recognized only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at the end of each reporting period and are recognized to the extent that it has become probable that future taxable profit will be available to allow the deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realized or the liability is settled, based on tax rates and tax laws that have been substantively enacted by the end of the reporting period.
Deferred tax relating to items recognized outside profit or loss is recognized in other comprehensive income or directly in equity.
Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.
(j) Earnings (loss) per Share
Earnings (loss) per share is computed by dividing net income (loss) attributable to equity holders of the Company by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution that could occur if additional common shares are assumed to be issued under securities that entitle their holders to obtain common shares in the future. For stock options, the number of additional shares for inclusion in diluted earnings per share calculations is determined when the exercise price is less than the average market price of the Company’s common shares; the stock options are assumed to be exercised and the proceeds are used to repurchase common shares at the average market price for the period. The incremental number of common shares issued under stock options and repurchased from proceeds is included in the calculation of diluted earnings per share.
(k) Financial Instruments
Initial recognition:
On initial recognition, all financial assets and financial liabilities are recorded at fair value adjusted for directly attributable transaction costs except for financial assets and liabilities classified as fair value through profit or loss (“FVTPL”), in which case transaction costs are expensed as incurred.
Subsequent measurement of financial assets:
Subsequent measurement of financial assets depends on the classification of such assets.
Page | 10
I. Non-equity instruments:
IFRS 9 includes a single model that has only two classification categories for financial instruments other than equity instruments: amortized cost and fair value. To qualify for amortized cost accounting, the instrument must meet two criteria:
i. The objective of the business model is to hold the financial asset for the collection of the cash flows; and
ii. All contractual cash flows represent only principal and interest on that principal.
All other instruments are mandatorily measured at fair value.
II. Equity instruments:
At initial recognition, for equity instruments other than held for trading, the Company may make an irrevocable election to designate it as either FVTPL or fair value through other comprehensive income (“FVTOCI”).
Financial assets classified as amortized cost are measured using the effective interest method. Amortized cost is calculated by taking into account any discount or premiums on acquisition and fees that are an integral part of the effective interest method. Amortization from the effective interest method is included in finance income.
Financial assets classified as FVTPL are measured at fair value with changes in fair values recognized in profit or loss. Equity investments designated as FVTOCI are measured at fair value with changes in fair values recognized in other comprehensive income (“OCI”). Dividends from that investment are recorded in profit or loss when the Company's right to receive payment of the dividend is established unless they represent a recovery of part of the cost of the investment.
Impairment of financial assets carried at amortized cost:
The Company assesses at the end of each reporting period whether there is objective evidence that financial assets or group of financial assets measured at amortized cost are impaired. Impairment losses and reversal of impairment losses, if any, are recognized in profit or loss in the period they are incurred.
Subsequent measurement of financial liabilities:
Financial liabilities classified as amortized cost are measured using the effective interest method. Amortized cost is calculated by taking into account any discount or premiums on acquisition and fees that are an integral part of the effective interest method. Amortization using the effective interest method is included in finance costs.
Financial liabilities classified as FVTPL are measured at fair value with gains and losses recognized in profit or loss.
The Company classifies its financial instruments as follows:
- Financial assets classified as FVTPL: cash and cash equivalents, short-term investments - bonds and equity investments;
- Financial assets classified as amortized cost: receivables and short-term investments – guaranteed investment certificates; and
- Financial liabilities classified as amortized cost: trade and other payables, provisions and due to related parties.
Bonds:
The Company acquired bonds issued by other companies from various industries through the open market. These bonds are held to receive coupon interest payments and to realize potential gains. The bonds may also be disposed on demand through the open market should the Company require funds for other operational or investment needs. Bonds are classified as FVTPL and are measured at fair value on initial recognition and subsequent measurement.
Page | 11
Equity investments:
Equity investments represent equity interests of other publicly-traded or privately-held companies that the Company has acquired through the open market or through private placements. These equity interests consist of common shares and warrants. Equity investments are classified as FVTPL and are measured at fair value on initial recognition and subsequent measurement. The fair value of warrants was determined using the Black-Scholes pricing model as at the acquisition date as well as at each period end.
Derecognition of financial assets and financial liabilities:
A financial asset is derecognized when:
- The rights to receive cash flows from the asset have expired; or
- The Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass- through’ arrangement; and either (a) the Company has transferred substantially all the risks and rewards of the asset, or (b) the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
Gains and losses on derecognition of financial assets and liabilities classified as amortized cost are recognized in profit or loss when the instrument is derecognized or impaired, as well as through the amortization process.
Gains and losses on derecognition of equity investments designated as FVTOCI (including any related foreign exchange component) are recognized in OCI. Amounts presented in OCI are not subsequently transferred to profit or loss, although the cumulative gain or loss may be transferred within equity.
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability. In this case, a new liability is recognized, and the difference in the respective carrying amounts is recognized in the consolidated statement of income.
Offsetting of financial instruments:
Financial assets and liabilities are offset and the net amount is reported in the consolidated statement of financial position if and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the assets and settle liabilities simultaneously.
Fair value of financial instruments:
The fair value of financial instruments that are traded in active markets at each reporting date is determined by reference to quoted market prices, without deduction for transaction costs. For financial instruments that are not traded in active markets, the fair value is determined using appropriate valuation techniques, such as using a recent arm’s length market transaction between knowledgeable and willing parties, discounted cash flow analysis, reference to the current fair value of another instrument that is substantially the same, or other valuation models.
Page | 12
(l) Significant Judgments and Estimation Uncertainties
Many amounts included in the consolidated financial statements require management to make judgments and/or estimates. These judgments and estimates are continuously evaluated and are based on management’s experience and knowledge of relevant facts and circumstances. Actual results may differ from the amounts included in the consolidated statement of financial position.
Areas of significant judgment include:
- Capitalization of expenditures with respect to exploration, evaluation and development costs to be included in mineral rights and properties.
- Determination of functional currency.
- Recognition, measurement and impairment or impairment reversal assessment for mineral rights and properties.
- Accounting assessment and classification for equity investments and bonds.
- Determination of asset acquisition.
Areas of significant estimates include:
- The estimated fair values of CGUs for impairment or impairment reversal tests, including estimates of future costs to produce proven and probable reserves, future commodity prices, discount rates, probabilities of expected cash flows from disposal and salvage value of plant and equipment.
- Valuation input and forfeiture rates used in calculation of share-based compensation.
- Valuation of securities that do not have a quoted market price.
The Company estimates its ore reserves and mineral resources based on information compiled by qualified persons as defined in accordance with the National Instrument 43-101.
3. SHORT-TERM INVESTMENTS Short-term investments consist of the following:
|
|
|
June 30, 2020
|
|
|
June 30, 2019
|
|
|
Guaranteed investment certificates
|
$
|
20,003,028
|
|
$
|
-
|
|
|
Bonds
|
|
630,744
|
|
|
10,942,898
|
|
|
|
$
|
20,633,772
|
|
$
|
10,942,898
|
|
The Company acquired guaranteed investment certificates (“GICs”) through major Canadian financial institutions. These GICs were held to receive interest payments until maturity. The Company accounts for the GICs at amortized cost at each reporting date.
The Company acquired bonds issued by other companies from various industries through the open market. These bonds were held to receive coupon interest payments and to realize potential gains. The bonds may also be disposed on demand through the open market should the Company require funds for operational or investment needs. The Company accounts for the bonds at fair value at each reporting date.
Page | 13
|
|
|
Amount
|
|
|
Balance, July 1, 2018
|
$
|
18,114,026
|
|
|
Interest earned
|
|
882,960
|
|
|
Gain on fair value change
|
|
631,809
|
|
|
Coupon payment
|
|
(853,076
|
)
|
|
Disposition
|
|
(7,700,006
|
)
|
|
Foreign currency translation impact
|
|
(132,815
|
)
|
|
Balance, June 30, 2019
|
$
|
10,942,898
|
|
|
Interest earned
|
|
361,555
|
|
|
Loss on fair value change
|
|
(375,644
|
)
|
|
Coupon payment
|
|
(399,499
|
)
|
|
Disposition
|
|
(10,230,848
|
)
|
|
Foreign currency translation impact
|
|
332,282
|
|
|
Balance, June 30, 2020
|
$
|
630,744
|
|
4. OTHER TAX RECEIVABLE
Other tax receivable is composed of value-added tax (“VAT”) imposed by the Bolivian government. The Company had VAT outputs through its exploration costs and general expenses incurred in Bolivia. These VAT outputs are deductible against future VAT inputs that will be generated through sales.
5. EQUITY INVESTMENTS
Equity investments represent equity interests of other publicly-traded or privately-held companies that the Company has acquired through the open market or through private placements. These equity interests consist of common shares and warrants. Equity investments are classified as FVTPL and are measured at fair value on initial recognition and subsequent measurement. The fair value of warrants was determined using the Black-Scholes pricing model as at the acquisition date as well as at each period end.
The equity investments are summarized as follows:
|
|
|
June 30, 2020
|
|
|
June 30, 2019
|
|
|
Common or preferred shares
|
|
|
|
|
|
|
|
Public companies
|
$
|
4,795,960
|
|
$
|
4,443,963
|
|
|
Private companies
|
|
-
|
|
|
327,175
|
|
|
Warrants
|
|
|
|
|
|
|
|
Public companies
|
|
807,631
|
|
|
339,755
|
|
|
|
$
|
5,603,591
|
|
$
|
5,110,893
|
|
The fair values of the warrants were estimated using the Black Scholes options pricing model with the following assumptions:
|
|
|
June 30, 2020
|
|
|
June 30, 2019
|
|
|
Risk free interest rate
|
|
0.36%
|
|
|
1.39%
|
|
|
Expected volatility
|
|
122%
|
|
|
130%
|
|
|
Expected life of warrants in years
|
|
1.20
|
|
|
2.19
|
|
Page | 14
The continuity of equity investments is summarized as follows:
|
|
|
|
|
|
Accumulated mark-to-
|
|
|
|
|
|
|
|
market gain included in net
|
|
|
|
|
Fair value
|
|
|
income
|
|
|
Balance, July 1, 2018
|
$
|
5,758,627
|
|
$
|
3,112,656
|
|
|
Proceeds on disposal
|
|
(570,561
|
)
|
|
-
|
|
|
Change in fair value
|
|
(77,173
|
)
|
|
(77,173
|
)
|
|
Balance, June 30, 2019
|
$
|
5,110,893
|
|
$
|
3,035,483
|
|
|
Acquisition
|
|
5,018,338
|
|
|
-
|
|
|
Proceeds on disposal
|
|
(6,131,622
|
)
|
|
-
|
|
|
Change in fair value
|
|
1,605,982
|
|
|
1,605,982
|
|
|
Balance, June 30, 2020
|
$
|
5,603,591
|
|
$
|
4,641,465
|
|
6. PLANT AND EQUIPMENT
|
|
|
|
|
|
|
|
|
|
|
|
Office
|
|
|
|
|
|
|
|
|
|
|
Land and
|
|
|
|
|
|
Motor
|
|
|
equipment and
|
|
|
Computer
|
|
|
|
|
|
Cost
|
|
building
|
|
|
Machinery
|
|
|
vehicles
|
|
|
furniture
|
|
|
software
|
|
|
Total
|
|
|
Balance, July 1, 2018
|
$
|
890,754
|
|
$
|
1,316,781
|
|
$
|
238,827
|
|
$
|
188,342
|
|
$
|
126,272
|
|
$
|
2,760,976
|
|
|
Additions
|
|
833,931
|
|
|
68,060
|
|
|
115,041
|
|
|
44,382
|
|
|
-
|
|
|
1,061,414
|
|
|
Foreign currency translation impact
|
|
(9,450
|
)
|
|
(3,573
|
)
|
|
(2,934
|
)
|
|
(3,358
|
)
|
|
(15
|
)
|
|
(19,330
|
)
|
|
Balance, June 30, 2019
|
$
|
1,715,235
|
|
$
|
1,381,268
|
|
$
|
350,934
|
|
$
|
229,366
|
|
$
|
126,257
|
|
$
|
3,803,060
|
|
|
Additions
|
|
-
|
|
|
52,734
|
|
|
40,296
|
|
|
77,566
|
|
|
137,696
|
|
|
308,292
|
|
|
Reclassified to assets held for distribution
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(13,883
|
)
|
|
(13,883
|
)
|
|
Foreign currency translation impact
|
|
34,083
|
|
|
9,253
|
|
|
11,566
|
|
|
4,296
|
|
|
4
|
|
|
59,202
|
|
|
Balance, June 30, 2020
|
$
|
1,749,318
|
|
$
|
1,443,255
|
|
$
|
402,796
|
|
$
|
311,228
|
|
$
|
250,074
|
|
$
|
4,156,671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation and amortization
|
|
Balance as at July 1, 2018
|
$
|
(890,754
|
)
|
$
|
(1,132,264
|
)
|
$
|
(104,390
|
)
|
$
|
(161,759
|
)
|
$
|
(126,223
|
)
|
$
|
(2,415,390
|
)
|
|
Depreciation and amortization
|
|
-
|
|
|
(17,400
|
)
|
|
(37,728
|
)
|
|
(25,465
|
)
|
|
-
|
|
|
(80,593
|
)
|
|
Foreign currency translation impact
|
|
-
|
|
|
409
|
|
|
880
|
|
|
2,424
|
|
|
13
|
|
|
3,726
|
|
|
Balance, June 30, 2019
|
$
|
(890,754
|
)
|
$
|
(1,149,255
|
)
|
$
|
(141,238
|
)
|
$
|
(184,800
|
)
|
$
|
(126,210
|
)
|
$
|
(2,492,257
|
)
|
|
Depreciation and amortization
|
|
-
|
|
|
(30,607
|
)
|
|
(54,118
|
)
|
|
(35,093
|
)
|
|
(1,941
|
)
|
|
(121,759
|
)
|
|
Reclassified to assets held for distribution
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
46
|
|
|
46
|
|
|
Foreign currency translation impact
|
|
-
|
|
|
(1,693
|
)
|
|
(3,360
|
)
|
|
(1,722
|
)
|
|
(3
|
)
|
|
(6,778
|
)
|
|
Balance, June 30, 2020
|
$
|
(890,754
|
)
|
$
|
(1,181,555
|
)
|
$
|
(198,716
|
)
|
$
|
(221,615
|
)
|
$
|
(128,108
|
)
|
$
|
(2,620,748
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2019
|
$
|
824,481
|
|
$
|
232,013
|
|
$
|
209,696
|
|
$
|
44,566
|
|
$
|
47
|
|
$
|
1,310,803
|
|
|
Balance, June 30, 2020
|
$
|
858,564
|
|
$
|
261,700
|
|
$
|
204,080
|
|
$
|
89,613
|
|
$
|
121,966
|
|
$
|
1,535,923
|
|
7. MINERAL PROPERTY INTERESTS
(a) Silver Sand Property
On July 20, 2017, the Company acquired the Silver Sand Project. The Silver Sand Project is located in the Colavi District of Potosí Department, in Southwestern Bolivia, 25 kilometres (“km”) northeast of Potosí City, the department capital. The Silver Sand Project covers an area of approximately 3.17 km2 at an elevation of 4,072 metres (“m”).
The Company has carried out extensive exploration and resource definition drill programs on its Silver Sand Project since acquisition in 2017. From 2017 to 2019 a total of 386 holes in 97,619m of drilling were completed – one of the largest green fields discovery drill programs in South America during this period.
Page | 15
On April 14, 2020, the Company released the inaugural NI 43-101 Mineral Resource estimate for its 100% owned Silver Sand Project. Using a 45 g/t silver cut-off-grade the estimate reported Measured & Indicated resource tonnes of 35.39 Mt at 137 g/t Ag for 155.86 Moz and Inferred resource tonnes of 9.84 Mt at 112 g/t Ag for 35.55 Moz see News Release for details.
The Company commenced its 2020 drill campaign during the first quarter of 2020, a total of 1,589.75m of drilling was completed before field-based operations in Bolivia were suspended due to the COVID-19 pandemic. Advanced studies have commenced on the Project, following a competitive tendering process, the Company selected CSA Global Consultants Canada Ltd. (an ERM Group company), Knight Piésold Consultores S.A., and Wood plc (an Amec Foster Wheeler company) to lead the Preliminary Economic Assessment, Environmental baseline study, and Social baseline studies, respectively. The initial desktop portion of the studies are currently in progress.
For the year ended June 30, 2020, total expenditures of $12,731,745 (year ended June 30, 2019 - $10,725,924) were capitalized under the project comprising of the 2019-2020 drill campaign, site and camp service and construction, maintaining a country office in La Paz, a management team, and workforce for the project.
As part of the Silver Sand Project’s expansion plan, the Company entered into a mining production contract (the “MPC”) in January 2019 with Corporación Minera de Bolivia (“COMIBOL”) to explore and potentially develop and mine the area adjoining the Silver Sand Project. The MPC remains subject to ratification by the Plurinational Legislative Assembly of Bolivia. As of the date of these audited consolidated financial statements, the MPC has not been ratified nor approved by the Plurinational Legislative Assembly of Bolivia.
In July 2018, the Company entered into an agreement with third party private owners to acquire their 100% interest in certain mineral concessions located subjacent to the Silver Sand Project by cash payments of $1,315,600 (US$1,000,000) and issuance of 832,000 common shares (see note 11 (c)). During Fiscal 2019, cash payments of $657,800 (US$500,000) were paid and 250,000 common shares were issued to the vendors. During the year ended June 30, 2020, cash payments of $394,680 (US$300,000) were paid and 291,000 common shares were issued to the vendors. Future cash payments of $263,120 (US$200,000) were accrued as payable for mineral property acquisition as at June 30, 2020.
In December 2019, the Company further expanded its Silver Sand land package by acquiring a 100% interest in a Special Temporary Authorization (“ATE”) located to the north of the project by making a one- time cash payment of $267,720 (US$200,000) to arm’s length private owners. This newly acquired ATE currently consists of six hectares but will total approximately 0.50 km2 once it has been consolidated to concessions called “Cuadriculas” and converted to Mining Administrative Contract with Bolivia’s Jurisdictional Mining Administrative Authority (Autoridad Jurisdiccional Administrativa Minera or “AJAM”).
(b) Silverstrike Project
In December 2019, the Company acquired a 98% interest in the Silverstrike Project from an arm’s length private Bolivian corporation (the “Vendor”) by making a one-time cash payment of $1,782,270 (US$1,350,000). Under the agreement, the Company’s Bolivian subsidiary will cover 100% of the future expenditures including exploration, development and mining production activities. The agreement has a term of 30 years and renewable for another 15 years. The agreement is subject to approval by AJAM.
The Silverstrike Project consists of approximately 13km2 and is located approximately 140 kilometres southwest of La Paz, Bolivia. Silverstrike shares many similarities with the Silver Sand Project pre-discovery drilling namely: sandstone hosted structurally controlled silver-polymetallic mineralization centered on a historic mining district – the Berenguela District, presence of felsic Tertiary intrustives with corresponding multilple silver rich occurrences associated with extensive sercitic alteration and underexplored with limited modern exploration. The Vendor has also applied for exploration rights over areas surrounding the Silverstrike Project as part of the transaction.
Page | 16
For the year ended June 30, 2020, total expenditures of $640,102 (year ended June 30, 2019 - $nil) were capitalized under the project for expenditures related to camp service and maintaining a management team and workforce for the project.
(c) Tagish Lake Gold Project
The Tagish Lake Gold Project (“TLG Project”), covering an area of 166 km2, is located in Yukon Territory, Canada, and consists of 1,051 mining claims hosting three identified gold and gold-silver mineral deposits: Skukum Creek, Goddell Gully and Mount Skukum, respectively.
For the year ended June 30, 2020, total expenditures of $105,056 (year ended June 30, 2019 - $nil) were capitalized under the project.
For the year ended June 30, 2020, impairment recovery of $11,714,944 was recognized for the TLG Project. The project’s carrying value of $11,820,000 was reclassified to assets held for sale as at June 30, 2020 (Also see Note 17).
(d) RZY Project
The RZY Project, located in Qinghai, China is an early stage silver-lead-zinc exploration project. The RZY Project is located approximately 237 km via paved and gravel roads from the city of Yushu Tibetan Autonomous Prefecture, or 820 km via paved highway from Qinghai Province’s capital city of Xining. In 2016, the Qinghai Government issued a moratorium which suspended exploration for 26 mining projects in the region, including the RZY Project, and classified the region as a National Nature Reserve Area.
During the year ended June 30, 2020, the Company’s subsidiary, Qinghai Found, reached a compensation agreement (the “Agreement”) with the Qinghai Government for the RZY Project. Pursuant to the Agreement, Qinghai Found will surrender its title of the RZY Project to the Qinghai Government after completing certain reclamation works for one-time cash compensation of $3.8 million (RMB ¥20 million). As of June 30, 2020, the Company completed the reclamation works for a cost of approximately $200,000, and they are currently under review and subject to approval by the Qinghai Government.
Page | 17
The continuity schedule of mineral property acquisition costs and deferred exploration and development costs is summarized as follows:
|
Cost
|
|
Silver Sand
|
|
|
Silverstrike
|
|
|
Tagish Lake
|
|
|
RZY Project
|
|
|
Total
|
|
|
Balance, July 1, 2018
|
$
|
60,374,656
|
|
$
|
-
|
|
$
|
-
|
|
$
|
4,488,108
|
|
$
|
64,862,764
|
|
|
Capitalized exploration expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Drilling and assaying
|
|
6,978,112
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
6,978,112
|
|
|
Project management and support
|
|
2,980,841
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,980,841
|
|
|
Camp service
|
|
742,163
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
742,163
|
|
|
Geological surveys
|
|
4,170
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4,170
|
|
|
Permitting
|
|
7,401
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
7,401
|
|
|
Acquisition of mineral concessions
|
|
2,631,200
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,631,200
|
|
|
Other
|
|
13,237
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
13,237
|
|
|
Impairment
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(779,823
|
)
|
|
(779,823
|
)
|
|
Foreign currency impact
|
|
(450,362
|
)
|
|
-
|
|
|
-
|
|
|
(173,621
|
)
|
|
(623,983
|
)
|
|
Balance, June 30, 2019
|
$
|
73,281,418
|
|
$
|
-
|
|
$
|
-
|
|
$
|
3,534,664
|
|
$
|
76,816,082
|
|
|
Capitalized exploration expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reporting and assessment
|
|
601,466
|
|
|
976
|
|
|
-
|
|
|
-
|
|
|
602,442
|
|
|
Drilling and assaying
|
|
6,521,210
|
|
|
2,237
|
|
|
-
|
|
|
-
|
|
|
6,523,447
|
|
|
Project management and support
|
|
4,546,717
|
|
|
586,052
|
|
|
-
|
|
|
-
|
|
|
5,132,769
|
|
|
Camp service
|
|
661,514
|
|
|
50,837
|
|
|
-
|
|
|
-
|
|
|
712,351
|
|
|
Camp construction
|
|
32,406
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
32,406
|
|
|
Permitting
|
|
51,358
|
|
|
-
|
|
|
105,056
|
|
|
-
|
|
|
156,414
|
|
|
Acquisition of Silverstrike Project
|
|
-
|
|
|
1,782,270
|
|
|
-
|
|
|
-
|
|
|
1,782,270
|
|
|
Acquisition of mineral concessions
|
|
290,220
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
290,220
|
|
|
Other
|
|
26,854
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
26,854
|
|
|
Impairment recovery
|
|
-
|
|
|
-
|
|
|
11,714,944
|
|
|
-
|
|
|
11,714,944
|
|
|
Reclassified to assets held for distribution
|
|
-
|
|
|
-
|
|
|
(11,820,000
|
)
|
|
-
|
|
|
(11,820,000
|
)
|
|
Foreign currency impact
|
|
2,979,031
|
|
|
59,546
|
|
|
-
|
|
|
40,800
|
|
|
3,079,377
|
|
|
Balance, June 30, 2020
|
$
|
88,992,194
|
|
$
|
2,481,918
|
|
$
|
-
|
|
$
|
3,575,464
|
|
$
|
95,049,576
|
|
8. TRADE AND OTHER PAYABLES
Trade and other payables consist of:
|
|
|
June 30, 2020
|
|
|
June 30, 2019
|
|
|
Trade payable
|
$
|
614,321
|
|
$
|
1,410,832
|
|
|
Accrued liabilities
|
|
959,153
|
|
|
210,571
|
|
|
|
$
|
1,573,474
|
|
$
|
1,621,403
|
|
9. RELATED PARTY TRANSACTIONS
Related party transactions are made on terms agreed upon by the related parties. The balances with related parties are unsecured, non-interest bearing, and due on demand. Related party transactions not disclosed elsewhere in the consolidated financial statements are as follows:
|
Due to a related party
|
|
June 30, 2020
|
|
|
June 30, 2019
|
|
|
Silvercorp Metals Inc.
|
$
|
84,742
|
|
$
|
89,189
|
|
(a) Silvercorp Metals Inc. (“Silvercorp”) has two directors and one officer in common with the Company. Silvercorp and the Company share office space and Silvercorp provides various general and administrative services to the Company. Expenses in services rendered and incurred by Silvercorp on behalf of the Company for the year ended June 30, 2020 were $787,008 (year ended June 30, 2019 - $304,561).
Page | 18
(b) Compensation of key management personnel
The remuneration of directors and other members of key management personnel for the years ended June 30, 2020 and 2019 are as follows:
|
|
|
Years ended June 30,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Directors' fees
|
$
|
75,000
|
|
$
|
80,000
|
|
|
Directors' share-based compensation
|
|
599,720
|
|
|
452,445
|
|
|
Key management's salaries and benefits
|
|
1,262,572
|
|
|
688,250
|
|
|
Key management's share-based compensation
|
|
2,961,000
|
|
|
732,961
|
|
|
|
$
|
4,898,292
|
|
$
|
1,953,656
|
|
10. SHARE CAPITAL
(a) Share Capital - authorized share capital
Unlimited number of common shares without par value.
(b) Share-based compensation
The Company has a share-based compensation plan (the “Plan”) which consists of stock options, restricted share units (the “RSUs”) and performance share units (the “PSUs”). The Plan allows for the maximum number of common shares to be reserved for issuance on any share-based compensation to be a rolling 10% of the issued and outstanding common shares from time to time. Furthermore, no more than 3,500,000 shares may be granted in the form of RSUs and no more than 780,000 shares may be granted in the form of PSUs.
For the year ended June 30, 2020, a total of $2,127,818 (year ended June 30, 2019 - $922,498) were recorded as share-based compensation expense and $75,593 (year ended June 30, 2019 - $nil) were recorded as part of project evaluation and corporate development expense. For the year ended June 30, 2020, a total of $1,502,311 (year ended June 30, 2019 - $nil) were capitalized under mineral property interests.
Page | 19
(i) Stock Options
The continuity schedule of stock options, as at June 30, 2020, is as follows:
|
|
|
|
|
|
Weighted average
|
|
|
|
|
Number of options
|
|
|
exercise price
|
|
|
Balance, July 1, 2018
|
|
4,145,000
|
|
|
0.87
|
|
|
Options granted
|
|
2,155,000
|
|
|
2.16
|
|
|
Options exercised
|
|
(333,333
|
)
|
|
0.57
|
|
|
Options cancelled
|
|
(11,667
|
)
|
|
0.89
|
|
|
Options expired
|
|
(50,000
|
)
|
|
0.57
|
|
|
Balance, June 30, 2019
|
|
5,905,000
|
|
|
1.36
|
|
|
Options exercised
|
|
(888,066
|
)
|
|
1.16
|
|
|
Options cancelled
|
|
(354,167
|
)
|
|
1.91
|
|
|
Balance, June 30, 2020
|
|
4,662,767
|
|
|
1.36
|
|
Option pricing model requires the input of subjective assumptions including the expected volatility. Changes in the assumptions can materially affect the fair value estimate and therefore, the existing models do not necessarily provide a reliable estimate of the fair value of the Company’s stock options. The Company’s expected volatility is based on the historical volatility of the Company’s share price on the TSX-V.
The following table summarizes information about stock options outstanding as at June 30, 2020:
|
|
|
Number of options
|
Weighted
|
Number of options
|
Weighted
|
|
|
Exercise
|
outstanding as at
|
average remaining
|
exercisable as at
|
average
|
|
|
prices
|
6/30/2020
|
contractual life (years)
|
6/30/2020
|
exercise price
|
|
$
|
0.55
|
1,406,600
|
1.34
|
1,406,600
|
$0.55
|
|
|
1.15
|
1,310,833
|
2.08
|
1,068,332
|
$1.15
|
|
|
1.57
|
200,000
|
2.44
|
166,667
|
$1.57
|
|
|
2.15
|
1,745,334
|
3.65
|
508,664
|
$2.15
|
|
|
0.55 - 2.15
|
4,662,767
|
2.46
|
3,150,263
|
$1.07
|
Subsequent to June 30, 2020, a total of 8,333 options with exercise price of $1.15 were exercised for proceeds of $9,583.
(ii) RSUs
The continuity schedule of RSUs, as at June 30, 2020, is as follows:
|
|
|
|
|
|
Weighted average
|
|
|
|
|
|
|
|
grant date closing
|
|
|
|
|
Number of shares
|
|
|
price per share $CAD
|
|
|
Balance, July 1, 2019
|
|
-
|
|
$
|
-
|
|
|
Granted
|
|
1,064,600
|
|
|
4.70
|
|
|
Cancelled
|
|
(3,000
|
)
|
|
4.70
|
|
|
Distributed
|
|
(136,400
|
)
|
|
4.70
|
|
|
Balance, June 30, 2020
|
|
925,200
|
|
$
|
4.70
|
|
Page | 20
During the year ended June 30, 2020, a total of 1,064,600 RSUs were granted to directors, officers, employees, and consultants of the Company at grant date closing price of CAD$4.70 per share subject to a vesting schedule over a two-year term with 25% of the RSUs vesting every six months from the date of grant.
(c) Common Shares issued for mineral property interest
As part of the consideration given to acquire certain mineral concessions located adjacent to the Silver Sand Property (see note 8(a)), the Company agreed to issue a total of 832,000 common shares to the vendors valued at $1,315,600 (US$1,000,000) in the year ended June 30, 2019. During the year ended June 30, 2020, 291,000 common shares valued at $460,144 (year ended June 30, 2019 – 250,000 common shares valued at $395,313) were issued and recorded under share capital. The future issuance of 291,000 shares valued at $460,143 has been recorded under share-based payment reserve.
(d) Bought Deal Financing
On October 25, 2019, the Company successfully closed a bought deal financing underwritten by BMO Capital Markets (“BMO”) to issue a total of 4,312,500 common shares at a price of $4.00 per common share for gross proceeds of $17,250,000. The underwriter’s fee and other issuance costs for the transaction were $1,416,467.
On June 9, 2020, the Company successfully closed another bought deal financing with BMO to issue a total of 4,238,000 common shares at a price of $5.90 per common share for gross proceeds of $25,004,200. The underwriter’s fee and other issuance costs for the transaction were $1,939,144.
11. NON-CONTROLLING INTEREST
|
|
|
Qinghai Found
|
|
|
Balance, July 1, 2018
|
$
|
147,422
|
|
|
Share of net loss
|
|
(151,851
|
)
|
|
Share of other comprehensive loss
|
|
(33,256
|
)
|
|
Balance, June 30, 2019
|
$
|
(37,685
|
)
|
|
Share of net loss
|
|
(19,412
|
)
|
|
Share of other comprehensive income
|
|
7,604
|
|
|
Balance, June 30, 2020
|
$
|
(49,493
|
)
|
As at June 30, 2020 and June 30, 2019, the non-controlling interest in the Company’s subsidiary Qinghai Found was 18%.
12. FINANCIAL INSTRUMENTS
The Company manages its exposure to financial risks, including liquidity risk, foreign exchange rate risk, interest rate risk, credit risk and equity price risk in accordance with its risk management framework. The Company’s Board has overall responsibility for the establishment and oversight of the Company’s risk management framework and reviews the Company’s policies on an ongoing basis.
Page | 21
(a) Fair Value
The Company classifies its fair value measurements within a fair value hierarchy, which reflects the significance of inputs used in making the measurements as defined in IFRS 13 – Fair Value Measurement (“IFRS 13”).
Level 1 – Unadjusted quoted prices at the measurement date for identical assets or liabilities in active markets.
Level 2 – Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3 – Unobservable inputs which are supported by little or no market activity.
The following table sets forth the Company’s financial assets that are measured at fair value on a recurring basis by level within the fair value hierarchy as at June 30, 2020 and June 30, 2019 that are not otherwise disclosed. As required by IFRS 13, financial assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
|
|
|
Fair value as at June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring measurements
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
40,644,346
|
|
$
|
-
|
|
$
|
-
|
|
$
|
40,644,346
|
|
|
Short-term investments - bonds
|
|
630,744
|
|
|
-
|
|
|
-
|
|
|
630,744
|
|
|
Common or preferred shares(1)
|
|
4,795,960
|
|
|
-
|
|
|
-
|
|
|
4,795,960
|
|
|
Warrants
|
|
-
|
|
|
807,631
|
|
|
-
|
|
|
807,631
|
|
(1) Common shares in private companies are Level 3 financial instruments
|
|
|
Fair value as at June 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring measurements
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
27,849,961
|
|
$
|
-
|
|
$
|
-
|
|
$
|
27,849,961
|
|
|
Bonds
|
|
10,942,898
|
|
|
-
|
|
|
-
|
|
|
10,942,898
|
|
|
Common shares(1)
|
|
4,443,963
|
|
|
-
|
|
|
327,175
|
|
|
4,771,138
|
|
|
Warrants
|
|
-
|
|
|
339,755
|
|
|
-
|
|
|
339,755
|
|
(1) Common shares in private companies are Level 3 financial instruments
Fair value of other financial instruments excluded from the table above approximates their carrying amount as of June 30, 2020 and June 30, 2019, respectively.
There were no transfers into or out of Level 3 during the year ended June 30, 2020. For the year ended June 30, 2020, fair value change of $327,175 from Level 3 instruments were recognized as part of loss on equity investments on the consolidated statements of income.
(b) Liquidity Risk
The Company has a history of losses and no operating revenues from its operations. Liquidity risk is the risk that the Company will not be able to meet its short term business requirements. As at June 30, 2020,
Page | 22
the Company had a working capital position of $71,720,986 and sufficient cash resources to meet the Company’s short-term financial liabilities and its planned exploration expenditures on the Silver Sand and Silverstrike Projects for, but not limited to, the next 12 months.
In the normal course of business, the Company enters into contracts that give rise to commitments for future minimum payments. The following summarizes the remaining contractual maturities of the Company’s financial liabilities:
|
|
|
June 30, 2020
|
|
|
June 30, 2019
|
|
|
|
|
Due within a year
|
|
|
Total
|
|
|
Total
|
|
|
Trade and other payables
|
$
|
1,573,474
|
|
$
|
1,573,474
|
|
$
|
1,621,403
|
|
|
Due to a related party
|
|
84,742
|
|
|
84,742
|
|
|
89,189
|
|
|
Payable for mineral property acquisition
|
|
263,120
|
|
|
263,120
|
|
|
657,800
|
|
|
|
$
|
1,921,336
|
|
$
|
1,921,336
|
|
$
|
2,368,392
|
|
(c) Foreign Exchange Risk
The Company is exposed to foreign exchange risk when it undertakes transactions and holds assets and liabilities denominated in foreign currencies other than its functional currencies. The Company currently does not engage in foreign exchange currency hedging. The Company’s exposure to foreign exchange risk is summarized as follows:
|
The amounts are expressed in CAD equivalents
|
|
June 30, 2020
|
|
|
June 30, 2019
|
|
|
United States dollars
|
$
|
15,206,715
|
|
$
|
17,615,304
|
|
|
Bolivianos
|
|
404,952
|
|
|
191,204
|
|
|
Chinese RMB
|
|
218,216
|
|
|
191,645
|
|
|
Financial assets in foreign currency
|
$
|
15,829,883
|
|
$
|
17,998,153
|
|
|
|
|
|
|
|
|
|
|
United States dollars
|
$
|
589,986
|
|
$
|
1,330,481
|
|
|
Chinese RMB
|
|
137,725
|
|
|
4,258
|
|
|
Financial liabilities in foreign currency
|
$
|
727,711
|
|
$
|
1,334,739
|
|
As at June 30, 2020, with other variables unchanged, a 1% strengthening (weakening) of the US dollar against the CAD would have increased (decreased) net income by approximately $146,000.
As at June 30, 2020, with other variables unchanged, a 1% strengthening (weakening) of the Bolivianos against the CAD would have increased (decreased) net income by approximately $4,050.
As at June 30, 2020, with other variables unchanged, a 1% strengthening (weakening) of the Chinese RMB against the CAD would have increased (decreased) net income by approximately $1,000.
(d) Interest Rate Risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market interest rates. The Company’s cash and cash equivalents primarily include highly liquid investments that earn interest at market rates that are fixed to maturity. The Company also holds a portion of cash and cash equivalents in bank accounts that earn variable interest rates. Due to the short-term nature of these financial instruments, fluctuations in market rates do not have significant
Page | 23
impact on the fair values of the financial instruments as of June 30, 2020. The Company also owns GICs and bonds that earn interest payments at fixed rates to maturity. Fluctuation in market interest rates usually will have an impact on bond’s fair value. An increase in market interest rates will generally reduce bond’s fair value while a decrease in market interest rates will generally increase it. The Company monitors market interest rate fluctuations closely and adjusts the investment portfolio accordingly.
(e) Credit Risk
Credit risk is the risk of financial loss to the Company if the counterparty to a financial instrument fails to meets its contractual obligations. The Company’s exposure to credit risk is primarily associated with cash and cash equivalents, bonds, and receivables. The carrying amount of financial assets included on the statement of financial position represents the maximum credit exposure.
The Company has deposits of cash equivalents that meet minimum requirements for quality and liquidity as stipulated by the Board. Management believes the risk of loss to be remote, as majority of its cash and cash equivalents are held with major financial institutions. Bonds by nature are exposed to more credit risk than cash. The Company manages its risk associated with bonds by only investing in large globally recognized corporations from diversified industries. As at June 30, 2020, the Company had a receivables balance of $413,594 (June 30, 2019 - $259,600).
(f) Equity Price Risk
The Company holds certain marketable securities that will fluctuate in value as a result of trading on global financial markets. Based upon the Company’s portfolio at June 30, 2020, a 10% increase (decrease) in the market price of the securities held, ignoring any foreign exchange effects would have resulted in an increase (decrease) to net income of approximately $560,000.
13. CAPITAL MANAGEMENT
The Company’s objectives of capital management are intended to safeguard the entity’s ability to support the Company’s normal exploration and operating requirement on an ongoing basis, continue the investment in high quality assets along with safeguarding the value of its development and exploration mineral properties, and support any expansionary plans.
The capital of the Company consists of the items included in equity less cash and cash equivalents and bonds. Risk and capital management are primarily the responsibility of the Company’s corporate finance function and is monitored by the Board of Directors. The Company manages the capital structure and makes adjustments depending on economic conditions. Significant risks are monitored and actions are taken, when necessary, according to the Company’s approved policies.
In addition, the current outbreak of COVID-19 has caused significant disruption to global economic conditions which may adversely impact the Company’s results. Moreover, COVID-19 has also negatively impacted on the stock markets which could adversely impact the Company’s ability to raise capital.
Page | 24
14. INCOME TAXES
The provision for income taxes differs from the amount computed by applying the cumulative Canadian federal and provincial income tax rates to the loss before income tax provision due to the following:
|
|
|
Years ended June 30,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Canadian statutory tax rate
|
|
27.00%
|
|
|
27.00%
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
$
|
7,912,887
|
|
$
|
(2,575,755
|
)
|
|
|
|
|
|
|
|
|
|
Income tax expense (recovery) computed at Canadian statutory rates
|
|
2,136,479
|
|
|
(694,645
|
)
|
|
Foreign tax rates different from statutory rate
|
|
(435,910
|
)
|
|
(476,213
|
)
|
|
Permanent items and other
|
|
825,209
|
|
|
810,670
|
|
|
Change in unrecognized deferred tax assets
|
|
(2,525,778
|
)
|
|
359,879
|
|
|
Adjustments in respect of prior years
|
|
-
|
|
|
309
|
|
|
|
$
|
-
|
|
$
|
-
|
|
Deferred tax assets are recognized to the extent that the realization of the related tax benefit through future taxable profit is probable. The ability to realize the tax benefits is dependent upon numerous factors, including the future profitability of operations in the jurisdiction in which the tax benefit arise. Deductible temporary differences and unused tax losses for which no deferred tax assets have been recognized are attributable to the following:
|
|
|
June 30, 2020
|
|
|
June 30, 2019
|
|
|
Non-capital loss carry forward
|
$
|
16,142,356
|
|
$
|
14,521,402
|
|
|
Plant and equipment
|
|
3,119,505
|
|
|
3,103,400
|
|
|
Mineral property interests
|
|
22,851,212
|
|
|
34,516,152
|
|
|
Equity investments
|
|
729,720
|
|
|
-
|
|
|
Investment tax credit
|
|
1,624,391
|
|
|
1,624,391
|
|
|
|
$
|
44,467,184
|
|
$
|
53,765,345
|
|
As of June 30, 2020, the Company has the following net operating losses, expiring various years to 2040 and available to offset future taxable income in Canada, Bolivia and China, respectively:
|
|
|
Canada
|
|
|
Bolivia
|
|
|
China
|
|
|
2025
|
|
-
|
|
|
-
|
|
|
47,985
|
|
|
2027
|
|
-
|
|
|
-
|
|
|
60,182
|
|
|
2028
|
|
-
|
|
|
-
|
|
|
108,643
|
|
|
2029
|
|
-
|
|
|
-
|
|
|
106,987
|
|
|
2030
|
|
1,108,972
|
|
|
-
|
|
|
-
|
|
|
2031
|
|
1,644,970
|
|
|
-
|
|
|
-
|
|
|
2032
|
|
1,321,934
|
|
|
-
|
|
|
-
|
|
|
2033
|
|
1,173,305
|
|
|
-
|
|
|
-
|
|
|
2034
|
|
1,337,753
|
|
|
-
|
|
|
-
|
|
|
2035
|
|
1,339,406
|
|
|
-
|
|
|
-
|
|
|
2036
|
|
3,369,436
|
|
|
-
|
|
|
-
|
|
|
2037
|
|
123,118
|
|
|
61,120
|
|
|
-
|
|
|
2038
|
|
1,520,985
|
|
|
30,760
|
|
|
-
|
|
|
2039
|
|
722,863
|
|
|
157,915
|
|
|
-
|
|
|
2040
|
|
1,906,022
|
|
|
-
|
|
|
-
|
|
|
|
$
|
15,568,764
|
|
$
|
249,795
|
|
$
|
323,797
|
|
Page | 25
As at June 30, 2020, the Company had tax credits of $1.6 million (June 30, 2019 -$1.6 million) that have not been recognized, expiring between 2028 and 2035.
15. SEGMENTED INFORMATION
The Company operates in four reportable operating segments, one being the corporate segment; the others being the geographic jurisdictional mining segments focused on safeguarding the value of its exploration and development mineral properties. These reporting segments are components of the Company where separate financial information is available that is evaluated regularly by the Company’s Chief Financial Officer, Chief Executive Officer, and other senior decision makers within the Company.
(a) Segment information for assets and liabilities are as follows:
|
|
|
|
June 30, 2020
|
|
|
|
|
|
Corporate
|
|
|
Mining
|
|
|
|
|
|
|
|
|
Canada and BVI
|
|
|
Bolivia
|
|
|
Canada
|
|
|
China
|
|
|
Total
|
|
|
Cash and cash equivalents
|
|
$
|
40,007,801
|
|
$
|
180,406
|
|
$
|
419,860
|
|
$
|
36,279
|
|
$
|
40,644,346
|
|
|
Short-term investments
|
|
|
20,633,772
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
20,633,772
|
|
|
Equity investments
|
|
|
5,603,591
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
5,603,591
|
|
|
Plant and equipment
|
|
|
187,979
|
|
|
1,325,228
|
|
|
-
|
|
|
22,716
|
|
|
1,535,923
|
|
|
Mineral property interests
|
|
|
-
|
|
|
91,474,112
|
|
|
-
|
|
|
3,575,464
|
|
|
95,049,576
|
|
|
Assets held for distribution
|
|
|
-
|
|
|
-
|
|
|
11,849,971
|
|
|
-
|
|
|
11,849,971
|
|
|
Other assets
|
|
|
161,893
|
|
|
3,146,646
|
|
|
-
|
|
|
190,340
|
|
|
3,498,879
|
|
|
Total Assets
|
|
$
|
66,595,036
|
|
$
|
96,126,392
|
|
$
|
12,269,831
|
|
$
|
3,824,799
|
|
$
|
178,816,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
$
|
(1,193,625
|
)
|
$
|
(589,987
|
)
|
$
|
(122,178
|
)
|
$
|
(137,724
|
)
|
$
|
(2,043,514
|
)
|
|
|
|
|
June 30, 2019
|
|
|
|
|
|
Corporate
|
|
|
Mining
|
|
|
|
|
|
|
|
|
Canada and BVI
|
|
|
Bolivia
|
|
|
Canada
|
|
|
China
|
|
|
Total
|
|
|
Cash and cash equivalents
|
|
$
|
27,372,635
|
|
$
|
384,332
|
|
$
|
29,886
|
|
$
|
63,108
|
|
$
|
27,849,961
|
|
|
Bonds
|
|
|
10,942,898
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
10,942,898
|
|
|
Equity investments
|
|
|
5,110,893
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
5,110,893
|
|
|
Plant and equipment
|
|
|
32,714
|
|
|
1,255,631
|
|
|
-
|
|
|
22,458
|
|
|
1,310,803
|
|
|
Mineral property interests
|
|
|
-
|
|
|
73,281,417
|
|
|
-
|
|
|
3,534,665
|
|
|
76,816,082
|
|
|
Other assets
|
|
|
66,138
|
|
|
1,999,715
|
|
|
15,199
|
|
|
136,706
|
|
|
2,217,758
|
|
|
Total Assets
|
|
$
|
43,525,278
|
|
$
|
76,921,095
|
|
$
|
45,085
|
|
$
|
3,756,937
|
|
$
|
124,248,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
$
|
(921,806
|
)
|
$
|
(1,330,481
|
)
|
$
|
(111,847
|
)
|
$
|
(4,258
|
)
|
$
|
(2,368,392
|
)
|
Page | 26
(b) Segment information for operating results are as follows:
|
|
|
Year ended June 30, 2020
|
|
|
|
|
Corporate
|
|
|
Mining
|
|
|
|
|
|
|
|
Canada and BVI
|
|
|
Bolivia
|
|
|
Canada
|
|
|
China
|
|
|
Total
|
|
|
Gain on equity investments
|
$
|
1,605,982
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
1,605,982
|
|
|
Fair value change and interest earned on bonds
|
|
(14,089
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(14,089
|
)
|
|
Dividend income
|
|
139,597
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
139,597
|
|
|
Interest income
|
|
29,813
|
|
|
-
|
|
|
-
|
|
|
211
|
|
|
30,024
|
|
|
|
|
1,761,303
|
|
|
-
|
|
|
-
|
|
|
211
|
|
|
1,761,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Project evaluation and corporate development
|
|
121,091
|
|
|
155,586
|
|
|
-
|
|
|
-
|
|
|
276,677
|
|
|
Salaries and benefits
|
|
1,612,288
|
|
|
-
|
|
|
98,741
|
|
|
67,644
|
|
|
1,778,673
|
|
|
Share-based compensation
|
|
2,127,818
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,127,818
|
|
|
Other operating expenses
|
|
1,919,879
|
|
|
-
|
|
|
44,360
|
|
|
40,547
|
|
|
2,004,786
|
|
|
Loss before other income and expenses
|
|
(4,019,773
|
)
|
|
(155,586
|
)
|
|
(143,101
|
)
|
|
(107,980
|
)
|
|
(4,426,440
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment recovery of mineral property interests
|
|
-
|
|
|
-
|
|
|
11,714,944
|
|
|
-
|
|
|
11,714,944
|
|
|
Foreign exchange gain
|
|
624,217
|
|
|
-
|
|
|
29
|
|
|
137
|
|
|
624,383
|
|
|
Other income (expense)
|
|
30,000
|
|
|
-
|
|
|
(30,000
|
)
|
|
-
|
|
|
-
|
|
|
Net (loss) income
|
$
|
(3,365,556
|
)
|
$
|
(155,586
|
)
|
$
|
11,541,872
|
|
$
|
(107,843
|
)
|
$
|
7,912,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributed to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity holders of the Company
|
$
|
(3,365,556
|
)
|
$
|
(155,586
|
)
|
$
|
11,541,872
|
|
$
|
(88,431
|
)
|
$
|
7,932,299
|
|
|
Non-controlling interests
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(19,412
|
)
|
|
(19,412
|
)
|
|
Net (loss) income
|
$
|
(3,365,556
|
)
|
$
|
(155,586
|
)
|
$
|
11,541,872
|
|
$
|
(107,843
|
)
|
$
|
7,912,887
|
|
|
|
|
Year ended June 30, 2019
|
|
|
|
|
Corporate
|
|
|
Mining
|
|
|
|
|
|
|
|
Canada
|
|
|
Bolivia
|
|
|
Canada
|
|
|
China
|
|
|
Total
|
|
|
Loss on equity investments
|
$
|
(77,173
|
)
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
(77,173
|
)
|
|
Fair value change and interest earned on bonds
|
|
1,514,769
|
|
|
-
|
|
|
-
|
|
|
-
|
|
$
|
1,514,769
|
|
|
Dividend income
|
|
53,902
|
|
|
-
|
|
|
-
|
|
|
-
|
|
$
|
53,902
|
|
|
Interest income
|
|
40,653
|
|
|
-
|
|
|
-
|
|
|
240
|
|
$
|
40,893
|
|
|
|
|
1,532,151
|
|
|
-
|
|
|
-
|
|
|
240
|
|
|
1,532,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
862,613
|
|
|
-
|
|
|
-
|
|
|
68,349
|
|
|
930,962
|
|
|
Share-based compensation
|
|
922,498
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
922,498
|
|
|
Other operating expenses (income)
|
|
1,235,860
|
|
|
35,372
|
|
|
143,549
|
|
|
(534
|
)
|
|
1,414,247
|
|
|
Loss before other income and expenses
|
|
(1,488,820
|
)
|
|
(35,372
|
)
|
|
(143,549
|
)
|
|
(67,575
|
)
|
|
(1,735,316
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of mineral property interests
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(779,823
|
)
|
|
(779,823
|
)
|
|
Foreign exchange gain (loss)
|
|
(68,271
|
)
|
|
-
|
|
|
-
|
|
|
3,780
|
|
|
(64,491
|
)
|
|
Other income (expense)
|
|
60,000
|
|
|
5,494
|
|
|
(58,619
|
)
|
|
-
|
|
|
6,875
|
|
|
Net loss
|
$
|
(1,497,091
|
)
|
$
|
(29,878
|
)
|
$
|
(202,168
|
)
|
$
|
(843,618
|
)
|
$
|
(2,572,755
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributed to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity holders of the Company
|
$
|
(1,497,091
|
)
|
$
|
(29,878
|
)
|
$
|
(202,168
|
)
|
$
|
(691,767
|
)
|
$
|
(2,420,904
|
)
|
|
Non-controlling interests
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(151,851
|
)
|
$
|
(151,851
|
)
|
|
Net loss
|
$
|
(1,497,091
|
)
|
$
|
(29,878
|
)
|
$
|
(202,168
|
)
|
$
|
(843,618
|
)
|
$
|
(2,572,755
|
)
|
Page | 27
16. SUPPLEMENTARY CASH FLOW INFORMATION
|
Changes in non-cash operating working capital:
|
|
Years Ended June 30,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Receivables
|
$
|
(147,815
|
)
|
$
|
(85,020
|
)
|
|
Deposits and prepayments
|
|
(76,233
|
)
|
|
(70,551
|
)
|
|
Accounts payable and accrued liabilities
|
|
101,971
|
|
|
(196,353
|
)
|
|
Due to a related party
|
|
(4,447
|
)
|
|
64,772
|
|
|
|
$
|
(126,524
|
)
|
$
|
(287,152
|
)
|
17. ASSETS AND LIABILITIES HELD FOR DISTRIBUTION
During the year, the Company performed strategic reviews on its TLG Project and established a wholly owned subsidiary, Whitehorse Gold Corp. (“Whitehorse Gold”), to hold its 100% interest in the project. In Q4, fiscal 2020, significant changes with favourable effects on the TLG Project have taken place. The Company obtained a Class 1 exploration permit, commenced desktop technical studies and analysis of the project including an updated exploration plan. As a result, the Company reversed the previously recorded impairment on TLG Project to its recoverable amount, being its fair value less costs of disposal (“FVLCD”). The fair value was determined using a market approach based on the pricing parameters implied by the market value of selected comparable transactions involving the sale of similar companies or mineral properties. Specifically, the comparable in-situ resource multiples (Enterprise Value (“EV”) per ounce of contained gold (“EV/R&R”)) observed in comparable transactions has been used to estimate the fair value. As a result, the Company recognized an impairment recovery of $11,714,944 for the year ended June 30, 2020. Subsequent to June 30, 2020, the Company announced that, subject to customary approvals, it intends to (directly or indirectly) distribute all Whitehorse Gold common shares owned by the Company to its shareholders on a pro rata basis by way of a plan of arrangement under the Business Corporations Act (British Columbia) and apply to list the Whitehorse Gold common shares on TSX Venture Exchange.
The spin-out would enable the Company’s shareholders to realize the value of the TLG Project in the current strong gold market through direct ownership in Whitehorse Gold. Upon completion of the spin- out, the Company would continue to focus on the exploration and development of its Silver Sand and Silverstrike projects in Bolivia. The spin-out transaction is subject to the Company’s shareholders’ approval. As at June 30, 2020, the Company has classified certain assets and liabilities as held for distribution as follows:
|
Assets
|
|
June 30, 2020
|
|
|
Receivables
|
$
|
1,058
|
|
|
Reclamation deposit
|
|
15,075
|
|
|
Plant and equipment
|
|
13,838
|
|
|
Mineral property interests
|
|
11,820,000
|
|
|
Assets held for distribution
|
$
|
11,849,971
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
$
|
122,178
|
|
|
Liabilities held for distribution
|
$
|
122,178
|
|
Page | 28
NEW PACIFIC METALS CORP.
Suite 1750 – 1066 West Hastings Street
Vancouver, British Columbia, Canada V6E 3X1
NOTICE OF ANNUAL GENERAL AND SPECIAL MEETING AND
MANAGEMENT INFORMATION CIRCULAR
FOR THE 2020 ANNUAL GENERAL AND SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD AT 9:00 A.M. ON SEPTEMBER 30, 2020
Dated August 27, 2020
NEW PACIFIC METALS CORP.
Suite 1750 – 1066 West Hastings Street
Vancouver, British Columbia, Canada V6E 3X1
NOTICE OF ANNUAL GENERAL AND SPECIAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN that the 2020 annual general and special meeting (the "Meeting") of the shareholders (the "Shareholders") of New Pacific Metals Corp. (the "Company") will be held at Suite 1750 - 1066 West Hastings Street, Vancouver, British Columbia, Canada V6E 3X1 on Wednesday, September 30, 2020 at 9:00 a.m. (Vancouver time), and at any adjournment or postponement thereof, for the following purposes:
(a) to receive the audited financial statements of the Company for the year ended June 30, 2020, together with the report of the auditor thereon;
(b) to fix the number of directors at six (6);
(c) to elect directors for the ensuing year;
(d) to re-appoint Deloitte LLP, Chartered Professional Accountants, as auditor for the Company for the ensuing year and to authorize the directors to fix the auditor's remuneration;
(e) to consider and, if deemed appropriate, to pass with or without variation, an ordinary resolution of the Shareholders ratifying, approving and adopting the Company's amended and restated share based compensation plan (the "Omnibus Plan"), approved by the Company's board of directors on August 25, 2020, and all unallocated awards and entitlements thereunder, as more particularly described in the management information circular accompanying this notice (the "Circular");
(f) if the Omnibus Plan is not ratified, approved and adopted by the Shareholders, to re-approve the Company's existing share based compensation plan and all unallocated awards and entitlements thereunder;
(g) to consider and, if deemed appropriate, to pass with or without variation, a special resolution of the Shareholders, the full text of which is attached as Schedule "A" to the Circular, approving an arrangement under Division 5 of Part 9 of the Business Corporations Act (British Columbia), which involves, among other things, the distribution of common shares of Whitehorse Gold Corp. ("Whitehorse") to the Shareholders, as more particularly described in the Circular;
(h) to consider and, if deemed appropriate, to pass with or without variation, an ordinary resolution of the Disinterested Shareholders (within the meaning of the Circular), the full text of which is attached as Schedule "B" to the Circular, approving the private placement of common shares of Whitehorse for gross proceeds of up to $9 million, as more particularly described in the Circular; and
(i) to transact such further and other business as may be properly brought before the Meeting or at any adjournments thereof.
Particulars of the foregoing matters are set forth in the Circular accompanying this notice. Only Shareholders of record on August 20, 2020 are entitled to receive notice of and vote at the Meeting.
Shareholders are entitled to vote at the Meeting either in person or by proxy. Shareholders who are unable to attend the Meeting are requested to read, complete, sign, date and return the enclosed form of proxy and deliver it to the Company's transfer agent, Computershare Investor Services Inc., in accordance with the instructions set out in the form of proxy and the Circular accompanying this notice.
As of the date of this notice, the Company intends to proceed with the Meeting and encourages you to vote by proxy in advance of the Meeting in light of public health directives and recommendations relating to the ongoing novel coronavirus ("COVID-19") pandemic and efforts to reduce its spread, including restrictions on in-person gatherings of any size, which continue to be strongly discouraged, and physical distancing requirements, and overarching concern for the wellbeing of Shareholders, directors, their families and others. At a minimum, only registered Shareholders or their duly appointed proxyholders will be permitted to attend the Meeting. Those attending the Meeting in person who are experiencing any of the known COVID-19 symptoms including fever, cough or difficulty breathing will not be permitted to attend the Meeting. Those attending in person will be required to comply with the then current direction and advice from federal, provincial and municipal levels of government concerning public gatherings. Note however that, in light of ongoing concerns related to the spread of COVID-19 and the constantly evolving restrictions on the size of public gatherings which are beyond the control of the Company, attendance at the Meeting in person may be difficult or not permitted. Accordingly, we encourage you to vote by proxy in advance of the Meeting.
DATED at the City of Vancouver, in the Province of British Columbia, this 27th day of August, 2020.
BY ORDER OF THE BOARD OF DIRECTORS
"Mark Cruise"
Dr. Mark Cruise
Chief Executive Officer and Director
New Pacific Metals Corp.
Schedule "A" ARRANGEMENT RESOLUTION
Schedule "B" WHITEHORSE FINANCING RESOLUTION
Schedule "C" FAIRNESS OPINION
Schedule "D" ARRANGEMENT AGREEMENT AND PLAN OF ARRANGEMENT
Schedule "E" INTERIM ORDER
Schedule "F" DISSENT PROVISIONS OF THE BUSINESS CORPORATIONS ACT (BRITISH COLUMBIA)
Schedule "G" WHITEHORSE GOLD CORP. FOLLOWING THE ARRANGEMENT
Schedule "H" TAGISH LAKE GOLD CORP. AUDITED FINANCIAL STATEMENTS AND MD&A
Schedule "I" WHITEHORSE GOLD CORP. AUDITED FINANCIAL STATEMENTS AND MD&A
Schedule "J" WHITEHORSE GOLD CORP. PRO-FORMA FINANCIAL STATEMENTS
Schedule "K" CHARTER FOR THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
Schedule "L" NEW PACIFIC METALS CORP. FOLLOWING THE ARRANGEMENT Schedule "M" OMNIBUS PLAN
Schedule "N" MANDATE OF THE BOARD OF DIRECTORS OF NEW PACIFIC METALS CORP.
Schedule "O" CHARTER FOR THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS OF NEW PACIFIC METALS CORP.
Schedule "P" CHARTER FOR THE CORPORATE GOVERNANCE COMMITTEE OF THE BOARD OF DIRECTORS OF NEW PACIFIC METALS CORP.
Schedule "Q" WHITEHORSE OPTION PLAN
(ii)
NEW PACIFIC METALS CORP.
Suite 1750 – 1066 West Hastings Street
Vancouver, BC V6E 3X1
MANAGEMENT INFORMATION CIRCULAR
FOR THE 2020 ANNUAL GENERAL AND SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD AT 9:00 A.M. ON SEPTEMBER 30, 2020
NOTICE TO READERS
The information herein is given as at August 27, 2020, except as otherwise stated.
This Circular is furnished in connection with the solicitation of proxies by the management ("Management") of New Pacific Metals Corp. (the "Company") for use at the annual general and special meeting of the shareholders of the Company (the "Shareholders") to be held at the time and place and for the purposes set forth in the accompanying notice of meeting (the "Notice of Meeting") and at any adjournments thereof.
All capitalized terms used in this Circular (including the Schedules hereto) but not otherwise defined herein have the meanings set forth under the heading "Glossary of Terms".
In considering whether to vote for the approval of the Arrangement, Shareholders should be aware that there are various risks, including, but not limited to, those described under the heading "Risk Factors Relating to the Arrangement" in this Circular. Shareholders should carefully consider these risk factors, together with the other information included in this Circular, before deciding whether to approve the Arrangement.
Information contained in this Circular should not be construed as legal, tax or financial advice and Shareholders are urged to consult their own professional advisors in connection therewith.
Descriptions in the body of this Circular of the terms of the Arrangement Agreement and the Plan of Arrangement are merely summaries of the terms of those documents. Shareholders should refer to the full text of the Arrangement Agreement and the Plan of Arrangement for complete details of those documents. The full text of the Arrangement Agreement is attached to this Circular as Schedule "D" and the Plan of Arrangement is attached as Exhibit "A" to the Arrangement Agreement.
INFORMATION FOR UNITED STATES SHAREHOLDERS
NONE OF THE ARRANGEMENT, THIS CIRCULAR OR THE SECURITIES ISSUABLE PURSUANT TO THE ARRANGEMENT HAVE BEEN APPROVED OR DISAPPROVED BY THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION (THE "SEC") OR THE SECURITIES REGULATORY AUTHORITY IN ANY STATE OF THE UNITED STATES, NOR HAS ANY OF THE FOREGOING AUTHORITIES OR ANY CANADIAN SECURITIES COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF THE ARRANGEMENT OR UPON THE ADEQUACY OR ACCURACY OF THIS CIRCULAR. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENCE.
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The New Common Shares to be issued and the Spin-Out Shares to be distributed to Shareholders pursuant to the Arrangement described in this Circular have not been and will not be registered under the 1933 Act or any U.S. state securities laws, and are being issued and distributed in reliance on the exemption from registration under the 1933 Act set forth in Section 3(a)(10) thereof on the basis of the approval of the Court, and similar exemptions from registration under applicable state securities laws. Section 3(a)(10) of the 1933 Act provides an exemption from the general requirement of registration under the 1933 Act for offers and sales of securities issued in exchange for one or more bona fide outstanding securities where the terms and conditions of the issuance and exchange of such securities have been approved by a court authorized to grant such approval after a hearing upon the substantive and procedural fairness of the terms and conditions of the issuance and exchange at which all persons to whom the securities will be issued have the right to appear and receive timely and adequate notice thereof. The Court is authorized to conduct a hearing at which the substantive and procedural fairness of the terms and conditions of the Arrangement will be considered. The Court issued the Interim Order on August 27, 2020 and, subject to the approval of the Arrangement by the Shareholders at the Meeting on September 30, 2020, it is expected that the hearing on the Arrangement will be held by the Court on October 2, 2020 at 9:45 a.m. (Vancouver time) at the Law Courts, 800 Smithe Street, Vancouver, British Columbia. All Shareholders are entitled to appear and be heard at this hearing. The Final Order will constitute a basis for the exemption from the registration requirements of the 1933 Act provided by Section 3(a)(10) thereof with respect to the New Common Shares to be issued and the Spin-Out Shares to be distributed to Shareholders pursuant to the Arrangement. Prior to the hearing on the Final Order, the Court will be informed of this effect of the Final Order. See "The Arrangement – Court Approval of the Arrangement" in this Circular.
The solicitation of proxies for the Meeting made pursuant to this Circular is not subject to the requirements applicable to proxy statements under the 1934 Act by virtue of an exemption applicable to foreign private issuers (as defined in Rule 3b-4 under the 1934 Act). The securities to be issued and distributed to Shareholders pursuant to the Arrangement described in this Circular will not be listed for trading on any United States stock exchange or registered under the 1934 Act. Accordingly, the solicitations and transactions contemplated in this Circular are made in the United States for securities of a Canadian issuer in accordance with Canadian corporate and securities laws, and this Circular has been prepared solely in accordance with disclosure requirements applicable in Canada. Shareholders in the United States should be aware that such requirements are different from those of the United States applicable to registration statements under the 1933 Act and proxy statements under the 1934 Act.
The financial statements and pro-forma and historical financial information included in this Circular have been prepared based upon IFRS and are subject to Canadian auditing standards and auditor independence standards and thus are not comparable in all respects to financial statements prepared in accordance with United States Generally Accepted Account Principles and subject to standards of the Public Company Accounting Oversight Board. Likewise, information concerning the operations of the Company, Whitehorse and Tagish Lake contained herein have been prepared based on IFRS disclosure standards, which are not comparable in all respects to United States disclosure standards.
The enforcement by investors of civil liabilities under the United States securities laws may be adversely affected by the fact that the Company and Whitehorse and certain of their respective subsidiaries are organized under the laws of jurisdictions outside the United States, that certain of their officers and directors are residents of countries other than the United States, that the experts named in this Circular are residents of countries other than the United States and that a significant portion of the assets of the Company and Whitehorse and their respective subsidiaries and substantially all of the assets of such persons are located outside the United States. As a result, it may be difficult or impossible for Shareholders in the United States to effect service of process within the United States upon the Company and Whitehorse, their respective officers or directors or the experts named herein, or to realize against them upon judgments of courts of the United States predicated upon civil liabilities under the federal securities laws of the United States or "blue sky" laws of any state within the United States. In addition, Shareholders in the United States should not assume that the courts of Canada: (a) would enforce judgments of United States courts obtained in actions against such persons predicated upon civil liabilities under the federal securities laws of the United States or "blue sky" laws of any state within the United States; or (b) would enforce, in original actions, liabilities against such persons predicated upon civil liabilities under the federal securities laws of the United States or "blue sky" laws of any state within the United States.
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In addition, information concerning the properties and operations of the Company and Whitehorse has been prepared in accordance with Canadian standards, and may not be comparable to similar information for United States companies. For example, the terms "mineral reserve" and "mineral resource" have been reported in accordance with Canadian reporting standards. Canadian reporting requirements for disclosure of mineral properties are governed by NI 43-101. U.S. reporting requirements for such information are governed by the SEC's Industry Guide 7 ("Industry Guide 7"). The information included or incorporated by reference in this Circular includes estimates of "mineral reserves" and "mineral resources" reported in accordance with NI 43-101. The reporting standards under NI 43-101 and Industry Guide 7 are materially different. For example, under Industry Guide 7, mineralization may not be classified as a "reserve" unless the determination has been made that the mineralization could be economically and legally produced or extracted at the time the reserve determination is made, which is not the case under NI 43-101. Consequently, the definitions of "proven mineral reserve" and "probable mineral reserve" under NI 43-101 differ in certain material respects from the standards of Industry Guide 7. In addition, the Company and Whitehorse also report estimates of "mineral resource" in accordance with NI 43-101. While the terms "mineral resource", "measured mineral resource", "indicated mineral resource" and "inferred mineral resource" are recognized by NI 43-101, they are not recognized under the standards of Industry Guide 7. As a result, U.S. companies are generally not permitted to report estimates of "mineral resources" of any category in documents filed with the SEC under Industry Guide 7. As such, certain information included in this Circular concerning descriptions of mineralization and estimates of "mineral reserves" and "mineral resources" reported in accordance with Canadian standards is not comparable to similar information made public by United States companies subject to the reporting and disclosure requirements of Industry Guide 7. Readers are cautioned not to assume that all or any part of a "measured mineral resource" or "indicated mineral resource" estimate will ever be converted into a "mineral reserve". Readers should also not assume that all or any part of a "mineral resource" will ever be upgraded to a higher category. In particular, an "inferred mineral resource" has a great amount of uncertainty as to its existence and as to its economic and legal feasibility and, under NI 43-101, an "inferred mineral resource" estimate may not form the basis of feasibility or other economic studies. Readers are, therefore, further cautioned not to assume that all or any part of an "inferred mineral resource" exists or is, or will ever be, economically or legally mineable. Disclosure of "contained ounces" is permitted disclosure under Canadian regulations; however, Industry Guide 7 normally only permits issuers to report mineralization that does not constitute reserves as in place tonnage and grade without reference to unit measures. Accordingly, information included or incorporated by reference in this Circular containing descriptions of the Company's or Whitehorse's mineral properties may not be comparable to similar information made public by United States companies subject to the reporting and disclosure requirements of Industry Guide 7.
The New Common Shares to be issued and the Spin-Out Shares to be distributed to Shareholders pursuant to the Arrangement will generally be freely transferable under U.S. federal securities laws, except by persons who are "affiliates" (as defined in Rule 144 under the 1933 Act) of the Company and Whitehorse after the Effective Date, or were "affiliates" of the Company and Whitehorse within 90 days prior to the Effective Date. Persons who may be deemed to be "affiliates" of an issuer include individuals or entities that control, are controlled by, or are under common control with, the issuer, whether through the ownership of voting securities, by contract, or otherwise, and generally include executive officers and directors of the issuer as well as principal shareholders of the issuer. Any resale of such New Common Shares or the Spin-Out Shares by such an affiliate (or former affiliate) may be subject to the registration requirements of the 1933 Act, absent an exemption therefrom. See "Certain Securities Law Matters – United States Securities Laws".
FORWARD LOOKING STATEMENTS
This Circular includes and incorporates statements that are prospective in nature that constitute forward-looking information and/or forward-looking statements within the meaning of applicable securities laws (collectively, "forward-looking statements"). Forward-looking statements include, but are not limited to, statements concerning (i) the completion and proposed terms of, and matters relating to, the anticipated election of the Company's proposed directors, (ii) completion of the Arrangement, the expected timing related thereto, and TSX acceptance and Shareholder approval thereof, (iii) the expected terms of, purchasers and completion of the Whitehorse Financing, the expected timing related thereto and TSX approval thereof, (iv) the Canadian and U.S. tax treatment of the Arrangement, including with respect to the New Common Shares and Spin-Out Shares, (v) the treatment of both the New Common Shares and the Spin-Out Shares as qualified investments for the purposes of a Registered Plan, (vi) the expected operations, financial results and condition of the Company and Whitehorse following the Arrangement, (vii) each company's future objectives and strategies to achieve those objectives, (viii) the future prospects of each company as an independent company, including any benefits from separation of the Spin-Out Assets and the Company Assets, (ix) the anticipated listing of the Whitehorse Shares on the TSX-V, meeting of the initial listing requirements of the TSX-V, and TSX-V acceptance and approval of Whitehorse's listing application, (x) the continued listing of the Company's common shares on the TSX, including TSX's approval of the substitutional listing of the New Common Shares, (xi) any market created for the Spin-Out Shares, (xii) the expected status of Whitehorse as a reporting issuer in each of the provinces of Canada following the Arrangement, (xiii) the estimated cash flow, capitalization and adequacy thereof for each company following the Arrangement, (xiv) the expected benefits of the Arrangement to, and resulting treatment of, Shareholders, holders of Whitehorse Shares, and holders of Options and RSUs, and each company, (xv) the anticipated effects of the Arrangement, (xvi) the estimated costs of the Arrangement, (xvii) the satisfaction of the conditions to consummate the Arrangement, as well as other statements with respect to management's beliefs, plans, estimates and intentions, and similar statements concerning anticipated future events, results, circumstances, performance or expectations that are not historical facts. Forward-looking statements generally can be identified by the use of forward-looking terminology such as "outlook", "objective", "may", "will", "expect", "intend", "estimate", "anticipate", "believe", "should", "plans" or "continue", or similar expressions suggesting future outcomes or events.
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Forward-looking statements reflect the current beliefs, expectations and assumptions of Management are based on information currently available to Management, Management's historical experience, perception of trends and current business conditions, expected future developments and other factors which management considers appropriate. With respect to the forward-looking statements included in or incorporated into this Circular, Management has made certain assumptions with respect to, among other things, (i) the anticipated approval of the Arrangement by Shareholders and the Court, and acceptance of the Arrangement by the TSX, (ii) the anticipated approval of the Whitehorse Financing by Disinterested Shareholders and the TSX, (iii) the anticipated completion of the Whitehorse Financing on the terms described in this Circular or at all, (iv) the anticipated receipt of any required regulatory approvals and consents for the Arrangement, the Whitehorse Financing, listing of Whitehorse Shares and substitutional listing of the New Common Shares (including approval of the TSX and the TSX-V), (v) the expectation that each of the Company and Whitehorse will comply with the terms and conditions of the Arrangement Agreement, (vi) the expectation that the New Common Shares will be listed on the TSX, (vii) the expectation that Whitehorse will meet the initial listing requirements of the TSX-V, (viii) the expectation that no event, change or other circumstance will occur that could give rise to the termination of the Arrangement Agreement, (ix) the belief that the assumptions underlying the Whitehorse Pro-forma Financial Statements are reasonable, (x) the expectation that Court approval, if obtained, will not be set aside or modified, (xi) the expectation that the Court will determine that the Arrangement is procedurally and substantively fair and that such determination will form the basis for an exemption from the registration requirements of the 1933 Act pursuant to Section 3(a)(10) of the 1933 Act, (xii) that no unforeseen changes in the legislative and operating framework for the respective businesses of Whitehorse and the Company will occur, (xiii) the belief that separation of the Spin-Out Assets and Company Assets will enable investors to more accurately compare and evaluate each company, (xiv) the belief that each company will benefit from pursuing independent growth and capital allocation strategies, that each company will meet its future objectives and priorities, that each company will have access to adequate capital to fund its future projects and plans, and that each company's future projects and plans will proceed as anticipated, (xv) the belief that the factual basis, assumptions, qualifications and conclusions of the Fairness Option and the Independent Valuation are reasonable and accurate, (xvi) the belief that the facts and assumptions underlying the calculation of NAV of Whitehorse Shares and the pricing of the Whitehorse Financing are reasonable and accurate, (xvii) Whitehorse's ability to continue as a going concern, and (xviii) assumptions concerning general economic and industry growth rates, commodity prices, currency exchange and interest rates and competitive intensity.
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Readers are cautioned not to place undue reliance on forward-looking statements, as there can be no assurance that the future circumstances, outcomes or results anticipated or implied by such forward-looking statements will occur or that plans, intentions or expectations upon which the forward-looking statements are based will occur. By their nature, forward-looking statements involve known and unknown risks and uncertainties and other factors that could cause actual results to differ materially from those contemplated by such statements. Factors that could cause such differences include, but are not limited to: (i) conditions precedent or approvals required for the Arrangement not being satisfied, obtained or waived, including, without limitation, the Arrangement Resolution not being approved by the Shareholders at the Meeting, the Whitehorse Financing Resolution not being approved by Disinterested Shareholders at the Meeting, the Final Order not being granted by the Court, the TSX not approving the Arrangement, substitutional listing of the New Common Shares and the Whitehorse Financing and the TSX-V not approving the listing of the Whitehorse Shares as of the Effective Time; (ii) the potential benefits of the Arrangement not being realized; (iii) the risk of tax liabilities as a result of the Arrangement; (iv) general business and economic uncertainties and adverse market conditions; (v) the potential for the combined trading prices of the New Common Shares and the Spin-Out Shares after the Arrangement being less than the trading price of Common Shares immediately prior to the Arrangement; (vii) there being no established market for the New Common Shares or the Spin-Out Shares; (viii) the Company's ability to delay or amend the implementation of all or part of the Arrangement or to proceed with the Arrangement even if certain consents and approvals are not obtained on a timely basis; (ix) the reduced diversity of the Company and Whitehorse as separate companies; (x) the costs related to the Arrangement that must be paid even if the Arrangement is not completed; (xi) obtaining approvals and consents, or satisfying other requirements, necessary or desirable to permit or facilitate completion of the Arrangement; (xii) global financial and commodity markets, general economic conditions, competitive business environments, and other factors may negatively impact the Company's and Whitehorse's financial condition; (xiii) future factors that may arise making it inadvisable to proceed with, or advisable to delay, all or part of the Arrangement; (xiv) the potential inability or unwillingness of current Shareholders to hold New Common Shares and/or Spin-Out Shares following the Arrangement; (xv) the potential for the Whitehorse Shares issued in the Whitehorse Financing to be issued at a greater discount to NAV than as disclosed in this Circular; (xvi) the potential for the Whitehorse Shares issued in the Whitehorse Financing to be issued at a discount to the market value of Whitehorse Shares once and if Whitehorse is publicly listed; (xvii) the potential for Whitehorse to apply for and obtain listing of the Whitehorse Shares on another stock exchange or to not obtain listing of the Whitehorse Shares at all; (xvii) Whitehorse's inability to continue as a going concern; and (xviii) the potential for the actual value of the Tagish Lake Project to differ from the value as determined by the Independent Valuation as set out in this Circular. For a further description of these and other factors that could cause actual results to differ materially from the forward-looking statements included in or incorporated into this Circular, see the risk factors discussed under the headings "Risk Factors Relating to the Arrangement" and "Risk Factors Relating to the Whitehorse Financing" and the risk factors discussed in Schedule "G" under the heading "Risk Factors" and in Schedule "L" under the heading "Risk Factors", as well as the risk factors included in the Company's MD&A and AIF, and as described from time to time in the reports and disclosure documents filed by the Company with Canadian securities regulatory authorities, which are available under the Company's profile on SEDAR at www.sedar.com. This list is not exhaustive of the factors that may impact the Company's forward-looking statements. These and other factors should be considered carefully and readers should not place undue reliance on the Company's forward-looking statements. As a result of the foregoing and other factors, there can be no assurance that actual results will be consistent with these forward-looking statements.
All forward-looking statements included in or incorporated by reference into this Circular are qualified by these cautionary statements. The forward-looking statements contained herein are made as of the date of this Circular and, except as required by applicable law, neither the Company nor Whitehorse undertakes any obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
Readers are cautioned that the actual results achieved will vary from the information provided herein and that such variations may be material. Consequently, there are no representations by the Company or Whitehorse that actual results achieved will be the same in whole or in part as those set out in the forward-looking statements.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference and form part of this Circular. Copies of these documents may be obtained by accessing the SEDAR website at www.sedar.com under the profile of the Company. In addition, copies of the following documents may also be obtained on request without charge from the Company's General Counsel and Corporate Secretary at ykim@newpacificmetals.com:
(a) the audited consolidated financial statements of the Company for the year ended June 30, 2020, together with the notes thereto and the auditor's report thereon;
(b) management's discussion and analysis for the year ended June 30, 2020 (the "MD&A");
(c) the amended and restated technical report of the Company prepared in accordance with NI 43-101 entitled "Amended and Restated Technical Report – Skukum Gold-Silver Project" dated July 16, 2012, as amended July 31, 2013, with an effective date of July 16, 2012 in respect of the Tagish Lake Gold Project (the "Tagish Lake Gold Project Technical Report"); and
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(d) annual information form of the Company for the year ended June 30, 2019 (the "AIF").
Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for the purposes of this Circular to the extent that a statement contained in this Circular or in any subsequently filed document that also is or is deemed to be incorporated by reference herein modifies, replaces or supersedes such statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Circular. The modifying or superseding statement need not state that it has modified or superseded a prior statement or include any other information set forth in the document that it modifies or supersedes. The making of such a modifying or superseding statement shall not be deemed an admission for any purpose that the modified or superseded statement, when made, constituted a misrepresentation, an untrue statement of a material fact or an omission to state a material fact that is required to be stated or that is necessary to make a statement not misleading in light of the circumstances in which it was made.
CURRENCY AND EXCHANGE RATES
Unless otherwise indicated herein, reference to "$", "C$" or "Canadian dollars" are to Canadian dollars, and references to "US$", "U.S. dollars" or "USD" are to United States dollars.
GLOSSARY OF TERMS
The following is a glossary of certain terms used in this Circular, including the summary hereof and the Schedules to the Circular.
"1933 Act" means the United States Securities Act of 1933, as amended, and all rules and regulations promulgated from time to time thereunder.
"1934 Act" means the United States Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated from time to time thereunder.
"allowable capital loss" has the meaning given to it under the heading "Material Income Tax Considerations – Certain Canadian Federal Income Tax Considerations – Holders Resident in Canada - Taxation of Capital Gains and Capital Losses".
"Arrangement" means the arrangement of the Company and Whitehorse under Part 9, Division 5 of the BCBCA on the terms and subject to the conditions set out in the Plan of Arrangement, subject to any amendments or variations thereto made in accordance with the Plan of Arrangement or the Arrangement Agreement or made at the direction of the Court in the Final Order and acceptable to the Company.
"Arrangement Agreement" means the arrangement agreement dated August 25, 2020 between the Company and Whitehorse, a copy of which is attached as Schedule "D", as it may be amended or modified from time to time.
"Arrangement Resolution" means the special resolution to be considered by the Shareholders at the Meeting to approve the Arrangement, and which shall be in, or substantially in, the form set out at Schedule "A".
"Audit Committee" has the meaning given to it under the heading "Audit Committee".
"BCBCA" means the Business Corporations Act (British Columbia), as amended.
"Beneficial Shareholder" has the meaning given to it under the heading "How to Vote – Advice to Beneficial Holders of Common Shares".
"Board" means the board of directors of the Company, as currently constituted.
"Broadridge" has the meaning given to it under the heading "How to Vote – Advice to Beneficial Holders of Common Shares".
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"Business Day" means a day which is not a Saturday, Sunday or statutory holiday in Vancouver, British Columbia.
"Circular" means this management information circular dated August 27, 2020, together with all schedules, appendices and exhibits hereto, as amended, supplemented or otherwise modified from time to time.
"Class A Shares" means the Common Shares after they have been re-named and re-designated as "Class A common shares without par value" pursuant to the Plan of Arrangement.
"Common Shares" means the common shares without par value in the capital of the Company, as constituted from time to time, as the context requires.
"Company" has the meaning given to it under the heading "Notice to Readers".
"Company Assets" means the Silver Sand Project, the Silverstrike Project, as well as other assets subject to exploration activities in Bolivia.
"Computershare" has the meaning given under the heading "Solicitation of Proxies".
"Court" means the British Columbia Supreme Court.
"CRA" means Canada Revenue Agency, or any successor agency thereto.
"Depositary" means Computershare, or such other depositary as the Company may determine.
"Disinterested Shareholders" means Shareholders other than: (a) Shareholders who are participating in the Whitehorse Financing; and (b) Shareholders whose affiliates or associates (within the meaning of the TSX Company Manual) are participating in the Whitehorse Financing.
"Dissent Notice" has the meaning given to it under the heading "Dissent Rights".
"Dissent Procedures" means the rules pertaining to the exercise of Dissent Rights as set forth in Division 2 of Part 8 of the BCBCA and Article 5 of the Plan of Arrangement, as the same may be modified by the Plan of Arrangement, the Interim Order and the Final Order.
"Dissent Rights" means the rights of a Registered Shareholder to dissent from the Arrangement Resolution in accordance with the provisions of the BCBCA, as modified by the Interim Order, and to be paid the fair value of the Common Shares in respect of which the holder dissents.
"Dissent Shares" means the Common Shares held a Dissenting Shareholder at the Effective Time and in respect of which Dissent Rights were validly exercised.
"Dissenting Non-Resident Holder" has the meaning given under the heading "Material Income Tax Considerations– Certain Canadian Federal Income Tax Considerations – Holders Not Resident in Canada – Dissenting Non- Resident Holders".
"Dissenting Resident Holder" has the meaning given under the heading "Material Income Tax Considerations – Certain Canadian Federal Income Tax Considerations – Holders Resident in Canada – Dissenting Resident Holders".
"Dissenting Shareholder" mean a Registered Shareholder who is entitled to and does validly dissent in respect of the Arrangement in strict compliance with the Dissent Procedures, and who has not withdrawn or been deemed to have withdrawn such exercise of Dissent Rights at the Effective Time, but only with respect to the Common Shares in respect of which Dissent Rights are validly exercised by such registered holder.
"Effective Date" means the date that the Arrangement becomes effective as agreed to by the Company and Whitehorse in accordance with the Final Order.
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"Effective Time" means such time on the Effective Date as agreed to by the Company and Whitehorse.
"Encumbrance" means any lien, charge, claim, adverse interest, security interest, third party right or encumbrance of any kind or nature.
"Existing Omnibus Plan" has the meaning given to it under the heading "Particulars of Matters to be Acted Upon – Approval of Amended and Restated Share Based Compensation Plan".
"Fairness Opinion" means the fairness opinion of the Independent Valuator dated effective August 24, 2020 in respect of the Arrangement and the Whitehorse Financing, taken as a whole.
"Final Order" means the final order of the Court approving the Arrangement.
"FMV Reduction of a New Common Share" means the reduction in the fair market value of a Common Share, immediately prior to the Effective Time, as compared to a New Common Share, that arises solely as a result of the distribution by the Company of the Spin-Out Shares pursuant to Section 3.1(d)(ii) of the Plan of Arrangement, and which will be calculated by subtracting (i) the volume weighted average trading price of a New Common Share on the TSX for a five-day trading period commencing on the first trading day upon which the New Common Shares commence trading on the TSX after the Effective Date from (ii) the volume weighted average trading price of a Common Share on the TSX for a five-day trading period ending immediately before the Effective Date, subject to any requirements of the TSX.
"forward-looking statements" has the meaning given to it under the heading "Forward Looking Statements".
"Holder" has the meaning given to it under the heading "Material Income Tax Considerations - Certain Canadian Federal Income Tax Considerations".
"Independent Valuation" means the independent valuation prepared by the Independent Valuator on the Tagish Lake Gold Project, dated August 1, 2020, as more particularly described under the heading "Whitehorse Financing – Independent Valuation".
"Independent Valuator" means Stephen Semeniuk, Chartered Financial Analyst (CFA).
"Interim Order" means the interim order of the Court providing advice and directions in connection with the Meeting and the Arrangement, a copy of which is attached as Schedule "E".
"Intermediary" or "Intermediaries" has the meaning given to it under the heading "How to Vote – Advice to Beneficial Holders of Common Shares".
"Letter of Transmittal" means the letter of transmittal sent to Registered Shareholders with this Circular for the purpose of receiving the New Common Shares and the Spin-Out Shares.
"Meeting" means the annual general and special meeting of Shareholders to be held on September 30, 2020, and any adjournment(s) or postponement(s) thereof, held in order to, among other things, consider and, if thought fit, approve the Arrangement.
"New Common Shares" means the common shares without par value in the capital of New Pacific, to be created and issued to Shareholders pursuant to the Plan of Arrangement, and which, immediately after completion of the transactions comprising the Plan of Arrangement, will be identical in every relevant respect to the Common Shares.
"New Pacific-Whitehorse Debt" means the interest-bearing indebtedness of Whitehorse owing to the Company having a principal amount of $3,000,000, as issued by Whitehorse to the Company under the Share Exchange Agreement, plus the interest-bearing indebtedness in the principal amount of $500,000 otherwise owing by Whitehorse to New Pacific, and which will be fully repaid and extinguished prior to the Effective Time.
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"NI 43-101" means National Instrument 43-101 Standards of Disclosure for Mineral Projects.
"NI 52-110" has the meaning given to it under the heading "Corporate Governance – Composition of the Board".
"NI 54-101" has the meaning given to it under the heading "How to Vote – Advice to Beneficial Holders of Common Shares".
"NOBOs" has the meaning given to it under the heading "How to Vote – Advice to Beneficial Holders of Common Shares".
"Non-Resident Holder" has the meaning given under the heading "Material Income Tax Considerations – Certain Canadian Federal Income Tax Considerations – Holders Not Resident in Canada".
"Notice of Meeting" has the meaning given to it under the heading "Notice to Readers".
"OBOs" has the meaning given to it under the heading "How to Vote – Advice to Beneficial Holders of Common Shares".
"Option" means an option to purchase Common Shares granted pursuant to the Omnibus Plan or Existing Omnibus Plan, as applicable.
"Plan of Arrangement" means the plan of arrangement of the Company, substantially in the form set forth in Exhibit "A" to Schedule "D" hereto, and any amendments or variations thereto made in accordance with the Plan of Arrangement or upon the direction of the Court in the Final Order.
"Proposed Amendments" has the meaning given to it under the heading "Material Income Tax Considerations – Certain Canadian Federal Income Tax Considerations".
"RDSP" has the meaning given under the heading "Material Income Tax Considerations – Certain Canadian Federal Income Tax Considerations – Eligibility for Investment".
"Record Date" has the meaning given under the heading "Voting Shares and Principal Shareholders".
"Registered Plans" has the meaning given under the heading "Material Income Tax Considerations – Certain Canadian Federal Income Tax Considerations – Eligibility for Investment".
"Registered Shareholder" has the meaning given under the heading "How to Vote".
"Registrar" means the Registrar of Companies appointed pursuant to the BCBCA.
"Replacement Option" means an option to purchase a New Common Share granted by the Company to a holder of an Option in accordance with the Plan of Arrangement, with the exercise price of each such Replacement Option determined in accordance with the Plan of Arrangement and the other terms and conditions of each such Replacement Option determined in accordance with the Existing Omnibus Plan or Omnibus Plan, as applicable, and any agreements thereunder including, where necessary, appropriate adjustments to any performance-based or other vesting conditions, as such plan and agreements may be amended by the Board or a committee thereof.
"Resident Holder" has the meaning given under the heading "Material Income Tax Considerations – Certain Canadian Federal Income Tax Considerations – Holders Resident in Canada".
"RESP" has the meaning given under the heading "Material Income Tax Considerations – Certain Canadian Federal Income Tax Considerations – Eligibility for Investment".
"RRIF" has the meaning given under the heading "Material Income Tax Considerations – Certain Canadian Federal Income Tax Considerations – Eligibility for Investment".
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"RRSP" has the meaning given under the heading "Material Income Tax Considerations – Certain Canadian Federal Income Tax Considerations – Eligibility for Investment".
"RSU" means a restricted share unit of the Company granted pursuant to the Omnibus Plan or Existing Omnibus Plan, as applicable.
"SEDAR" means the System for Electronic Document Analysis and Retrieval of the Canadian Securities Administrators, accessible at www.sedar.com.
"Share Exchange Agreement" means the share exchange agreement dated effective February 12, 2020 between the Company and Whitehorse, as amended from time to time, providing for, among other things, the acquisition by Whitehorse of all of the issued and outstanding shares of Tagish Lake from New Pacific.
"Shareholders" has the meaning given to it under the heading "Notice to Readers".
"Silver Sand Project" means the Silver Sand project in the Potosí Department, Bolivia, that is wholly-owned by the Company.
"Spin-Out Assets" means the Tagish Lake Gold Project.
"Spin-Out Shares" means that number of Whitehorse Shares held by the Company immediately prior to the Effective Time, to be distributed to the Shareholders pursuant to the Plan of Arrangement.
"Tagish Lake" means Tagish Lake Gold Corp., a wholly-owned subsidiary of Whitehorse.
"Tagish Lake Audited Financial Statements and MD&A" means the audited financial statements of Tagish Lake for the years ended June 30, 2020, 2019 and 2018, and the related management's discussion and analyses thereon, attached as Schedule "H".
"Tagish Lake Gold Project" means the Tagish Lake gold project located in the Yukon, Canada, that is wholly-owned by Tagish Lake.
"Tagish Lake Gold Project Technical Report" has the meaning given to it under the heading "Documents Incorporated by Reference".
"Tax Act" means the Income Tax Act (Canada), including the regulations promulgated thereunder, as amended.
"TFSA" has the meaning given under the heading "Material Income Tax Considerations – Certain Canadian Federal Income Tax Considerations – Eligibility for Investment".
"Treaty" has the meaning given under the heading "Material Income Tax Considerations – Certain Canadian Federal Income Tax Considerations – Holders Not Resident in Canada - Dividends on New Common Shares or Spin-Out Shares (Post-Arrangement)".
"TSX" means the Toronto Stock Exchange.
"TSX-V" means the TSX Venture Exchange.
"VIF" has the meaning given to it under the heading "How to Vote – Advice to Beneficial Holders of Common Shares".
"Whitehorse" means Whitehorse Gold Corp., a wholly-owned subsidiary of the Company.
"Whitehorse Audit Committee" has the meaning given to it in Schedule "G" under the heading "Whitehorse Audit Committee".
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"Whitehorse Board" means the board of directors of Whitehorse, as constituted from time to time, as the context requires.
"Whitehorse Charter" has the meaning given to it in Schedule "G" under the heading "Whitehorse Audit Committee - Audit Committee Charter".
"Whitehorse Financing" the private placement by Whitehorse of Whitehorse Shares to raise estimated gross proceeds of up to $9 million (but in any event no less than $6 million), or such other amount as the Whitehorse Board may determine, on terms acceptable to Whitehorse, such private placement to be completed prior to the Effective Time.
"Whitehorse Financing Resolution" means the ordinary resolution of the Disinterested Shareholders to approve the Whitehorse Financing.
"Whitehorse Audited Financial Statements and MD&A" means the audited consolidated financial statements of Whitehorse from incorporation on November 27, 2019 to June 30, 2020 and the related management's discussion and analysis thereon, attached as Schedule "I".
"Whitehorse Option Plan" means the stock option plan of Whitehorse.
"Whitehorse Options" means stock options of Whitehorse granted under the Whitehorse Option Plan.
"Whitehorse Pro-forma Financial Statements" means the unaudited pro-forma financial statements of Whitehorse from the date of incorporation until June 30, 2020, attached as Schedule "J".
"Whitehorse Shares" means the common shares without par value in the capital of Whitehorse.
"Whitehorse Shareholders" means the holders of Whitehorse Shares from time to time, as the context requires.
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SUMMARY OF CIRCULAR
The following is a summary of information relating to the Company and Whitehorse and should be read together with the more detailed information and financial data and statements contained elsewhere in this Circular.
The Meeting
The Meeting will be held in Vancouver, British Columbia, at the offices of the Company at Suite 1750 - 1066 West Hastings Street, Vancouver, British Columbia, Canada V6E 3X1 on Wednesday, September 30, 2020 at 9:00 a.m. (Vancouver time) for the purposes set forth in the Notice of Meeting. At the Meeting, Shareholders will attend to certain annual business, including the election and appointment of the directors of the Company and the approval of the Omnibus Plan. Shareholders will also consider and vote upon the Arrangement to be implemented pursuant to the Arrangement Resolution and the Whitehorse Financing to be implemented pursuant to the Whitehorse Financing Resolution. See "Particulars of Matters to be Acted Upon".
The Companies
New Pacific Metals Corp.
The Company is a Canadian based company which is focused on the exploration and development of its Silver Sand Project in Potosí Department, Bolivia. Its head office is located at 1750 – 1066 West Hasting Street, British Columbia V6E 3X1. The Common Shares are currently listed for trading on the TSX under the symbol "NUAG". On July 22, 2020, the date of the Company's announcement of its intention to complete the Arrangement, the closing price for the Common Shares was $5.48. On August 25, 2020, the date the Company entered into the Arrangement Agreement, the closing price for the Common Shares was $6.27.
Whitehorse Gold Corp.
Whitehorse is a wholly-owned subsidiary of the Company and was incorporated on November 27, 2019, pursuant to the provisions of the BCBCA. Whitehorse holds 100% of the Spin-Out Assets, as further described in the Circular, through its wholly-owned subsidiary, Tagish Lake. The registered and records office is located at Suite 1750 – 1066 West Hastings Street, Vancouver, BC V6E 3X1. The directors of Whitehorse are: Dr. Mark Cruise, Lorne Waldman and Kevin Weston. Management of Whitehorse consists of: Kevin Weston (Chief Executive Officer), Jean Zhang (Chief Financial Officer and Corporate Secretary), Tim Kingsley (Vice President, Exploration) and Steve Stakiw (Vice President, Corporate Affairs).
The Arrangement
The purpose of the Arrangement and the related transactions is to reorganize the Company into two separate publicly- traded companies: (a) the Company, which will be an exploration and development company focused on the Company Assets and (b) Whitehorse, which will be an exploration and development company focused on the Spin-Out Assets. The Arrangement will result in, among other things, participating Shareholders holding, immediately following completion of the Arrangement, all of the outstanding New Common Shares and the Spin-Out Shares (representing approximately 40% of the issued and outstanding Whitehorse Shares assuming the Whitehorse Financing is fully subscribed) in proportion to their holdings of Common Shares at the Effective Time. For a summary of the steps of the Arrangement and related transactions, see the section entitled "The Arrangement – Details of the Arrangement".
Reasons for the Arrangement
The Board believes that the separation of the Spin-Out Assets and the Company Assets into two separate publicly- traded companies will provide a number of benefits to the Company, Whitehorse and the Shareholders, including: (a) providing Shareholders with enhanced value by creating a company focused on the development of the Spin-Out Assets and a company focused on the development of the Company Assets; (b) providing Shareholders with 100% ownership of the Company and approximately 40% ownership of Whitehorse (assuming the Whitehorse Financing is fully subscribed) following completion of the Arrangement; (c) providing each company with a sharper business focus, enabling them to pursue independent business and financing strategies best suited to their respective business plans; (d) enabling investors, analysts and other stakeholders or potential stakeholders to more accurately compare and evaluate each company; (e) enabling each company to pursue independent growth and capital allocation strategies; (f) allowing each company to be led by experienced executives and directors who have experience in each company's respective resource sector; and (g) the reorganization is anticipated to occur on a generally tax-deferred basis for Shareholders resident in Canada who hold their Common Shares as capital property for purposes of the Tax Act and who participate in the Arrangement. See further details under the section entitled "The Arrangement – Reasons for the Arrangement".
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Recommendation of the Board
The Board, having reviewed the Plan of Arrangement and related transactions and considered among other things the reasons for the Arrangement, has determined that the Arrangement is in the best interests of the Company and the Shareholders. The Board has approved the Arrangement and the transactions contemplated thereby, and recommends that Shareholders vote FOR the Arrangement Resolution. See further details under the section entitled "The Arrangement – Recommendation of the Board".
Fairness of the Arrangement
The Arrangement was determined to be fair to the Shareholders by the Board based upon the following factors, among others:
(a) the procedures by which the Arrangement will be approved, including Shareholder approval of the Arrangement Agreement and approval by the Court after a hearing at which the fairness of the Arrangement will be considered;
(b) upon completion of the Arrangement, each Shareholder participating in the Arrangement will continue to hold the same proportionate interest in the Company and Whitehorse (before giving effect to the Whitehorse Financing);
(c) the listing of Whitehorse Shares on the TSX-V and the listing of the New Common Shares on the TSX as conditions to the completion of the Arrangement;
(d) the opportunity for Shareholders who are opposed to the Arrangement, upon compliance with certain conditions, to exercise Dissent Rights under the BCBCA, as modified by the Interim Order; and
(e) the Fairness Opinion to the effect that, as at August 24, 2020, based upon and subject to the assumptions, limitations and qualifications set out therein, the Arrangement and the Whitehorse Financing, taken as a whole, is fair, from a financial point of view, to the Shareholders.
See further details under the section entitled "The Arrangement – Fairness of the Arrangement".
Fairness Opinion
The Independent Valuator was retained by the Board to prepare and deliver to the Board his opinion as to the fairness, from a financial point of view, of the Arrangement and the Whitehorse Financing, taken as a whole to the Shareholders. Based upon and subject to the assumptions, limitations and qualifications set out in the Fairness Opinion, the Independent Valuator is of the opinion that, as of August 24, 2020, the Arrangement and the Whitehorse Financing, taken as a whole, is fair, from a financial point of view, to the Shareholders. The full text of the Fairness Opinion, setting out the assumptions made, matters considered and limitations and qualifications on the review undertaken in connection with the Fairness Opinion, is attached as Schedule "C" to this Circular. The summary of the Fairness Opinion described in this Circular is qualified in its entirety by reference to the full text of the Fairness Opinion. See further details under the section entitled "The Arrangement – Fairness Opinion".
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Conditions to Closing
The Arrangement will be subject to the satisfaction or waiver, as applicable, of certain conditions, including, without limitation, the following:
(a) the Arrangement Resolution must be approved and adopted at the Meeting by the Shareholders, in accordance with the Arrangement Agreement;
(b) the Whitehorse Financing Resolution must be approved and adopted at the Meeting by the Disinterested Shareholders, in accordance with the Arrangement Agreement;
(c) the Final Order must be obtained in form and substance satisfactory to each of the Company and Whitehorse;
(d) the TSX must have approved (i) the Arrangement, including the substitutional listing of the New Common Shares, and (ii) the Whitehorse Financing, subject to customary post-closing conditions;
(e) the TSX-V must have approved the listing of the Whitehorse Shares;
(f) the Whitehorse Financing must have been completed prior to the Effective Time;
(g) Whitehorse must have fully repaid the principal amount and any accrued interest under the New Pacific–Whitehorse Debt and there shall be no inter-company debt existing between the Company and each of Whitehorse and Tagish Lake as of the Effective Time;
(h) all other consents, orders and approvals that are required, necessary or desirable for the completion of the Arrangement must have been obtained or received, each in a form acceptable to the Company; and
(i) Shareholders must not have exercised Dissent Rights with respect to greater than 5% of the outstanding Common Shares.
The TSX has conditionally approved the Whitehorse Financing, accepted the Arrangement and conditionally approved the substitutional listing of the New Common Shares. See further details under the section entitled "The Arrangement
– Conditions to the Arrangement".
Shareholder Approval of the Arrangement
Prior to mailing this Circular, the Company obtained the Interim Order, which provides for the calling and holding of the Meeting and certain other procedural matters, including the requisite level of Shareholder approval to approve the Arrangement. Pursuant to the Interim Order, and subject to any further order(s) of the Court, the Arrangement Resolution must be approved by at least 66⅔% of the votes cast by Shareholders present, in person or by proxy, and entitled to vote at the Meeting.
In the absence of any instruction to the contrary, the Common Shares represented by proxies appointing the director and management designees named in the form of proxy will be voted in favour of the Arrangement Resolution.
By passing the Arrangement Resolution, the Shareholders will also be giving authority to the Board to use its judgment whether or not to proceed with and cause the Company to complete the Arrangement or to abandon the Arrangement, without any requirement to seek or obtain any further approval of the Shareholders. See "The Arrangement – Shareholder Approval".
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Court Approval of the Arrangement
An arrangement under the BCBCA requires approval of the Court. Prior to mailing this Circular, the Company obtained the Interim Order, which provides for the calling and holding of the Meeting, Dissent Rights and certain other procedural matters.
Subject to the approval of the Arrangement Resolution by Shareholders at the Meeting, the hearing for the Final Order is currently scheduled to take place on October 2, 2020 at 9:45 a.m. (Vancouver time) in Vancouver, British Columbia. At the hearing, any Shareholder or other interested party who wishes to participate or be represented or present arguments or evidence may do so by serving a response to petition in compliance with the Interim Order, a copy of which is attached as Schedule "E". See further details under the section entitled "The Arrangement – Court Approval of the Arrangement".
Effective Date
Upon receipt of the Final Order, the Company will announce by news release the proposed Effective Date of the Arrangement. The Effective Date is expected to be two Business Days following the date on which all of the conditions to completion of the Arrangement are satisfied or waived, as applicable.
Stock Exchange Listings
The Common Shares are currently listed and traded on the TSX under the symbol "NUAG". The TSX has conditionally approved the substitutional listing of the New Common Shares on the TSX under the same symbol, which approval is anticipated to be subject to meeting certain conditions of the TSX.
Whitehorse is not currently listed on any stock exchange and there is currently no trading market for Whitehorse Shares. Whitehorse intends to use commercially reasonable efforts to meet the initial listing requirements under the policies of the TSX-V, and to apply for and obtain approval of the listing of the Whitehorse Shares on the TSX-V prior to the Effective Time. Listing of the Whitehorse Shares on the TSX-V will be subject to satisfying all of the TSX-V's initial listing requirements. It is a condition of the Arrangement that the TSX-V shall have approved the listing of the Whitehorse Shares. See further details under the section entitled "The Arrangement – Stock Exchange Listings".
The Company Following the Arrangement
Following completion of the Arrangement, the Company will continue to explore and develop the Company Assets. The New Common Shares will continue to trade on the TSX under the symbol "NUAG". See Schedule "L" – "New Pacific Metals Corp. Following the Arrangement" for information regarding the Company following completion of the Arrangement.
Whitehorse Following the Arrangement
Following completion of the Arrangement, Whitehorse will focus on exploration and development of the Spin-Out Assets. See "Schedule "G" – Whitehorse Gold Corp. Following the Arrangement" for detailed information regarding Whitehorse following completion of the Arrangement.
Distribution of Share Certificates
Concurrently with the mailing of the Circular, the Company will cause Computershare to mail the Letter of Transmittal to Registered Shareholders, which will be used to exchange their certificates or DRS advices representing Common Shares for share certificates or DRS advices representing New Common Shares and Spin-Out Shares. Each Common Share will be exchanged for one New Common Share and a pro rata portion of the Spin-Out Shares (approximately 0.13 of a Whitehorse Share based on the number of Common Shares outstanding as at the Record Date). Until it is exchanged, each certificate or DRS advice representing Common Shares will, after the Effective Time, represent only the right to receive, upon surrender, New Common Shares and Spin-Out Shares. Any fractional shares issuable pursuant to the Arrangement will be rounded down to the nearest whole number without any compensation in lieu thereof.
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Shareholders who fail to submit their certificates or DRS advices representing Common Shares together with a duly completed Letter of Transmittal and any other documents required by the Depositary on or before the sixth anniversary of the Effective Date will cease to have any right or claim against or interest of any kind or nature in the Company or Whitehorse. Accordingly, persons who tender certificates or DRS advices for Common Shares after the sixth anniversary of the Effective Date will not receive any New Common Shares or Spin-Out Shares, will not own any interest in the Company or Whitehorse and will not be paid any cash or other compensation in lieu thereof.
Dissent Rights
Registered Shareholders are entitled to exercise Dissent Rights by providing written notice to the Company at or before 9:00 a.m. (Vancouver time) on September 28, 2020 (or on the Business Day that is two Business Days immediately preceding any adjourned or postponed Meeting) in the manner described under the heading "Dissent Rights". If a Registered Shareholder exercises Dissent Rights in strict compliance with the BCBCA and Interim Order and the Arrangement is completed, such Dissenting Shareholder is entitled to be paid the "fair value" of the Common Shares with respect to which the Dissent Rights were exercised, as calculated immediately before the passing of the Arrangement Resolution. Only Registered Shareholders are entitled to exercise Dissent Rights. Shareholders should carefully read the section of this Circular entitled "Dissent Rights" and consult with their advisors if they wish to exercise Dissent Rights.
Canadian Securities Laws Matters
The New Common Shares to be issued and the Spin-Out Shares to be distributed to Shareholders pursuant to the Arrangement will be issued and distributed pursuant to exemptions from the registration and prospectus requirements contained in applicable provincial securities legislation in Canada. Under applicable provincial securities laws, the New Common Shares and Spin-Out Shares may be resold in Canada without hold period restrictions, provided that the sale is not a "control distribution" as defined by applicable securities laws, no unusual effort is made to prepare the market or create a demand for the securities, no extraordinary commission or consideration is paid in respect of the sale and, if the selling securityholder is an insider or officer of the Company or Whitehorse, as applicable, such securityholder has no reasonable grounds to believe that the Company or Whitehorse, as the case may be, is in default of securities legislation. See further details under the section entitled "Certain Securities Law Matters – Canadian Securities Laws".
United States Securities Law Matters
The New Common Shares and Spin-Out Shares to be issued and distributed, respectively, pursuant to the Arrangement will not be registered under the 1933 Act or the securities laws of any state of the United States and will be issued and distributed in reliance upon the exemption from registration provided by Section 3(a)(10) of the 1933 Act and available exemptions from applicable state registration requirements. The New Common Shares and Spin-Out Shares will generally not be subject to resale restrictions under U.S. federal securities laws for persons who are not "affiliates" (as defined in Rule 144 of the 1933 Act) of the Company or Whitehorse following the Arrangement or within 90 days prior to the Arrangement. See further details under the section entitled "Certain Securities Law Matters – United States Securities Laws".
Certain Canadian Income Tax Considerations
A summary of certain Canadian federal income tax considerations for Shareholders who participate in the Arrangement is set out under the heading "Material Income Tax Considerations – Certain Canadian Federal Income Tax Considerations". Shareholders should carefully review the tax considerations applicable to them under the Arrangement and are urged to consult their own legal, tax and financial advisors in regards to their particular circumstances.
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Certain United States Income Tax Considerations
Shareholders who are resident in, or citizens of, the United States are advised to consult their own tax advisors to determine the particular United States tax consequences to them of the Arrangement in light of their particular situation, as well as any tax consequences that may arise under the laws of any other relevant foreign, state, local, or other taxing jurisdiction. This Circular does not contain a description of the United States tax consequences of the Arrangement or the ownership of New Common Shares or Spin-Out Shares.
Whitehorse Financing
Under the Whitehorse Financing, Whitehorse proposes to issue up to 30,000,000 Whitehorse Shares for gross proceeds of up to $9 million (but in any event no less than $6 million), including up to 11,192,333 Whitehorse Shares to certain insiders of the Company and Whitehorse. Proceeds from the Whitehorse Financing are expected to be used towards:
(i) repayment of the New Pacific-Whitehorse Debt; (ii) the advancement of the Tagish Lake Gold Project; (iii) working capital and general corporate purposes; and (iv) modest Q4 2020 exploration, environmental and social programs. For a summary of the principal terms of the Whitehorse Financing, see the section entitled "Whitehorse Financing – Description".
Shareholder and TSX Approval of Whitehorse Financing
As the Whitehorse Shares to be issued in the Whitehorse Financing may be issued at a "significant discount" to the market price (taking into account the maximum allowable discount of the TSX) of the Whitehorse Shares once, and if, the Whitehorse Shares begin trading on TSX-V, the TSX requires that the Whitehorse Financing Resolution be approved by a simple majority of the Disinterested Shareholders. The TSX has conditionally approved the Whitehorse Financing subject to, among other things, approval of the Whitehorse Financing Resolution by the Disinterested Shareholders. As there is currently no market for Whitehorse Shares, there can be no certainty whether the Whitehorse Shares issued in the Whitehorse Financing will be issued at a premium or discount to the market price of the Whitehorse Shares once, and if, the Whitehorse Shares begin trading on the TSX-V.
It is a condition to completion of the Arrangement that Whitehorse will have completed the Whitehorse Financing prior to the Effective Time. In the event that the Whitehorse Financing Resolution is not approved at the Meeting by the Disinterested Shareholders and the condition that Whitehorse will have completed the Whitehorse Financing prior to the Effective Time is not waived by the Company and Whitehorse, the Arrangement will not be completed. It is also a condition to completion of the Whitehorse Financing that all conditions to the Arrangement Agreement (other than the conditions relating to the Whitehorse Financing) shall have been satisfied or waived. See "Whitehorse Financing – Shareholder and TSX Approval".
Independent Valuation
The Independent Valuator was engaged to prepare the Independent Valuation on the Tagish Lake Gold Project. Subject to the assumptions, limitations and qualifications set out in the Independent Valuation, the Independent Valuator determined that the range of value for the Tagish Lake Gold Project was between $12.16 million and $15.20 million as at August 1, 2020. The Independent Valuation was taken into consideration for purposes of establishing the pricing of the Whitehorse Financing in accordance with the requirements of the TSX. See "Whitehorse Financing – Independent Valuation".
Risk Factors
Shareholders should be aware that there are various known and unknown risk factors in connection with the Arrangement and the Whitehorse Financing and the ownership of New Common Shares and Spin-Out Shares following the completion of the Arrangement. Shareholders should carefully consider the risks identified in this Circular under the headings "Risk Factors Relating to the Arrangement" and "Risk Factors Relating to the Whitehorse Financing", in Schedule "G" under the heading "Risk Factors", and in Schedule "L" under the heading "Risk Factors" before deciding whether or not to approve the Arrangement Resolution and the Whitehorse Financing Resolution.
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SOLICITATION OF PROXIES
This Circular is furnished in connection with the solicitation of proxies by Management for use at the Meeting to be held at the time and place and for the purposes set forth in the accompanying Notice of Meeting and at any adjournments thereof. Solicitation of proxies will be conducted by mail, and may be supplemented by telephone or other personal contact to be made without special compensation by directors, officers and employees of the Company or by the Company's registrar and transfer agent, Computershare Investor Services Inc. ("Computershare"). All costs of solicitation will be borne by the Company. This Circular does not constitute the solicitation of an offer to purchase, or the making of an offer to sell, any securities or the solicitation by proxy by any person in any jurisdiction in which such solicitation or offer is not authorized or in which the person making such solicitation or offer is not qualified to do so or to any person to whom it is unlawful to make such solicitation or offer.
Unless the context otherwise requires, references herein to the Company means New Pacific Metals Corp. and its subsidiaries. The principal executive office of the Company is located at Suite 1750 – 1066 West Hastings Street, Vancouver, British Columbia, Canada, V6E 3X1. The telephone number is (604) 633-1368 and the facsimile number is (604) 669-9387. The Company's website address is www.newpacificmetals.com. The information on that website is not incorporated by reference into this Circular. The registered and records office of the Company is located at Suite 1750 – 1066 West Hastings Street, Vancouver, British Columbia V6E 3X1.
PROXY INSTRUCTIONS
Appointment of Proxyholders
The persons named in the accompanying form of proxy (the "Form of Proxy") are directors and officers of the Company. Each Shareholder has the right to appoint some other person, who need not be a shareholder, to represent the Shareholder at the Meeting by striking out the names of the persons designated in the accompanying Form of Proxy and by inserting that other person's name in the blank space provided.
The instrument appointing a proxyholder must be signed in writing by the Shareholder, or such shareholder's attorney duly authorized in writing. If signed by a duly authorized attorney, the Form of Proxy must be accompanied by the original power of attorney or a notarially certified copy thereof. If the Shareholder is a corporation, the instrument appointing a proxyholder must be in writing signed by an officer or attorney of the corporation duly authorized by resolutions of the directors of such corporation, which resolutions must accompany such instrument.
A proxy will only be valid if it is duly completed, signed, dated and received by Computershare in accordance with the instructions in the Form of Proxy, not less than forty-eight (48) hours (excluding Saturdays, Sundays and statutory holidays) prior to the time set for the holding of the Meeting, (or any adjournment or postponement thereof) unless the Chair of the Meeting elects to exercise his discretion to accept proxies received subsequently.
REVOCATION OF PROXIES
A Shareholder may revoke a proxy by delivering an instrument in writing executed by the Shareholder or by the Shareholder's attorney authorized in writing, or where the Shareholder is a corporation, by a duly authorized officer or attorney of the corporation, either at the office of the Company at any time up to and including the last Business Day preceding the day of the Meeting, or with the consent of the Chair of the Meeting on the day of the Meeting or on the day of any adjournment thereof, before any vote in respect of which the proxy is to be used shall have been taken. A Shareholder may also revoke a proxy by depositing another properly executed instrument appointing a proxyholder bearing a later date with Computershare in the manner described above, or in any other manner permitted by law. A revocation of a proxy does not affect any matter on which a vote has been taken prior to revocation.
HOW TO VOTE
Only registered Shareholders (each a "Registered Shareholder") or their duly appointed proxyholders are permitted to vote at the Meeting. Shareholders who hold their Common Shares through their brokers, intermediaries, trustees or other persons ("Intermediaries"), or who otherwise do not hold their Common Shares in their own name ("Beneficial Shareholders") are not permitted to vote at the Meeting as only proxies from Registered Shareholders can be recognized and voted at the Meeting. You may vote as follows:
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Registered Shareholders: If you are a Registered Shareholder, you may vote by attending the Meeting in person, or if you do not plan to attend the Meeting, by completing the proxy and delivering it according to the instructions contained in the Form of Proxy and this Circular.
Beneficial Shareholders: If you are a Beneficial Shareholder, you must vote by proxy by carefully following the instructions included in the proxy provided to you by your Intermediary. If you do not follow the special procedures described by your Intermediary, you will not be entitled to vote. See "Advice to Beneficial Holders of Common Shares" below for more information.
As of the date of this Circular, the Company intends to proceed with the Meeting and encourages you to vote by proxy in advance of the Meeting in light of public health directives and recommendations relating to the ongoing novel coronavirus ("COVID-19") pandemic and efforts to reduce its spread, including restrictions on in-person gatherings of any size, which continue to be strongly discouraged, and physical distancing requirements, and overarching concern for the wellbeing of shareholders, directors, their families and others. At a minimum, only Registered Shareholders or their duly appointed proxyholders will be permitted to attend the Meeting. Those attending the Meeting in person who are experiencing any of the known COVID-19 symptoms including fever, cough or difficulty breathing will not be permitted to attend the Meeting. Those attending in person will be required to comply with the then current direction and advice from federal, provincial and municipal levels of government concerning public gatherings. Note however, that, in light of ongoing concerns related to the spread of COVID-19 and the constantly evolving restrictions on the size of public gatherings which are beyond the control of the Company, attendance at the Meeting in person may be difficult or not permitted. Accordingly, we encourage you not to plan to attend the Meeting in person and instead ensure you vote by proxy in advance of the Meeting.
The Company reserves the right to take any additional precautionary measures deemed appropriate in relation to the Meeting in response to further developments in respect of the COVID-19 pandemic including, if considered necessary or advisable, hosting the Meeting solely by means of remote communication. Changes to the Meeting date and/or means of holding the Meeting may be announced by way of news release. Please monitor the news releases filed under the Company's profile on SEDAR at www.sedar.com prior to the Meeting for the most current information. We do not intend to prepare or mail an amended Circular in the event of changes to the Meeting format.
Advice to Beneficial Holders of Common Shares
The information set forth in this section is of significant importance to many Shareholders, as a substantial number of Shareholders do not hold Common Shares in their own name. Beneficial Shareholders should note that only proxies deposited by Shareholders who appear on the records maintained by the Company's registrar and transfer agent as Registered Shareholders will be recognized and acted upon at the Meeting. If Common Shares are listed in an account statement provided to a Beneficial Shareholder by an Intermediary, then those Common Shares will, in all likelihood, not be registered in the Shareholder's name. Such Common Shares will more likely be registered under the name of the Intermediary or agent thereof. In Canada, the vast majority of such Common Shares are registered under the name of CDS & Co. (the registration name for CDS Clearing and Depository Services Inc., which acts as nominee for many Canadian brokerage firms). In the United States, the vast majority of such Common Shares are registered under the name of Cede & Co., the registration name for The Depository Trust Company, which acts as nominee for many United States brokerage firms. Common Shares held by Intermediaries on behalf of a Beneficial Shareholder can only be voted or withheld at the direction of the Beneficial Shareholder. Without specific instructions, Intermediaries are prohibited from voting Common Shares for the Beneficial Shareholders. Therefore, each Beneficial Shareholder should ensure that voting instructions are communicated to the appropriate person well in advance of the Meeting.
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Existing regulatory policy requires Intermediaries to seek voting instructions from Beneficial Shareholders in advance of shareholder meetings. The various Intermediaries have their own mailing procedures and provide their own return instructions to clients, which should be carefully followed by Beneficial Shareholders in order to ensure that their Common Shares are voted at the Meeting. The form of instrument of proxy supplied to a Beneficial Shareholder by an Intermediary is substantially similar to the Form of Proxy provided directly to Registered Shareholders by the Company. However, its purpose is limited to instructing the Registered Shareholder (i.e., Intermediary) how to vote on behalf of the Beneficial Shareholder. The vast majority of brokers now delegate responsibility for obtaining instructions from clients to Broadridge Financial Solutions Inc. ("Broadridge") in Canada. Broadridge typically prepares a machine-readable voting instruction form ("VIF"), mails those forms to Beneficial Shareholders and asks Beneficial Shareholders to return the VIFs to Broadridge, or otherwise communicate voting instructions to Broadridge (by way of the internet or telephone, for example). Broadridge then tabulates the results of all instructions received and provides appropriate instructions respecting the voting of Common Shares to be represented at the Meeting. A Beneficial Shareholder who receives a VIF from Broadridge cannot use that form to vote Common Shares directly at the Meeting. The VIFs must be returned to Broadridge (or instructions respecting the voting of Common Shares must otherwise be communicated to Broadridge) well in advance of the Meeting in order to have the Common Shares voted. If you have any questions respecting the voting of Common Shares held through an Intermediary, please contact that Intermediary for assistance.
The Notice of Meeting, this Circular, the Form of Proxy and VIF, as applicable, are being provided to both Registered Shareholders and Beneficial Shareholders. Beneficial Shareholders fall into two categories - those who object to their identity being known to the issuers of securities which they own ("OBOs") and those who do not object to their identity being made known to the issuers of the securities which they own ("NOBOs"). Subject to the provisions of National Instrument 54-101 - Communication with Beneficial Owners of Securities of a Reporting Issuer ("NI 54- 101"), issuers may request and obtain a list of their NOBOs from Intermediaries directly or via their transfer agent and may obtain and use the NOBO list for the distribution of proxy-related materials directly (not via Broadridge) to such NOBOs. If you are a Beneficial Shareholder and the Company or its agent has sent these materials directly to you, your name, address and information about your holdings of Common Shares have been obtained in accordance with applicable securities regulatory requirements from the intermediary holding the Common Shares on your behalf.
The Company has distributed copies of the Notice of Meeting, Circular and VIF to intermediaries for distribution to NOBOs. Unless you have waived your right to receive the Notice of Meeting, Circular and VIF, intermediaries are required to deliver them to you as a NOBO of the Company and to seek your instructions on how to vote your Common Shares.
The Company's OBOs can expect to be contacted by Broadridge or their brokers or their broker's agents as set out above. The Company does not intend to pay for Intermediaries to deliver the Notice of Meeting, Circular and VIF to OBOs and accordingly, if the OBO's Intermediary does not assume the costs of delivery of those documents in the event that the OBO wishes to receive them, the OBO may not receive the documentation.
Although a Beneficial Shareholder may not be recognized directly at the Meeting for the purposes of voting Common Shares registered in the name of its Intermediary, a Beneficial Shareholder may attend the Meeting as proxyholder for the Registered Shareholder and vote the Common Shares in that capacity. NI 54-101 allows a Beneficial Shareholder who is a NOBO to submit to the Company or an applicable intermediary any document in writing that requests that the NOBO or a nominee of the NOBO be appointed as proxyholder. If such a request is received, the Company or an Intermediary, as applicable, must arrange, without expenses to the NOBO, to appoint such NOBO or its nominee as a proxyholder and to deposit that proxy within the time specified in this Circular, provided that the Company or the Intermediary receives such written instructions from the NOBO at least one Business Day prior to the time by which proxies are to be submitted at the Meeting, with the result that such a written request must be received by 9:00 a.m. (Vancouver time) on the day which is at least three Business Days prior to the Meeting. A Beneficial Shareholder who wishes to attend the Meeting and to vote their Common Shares as proxyholder for the Registered Shareholder, should enter their own name in the blank space on the VIF or such other document in writing that requests that the NOBO or a nominee of the NOBO be appointed as proxyholder and return the same to their Intermediary or agent thereof in accordance with the instructions provided by such Intermediary.
All references to Shareholders in the Notice of Meeting, this Circular and the accompanying Form of Proxy are to Registered Shareholders of the Company as set forth on the list of registered shareholders of the Company as maintained by the registrar and transfer agent of the Company, Computershare, unless specifically stated otherwise.
- 21 -
QUORUM
The Articles of the Company provide that quorum for the transaction of business at any meeting of Shareholders is one Shareholder present at the Meeting in person or by proxy.
VOTING OF SHARES AND EXERCISE OF DISCRETION BY PROXIES
If you complete your proxy properly, then the nominee named in the accompanying Form of Proxy will vote or withhold from voting the Shares represented by the proxy in accordance with your instructions. If you do not specify a choice on any given matter to be voted upon, your Shares will be voted in favour of such matter. The proxy grants the nominee the discretion to vote on amendments or variations to matters identified in the Notice of the Meeting and with respect to other matters that may properly come before the Meeting.
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
In considering the recommendation of the Board with respect to the Arrangement, Whitehorse Financing and the Omnibus Plan, Shareholders should be aware that certain members of the Company's senior management and the Board have certain interests in connection with the Arrangement that may present them with actual or potential conflicts of interest in connection with the Arrangement.
The directors and executive officers of the Company hold or control the following securities of the Company:
|
|
|
|
|
Common Shares
|
|
|
|
|
|
Name
|
|
Current Position
|
|
Beneficially Owned
|
|
Options
|
|
RSUs
|
|
Mark Cruise
|
|
CEO and Director
|
|
0
|
|
0
|
|
300,000
|
|
Jalen Yuan
|
|
CFO
|
97,500
|
260,000
|
22,500
|
|
Gordon Neal
|
|
President
|
42,400
|
661,600
|
75,000
|
|
Alex Zhang
|
|
VP, Exploration
|
225,000
|
550,000
|
37,500
|
|
David Tingey
|
|
VP, Sustainability
|
0
|
0
|
0
|
|
Yong-Jae Kim
|
|
Corporate Secretary
|
10,000
|
16,667
|
15,000
|
|
|
|
and General Counsel
|
|
|
|
|
|
|
|
Jack Austin
|
|
Chair and Director
|
582,975
|
125,000
|
23,925
|
|
Rui Feng
|
|
Director
|
10,227,400
|
700,000
|
150,000
|
|
David Kong
|
|
Director
|
491,275
|
240,000
|
23,925
|
|
T. Gregory Hawkins
|
|
Director
|
1,006,675
|
250,000
|
23,925
|
|
Martin Wafforn
|
|
Director
|
7,975
|
216,667
|
23,925
|
|
Total
|
|
|
|
12,691,200
|
|
3,019,934
|
|
695,700
|
The directors and executive officers of the Company hold, in the aggregate, 12,691,200 Common Shares which represent 8.3% of the voting rights attached to all of the issued and outstanding Common Shares on the Record Date. Such directors and executive officers hold, in aggregate, 3,019,934 Options, representing approximately 64.9% of the Options outstanding on the Record Date, and 695,700 RSUs, representing approximately 75.4% of the RSUs outstanding on the Record Date. On a fully-diluted basis, such directors and executive officers would hold 16,406,834 Common Shares in aggregate, representing 10.4% of the voting rights attached to all issued and outstanding Common Shares.
All of the Common Shares, Options and RSUs held by the Company's directors and executive officers will be treated in the same fashion under the Arrangement as Common Shares held by every other holder of Common Shares, Options and RSUs, as the case may be.
In addition, the Company expects that each of the foregoing directors and officers of the Company will be participating in the Whitehorse Financing. See the section entitled "Whitehorse Financing – Description" for further details about the expected participation by such persons in the Whitehorse Financing.
- 22 -
VOTING SHARES AND PRINCIPAL SHAREHOLDERS
The Company is authorized to issue an unlimited number of Common Shares without par value, each share carrying the right to one vote. As of the Record Date, the Company has issued and outstanding 152,310,111 fully paid and non- assessable Common Shares. The Company has no other classes of voting securities.
The Board has fixed August 20, 2020 as the record date (the "Record Date") for the determination of Shareholders entitled to receive the Notice of Meeting and to vote at the Meeting. Any transferee who acquires Shares after the Record Date and who wishes to attend the Meeting and to vote the transferred Shares must demand, not later than 10 days before the Meeting, to be included in the list of Shareholders prepared for the Meeting. Registered Shareholders should contact Computershare and non-Registered Shareholders should contact the Intermediary through whom they acquired the Shares.
On a show of hands, every individual who is present as a Registered Shareholder or as a representative of a Registered Shareholder will have one vote (no matter how many Shares such Registered Shareholder holds). On a poll, every Registered Shareholder present in person or represented by a proxy and every person who is a representative of a Registered Shareholder, will have one vote for each Common Share registered in the name of the Registered Shareholder on the list of Registered Shareholders, which is available for inspection during normal business hours at Computershare and at the Meeting. Registered Shareholders represented by proxyholders are not entitled to vote on a show of hands.
To the best of the knowledge of the directors and officers of the Company, as at the date of this Circular, there are no persons or companies beneficially owning or controlling or directing, directly or indirectly, Common Shares carrying
10% or more of the voting rights attached to all outstanding Common Shares of the Company, except as follows:
|
Name
|
|
Number of Shares
|
|
Percentage of Outstanding Common Shares
|
|
Silvercorp Metals Inc. ("Silvercorp")
|
|
43,917,216
|
|
28.8%
|
FINANCIAL STATEMENTS
Financial information regarding the Company and its affairs is provided in the Company's comparative financial statements for its financial year ended June 30, 2020 and the MD&A. Shareholders may contact the Company at the address set out on the face page of this Circular to request free copies of the Company's financial statements and the MD&A. Alternatively, they can be found under the Company's profile on SEDAR at www.sedar.com and the Company's website at www.newpacificmetals.com.
PARTICULARS OF MATTERS TO BE ACTED UPON
NUMBER OF DIRECTORS
The Board presently consists of six directors. Management proposes that the number of directors on the Board be fixed at six. Shareholders will therefore be asked at the Meeting to approve an ordinary resolution that the number of directors elected be fixed at six (6) for the ensuing year, subject to such increases as may be permitted by the Articles of the Company and the provisions of the BCBCA. The Board recommends a vote "FOR" the approval of the resolution setting the number of directors at six (6). In the absence of contrary instructions, the management proxy nominees named as proxyholders in the enclosed Form of Proxy will cast the votes represented by any proxy FOR the approval of the resolution setting the number of directors at six (6).
ELECTION OF DIRECTORS
Each director of the Company is elected annually and holds office until the next annual general meeting of the Shareholders, or until his or her successor is elected or appointed, unless that person's office is earlier vacated in accordance with the Articles of the Company or with the provisions of the BCBCA.
- 23 -
Management has received written consent from each of Management's nominees for election as a director as to their willingness and ability to serve as a director. The Company has adopted a majority voting policy where any nominee proposed for election as a director is required to tender their resignation if the director receives more withheld votes than for votes (i.e., a majority of withheld votes) at any meeting where Shareholders vote on the uncontested election of directors. An uncontested election means the number of director nominees for election is the same as the number of directors to be elected to the Board. The Corporate Governance Committee (as defined below) will then submit a recommendation regarding whether or not to accept the resignation to the Board. Within 90 days of receiving the final voting results, the Board will issue a press release either announcing the resignation of the director or explaining the reasons justifying its decision not to accept the resignation. A director who tenders a resignation pursuant to this policy will not participate in any meeting of the Board or the Corporate Governance Committee at which the resignation is considered. No proposed director is being elected under any arrangement or understanding between the proposed director and any other person or company.
In the absence of contrary instructions, the management proxy nominees named as proxyholders in the enclosed Form of Proxy will cast the votes represented by any proxy FOR the election of the nominees named below.
The following table sets out the names of the management's nominees for election as directors, their ages as at the date of the Circular, the municipality and province or state, and country in which each is ordinarily resident, all offices of the Company now held by each of them, each nominee's principal occupation, business or employment, the period of time for which each nominee has served as a director of the Company, and the number of Common Shares beneficially owned by each, directly or indirectly, or over which each nominee exercises control or direction as of the date of this Circular:
- 24 -
|
Name and
|
|
|
Current
|
|
|
|
Date of
|
|
Common Shares
|
|
|
Municipality of
|
|
|
Position and
|
|
Principal Occupations during the
|
|
Appointment as a
|
|
Beneficially
|
|
|
Residence(1)
|
|
|
Office Held
|
|
Last Five Years(1)
|
|
Director
|
|
Owned (1)
|
|
|
Rui Feng, 56
|
|
|
Director
|
|
CEO, Chair and Director of Silvercorp
|
|
May 12, 2004
|
10,227,400(2)
|
|
|
Beijing,
|
|
|
|
|
since September 2003; Director of the
|
|
|
|
|
|
|
China
|
|
|
|
|
Canada China Business Council - BC
|
|
|
|
|
|
|
|
|
|
|
|
Chapter Board; Vice President of
|
|
|
|
|
|
|
|
|
|
|
|
Canada-China Business Association.
|
|
|
|
|
|
|
Jack Austin, 87
|
|
|
|
|
|
|
|
|
|
|
|
|
Chair and
|
|
Chair and Director of the Company;
|
|
May 13, 2008
|
582,975(6)
|
|
|
Vancouver, B.C.,
|
|
|
Director (3)(4)(5)
|
|
Advisor to Stern Partners Inc. and
|
|
|
|
|
|
|
Canada
|
|
|
|
|
Silvercorp; Honorary Professor and
|
|
|
|
|
|
|
|
|
|
|
|
Senior Fellow at the Institute of Asian
|
|
|
|
|
|
|
|
|
|
|
|
Research at the University of British
|
|
|
|
|
|
|
|
|
|
|
|
Columbia.
|
|
|
|
|
|
|
David Kong, 73
|
|
|
|
|
|
|
|
|
|
|
|
|
Director (3)(5)
|
|
Partner of Ernst & Young LLP from
|
|
November 29,
|
491,275(7)
|
|
|
Richmond, B.C.,
|
|
|
|
|
2005 to 2010. Director of Silvercorp,
|
2010
|
|
|
|
|
Canada
|
|
|
|
|
Uranium Energy Corp., and Gold
|
|
|
|
|
|
|
|
|
|
|
|
Mining Inc.
|
|
|
|
|
|
|
T. Gregory
|
|
|
|
|
|
|
|
|
|
|
|
|
Director (3)(4)(5)
|
|
Founding director and/or consultant of
|
|
November 29,
|
1,006,675
|
|
|
Hawkins, 69
|
|
|
|
|
public and private exploration
|
2010
|
|
|
|
|
Vancouver, B.C.,
|
|
|
|
|
development ventures (Brohm Mining
|
|
|
|
|
|
|
Canada
|
|
|
|
|
Inc., Dayton Mining Inc., Nevsun
|
|
|
|
|
|
|
|
|
|
|
|
Resources Ltd., Banro Resource Corp.,
|
|
|
|
|
|
|
|
|
|
|
|
Tagish Lake Gold Corp., and African
|
|
|
|
|
|
|
|
|
|
|
|
Gold Group Inc.). Chairman of
|
|
|
|
|
|
|
|
|
|
|
|
Yellowhead Mining Inc. Director of
|
|
|
|
|
|
|
|
|
|
|
|
Discovery-Corp Enterprises Inc.
|
|
|
|
|
|
|
|
|
|
|
|
Managing Director of CME and Co.
|
|
|
|
|
|
|
|
|
|
|
|
from 1993 to 2014.
|
|
|
|
|
|
|
Martin G.
|
|
|
|
|
|
|
|
|
|
|
|
|
Director(4)
|
|
Senior Vice President of Pan American
|
|
November 27,
|
7,975
|
|
|
Wafforn, 60
|
|
|
|
|
Silver Corp.
|
2017
|
|
|
|
|
Vancouver, B.C.,
|
|
|
|
|
|
|
|
|
|
|
|
Canada
|
|
|
|
|
|
|
|
|
|
|
|
Mark Cruise, 49,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Director and
|
|
CEO and Director of Trevali Mining
|
|
May 28, 2020
|
|
Nil
|
|
|
Vancouver, B.C.,
|
|
|
Chief
|
|
Corp., COO of the Company and
|
|
|
|
|
|
|
Canada
|
|
|
Executive
|
|
director of Velocity Minerals Ltd.
|
|
|
|
|
|
|
|
|
|
Officer
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,316,300
|
|
Notes:
(1) The information as to residence, principal occupation or employment and shares beneficially owned, directly or indirectly, or controlled is not within the knowledge of the Management of the Company and has been furnished by the respective director or officer.
(2) Silvercorp itself, or through subsidiaries, beneficially owns and controls 43,917,216 Common Shares representing 28.8% of the Company's outstanding common shares. Dr. Rui Feng and Silvercorp, acting jointly and in concert, beneficially own, directly and indirectly, or exercise control or direction over 54,144,616 or 35.5% of the outstanding Common Shares of the Company as at the Record Date.
(3) Denotes member of the Audit Committee.
(4) Denotes member of the Compensation Committee.
(5) Denotes member of the Corporate Governance Committee.
(6) Of these Common Shares, 10,000 are held in the name of Mr. Austin's spouse.
(7) Of these Common Shares, 185,000 are held in the name of Mr. Kong's spouse.
- 25 -
The Company confirms that no director, together with his or her associates or affiliates, owns or controls directly or indirectly 10% or more of the outstanding Common Shares.
No proposed director:
(a) is, as at the date of this Circular, or has been, within 10 years before the date of this Circular, a director, chief executive officer or chief financial officer of any company (including the Company) that,
(i) was subject to an order that was issued while the proposed director was acting the capacity as director, chief executive officer or chief financial officer; or
(ii) was subject to an order that was issued after the proposed director ceased to be a director, chief executive officer or chief financial officer and which resulted from an event that occurred while that person was acting in the capacity as director, chief executive officer or chief financial officer,
(b) is, as at the date of this Circular, or has been within the 10 years before the date of this Circular, a director or executive officer of any company (including the Company) that, while that person was acting in that capacity, or within a year of that person ceasing to act in that capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets; or
(c) has, within 10 years before the date of this Circular, become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or become subject to or instituted any proceedings, arrangement or compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold the assets of the proposed director.
No proposed director has been subject to:
(a) any penalties or sanctions imposed by a court relating to securities legislation or by a securities regulatory authority or has entered into a settlement agreement with a securities regulatory authority; or
(b) any other penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable securityholder in deciding whether to vote for a proposed director.
APPOINTMENT OF AUDITOR
It is proposed that Deloitte LLP, Chartered Professional Accountants, of Vancouver, British Columbia be reappointed as the auditors of the Company to hold office until the next annual meeting of the Shareholders or until a successor is appointed, and that the directors be authorized to determine the auditor's remuneration.
The Board recommends a vote "FOR" the approval of the resolution appointing Deloitte LLP, Chartered Professional Accountants, as auditors of the Company at remuneration to be fixed by the Board. In the absence of contrary instructions, the management proxy nominees named as proxyholders in the enclosed Form of Proxy will cast the votes represented by any proxy FOR the appointment of Deloitte LLP as auditor of the Company at remuneration to be fixed by the Board.
APPROVAL OF AMENDED AND RESTATED SHARE BASED COMPENSATION PLAN
The Board has determined that it is advisable to adopt an amended and restated share based compensation plan (the "Omnibus Plan"), a copy of which is attached as Schedule "M" to this Circular, which it believes is in the best interests of the Company. The Omnibus Plan will amend and restate the Company's existing share based compensation plan (the "Existing Omnibus Plan"). Awards (as defined below) granted under the Existing Omnibus Plan will remain outstanding and be governed by the terms of the Omnibus Plan if the Omnibus Plan is approved by the Shareholders. If the Omnibus Plan is not approved, the Existing Omnibus Plan will remain in place and Awards will continue to be governed by such Existing Omnibus Plan, and the Company will seek confirmation of the Existing Omnibus Plan by the Shareholders in accordance with the policies of the TSX. If the Shareholders do not pass the resolution approving the Existing Omnibus Plan at the Meeting, the Awards previously granted before August 25, 2020 will be valid.
- 26 -
As at the date hereof, there are (a) Awards representing 5,576,634 Common Shares outstanding under the Existing Omnibus Plan (approximately 3.65% of the Company's issued and outstanding Common Shares as at the date hereof) and (b) Awards representing 9,683,477 Common Shares remaining available for future issuance under the Existing Omnibus Plan (approximately 6.35% of the Company's issued and outstanding Common Shares as at the date hereof). The following table sets out the annual burn rate of the Existing Omnibus Plan (and the Company's prior stock option, as applicable) for each of the Company's three most recently completed fiscal years. The annual burn rate represents the total number of securities granted under the Existing Omnibus Plan (and the Company's prior stock option plan, as applicable) during the applicable fiscal year, divided by the weighted average number of Common Shares outstanding for the applicable fiscal year.
|
Fiscal Year
|
|
Annual Burn Rate (%)
|
|
|
|
|
|
2020
|
0.73%
|
|
2019
|
1.61%
|
|
2018
|
1.77%
|
The Board is of the view that the Omnibus Plan is required in order to provide additional incentive to the directors, officers, employees and consultants who provide services to the Company to act in the best interests of the Company. The terms of the Omnibus Plan are largely consistent with the terms of the Existing Omnibus Plan. In addition to minor administrative changes, the substantive amendments are to remove (a) the limit on the maximum number of RSUs and PSUs (as defined below) that the Company may grant under the Omnibus Plan, (b) and certain other requirements that are no longer applicable to the Company as a TSX listed issuer.
The following is a description of the key terms of the Omnibus Plan, which is qualified in its entirety by reference to the full text of the Omnibus Plan.
• Types of Awards – Pursuant to the Omnibus Plan, the Company may issue Options, RSUs, Performance Share Units ("PSUs", and together with the Options and RSUs, collectively the "Awards").
• Participants – Pursuant to the Omnibus Plan, the Company may issue Awards to the directors, officer, employees and consultants of the Company (each an "Eligible Person"). Each such Eligible Person granted Awards pursuant to the Omnibus Plan, a "Participant".
• Maximum Number of Common Shares Issuable – The maximum number of Common Shares issuable under the Omnibus Plan, together with the number of Common Shares issuable under any other security-based compensation arrangements of the Company, shall not in the aggregate exceed 10% of the issued and outstanding Common Shares of the Company, from time to time (the "Outstanding Issue").
• Plan Limits – When combined with all of the Company's other security-based compensation arrangements, the Omnibus Plan shall not result in:
○ the number of Common Shares issuable to any one person at any time exceeding 5% of the Outstanding Issue;
o the number of Common Shares (i) issued to Insiders (as defined in the Omnibus Plan) within a one- year period, and (ii) issuable to Insiders at any time, exceeding 10% of the Outstanding Issue;
- 27 -
o the issuance to any one Insider and such Insider's associates, within any one year period, exceeding 5% of the Outstanding Issue;
o the issuance to any Eligible Person, in a 12-month period, of a number of RSUs and PSUs, on an aggregate basis, exceeding 1% of the Outstanding Issue at the time of granting of the Awards and the issuance to all Eligible Persons, in a 12-month period, of a number of RSUs and PSUs, on an aggregate basis, exceeding 2% of the Outstanding Issue at the time of granting of the Awards; or
o a number of Common Shares issuable to any one non-executive Director within a one-year period exceeding an Award value of $150,000 per such non-executive Director, of which no more than $100,000 may comprise Options based on a valuation method acceptable to the Board.
Options
• Terms and Exercise Price – The number of Common Shares subject to each Option grant, the exercise price, vesting, expiry date and other terms and conditions thereof will be determined by the Board. The exercise price of each Option shall in no event be lower than the closing price of the Common Shares on the TSX (the "Market Price") on the date prior to the grant date.
• Term – Unless otherwise specified at the time of grant, Options shall expire 10 years from the date of grant, unless terminated earlier in accordance with the Omnibus Plan.
• Vesting Schedule – Unless otherwise specified at the time of grant, Options vest and become exercisable in 25% increments on each of the 6 month, 12 month, 18 month, and 24 month anniversaries from the grant date.
• Exercise of Option – A participant may exercise vested Options by payment of the exercise price per Share subject to each Option.
• Termination of Employment – If a Participant ceases to be a director, officer, employee or consultant of the Company for any reason other than death, such director, officer, consultant or employee of the Company shall have such rights to exercise any Option not exercised prior to such termination within the lesser of a period of 90 calendar days after the date of termination, or the expiry date of the Option, or such shorter period as may be set out in the Participant's Option Award Agreement.
• Death – If a Participant dies prior to the expiry of his Option, his legal representatives may, within the lesser of one year from the date of the Participant's death or the expiry date of the Option, exercise that portion of an Option granted to the director, officer, employee or consultant of the Company under this Plan which remains outstanding.
Restricted Share Units and Performance Share Units
• Terms – RSUs and PSUs are notional securities that entitle the recipient to receive cash or Common Shares at the end of a vesting period. The terms applicable to RSUs and PSUs under the Omnibus Plan (including the vesting schedule, performance cycle, performance criteria for vesting and whether dividend equivalents will be credited to a participant's account) are determined by the Board at the time of the grant.
• Vesting – Unless otherwise provided, RSUs typically vest on the second anniversary of the date the RSU was granted and shall be settled in accordance with the settlement provisions described below. Unless otherwise noted, PSUs shall vest as at the date that is the end of their specified performance cycle, subject to any performance criteria having been satisfied and shall be settled in accordance with the settlement provisions described below. Vesting of PSUs is contingent upon achieving certain performance criteria.
• Settlement – On settlement, the Company shall, for each vested RSU or PSU being settled, deliver to a Participant either (a) one Share, (b) a cash payment equal to the Market Price of one Share as of the vesting date, or (c) any combination of cash and Common Shares equal to the Market Price of one Share as of the vesting date, at the discretion of the Board.
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• Dividend Equivalents – As dividends are declared, additional RSUs and PSUs may be credited to a Participant in an amount equal to the greatest whole number which may be obtained by dividing (i) the value of such dividend or distribution on the payment date therefore by (ii) the Market Price of one Share on such date.
• Termination of Employment – If a director, officer, consultant or employee of the Company ceases to be so engaged by the Company for any reason other than death, all outstanding RSUs and PSUs that were vested on or before the date of the termination of employment or services of such Participant shall be settled in accordance with the applicable settlement provisions of the Omnibus Plan as of the date of termination, after which time the RSUs and PSUs shall in all respects terminate.
• Death – If a Participant dies, all outstanding RSUs and PSUs that were vested on or before the date of the date of death such Participant shall be settled in accordance with the applicable settlement provisions of the Omnibus Plan as of the date of death. Outstanding RSUs that were not vested on or before the date of death shall vest and be settled in accordance applicable settlement provisions of the Omnibus Plan as of the date of death, prorated to reflect the actual period between the grant date of the RSU and the date of death. Outstanding PSUs that were not vested on or before the date of death shall vest and be settled in accordance with the applicable settlement provisions of the Omnibus Plan as of the date of death, prorated to reflect the actual period between the commencement of the performance cycle and the date of death, based on the performance criteria for the applicable performance period(s) up to the date of death. Subject to the foregoing, any remaining RSUs and PSUs shall in all respects terminate as of the date of death.
General
• Assignment – Awards granted under the Omnibus Plan are non-assignable and non-transferable other than by will or by the laws of descent and distribution.
• Change of Control – In the event of a Change of Control, all unvested Awards then outstanding will, as applicable, be substituted by or replaced with awards of the surviving corporation (or any affiliate thereof) or the potential successor (or any affiliate thereto) (the "continuing entity") on the same terms and conditions as the original Awards, subject to appropriate adjustments that do not diminish the value of the original Awards. If, upon a Change of Control, the continuing entity fails to comply with this requirement, the vesting of all then outstanding Awards (and, if applicable, the time during which such Awards may be exercised) will be accelerated in full. Additionally, in the event of a potential Change of Control, the Board will have the power, in its sole discretion, to modify the terms of the Omnibus Plan and/or the Awards to assist the Participants in tendering to a take-over bid or other transaction leading to a Change of Control (including to accelerate the vesting of Awards and to permit Participants to conditionally exercise their Awards).
• Amendments Not Requiring Shareholder Approval – The Board may amend the Omnibus Plan or Awards at any time, provided, however, that no such amendment may adversely affect any Award previously granted to a Participant without the consent of the Participant, except to the extent required by applicable law (including TSX requirements). Any such amendment will be subject to all necessary regulatory approvals. Without limiting the generality of the foregoing, the Board may, without prior notice to the shareholders and without further shareholder approval, at any time and from time to time, amend the Omnibus Plan or any provisions thereof, or the form of Award Agreement or instrument to be executed pursuant to the Omnibus Plan, in such manner as the Board, in its sole discretion, determines appropriate:
○ for the purposes of making formal minor or technical modifications to any of the provisions of the Omnibus Plan;
○ to correct any ambiguity, defective provisions, error or omission in the provisions of the Omnibus Plan;
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○ to change any vesting provisions of Awards;
○ to change the termination provisions of the Awards or the Omnibus Plan;
○ to change the persons who qualify as Eligible Persons under the Omnibus Plan; and
○ to add or change provisions relating to any form of financial assistance provided by the Company to Participants that would facilitate the purchase of securities under the Omnibus Plan.
• Amendments Requiring Shareholder Approval – Shareholder approval (or disinterested shareholder approval, if required by the policies of the TSX) will be required for the following types of amendments:
○ an increase in the number of Common Shares issuable under Awards granted pursuant to the Omnibus Plan;
○ a reduction in the exercise price of an Option, or a cancellation and reissuance of an Option;
○ an extension of (i) the term of an Option beyond its original expiry date, or (ii) the date on which a PSU or RSU will be forfeited or terminated in accordance with its terms, other than in accordance with the Omnibus Plan;
○ a revision to the assignment provisions to permit Awards granted under the Omnibus Plan to be transferable or assignable other than for estate settlement purposes;
○ a revision to the insider participation limits or the non-executive director limits;
○ a revision to the amending provisions; or
○ any amendment required to be approved by shareholders of the Company under applicable law (including without limitation, pursuant to the policies of the TSX).
• Black Out Periods – If the expiry date or vesting date of an Award falls (other than a PSU or RSU awarded to a Canadian resident) is during a self-imposed blackout period imposed under any insider trading policy or similar policy of the Company (a "Blackout Period"), the expiry date or vesting date, as applicable, will be automatically extended for a period of ten business day after the earlier of the end of such Blackout Period, or, provided the Blackout Period has ended, the expiry date or vesting date of such Award. In the case of a RSU or PSU awarded to a Canadian resident, any settlement that is effected during a Blackout Period shall be settled in cash, notwithstanding any other provision of the Omnibus Plan.
Regulatory and Shareholder Approval
The rules and policies of the TSX require shareholder approval of security-based compensation arrangements in respect of arrangements that involve the issuance from treasury or potential issuance from treasury of securities of the issuer.
As the Omnibus Plan provides for the potential issuance from treasury of securities of the Company, the Shareholders will be asked to vote for or against an ordinary resolution ratifying, approving and adopting the Omnibus Plan in accordance with the policies of the TSX as follows:
"NOW THEREFORE BE IT RESOLVED as an ordinary resolution of the shareholders of New Pacific Metals Corp. (the "Company"), that:
1. the Omnibus Plan, as disclosed in the information circular of the Company dated August 27, 2020, including reserving for issuance under the Omnibus Plan at any time a maximum of 10% of the outstanding common shares of the Company for issuance from time to time pursuant to the exercise or settlement of awards thereunder, is hereby approved, ratified and confirmed;
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2. all unallocated awards and entitlements under the Omnibus Plan are hereby approved, ratified and confirmed, and the Company shall have the ability to continue to grant awards and entitlements under the Omnibus Plan until September 30, 2023; and
3. any one director or officer of the Company be and is hereby authorized and directed to do such things and to execute and deliver all such instruments, deeds and documents, and any amendments thereto, as may be necessary or advisable in order to give effect to the foregoing resolution."
The Board has determined that the Omnibus Plan is in the best interests of the Company and the Shareholders and recommends a vote "FOR" the approval of the resolution ratifying, approving and adopting the Omnibus Plan. The resolution regarding the approval of the Omnibus Plan must be passed by the majority of the votes cast by the Shareholders present or represented by proxy who are entitled to vote at the Meeting.
In the event the shareholders of the Company do not approve the Omnibus Plan at the Meeting, the Shareholders will be asked to pass an ordinary resolution confirming the approval of the Existing Omnibus Plan in accordance with the policies of the TSX as follows:
"NOW THEREFORE BE IT RESOLVED as an ordinary resolution of the shareholders of New Pacific Metals Corp. (the "Company"), that:
1. the Company's existing share based compensation plan (the "Existing Omnibus Plan") is hereby approved and confirmed;
2. all unallocated awards and entitlements under the Existing Omnibus Plan are hereby approved and confirmed, and the Company shall have the ability to continue to grant awards and entitlements under the Existing Omnibus Plan until September 30, 2023; and
3. any one director or officer of the Company be and is hereby authorized and directed to do such things and to execute and deliver all such instruments, deeds and documents, and any amendments thereto, as may be necessary or advisable in order to give effect to the foregoing resolution."
In the event that the Shareholders do not approve the Omnibus Plan, the Board recommends a vote "FOR" the approval of the resolution confirming approval of the Existing Omnibus Plan. In order to be effective, the resolution regarding the approval of the Existing Omnibus Plan must be passed by the majority of the votes cast by the Shareholders present or represented by proxy who are entitled to vote at the Meeting.
THE ARRANGEMENT
The purpose of the Arrangement is to reorganize the Company and its assets and operations into two separate public companies: the Company and Whitehorse. Upon the Arrangement becoming effective, Shareholders as of the Effective Time will become shareholders in both companies and will receive one New Common Share and approximately 0.13 of a Spin-Out Share (based on the number of Common Shares outstanding as at the Record Date) for each Common Share held by such Shareholder. Whitehorse intends to apply to have the Whitehorse Shares listed on the TSX-V. It is a condition of the Arrangement that the TSX-V shall have approved the listing of the Whitehorse Shares.
On July 22, 2020, the Company announced the proposed Arrangement to separate the Spin-Out Assets from the Company Assets in an effort to maximize value to Shareholders. Upon completion of the Arrangement, the Company will continue to hold its interest in the Company Assets and Whitehorse will hold the Spin-Out Assets. Prior to the completion of the Arrangement, Whitehorse is expected to complete the Whitehorse Financing.
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Reasons for the Arrangement
The Board believes that the separation of the Spin-Out Assets from the Company Assets into two separate publicly-traded companies will provide a number of benefits to the Company, Whitehorse and the Shareholders, including:
(a) providing Shareholders with enhanced value by creating a company focused on the development of the Spin-Out Assets and a company focused on the development of the Company Assets;
(b) providing Shareholders with 100% ownership of the Company and 40% ownership of Whitehorse (assuming the Whitehorse Financing is fully subscribed) following completion of the Arrangement;
(c) providing each company with a sharper business focus, enabling them to pursue independent business and financing strategies best suited to their respective business plans;
(d) enabling investors, analysts and other stakeholders or potential stakeholders to more accurately compare and evaluate each company;
(e) enabling each company to pursue independent growth and capital allocation strategies;
(f) allowing each company to be led by experienced executives and directors who have experience in each company's respective resource sector; and
(g) the reorganization is anticipated to occur on a generally tax-deferred basis for Shareholders resident in Canada who hold their Common Shares as capital property for purposes of the Tax Act and who participate in the Arrangement.
Recommendation of the Board
The Board approved the Arrangement and recommended and authorized the submission of the Arrangement to the Shareholders and the Court for approval. The Board has concluded that the Arrangement is in the best interests of the Company and the Shareholders and recommends that Shareholders vote "FOR" the approval of the Arrangement Resolution, the full text of which is attached as Schedule "A" hereto.
In reaching this conclusion, the Board considered, among other things, the Fairness Opinion, the benefits to the Company and its Shareholders, as well as the financial position, opportunities and outlook for the future potential and operating performance of the Company and Whitehorse, respectively.
Fairness of the Arrangement
The Arrangement was determined to be fair to the Shareholders by the Board based upon the following factors, among others:
(a) the procedures by which the Arrangement will be approved, including the requirement for at least 66⅔% Shareholder approval at the Meeting and approval by the Court after a hearing at which fairness will be considered;
(b) each Shareholder, as at the Effective Time, will participate in the Arrangement such that each Shareholder, upon completion of the Arrangement will continue to hold the same proportionate interest in the Company and Whitehorse (before giving effect to the Whitehorse Financing);
(c) the listing of the Whitehorse Shares on the TSX-V and listing of the New Common Shares on the TSX as conditions to the completion of the Arrangement;
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(d) the opportunity for Registered Shareholders who are opposed to the Arrangement, upon compliance with certain conditions, to exercise Dissent Rights in accordance with the Dissent Procedures; and
(e) subject to the assumptions, limitations and qualifications set out in the Fairness Opinion, the Independent Valuator is of the opinion that, as of August 24, 2020, the Arrangement and the Whitehorse Financing, taken as a whole, is fair, from a financial point of view, to the Shareholders.
Fairness Opinion
The Independent Valuator was retained by the Board to prepare and deliver to the Board his opinion as to the fairness, from a financial point of view, of the Arrangement and the Whitehorse Financing, taken as a whole, to the Shareholders. Based upon and subject to the assumptions, limitations and qualifications set out in the Fairness Opinion, the Independent Valuator is of the opinion that, as of August 24, 2020, the Arrangement and the Whitehorse Financing, taken as a whole, is fair, from a financial point of view, to the Shareholders. The full text of the Fairness Opinion, setting out the assumptions made, matters considered and limitations and qualifications on the review undertaken in connection with the Fairness Opinion, is attached as Schedule "C" to this Circular. The summary of the Fairness Opinion described in this Circular is qualified in its entirety by reference to the full text of the Fairness Opinion.
Details of the Arrangement
The following description is qualified in its entirety by reference to the full text of the Plan of Arrangement, a copy of which is attached as Exhibit A to the Arrangement Agreement attached as Schedule "D" to this Circular. Shareholders are urged to carefully read the Plan of Arrangement in its entirety.
Commencing at the Effective Time, each of the steps, events or transactions set out below shall, except for steps, events or transactions deemed to occur concurrently with other steps, events or transactions as set out below, occur and shall be deemed to occur consecutively in ten minute intervals in the following order (or in such other manner, order or times as the parties to the Arrangement Agreement may agree in writing) without any further act or formality, except as otherwise provided herein:
(a) Each Common Share held by a Dissenting Shareholder shall be, and shall be deemed to have been, transferred by the holder thereof to, and acquired for cancellation, by the Company (free and clear of any Encumbrances), and:
(i) such Dissenting Shareholders shall cease to be holders of such Common Shares and to have any rights as Shareholders other than the right to be paid fair value for such Common Shares by the Company in accordance with Article 5 of the Plan of Arrangement;
(ii) all such Common Shares so transferred to the Company pursuant to Section 3.1(a) of the Plan of Arrangement shall be cancelled;
(iii) the balance of the capital account maintained by the Company in respect of the Common Shares shall be reduced by an amount equal to the product obtained when (A) the balance of the capital account maintained by the Company in respect of the Common Shares immediately prior to the effective time of Section 3.1(a) of the Plan of Arrangement is multiplied by (B) a fraction, the numerator of which is the number of Common Shares surrendered and cancelled pursuant to Section 3.1(a) of the Plan of Arrangement, and the denominator of which is the number of Common Shares outstanding immediately prior to the effective time of Section 3.1(a) of the Plan of Arrangement; and
(iv) such Dissenting Shareholders' names shall be removed from the register of holders of Common Shares maintained by or on behalf of the Company as it relates to the Common Shares so transferred.
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(b) The authorized share structure, Notice of Articles and Articles of the Company shall be amended to re-name and re-designate the Common Shares as "Class A common shares without par value", being the Class A Shares, and to create special rights and restrictions attached thereto to provide the holders thereof with two votes in respect of each Class A Share held, and concurrently therewith, outside of and not part of the Plan of Arrangement, the Class A Shares will be represented for listing purposes on the TSX by the continued listing of the Common Shares.
(c) In conjunction with the reorganization of the capital of the Company contemplated in Section 3.1 of the Plan of Arrangement, the authorized share structure, Notice of Articles and Articles of the Company shall be amended to create and authorize the issuance of (in addition to the shares it is authorized to issue immediately before such amendment) an additional class of shares to be designated as "Common Shares without par value", being the New Common Shares, which shares shall be unlimited in number and have terms and special rights and restrictions identical to those of the Common Shares immediately prior to giving effect to Section 3.1(b) of the Plan of Arrangement.
(d) Pursuant to a reorganization of capital of the Company contemplated in Section 3.1 of the Plan of Arrangement, all Class A Shares outstanding immediately after giving effect to Section 3.1(b) of the Plan of Arrangement shall be, and shall be deemed to be, simultaneously surrendered and transferred by the holder thereof to the Company (free and clear of any Encumbrances), and in sole exchange therefor the Company shall:
(i) issue to the Shareholders one New Common Share for each Class A Share so exchanged; and
(ii) subject to Section 3.2 of the Plan of Arrangement, distribute to the Shareholders the Spin- Out Shares held by the Company (other than any Spin-Out Shares set aside pursuant to Section 5.3 of the Plan of Arrangement), pro rata to the number of Class A Shares held by them and surrendered to the Company pursuant to Section 3.1(d) of the Plan of Arrangement;
and:
(iii) such Shareholders shall cease to be holders of such Class A Shares or have any rights as holders of Class A Shares and shall be removed from the register of holders of Class A Shares maintained by or on behalf of the Company;
(iv) all such Class A Shares so transferred to the Company pursuant to Section 3.1(d) of the Plan of Arrangement shall be cancelled;
(v) such Shareholders' names shall be added to the register of holders of New Common Shares maintained by or on behalf of the Company;
(vi) the Company shall cease to be a holder of the Spin-Out Shares distributed pursuant to Section 3.1(d)(ii) of the Plan of Arrangement and shall be removed from the register of holders of Whitehorse Shares maintained by or on behalf of Whitehorse; and
(vii) such Shareholders' names shall be added as holders to the register of holders of Whitehorse Shares, to the extent of the Spin-Out Shares, maintained by or on behalf of Whitehorse, and
in connection therewith, the balance in the capital account maintained by the Company in respect of the Class A Shares shall be reduced to nil and the balance of the capital account maintained by the Company in respect of the New Common Shares shall be increased by an amount equal to the "paid-up capital" (as determined for purposes of the Tax Act) of the Class A Shares immediately prior to Section 3.1(d) of the Plan of Arrangement minus the fair market value of the Spin-Out Shares distributed pursuant to Section 3.1(d) of the Plan of Arrangement. For greater certainty, the exchange of Class A Shares for New Common Shares and the Spin-Out Shares pursuant to Section 3.1(d) of the Plan of Arrangement is intended to be governed by section 86 of the Tax Act.
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(e) Concurrently with Section 3.1(d) of the Plan of Arrangement, outside of and not as part of the Plan of Arrangement:
(i) the Common Shares (representing for listing purposes the Class A Shares) will be delisted from the TSX and the New Common Shares will be, simultaneously and without interruption, listed for trading on the TSX (subject to standard post-closing listing conditions imposed by the TSX in similar circumstances); and
(ii) the Whitehorse Shares will be listed for trading on the TSX-V (subject to standard post- closing listing conditions imposed by the TSX-V in similar circumstances).
(f) Concurrently with Section 3.1(d) of the Plan of Arrangement, pursuant to and in accordance with the Omnibus Plan or Existing Omnibus Plan, as applicable, and in order to reflect the FMV Reduction of a New Common Share, each Option outstanding immediately prior to Section 3.1(f) of the Plan of Arrangement shall be, and shall be deemed to be, simultaneously surrendered and transferred by the holder thereof to the Company (free and clear of any Encumbrances), and as the sole consideration therefor, the Company shall grant to such holder thereof a number of Replacement Options (with the aggregate number of Replacement Options being rounded down to the nearest whole number), such that, for each Common Share the holder would have been entitled to acquire under the Option, the holder will instead be entitled to acquire one New Common Share pursuant to the corresponding Replacement Option for an exercise price (within the meaning of the Omnibus Plan or Existing Omnibus Plan, as applicable) (rounded up to the nearest cent) that has been reduced to reflect the FMV Reduction of a New Common Share, provided that, for greater certainty:
(i) the exercise price of the Replacement Option shall be further adjusted to the extent, if any, required to ensure that (A) the amount by which the total value of New Common Shares which may be acquired under the Replacement Option exceeds the aggregate exercise price payable thereunder, determined immediately after Section 3.1(f) of the Plan of Arrangement, does not exceed (B) the amount by which the total value of the Common Shares which could be acquired under the Option exceeds the aggregate exercise price payable thereunder, determined immediately prior to Section 3.1(f) of the Plan of Arrangement;
(ii) the holder of an Option will receive no consideration other than the Replacement Option in respect of the transfer of the Option pursuant to Section 3.1(f) of the Plan of Arrangement;
(iii) no Replacement Options will be exercisable until after the date that is after five trading days following the date the New Common Shares appear on the TSX's publicly disseminated trading list;
(iv) the other terms and conditions of the Replacement Option will be identical to the Option so exchanged; and
(v) the Options so transferred to the Company pursuant to Section 3.1(f) of the Plan of Arrangement shall be cancelled.
For greater certainty, the exchange of the Options for Replacement Options pursuant to Section 3.1(f) of the Plan of Arrangement is intended to be governed by subsection 7(1.4) of the Tax Act.
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(g) Concurrently with Section 3.1(d) of the Plan of Arrangement, pursuant to and in accordance with the Omnibus Plan or Existing Omnibus Plan, as applicable, the notional account maintained by the Company for each Participant (within the meaning of the Omnibus Plan or Existing Omnibus Plan, as applicable) pursuant to the Omnibus Plan or Existing Omnibus Plan, as applicable, shall be adjusted such that the aggregate number of RSUs credited to each such Participant as of immediately prior to Section 3.1(g) of the Plan of Arrangement shall be proportionately increased (and rounded down to the nearest whole number) by crediting the Participant with additional RSUs to reflect the FMV Reduction of a New Common Share, and the "Share" as defined in the Omnibus Plan or Existing Omnibus Plan, as applicable, applicable to each RSU shall refer to a New Common Share in place of a Common Share; and further provided that all other terms and conditions of the RSUs as adjusted pursuant to Section 3.1(g) of the Plan of Arrangement shall be identical to the non- adjusted RSUs.
(h) The authorized share structure, Notice of Articles and Articles of the Company will be amended by eliminating the Class A Shares and deleting the special rights and restrictions attached thereto, such that, following such amendment, the Company will be authorized to issue an unlimited number of New Common Shares.
(i) Any remaining Spin-Out Shares (including any portion or fraction of a Spin-Out Share) registered in the name of the Company (excluding, for the avoidance of doubt, any Spin-Out Shares distributed by the Company pursuant to Section 3.1(d)(ii) of the Plan of Arrangement or set aside pursuant to Section 5.3 of the Plan of Arrangement) shall be surrendered by the Company to Whitehorse (free and clear of all Encumbrances) for cancellation without any payment or repayment of capital in respect thereof, and upon such surrender, the Company shall be removed from the register of holders of Whitehorse Shares maintained by or on behalf of Whitehorse in respect of such Spin-Out Shares.
Upon completion of the Arrangement, Whitehorse will no longer be a subsidiary of the Company and Tagish Lake will continue to be a wholly-owned subsidiary of Whitehorse.
Effects of the Arrangement
As a result of the Arrangement, Shareholders will no longer hold Common Shares, and will receive, for each Common Share held immediately prior to the Effective Time, one New Common Share and approximately 0.13 of a Spin-Out Share (based on the number of Common Shares outstanding as at the Record Date), and as a result, will hold shares in two public companies.
Holders of Options will receive, for Options held immediately prior to the Effective Time, Replacement Options to acquire New Common Shares. The exercise price of the Replacement Option will be adjusted using a weighted average trading price formula that is acceptable to the TSX and which ensures that the economic value of an Option is not enhanced. Holders of RSUs will be credited with, for RSUs held immediately prior to the Effective Time, additional RSUs to reflect the FMV Reduction of a New Common Share and RSUs following the Effective Date will be referable in value to the New Common Shares. All other terms and conditions of the Replacement Options and adjusted RSUs will be identical to the Options and non-adjusted RSUs, respectively.
The Arrangement is not expected to affect the creditors of either the Company or Whitehorse (except with respect to the New Pacific-Whitehorse Debt) or the Whitehorse Options. Upon completion of the Arrangement, Whitehorse expects to be a reporting issuer in each of the provinces of Canada and for the Whitehorse Shares to be listed on the TSX-V.
Authority of the Board
By passing the Arrangement Resolution, the Shareholders will also be giving authority to the Board to use its judgment to proceed with and cause Whitehorse to complete the Arrangement or to abandon the Arrangement without any requirement to seek or obtain any further approval of the Shareholders.
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The Arrangement Resolution also provides that the terms of the Plan of the Arrangement may be amended by the Board before or after the Meeting without further notice to Shareholders, unless directed by the Court. Although the Board has no current intention to amend the terms of the Plan of Arrangement, it is possible that the Board may determine that certain amendments are appropriate, necessary or desirable.
Conditions to the Arrangement
The Arrangement Agreement provides that the consummation of the Arrangement will be subject to the fulfilment or waiver of certain conditions, including the following:
(a) the Interim Order will have been granted in form and substance satisfactory to the Company;
(b) the Arrangement Resolution, with or without amendment, will have been approved and adopted at the Meeting by the Shareholders in accordance with Part 9, Division 5 of the BCBCA, the constating documents of the Company, the Interim Order and the requirements of any applicable regulatory authorities;
(c) the Whitehorse Financing Resolution, with or without amendment, will have been approved and adopted at the Meeting by the Disinterested Shareholders in accordance with the constating documents of the Company and subject to the requirements of the TSX;
(d) the Final Order will have been obtained in form and substance satisfactory to each of the Company and Whitehorse;
(e) the TSX will have approved (i) the Arrangement, including the substitutional listing of the New Common Shares as of the effective time of Section 3.1(e)(i) of the Plan of Arrangement, and (ii) the Whitehorse Financing (subject to standard post-closing conditions imposed by the TSX in similar circumstances);
(f) the TSX-V will have approved the listing of the Whitehorse Shares as of the effective time of Section 3.1(e)(ii) of the Plan of Arrangement (subject to standard post-closing listing conditions imposed by the TSX-V in similar circumstances);
(g) the Whitehorse Financing will have been completed prior to the Effective Time;
(h) Whitehorse will have fully repaid the principal amount and any accrued interest under the New Pacific–Whitehorse Debt and such debt will have been extinguished and the parties will have confirmed that there is no inter-company debt existing between the Company and each of Whitehorse and Tagish Lake as of the Effective Time;
(i) if requested by the Company pursuant to the Share Exchange Agreement, the Company and Whitehorse will have jointly made and filed the election in the prescribed form and manner pursuant to Section 85(1) of the Tax Act as contemplated in the Share Exchange Agreement prior to the Effective Time;
(j) all other consents, orders, regulations and approvals, including regulatory and judicial approvals and orders required or necessary or desirable for the completion of the transactions provided for in the Arrangement Agreement and the Plan of Arrangement will have been obtained or received from the persons, authorities or bodies having jurisdiction in the circumstances each in form acceptable to the Company and Whitehorse;
(k) there will not be in force any order or decree restraining or enjoining the consummation of the transactions contemplated by the Arrangement Agreement and the Plan of Arrangement;
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(l) no law, regulation or policy will have been proposed, enacted, promulgated or applied which interferes or is inconsistent with the completion of the Arrangement and Plan of Arrangement, including any material change to the Tax Act or other income tax laws of Canada, which would reasonably be expected to have a material adverse effect on any of the Company, the Shareholders, Whitehorse or holders of Whitehorse Shares if the Arrangement is completed;
(m) notices of dissent pursuant to Article 5 of the Plan of Arrangement will not have been delivered by Shareholders holding greater than 5% of the outstanding Common Shares; and
(n) the Arrangement Agreement will not have been terminated under Article 6 thereof.
If any of the conditions set forth in the Arrangement Agreement are not fulfilled or performed, on or prior to the Effective Time, the Company may terminate the Arrangement Agreement or waive, in its discretion and to the extent permitted by the Arrangement Agreement, certain of the applicable conditions in whole or in part. As soon as practicable after the fulfilment (or waiver) of the conditions contained in the Arrangement Agreement, the Board intends to cause a copy of the Final Order to be filed with the Registrar under the BCBCA, together with such other material as may be required by the Registrar in order that the Arrangement will become effective.
The TSX has conditionally approved the Whitehorse Financing, accepted the Arrangement and conditionally approved the substitutional listing of the New Common Shares.
Court Approval of the Arrangement
The Arrangement requires the approval of the Court. Prior to mailing this Circular, the Company obtained the Interim Order authorizing the calling and holding of the Meeting and providing for certain other procedural matters. The Interim Order is attached as Schedule "E".
Assuming approval of the Arrangement Resolution by the Shareholders at the Meeting, the hearing for the final Order is scheduled to take place at 9:45 a.m. (Vancouver time) on October 2, 2020 at the Law Courts, 800 Smithe Street, Vancouver, British Columbia, or as soon thereafter as counsel may be heard. At this hearing, any securityholder or other interest party who wishes to participate or to be represented or present evidence or argument may do so, subject to filing an appearance and satisfying certain other requirements.
The Court has broad discretion under the BCBCA when making orders in respect of arrangements, and the Court may approve the Arrangement as proposed or as amended in any manner the Court may direct, subject to compliance with such terms and conditions, if any, as the Court thinks appropriate. The Court, in hearing the application for the Final Order, will consider, among other things, the fairness of the terms and conditions of the Arrangement to Shareholders. The Court will be advised prior to the hearing for the Final Order that if the terms and conditions of the Arrangement are approved by the Court, such approval will be relied upon in seeking an exemption from the registration requirements of the 1933 Act, pursuant to Section 3(a)(10) thereof, with respect to the offer and sale of the New Common Shares and Spin-Out Shares to be issued or distributed, respectively, pursuant to the Arrangement.
Shareholder Approval of the Arrangement
Subject to any further order(s) of the Court, the Arrangement must be approved by at least 66⅔% of the votes cast by Shareholders present, in person or by proxy, and entitled to vote at the Meeting. Notwithstanding the foregoing, the Arrangement Resolution authorizes the Board, without further notice to or approval of the Shareholders and subject to the terms of the Arrangement Agreement, to amend the Plan of Arrangement or to decide not to proceed with the Arrangement at any time prior to the Effective Time.
In the absence of any instruction to the contrary, the Common Shares represented by proxies appointing the director and management designees named in the form of proxy will be voted in favour of the Arrangement Resolution.
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Stock Exchange Listings
The Common Shares are currently listed and traded on the TSX under the symbol "NUAG". The TSX has conditionally approved the substitutional listing of the New Common Shares on the TSX under the same symbol, which approval is anticipated to be subject to meeting certain conditions of the TSX.
Whitehorse is not currently listed on any stock exchange and there is currently no trading market for Whitehorse Shares. Whitehorse intends to use commercially reasonable efforts to meet the initial listing requirements under the policies of the TSX-V and to apply for, and receive approval of, the listing of the Whitehorse Shares on the TSX-V prior to the Effective Time. Listing of the Whitehorse Shares on the TSX-V will be subject to satisfying all of the TSX-V's initial listing requirements and there can be no certainty that Whitehorse will meet such initial listing requirements or that the TSX-V will approve any application by Whitehorse for listing of the Whitehorse Shares on the TSX-V. It is a condition of the Arrangement that the TSX-V shall have approved the listing of the Whitehorse Shares.
Proposed Timetable for the Arrangement
The anticipated timetable for the completion of the Arrangement and the key dates proposed are asfollows:
|
Annual and special meeting:
|
September 30, 2020
|
|
|
|
|
Final Court approval:
|
October 2, 2020
|
|
|
|
|
Effective Date:
|
As soon as practicable after all conditions to the completion of the Arrangement have been satisfied or waived in accordance with the Arrangement Agreement
|
Notice of the actual Effective Date will be made through one or more news releases issued by the Company. The Board will determine the Effective Date upon satisfaction or waiver of the conditions to the Arrangement. The Company and Whitehorse will execute a certificate confirming the Effective Date and Effective Time.
Distribution of Certificates
Concurrently with the mailing of the Circular, the Company will mail the Letter of Transmittal to Registered Shareholders, which will be used to exchange their certificates or DRS advices representing Common Shares for share certificates or DRS advices representing the New Common Shares and certificates or DRS advices representing the Spin-Out Shares. Until exchanged, each certificate or DRS advice representing Common Shares will, after the Effective time, represent only the right to receive, upon surrender, certificates or DRS advices representing the requisite numbers of New Common Shares and Spin-Out Shares. Shareholders will not receive any fractional Spin- Out Shares. Any fractional Spin-Out Shares will be rounded down to the nearest whole number and Shareholders will not receive any compensation in lieuthereof.
Cancellation of Rights after Six Years
Any certificate or DRS advice which immediately prior to the Effective Time represented Common Shares and which has not been surrendered with all other documents required by the Depositary, on or prior to the sixth anniversary of the Effective Date, will cease to represent any claim against or interest of any kind or nature in either the Company or Whitehorse. Persons who tender certificates or DRS advices for Common Shares after the sixth anniversary of the Effective Date will not receive New Common Shares or Spin-Out Shares, will not own any interest in the Company or Whitehorse and will not be paid any cash or other compensation in lieuthereof.
Expenses of the Arrangement
The costs relating to the Arrangement, including, without limitation, financial advisory, accounting and legal fees, will be borne by the party that incurred the expense, unless otherwise mutually agreed by the parties.
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Risk Factors Relating to the Arrangement
The following risk factors should be considered by Shareholders in evaluating whether to approve the Arrangement. These risk factors should be considered in conjunction with the other information included in this Circular the risk factors disclosed under the heading "Risk Factors" in Schedule "G" and Schedule "L".
Termination of the Arrangement Agreement or Failure to Obtain Required Approvals
Each of the Company and Whitehorse has the right to terminate the Arrangement Agreement in certain circumstances. Accordingly, there is no certainty, nor can the Company provide any assurance, that the Arrangement Agreement will not be terminated before the completion of the Arrangement. In addition, the completion of the Arrangement is subject to a number of conditions, certain of which are outside the control of the Company, including Shareholders approving the Arrangement and Disinterested Shareholders approving the Whitehorse Financing and required regulatory approvals, including of the Court, the TSX-V (including for the listing of Whitehorse Shares) and the TSX, being obtained. There is no certainty, nor can the Company provide any assurance, that these conditions will be satisfied. If for any reason the Arrangement is not completed, the market price of Common Shares may be adversely affected and Shareholders will lose the prospective benefits of the Arrangement. Moreover, if the Arrangement Agreement is terminated, there is no assurance that the Company will pursue or be able to complete an alternative transaction to spin-out or realize the value of the Spin-Out Assets, and Shareholders will continue to be subject to the risk factors of both the Company and Whitehorse as disclosed in thisCircular.
Tax Consequences
The Arrangement may give rise to adverse tax consequences to Shareholders, and each Shareholder is urged to consult with his, her or its own tax advisor. See "Material Income Tax Considerations". The disclosure included in this Circular regarding the tax consequences of the Arrangement is general in nature and the applicability of such disclosure may vary from Shareholder to Shareholder. In addition, this Circular does not contain disclosure regarding the potential tax consequences on Shareholders which are subject to U.S. taxation or taxation in any other non- Canadian jurisdiction. As such, all Shareholders are urged to consult with their own tax advisors to obtain a better understanding on the tax consequences of the Arrangement.
Costs of the Arrangement
There are certain costs related to the Arrangement, such as legal and accounting fees incurred, that must be paid even if the Arrangement is not completed.
Pro-forma Financial Statements
The pro-forma financial statements attached to this Circular and information derived therefrom contained in this Circular are presented for illustrative purposes only and may not be an indication of the Company's or Whitehorse's financial condition following the Arrangement for several reasons. For example, such pro-forma financial statements have been derived from the historical financial statements of Whitehorse and certain assumptions have been made. The information upon which these assumptions have been made is historical, preliminary and subject to change. Moreover, the pro-forma financial statements do not reflect all costs that are expected to be incurred by Whitehorse in connection with the Arrangement. In addition, the assumptions used in preparing the pro-forma financial statements may not prove to be accurate.
Exercise of Dissent Rights
Registered Shareholders have the right to exercise Dissent Rights and demand payment equal to the fair value of their Common Shares in cash. If Dissent Rights are exercised in respect of a significant number of Common Shares, a substantial cash payment may be required to be made to such Shareholders, which could have an adverse effect on the Company's financial condition and cash resources. The Company may elect, in its sole discretion, not to complete the Arrangement if a significant number of Shareholders exercise Dissent Rights.
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Trading Price of the Common Shares, New Common Shares and Whitehorse Shares
The trading price of the Common Shares on the Effective Date may vary from the price as at the date of execution of the Arrangement Agreement, the date of this Circular and the date of the Meeting and may fluctuate depending on investors' perceptions of the merits of the Arrangement. The combined trading price of the New Common Shares and the Whitehorse Shares, once and if the Whitehorse Shares are publicly listed, may be lower than the trading price of the Common Shares before giving effect to the Arrangement.
Issuance of Whitehorse Shares
The number of Whitehorse Shares being issued in connection with the Arrangement will not change despite decreases or increases in the market price of the Common Shares. Many of the factors that affect the market price of the Common Shares are beyond the control of the Company. These factors include fluctuations in commodity prices, fluctuations in currency exchange rates, changes in the regulatory environment, adverse political developments, prevailing conditions in the capital markets and interest rate fluctuations and other risk factors referenced in this Circular.
WHITEHORSE FINANCING
Description
Under the Whitehorse Financing, Whitehorse proposes to issue up to 30,000,000 Whitehorse Shares for gross proceeds of up to $9 million (but in any event no less than $6 million), including up to 11,192,333 Whitehorse Shares to insiders of the Company and Whitehorse. Proceeds from the Whitehorse Financing are expected to be used towards: (i) repayment of the New Pacific-Whitehorse Debt; (ii) the advancement of the Tagish Lake Gold Project; (iii) working capital and general corporate purposes; and (iv) modest 2020-2021 exploration, development and social programs.
The price at which the Whitehorse Shares will be issued in the Whitehorse Financing has been established at $0.30, which is a $0.132 discount to the net asset value ("NAV") of Whitehorse (as calculated by management of Whitehorse). Such NAV has been calculated based on the following: (i) the value of the Tagish Lake Gold Project;
(ii) working capital as at June 30, 2020; (iii) the New Pacific-Whitehorse Debt; and (iv) the expected expenses relating to the Arrangement and the Whitehorse Financing that will be borne by Whitehorse and not the Company. The following table reflects the determination of $0.432 as the NAV per Whitehorse Share as required by the TSX:
|
Tagish Lake Gold Project(1)
|
$12.16 million
|
|
Working Capital
|
$0.40 million
|
|
New Pacific-Whitehorse Debt
|
$(3.61) million
|
|
Expenses Related to Arrangement and Whitehorse Financing(2)
|
$(0.31) million
|
|
Whitehorse NAV
|
$8.64 million
|
|
Whitehorse Shares outstanding(3)
|
20,000,001
|
|
NAV per Whitehorse Share
|
$0.432
|
Notes:
(1) Based on the range of value for the Tagish Lake Gold Project as described in the Independent Valuation. See "Whitehorse Financing – Independent Valuation".
(2) Represents expenses related to the Arrangement and Whitehorse Financing not borne by the Company.
(3) Represents Whitehorse Shares outstanding after giving effect to the Arrangement but before giving effect to the Whitehorse Financing and assuming no Dissenting Shareholders.
The Board believes that the pricing of the Whitehorse Financing is appropriate, including for insiders of the Company and Whitehorse, based on the following:
(a) The Independent Valuation completed by the Independent Valuator which supports a value attributed Tagish Lake Gold Project of $12.16 million.
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(b) The Fairness Opinion, which sets out that the Independent Valuator is of the opinion that, as of August 24, 2020, the Arrangement and the Whitehorse Financing, taken as a whole, is fair, from a financial point of view, to the Shareholders.
(c) The price of $0.30 per Whitehorse Share represents an acceptable discount to NAV, which is reflective of various inherent uncertainties and risk factors, including:
(i) environmental liabilities of historical operations on the Tagish Lake Gold Project and potential required remediation measures;
(ii) applicable Government of Yukon environmental bonding requirements to advance and undertake exploration and development programs on the Tagish Lake Gold Project;
(iii) Whitehorse's independent environmental consultants, have estimated the liability of the Tagish Lake Gold Project to be in the range of $1 million to $5 million (including reclamation and closure of site infrastructure) based on their recent experience in the Yukon preparing reclamation and security estimates for other projects located in the Yukon;
(iv) uncertainty in securing a social licence with local stakeholders and resulting implications in obtaining required Yukon Government exploration and operating permits for the Tagish Lake Gold Project;
(v) uncertainty in ongoing market conditions and underlying commodity prices could have a material effect on the valuation of Whitehorse upon listing on the TSX-V; and
(vi) the market price of Whitehorse Shares is currently unknown as there is currently no market for Whitehorse Shares.
The following is an estimate of the number of Whitehorse Shares proposed to be subscribed for by officers, directors, employees of the Company, Whitehorse, Silvercorp and other non-related subscribers under the Whitehorse Financing, however, actual numbers may vary from those set out below. There will be no other payments or benefits (including retention bonuses, golden parachutes, pension fund contributions or potential gain on accelerated options) made to insiders, management or directors of the Company or Whitehorse as a result of the Arrangement or the Whitehorse Financing which are not otherwise available to the Shareholders.
Whitehorse Shares Subscribed For in the Whitehorse Financing
|
|
Number and Class
|
|
Subscription Price
|
|
Mark Cruise, CEO and Director(1)
|
333,333 Whitehorse Shares
|
|
$0.30
|
|
Jack Austin, Chairman and Director(2)(3)
|
100,000 Whitehorse Shares
|
$0.30
|
|
Rui Feng, Director(2)(4)
|
2,400,000 Whitehorse Shares
|
$0.30
|
|
Greg Hawkins, Director(2)(3)
|
100,000 Whitehorse Shares
|
$0.30
|
|
David Kong, Director(2)(3)
|
500,000 Whitehorse Shares
|
$0.30
|
|
Martin Wafforn, Director(2)(3)
|
250,000 Whitehorse Shares
|
$0.30
|
|
Jalen Yuan, CFO
|
66,667 Whitehorse Shares
|
$0.30
|
|
Gordon Neal, President
|
100,000 Whitehorse Shares
|
$0.30
|
|
Alex Zhang, VP, Exploration
|
100,000 Whitehorse Shares
|
$0.30
|
|
David Tingey, VP, Sustainability
|
33,333 Whitehorse Shares
|
$0.30
|
|
Yong-Jae Kim, Corporate Secretary and General Counsel(5)
|
100,000 Whitehorse Shares
|
$0.30
|
|
Directors and Officers of the Company
|
4,083,333 Whitehorse Shares
|
$0.30
|
|
Kevin Weston, CEO and Director
|
100,000 Whitehorse Shares
|
$0.30
|
|
Jean Zhang, CFO and Corporate Secretary
|
10,000 Whitehorse Shares
|
$0.30
|
|
Lorne Waldman, Director(2)(3)
|
150,000 Whitehorse Shares
|
$0.30
|
|
Steve Stakiw, VP, Corporate Development
|
150,000 Whitehorse Shares
|
$0.30
|
|
Directors and Officers of Whitehorse
|
410,000 Whitehorse Shares
|
$0.30
|
|
Silvercorp
|
5,774,000 Whitehorse Shares
|
$0.30
|
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|
Derek Liu, CFO
|
50,000 Whitehorse Shares
|
$0.30
|
|
Lon Shaver, Vice President
|
125,000 Whitehorse Shares
|
$0.30
|
|
Marina Katusa, Director
|
50,000 Whitehorse Shares
|
$0.30
|
|
Paul Simpson, Director
|
300,000 Whitehorse Shares
|
$0.30
|
|
Yikang Liu, Director
|
100,000 Whitehorse Shares
|
$0.30
|
|
Song Hong, Manager of China Operations
|
300,000 Whitehorse Shares
|
$0.30
|
|
Directors and Officers of Silvercorp
|
925,000 Whitehorse Shares
|
$0.30
|
|
Employees of the Company, Whitehorse and Silvercorp(5)
|
4,235,000 Whitehorse Shares
|
$0.30
|
|
Other Non-Related Subscribers(5)
|
14,572,667 Whitehorse Shares
|
$0.30
|
Notes:
(1) Mark Cruise is also a director of Whitehorse.
(2) Deemed to be independent of the Company and Whitehorse as at the date of this Circular within the meaning of the TSX Company Manual.
(3) Rui Feng is also CEO, Chairman and a director of Silvercorp.
(4) Yong-Jae Kim is also General Counsel and Corporate Secretary of Silvercorp.
(5) Aggregated as a group.
Shareholder and TSX Approval
As the Whitehorse Shares to be issued in the Whitehorse Financing may be issued at a "significant discount" to the market price (taking into account the maximum allowable discount of the TSX) of the Whitehorse Shares once, and if, the Whitehorse Shares begin trading on TSX-V, the TSX requires that the Whitehorse Financing Resolution be approved by a simple majority of the Disinterested Shareholders as a separate, standalone resolution. As there is currently no market for Whitehorse Shares, there can be no certainty whether the Whitehorse Shares issued in the Whitehorse Financing will be issued at a premium or discount to the market price of the Whitehorse Shares once, and if, the Whitehorse Shares begin trading on the TSX-V.
At the Meeting, the Disinterested Shareholders will be asked to consider and, if deemed advisable, pass an ordinary resolution, the full text of which is attached as Schedule "B" hereto, approving the Whitehorse Financing. Although the identities of the "Other Non-Related Subscribers" in the above table are not finalized as at the date of this Circular and, thus, their Common Share holdings have not been ascertained, the other subscribers in the above table (and the affiliates and associates of such subscribers) hold 57,701,230 Common Shares as at the date of this Circular. Accordingly, as at the date of this Circular and to the Company's knowledge, "Disinterested Shareholders" does not include Shareholders holding at least 57,701,230 Common Shares or approximately 37.8% of the total issued and outstanding Common Shares. For greater certainty, any Common Shares held by the "Other Non-Related Subscribers" (and their affiliates and associates), once determined, will also be excluded for purposes of obtaining Disinterested Shareholder approval.
It is a condition to completion of the Arrangement that Whitehorse will have completed the Whitehorse Financing prior to the Effective Time. In the event that the Whitehorse Financing Resolution is not approved at the Meeting by the Disinterested Shareholders and the condition that Whitehorse will have completed the Whitehorse Financing prior to the Effective Time is not waived by the Company and Whitehorse, the Arrangement will not be completed. It is also a condition to completion of the Whitehorse Financing that all conditions to the Arrangement Agreement (other than the conditions relating to the Whitehorse Financing) shall have been satisfied or waived.
The TSX has conditionally approved the Whitehorse Financing subject to, among other things, approval of the Whitehorse Financing Resolution by the Disinterested Shareholders. The Whitehorse Shares issued in the Whitehorse Financing will also be subject to applicable escrow requirements under TSX-V policies once and if Whitehorse is listed on the TSX-V, and any applicable statutory hold periods under Canadian securities laws.
The Board has concluded that the Whitehorse Financing is in the best interests of the Company and the Shareholders and recommends that the Disinterested Shareholders vote "FOR" the approval of the Whitehorse Financing Resolution.
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MI 61-101
As the Company is listed on the TSX and is a reporting issuer in each of the provinces of Canada, the Company is subject to MI 61-101. Under MI 61-101, "related party transactions" (as defined in MI 61-101) require minority approval under Section 5.6 of MI 61-101 and, in certain circumstances, a formal valuation under Section 5.4 of MI 61-101, absent an available exemption.
As certain "related parties" (as defined in MI 61-101) of the Company will be participating in the Whitehorse Financing, as described under the heading "Whitehorse Financing – Description" above, the Whitehorse Financing may be considered a "related party transaction" for the purposes of MI 61-101. However, the Company is relying on the exemptions from the formal valuation and minority approval requirements under Section 5.5(a) of MI 61-101 and Section 5.7(a) of MI 61-101, respectively, as at the time the Whitehorse Financing was agreed to, neither the fair market value of the subject matter of, nor the fair market value of the consideration for, the Whitehorse Financing, insofar as it involves "interested parties" (as defined in MI 61-101), exceeds 25 per cent of the Company's market capitalization.
Independent Valuation
Notwithstanding that the Company is relying on the exemption from the formal valuation requirements under MI 61- 101, the TSX expects that the pricing of a NAV Private Placement (within the meaning of TSX Staff Notice 2005- 0003), such as the Whitehorse Financing, is supported by an independent valuation that is prepared and disclosed in accordance with the requirements of Part 6 of MI 61-101. Accordingly, the Company engaged the Independent Valuator to conduct an Independent Valuation of the Tagish Lake Gold Project, forming substantially all of the assets of Whitehorse prior to completion of the Arrangement and Whitehorse Financing.
Qualifications and Independence
The Board has determined that the Independent Valuator is qualified and independent (within the meaning of MI 61- 101).
The Independent Valuator, is an experienced independent financial consultant that has been providing securities valuation services, fairness opinions and financial consulting and research services to lawyers, governments, investment dealers and industry participants since 1991. The Independent Valuator holds a M.B.A. degree from Michigan State University and is a CFA charter holder. The Independent Valuator has held securities research positions with Odlum Brown Ltd. and Brink Hudson and Lefever Ltd. and was previously Vice President, Research, with LOM Western Securities Ltd. and as a condition of employment was required to pass the Partners, Directors and Officers examination administered by the Canadian Securities Institute and was subsequently registered by the British Columbia Securities Commission under the category: Trading Partner, Director, Officer. The Independent Valuator also served as Research and Financial Analyst with the Vancouver Stock Exchange & Securities Commission (i.e. Matkin Commission) in 1993.
The Independent Valuator has confirmed that he has no past, present or intended interest in the Common Shares, the Whitehorse Shares, the Company, Whitehorse, or their respective associates and affiliates, and has no prior association with the Company or Whitehorse except that between 2006 and 2013, the Independent Valuator provided opinions to the Company regarding the acquisition of Yangtze Mining Ltd. and its subsequent sale to Silvercorp, and the Company's acquisition of Fortress Mining Inc. The Independent Valuator also provided an opinion to Silvercorp on the values of certain restricted securities. In reaching a determination of the independence of the Independent Valuator, the Board considered the following factors set out in Section 6.1(3) of MI 61-101:
(a) The Independent Valuator is not an associated or affiliated entity or issuer insider of an interested party in the Arrangement or Whitehorse Financing (within the meaning of MI 61-101);
(b) The Independent Valuator does not act as an adviser to an interested party in the Arrangement or Whitehorse Financing in respect of the Arrangement or Whitehorse Financing;
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(c) the compensation of the Independent Valuator does not depend in whole or in part on an agreement, arrangement or understanding that gives the Independent Valuator a financial incentive in respect of the conclusion reached in the Independent Valuation or the outcome of Arrangement or Whitehorse Financing;
(d) The Independent Valuator is not (i) a manager or co-manager of a soliciting dealer group for the Arrangement or Whitehorse Financing, or (ii) a member of a soliciting dealer group for the Arrangement or Whitehorse Financing;
(e) The Independent Valuator is not the external auditor of the Company or of an interested party in the Arrangement or Whitehorse Financing; and
(f) The Independent Valuator has no material financial interest in the completion of the Arrangement or Whitehorse Financing,
and for the purposes of the foregoing, references to the Independent Valuator include any affiliated entity of the Independent Valuator.
Compensation
Pursuant to an engagement letter dated July 10, 2020, and an addendum thereto dated August 12, 2020, the Company engaged the Independent Valuator to prepare the Independent Valuation and Fairness Opinion. The Independent Valuator will be paid a fixed fee by the Company that does not depend, in whole or in part, on any arrangement, agreement or understanding that gives the Independent Valuator a financial incentive in respect of the conclusion reached in the Independent Valuation or the outcome of the Arrangement or the Whitehorse Financing.
Summary of Independent Valuation
The Independent Valuator was engaged to prepare the Independent Valuation on the Tagish Lake Gold Project, which is effective as of August 1, 2020. In preparing the Independent Valuation, the Independent Valuator reviewed the Tagish Lake Gold Project Technical Report, among various other publicly available materials relating to the Tagish Lake Gold Project, and was provided full access to all information requested from the Company.
The Independent Valuator based the conclusions in the Independent Valuation on the assumption that the value of early-stage mineral projects is related to the value of in situ metals contained in such deposits, as well as other macro considerations (including political considerations, permitting and licensing regulations, currency exchange rates, taxation and royalty regimes and the rule of law) and site-specific considerations (including location, environmental issues and construction constraints). Following a review of a number of acquisitions involving comparable assets to the Tagish Lake Gold Project, the Independent Valuator determined a value range of between 0.8% and 1.0% of in situ gold equivalent ounces for the Tagish Lake Gold Project was appropriate. Based on approximately 600,000 in situ gold equivalent ounces in all resource categories contained at the Tagish Lake Gold Project, the Independent Valuator arrived at a valuation for the Tagish Lake Gold Project of between $12.16 million to $15.20 million.
To the best of the Company's knowledge, there is no "interested party" (as defined in MI 61-101) as a consequence of the Arrangement and the Whitehorse that would be entitled to the earlier use of available tax losses, lower income taxes, reduced costs or increased revenues.
A copy of the Independent Valuation is available at the Company's principal executive office located at Suite 1750 – 1066 West Hastings Street, Vancouver, British Columbia, Canada, V6E 3X1 for inspection. The Company will, upon request, send a copy of the Independent Valuation to a Shareholder without charge or at a nominal charge sufficient to cover the cost of printing and postage, in the discretion of the Company.
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Risk Factors Relating to the Whitehorse Financing
Completion, Size of and Participation in the Whitehorse Financing
There is no assurance that the Whitehorse Financing will be completed or that it will be fully subscribed. While Whitehorse has received expressions of interest from various parties (including those persons identified under "Whitehorse Financing – Description" above) to participate in the Whitehorse Financing, such parties may ultimately decide to not participate in the Whitehorse Financing or to not participate in the Whitehorse Financing to the extent described in this Circular. If the entire Whitehorse Financing is not completed, the Company and Whitehorse may still proceed with the Arrangement provided Whitehorse will have sufficient funds to meet the initial listing requirements of the TSX-V and repay the New Pacific-Whitehorse Debt.
Calculation of NAV of Whitehorse and Independent Valuation
The calculation of the NAV of Whitehorse as described under the heading "Whitehorse Financing – Description" has been prepared by management of Whitehorse. While management of Whitehorse believes such calculation to be accurate and reasonable, the actual NAV of Whitehorse could prove to be materially different. In preparing the calculation of the NAV of Whitehorse, management of Whitehorse has relied, in part, on the Independent Valuation, and accordingly, such calculation is subject to the assumptions and qualifications set forth therein as well as any discrepancies, errors or inconsistencies contained therein.
CORPORATE GOVERNANCE
Board of Directors
In compliance with the requirements of the BCBCA, the directors are elected by the Shareholders to manage or supervise the management of the business and affairs of the Company. In exercising their powers and discharging their duties, the directors are required to act honestly and in good faith with a view to the best interests of the Company, and to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.
The Board is responsible for approving long-term strategic plans and annual operating budgets recommended by Management. Board consideration and approval is also required for material contracts and business transactions, and all debt and equity financing transactions. Any responsibility which is not delegated to Management or to the committees of the Board remains with the Board. The Board meets and engages in discussions on a regular basis, as required by the state of the Company's affairs, and also from time to time as deemed necessary to enable it to fulfill its responsibilities.
The Board believes that good corporate governance is important to the effective performance of the Company and plays a significant role in protecting Shareholders' interests and maximizing value for the Shareholders. The Company has reviewed its own corporate governance practices in light of National Instrument 58-101 Disclosure of Corporate Governance Practices and National Policy 58-201 Corporate Governance Guidelines ("NP 58-201"). The Board has adopted a written mandate for the Board which is attached hereto as Schedule "N" and is posted on the Company's website at www.newpacificmetals.com. The Board is committed to sound corporate governance practices in the interest of its Shareholders and to effective and efficient decision making. The Company will continue to review and implement corporate governance guidelines as the business of the Company progresses.
Composition of the Board
NP 58-201 recommends that the board of directors of a reporting issuer be composed of a majority of independent directors. During the most recently completed financial year, the Company had a majority of independent directors; Jack Austin, David Kong, Greg Hawkins, and Martin Wafforn are "independent" within the meaning of National Instrument 52-110 Audit Committees ("NI 52-110"). Dr. Rui Feng is not considered independent as he is the former Chief Executive Officer (the "CEO") of the Company and Dr. Mark Cruise is not considered independent as he is the current CEO of the Company.
- 46 -
The Company has taken steps to ensure that adequate structures and processes are in place to permit the Board to function independently of Management. The size of the Company is such that all the Company's operations are conducted by a relatively small Management team which is also represented on the Board. Any director may submit items for inclusion in the agenda of matters to be discussed at a meeting of the Board. The Board considers that Management is effectively supervised by the independent directors on an informal basis, as the independent directors are actively and regularly involved in reviewing the operations of the Company and has regular and full access to Management. Many of the Company's directors sit on the board of other issuers. This information is listed under each director profile under the heading "Election of Directors".
The Board holds four regularly scheduled quarterly meetings throughout the year. Meetings are also conducted on an as-required basis in order to deal with matters as business developments warrant. The following table summarizes directors' attendance at all Board meetings during the fiscal year ended June 30, 2020:
|
|
|
Number of meetings
|
|
Number of meetings
|
|
Director
|
|
attended
|
|
eligible to attend
|
|
Rui Feng
|
|
6
|
|
6
|
|
Jack Austin
|
6
|
6
|
|
David Kong
|
6
|
6
|
|
Greg Hawkins
|
6
|
6
|
|
Martin G. Wafforn
|
6
|
6
|
|
Mark Cruise
|
1
|
1
|
The Board has developed written position descriptions for the Chair of the Company, the CEO, and the chairs of each committee of the Board.
Orientation and Education
The Company provides new directors with an orientation program upon joining the Company that includes copies of relevant financial, information regarding its properties, as well as opportunities for meetings with Management. Board members are encouraged to communicate with Management and auditors, to keep themselves current with industry trends and development, and to attend related industry seminars. Board members have full access to the Company's records.
Ethical Business Conduct
The Board has adopted a written code of business conduct and ethics (the "Code"). A copy of the Code may be obtained by contacting the Company at the address on the cover of this Circular. Alternatively, a copy of the Code can be found under the Company's profile on SEDAR at www.sedar.com and the Company's website at www.newpacificmetals.com. When proposed transactions or agreements in which directors or officers may have an interest, material or not, are presented to the Board, the directors are required to disclose any such interest and the persons who have such an interest are excluded from all discussion on the matter and are not permitted to vote on the proposal. All such interests in transactions or agreements involving senior Management are dealt with by the Board, regardless of apparent immateriality.
Compensation Committee
The compensation committee of the Board (the "Compensation Committee") is responsible for determining and approving compensation for directors and senior officers. Fees payable to Management and directors have been determined using a number of factors, such as the nature and extent of the contributions by individual directors, and by direct comparison with other companies of similar size, complexity and risk profile. The Compensation Committee is currently comprised of three directors: David Kong (Chair), Jack Austin, and Greg Hawkins. Each member of the committee is independent. All Compensation Committee members have direct experience that is relevant to their responsibilities in executive compensation. All members have advised on compensation matters for several public companies and within the resource sector. The charter of the Compensation Committee is attached hereto as Schedule "O". A description of the responsibilities, powers and operation of the Compensation Committee can be found therein.
- 47 -
Corporate Governance Committee
The corporate governance committee of the Board (the "Corporate Governance Committee") is responsible for assisting the Board in establishing and maintaining a sound system of corporate governance through a process of continuing assessment and enhancement. The Corporate Governance Committee works to ensure that the Board functions independently of Management, that Management is clearly accountable to the Board, and that procedures are in place to monitor the effectiveness of the performance of the Board, the committees of the Board and individual directors. The Corporate Governance Committee is currently comprised of four directors: Jack Austin (Chair), Martin Wafforn and Greg Hawkins. Each member of the committee is independent. The charter of the Corporate Governance Committee is attached hereto as Schedule "P". A description of the responsibilities, powers and operation of the committee can be found therein.
Assessments
The Corporate Governance Committee and the Board annually, and at such other times as they deem fit, monitor the adequacy of information given to directors, communications between the Board and Management, and the strategic direction and processes of the Board and its committees. As part of the assessments, the Board and/or the committees may review their respective charter and conduct reviews of applicable corporate policies. Each Board member is well- qualified through current or previous professions. Each member participates fully in each meeting, having in all cases been specifically canvassed for their input.
AUDIT COMMITTEE
The Company's audit committee (the "Audit Committee") assists the Board in fulfilling its responsibilities for oversight of financial and accounting matters. The Audit Committee is currently comprised of three directors: David Kong (Chair), Jack Austin, and Greg Hawkins. All of the members are considered independent and financially literate pursuant to NI 52-110. A description of responsibilities, powers and operation of the Audit Committee and a copy of the Audit Committee Charter is attached to the Company's AIF, filed with the Canadian securities regulators and posted on SEDAR at www.sedar.com.
EXECUTIVE COMPENSATION
Executive Compensation
Set out below are particulars of compensation paid to the following persons (the "Named Executive Officers" or "NEOs"): (a) the Company's CEO; (b) the Company's Chief Financial Officer (the "CFO"); (c) each of the Company's three most highly compensated executive officers, or three most highly compensated individuals acting in a similar capacity, other than the CEO and CFO, at the end of the most recently completed financial year whose total compensation was, individually, more than $150,000 for that financial year; and (d) any additional individuals for whom disclosure would have been provided under (c) except that the individual was not serving as an executive officer of the company, nor acting in a similar capacity, at the end of the most recently completed financial year.
Compensation Discussion and Analysis
The Company's executive compensation program is overseen by the Compensation Committee. See "Compensation Committee" for a description of the composition of this committee. The Compensation Committee is responsible for making recommendations to the Board with respect to the compensation of executive officers of the Company as well as with respect to the Company's share based compensation plan. The Compensation Committee also assumes responsibility for reviewing and monitoring the long-term compensation strategy for the senior Management of the Company.
The Compensation Committee attempts to ensure that the compensation packages for executive officers and the overall equity participation plan are in line with publicly listed mining and mineral exploration companies of a comparable size and with operations at a similar or a more advanced stage. The Compensation Committee does not rely on any formula, or objective criteria and analysis to determine an exact amount of compensation to pay. Compensation decisions are made through discussion by the Compensation Committee, with input from the CEO, with the final recommendations of the Compensation Committee being submitted to the Board for further discussion and final approval.
- 48 -
The Compensation Committee considered the implications of the risks associated with the Company's compensation policies and practices and concluded that, given the nature of the Company's business and the role of the Compensation Committee in overseeing the Company's executive compensation practices, the compensation policies and practices do not serve to encourage any NEO or individual at a principal business unit or division to take inappropriate or excessive risks, and no risks were identified arising from the Company's compensation policies and practices that are reasonably likely to have a material adverse effect on the Company.
No NEOs or directors are permitted to purchase financial instruments including forward contracts, equity swaps, collars, or like instruments, that are designed to hedge against a decrease in market value of securities of the Company granted to such NEOs or directors as compensation.
No new actions, decisions or policies were made after the end of the most recently completed financial year that could affect a reasonable person's understanding of an NEO's compensation for the year ended June 30, 2020.
Performance Graph
The following chart compares the total cumulative shareholder return for CDN$100 invested in Common Shares of the Company on June 30, 2016, with the cumulative total return of the S&P/TSX Composite Index for the period from June 30, 2016 to June 30, 2020. The Common Share performance as set out in the graph does not necessarily indicate future price performance. The Company has never paid dividends to its Shareholders. The Company does take into account overall share price performance in determining executive compensation amounts; however, share price performance is just one of the many factors, as discussed above, that the Company takes into consideration. There is not a direct correlation between the Company's share price performance and the amount of compensation paid to NEOs.
- 49 -
Cumulative Total Return
|
Date
|
2016
|
2017
|
2018
|
2019
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NUAG
|
100.00
|
269.23
|
405.13
|
615.38
|
1,417.95
|
|
S&P/TSX Composite Index
|
100.00
|
107.95
|
115.74
|
116.48
|
110.31
|
|
NUAG Closing Price(1)
|
0.39
|
1.05
|
1.58
|
2.40
|
5.53
|
|
S&P/TSX Composite Index
|
14,064,50
|
15,182,20
|
16,277.70
|
16,382.20
|
15,515.20
|
Note:
(1) From February 16, 2012 to June 30, 2016, the Common Shares of the Company traded on the Toronto Stock Exchange ("TSX") and thereafter on the TSX-V under the symbol "NUX". On April 10, 2017, the Company announced a proposed acquisition and an intended Change of Business and Change of Name. Trading of the Common Shares on the TSX-V was halted pending completion of the transaction, and resumed trading on July 24, 2017 with a new ticker symbol "NUAG". On August 11, 2020, the Common Shares of the Company commenced trading on the TSX under the same ticker symbol "NUAG".
Base Compensation
In the Compensation Committee's view, paying base compensation that is competitive in the market in which the Company operates is a first step to attracting and retaining talented, qualified and effective executives. The Compensation Committee makes assessments by making reference to independent salary surveys, and comparing salaries with that of other Canadian mining companies with similar size as discussed above.
Short Term Incentive Plan
The Company does not maintain any short term incentive plans for its CEO or other NEOs.
Share-based Awards
The Company believes that encouraging its executive officers and employees to become Shareholders is the best way of aligning their interests with those of its Shareholders. Equity participation is accomplished through the Company's share based compensation plan. Options are granted to executive officers taking into account a number of factors, including the amount and terms of Options previously granted, base compensation and performance bonuses, if any, and competitive factors. During the 2020 fiscal year, the Board granted RSUs to employees and directors for an aggregate of 1,064,600 Common Shares which represents 0.7% of the outstanding Common Shares as at June 30, 2020. The RSUs granted in the 2020 fiscal year were granted at market prices with a term of three years, and vesting in equal 6-month amounts over a two year vesting period.
Compensation Governance
See "Compensation Committee" for a description of the composition of the Compensation Committee.
- 50 -
Summary Compensation Table
|
|
|
|
|
|
|
|
|
|
|
Non-Equity Incentive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
|
|
|
|
|
|
Option-
|
|
|
|
Long
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
|
|
Share-
|
|
Based
|
|
Annual
|
|
Term
|
|
Pension
|
|
All Other
|
|
Total
|
|
|
Name and Principal
|
|
Ended
|
|
Salary
|
|
Based
|
|
Awards
|
|
Incentive
|
|
Incentive
|
|
Value
|
|
Compensation
|
|
Compensation
|
|
|
Position
|
|
June 30
|
|
($)
|
|
Awards ($)
|
|
($)(5)
|
|
Plans
|
|
Plans
|
|
($)
|
|
($)
|
|
($)
|
|
|
Mark Cruise, CEO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and Director(1)
|
|
2020
|
|
279,394
|
|
1,410,000
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
|
4,107
|
|
1,693,501
|
|
|
Rui Feng(2)
|
|
2020
|
|
71,667
|
|
705,000
|
|
Nil
|
|
200,000
|
|
Nil
|
|
Nil
|
|
Nil
|
|
976,667
|
|
|
Former CEO and
|
|
2019
|
|
72,000
|
|
Nil
|
|
226,222
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
|
298,222
|
|
|
Director
|
|
2018
|
|
72,000
|
|
Nil
|
|
47,409
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
|
119,409
|
|
|
Jalen Yuan
|
|
2020
|
|
Nil
|
|
141,000
|
|
Nil
|
|
20,000
|
|
Nil
|
|
Nil
|
|
Nil
|
|
161,000
|
|
|
CFO
|
|
2019
|
|
20,000
|
|
Nil
|
|
54,293
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
|
74,293
|
|
|
|
|
2018
|
|
Nil
|
|
Nil
|
|
63,212
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
|
63,212
|
|
|
Gordon Neal(3)
|
|
2020
|
|
275,000
|
|
470,000
|
|
Nil
|
|
120,000
|
|
Nil
|
|
Nil
|
|
10,850
|
|
875,850
|
|
|
President
|
|
2019
|
|
356,250
|
|
Nil
|
|
226,222
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
|
584,472
|
|
|
|
|
2018
|
|
229,167
|
|
Nil
|
|
316,061
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
|
545,228
|
|
|
Alex Zhang, Vice
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
President,
|
|
2020
|
|
240,000
|
|
235,000
|
|
Nil
|
|
24,000
|
|
Nil
|
|
Nil
|
|
7,554
|
|
506,554
|
|
|
Exploration
|
|
2019
|
|
240,000
|
|
Nil
|
|
135,733
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
|
375,733
|
|
|
|
|
2018
|
|
160,000
|
|
Nil
|
|
79,015
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
|
239,015
|
|
|
David Tingey(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vice President,
|
|
2020
|
|
66,968
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
|
66,968
|
|
|
Sustainability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes:
(1) Dr. Mark Cruise was appointed CEO on April 27, 2020 and director on May 28, 2020. Dr. Mark Cruise was COO of the Company from November 19, 2019 until April 27, 2020.
(2) Dr. Rui Feng resigned as CEO on April 27, 2020.
(3) Gordon Neal was appointed President on August 1, 2017.
(4) David Tingey was appointed Vice President, Sustainability on March 9, 2020.
(5) The Company has adopted IFRS 2 – Share-based Payments to account for the issuance of Options to employees and non-employees. The fair value of Options is estimated at the grant date using the Black-Scholes Option Pricing Model which requires the input of a number of assumptions. Although the assumptions used reflect management's best estimates, they involve inherent uncertainties based on market conditions generally outside of the control of the Company. The following summarizes the key assumptions used to calculate the fair value of each set of Options granted.
- 51 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
average
|
|
|
|
|
|
Fiscal
|
|
|
|
|
|
|
|
|
|
average
|
|
Weighted
|
|
|
|
fair value
|
|
|
|
|
|
Year of
|
|
|
|
|
|
Exercise
|
|
|
|
expected
|
|
average
|
|
Weighted
|
|
per
|
|
|
|
|
|
Options
|
|
|
|
Options
|
|
price
|
|
|
|
life
|
|
risk free
|
|
average
|
|
Option
|
|
|
Name
|
|
|
Granted
|
|
Grant Date
|
|
Granted(1)
|
|
($)
|
|
Expiry Date
|
|
(years)
|
|
rates
|
|
volatilities
|
|
($)
|
|
|
Mark Cruise,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CEO and Director
|
|
|
2020
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
|
|
Rui Feng, former
|
|
|
2020
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
|
|
CEO and Director
|
|
|
2019
|
|
22-Feb-2019
|
|
250,000
|
|
2.15
|
|
22-Feb-2024
|
|
2.75
|
|
1.78%
|
|
64.44%
|
|
0.90
|
|
|
|
|
|
2018
|
|
01-Aug-2017
|
|
75,000
|
|
1.15
|
|
31-Jul-2022
|
|
2.75
|
|
1.32%
|
|
91.43%
|
|
0.63
|
|
|
Jalen Yuan,
|
|
|
2020
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
|
|
CFO
|
|
|
2019
|
|
22-Feb-2019
|
|
60,000
|
|
2.15
|
|
22-Feb-2024
|
|
2.75
|
|
1.78%
|
|
64.44%
|
|
0.90
|
|
|
|
|
|
2018
|
|
01-Aug-2017
|
|
100,000
|
|
1.15
|
|
31-Jul-2022
|
|
2.75
|
|
1.32%
|
|
91.43%
|
|
0.63
|
|
|
Gordon Neal,
|
|
|
2020
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
|
|
President
|
|
|
2019
|
|
22-Feb-2019
|
|
250,000
|
|
2.15
|
|
22-Feb-2024
|
|
2.75
|
|
1.78%
|
|
64.44%
|
|
0.90
|
|
|
|
|
|
2018
|
|
01-Aug-2017
|
|
500,000
|
|
1.15
|
|
31-Jul-2022
|
|
2.75
|
|
1.32%
|
|
91.43%
|
|
0.63
|
|
|
Alex Zhang, Vice
|
|
|
2020
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
|
|
President,
|
|
|
2019
|
|
22-Feb-2019
|
|
150,000
|
|
2.15
|
|
22-Feb-2024
|
|
2.75
|
|
1.78%
|
|
64.44%
|
|
0.90
|
|
|
Exploration
|
|
|
2018
|
|
01-Aug-2017
|
|
125,000
|
|
1.15
|
|
31-Jul-2022
|
|
2.75
|
|
1.32%
|
|
91.43%
|
|
0.63
|
|
|
David Tingey,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vice President,
|
|
|
2020
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
|
|
Sustainability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Share-based Awards and Option-based Awards
The following table summarizes awards outstanding at fiscal year ended June 30, 2020, for each NEO:
|
|
|
Option-Based Awards
|
|
Share-Based Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market or
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payout
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Value of
|
|
Number of
|
|
Value of
|
|
Market or Payout
|
|
|
|
|
|
|
|
|
|
Unexercised
|
|
Shares or
|
|
Share-Based
|
|
Value of Vested
|
|
|
|
|
Securities
|
|
Option
|
|
Option
|
|
In-The-
|
|
Units of
|
|
Awards that
|
|
Share-Based
|
|
|
|
|
Underlying
|
|
|
|
Money
|
|
Shares that
|
|
have not
|
|
Awards not Paid
|
|
|
|
|
Unexercised
|
|
Exercise Price
|
|
Expiration
|
|
Options (1)
|
|
have not
|
|
Vested
|
|
Out or Distributed
|
|
|
Name
|
Options
|
($)
|
|
Date
|
($)
|
|
Vested (#)
|
($)
|
($)
|
|
|
Mark Cruise,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CEO and Director
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
300,000
|
1,659,000
|
|
Nil
|
|
|
Rui Feng,
|
|
-
|
-
|
-
|
-
|
112,500
|
622,125
|
207,375
|
|
|
Former CEO and
|
500,000
|
0.55
|
|
31-Oct-2021
|
2,490,000
|
-
|
-
|
-
|
|
|
Director
|
75,000
|
1.15
|
|
31-July-2022
|
328,000
|
-
|
-
|
-
|
|
|
|
|
250,000
|
2.15
|
|
22-Feb-2024
|
845,000
|
-
|
-
|
-
|
|
|
Jalen Yuan,
|
-
|
-
|
-
|
-
|
22,500
|
124,425
|
|
Nil
|
|
|
CFO
|
130,000
|
0.55
|
|
31-Oct-2021
|
647,400
|
-
|
-
|
-
|
|
|
|
|
100,000
|
1.15
|
|
31-July-2022
|
438,000
|
-
|
-
|
-
|
|
|
|
|
60,000
|
2.15
|
|
22-Feb-2024
|
202,800
|
-
|
-
|
-
|
|
|
Gordon Neal,
|
|
-
|
-
|
-
|
-
|
75,000
|
414,750
|
|
Nil
|
|
|
President
|
36,600
|
0.55
|
|
31-Oct-2021
|
182,268
|
-
|
-
|
-
|
|
|
|
|
500,000
|
1.15
|
|
31-July-2022
|
2,190,000
|
-
|
-
|
-
|
|
|
|
|
250,000
|
2.15
|
|
22-Feb-2024
|
845,000
|
-
|
-
|
-
|
|
|
Alex Zhang,
|
|
-
|
-
|
-
|
-
|
37,500
|
207,375
|
|
Nil
|
|
|
Vice President,
|
350,000
|
0.55
|
|
31-Oct-2021
|
1,743,000
|
-
|
-
|
-
|
|
|
Exploration
|
125,000
|
1.15
|
|
31-July-2022
|
547,000
|
-
|
-
|
-
|
|
|
|
|
150,000
|
2.15
|
|
22-Feb-2024
|
507,000
|
-
|
-
|
-
|
|
- 52 -
|
|
|
|
|
|
Option-Based Awards
|
|
|
|
|
Share-Based Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market or
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of
|
|
Number of
|
|
Payout
|
|
Market or Payout
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Unexercised
|
|
Shares or
|
|
Share-Based
|
|
Value of Vested
|
|
|
|
|
|
Securities
|
|
Option
|
|
Option
|
|
In-The-
|
|
Units of
|
|
Awards that
|
|
Share-Based
|
|
|
|
|
|
Underlying
|
|
|
|
Money
|
|
Shares that
|
|
have not
|
|
Awards not Paid
|
|
|
|
|
|
Unexercised
|
|
Exercise Price
|
|
Expiration
|
|
Options (1)
|
|
have not
|
|
Vested
|
|
Out or Distributed
|
|
|
Name
|
Options
|
($)
|
|
Date
|
($)
|
|
Vested (#)
|
($)
|
($)
|
|
|
David Tingey,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vice President,
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
|
|
Sustainability
|
|
|
|
|
|
|
|
Note:
(1) The value of the unexercised in-the-money options is based on the closing price of the Common Shares on the TSX-V of $5.53 per Common Share as at June 30, 2020 (using the last trading date price of $5.47 as of June 29, 2020) net of the exercise price of the Options.
Incentive Plan Awards – Value Vested or Earned During the Year
The following table discloses the number of option-based grants to the NEOs that have vested during the fiscal year ended June 30, 2020 and provides the aggregate dollar value that would have been realized if these Options had been exercised on the vesting date by determining the difference between the market price of the underlying securities and the exercise price of the Options on the vesting date.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-equity incentive plan
|
|
|
|
|
Option-based awards – Value
|
|
Share-based awards – Value
|
|
compensation – Value earned
|
|
|
|
|
vested during the year
|
|
vested during the year
|
|
during the year
|
|
|
Name
|
|
($)(1)
|
|
($)
|
|
($)
|
|
|
Mark Cruise,
|
|
|
|
|
|
|
|
|
CEO and Director
|
|
Nil
|
|
Nil
|
|
Nil
|
|
|
|
|
|
|
|
|
|
|
|
Rui Feng,
|
|
|
|
|
|
|
|
|
CEO and Director
|
|
593,246
|
|
207,375
|
|
200,000
|
|
|
|
|
|
|
|
|
|
|
|
Jalen Yuan,
|
|
|
|
|
|
|
|
|
CEO
|
|
254,763
|
|
41,475
|
|
20,000
|
|
|
|
|
|
|
|
|
|
|
|
Gordon Neal,
|
|
|
|
|
|
|
|
|
President
|
|
778,751
|
|
138,250
|
|
120,000
|
|
|
|
|
|
|
|
|
|
|
|
Alex Zhang,
|
|
|
|
|
|
|
|
|
Vice President, Exploration
|
|
479,419
|
|
69,125
|
|
24,000
|
|
|
|
|
|
|
|
|
|
|
|
David Tingey, Vice President,
|
|
|
|
|
|
|
|
|
Sustainability
|
|
Nil
|
|
Nil
|
|
Nil
|
|
|
|
|
|
|
|
|
|
|
Note:
(1) This amount is calculated based on the dollar value that would have been realized by determining the difference between the closing market price of the Common Shares and the exercise price of the Options on the vesting date.
Pension Plan Benefits
The Company does not provide any pension plan benefits.
Termination and Change of Control Benefits
Other than as disclosed herein, the Company does not have any contract, agreement, plan or arrangement that provides for payments to an NEO at, following or in connection with any termination (whether voluntary, involuntary or constructive), resignation, retirement, a change in control of the Company or a change in an NEO's responsibilities. There are no deferred compensation plans.
- 53 -
Mark Cruise
In the event of change of control and if Mr. Cruise is terminated at any time within 12 months of a change of control, Mr. Cruise will be entitled to a lump sum payment equal to 24 months' base compensation, plus any other salary, bonus or benefits which have been accrued or earned.
In the event that Mr. Cruise is terminated following a change in control, all incentive share compensation awards, including Options and RSUs, granted to Mr. Cruise under the Omnibus Plan or Existing Omnibus Plan, as applicable, by the Company under any agreement that is entered into between Mr. Cruise and the Company, which incentive share based compensation awards have not yet vested, shall immediately vest upon the termination of Mr. Cruise and shall be fully exercisable in accordance with the terms of the agreement or agreements under which such share based compensation were granted.
Gordon Neal
In the event of a change of control and if Mr. Neal is terminated at any time within 12 months of a change of control, Mr. Neal shall be entitled to a lump sum payment equal to 12 months' base compensation, plus any other salary, bonus or benefits which have been accrued or earned.
In the event that Mr. Neal is terminated following a change in control, all incentive share compensation awards, including Options and RSUs, granted to Mr. Neal under the Omnibus Plan or Existing Omnibus Plan, as applicable, by the Company under any agreement that is entered into between Mr. Neal and the Company, which incentive share based compensation awards have not yet vested, shall immediately vest upon the termination of Mr. Neal and shall be fully exercisable in accordance with the terms of the agreement or agreements under which such share based compensation were granted.
David Tingey
In the event of a change of control and if Mr. Tingey is terminated at any time within 12 months of a change of control, Mr. Tingey shall be entitled to a lump sum payment equal to 12 months' base compensation, plus any other salary, bonus or benefits which have been accrued or earned.
In the event that Mr. Tingey is terminated following a change in control all Options, RSUs, or other share based compensation granted to Mr. Tingey under the Omnibus Plan or Existing Omnibus Plan, as applicable, by the Company under any agreement that is entered into between Mr. Tingey and the Company, which incentive share based compensation have not yet vested, shall immediately vest upon the termination of Mr. Tingey and shall be fully exercisable in accordance with the terms of the agreement or agreements under which such share based compensation were granted.
DIRECTOR COMPENSATION
Compensation for Directors
Each director, except those who are NEOs, is paid an annual cash compensation of $10,000. In addition, the Company pays Jack Austin annual cash compensation of $30,000 for being Chair of the Board. No other cash compensation was paid to the Company`s directors during the most recently completed financial year other than the reimbursement of out-of-pocket expenses.
- 54 -
The Company has no standard arrangement pursuant to which directors are compensated by the Company for their services in their capacity as directors except for the granting from time to time of Options in accordance with the terms of the Company's Existing Omnibus Plan, or if approved at the Meeting, the Omnibus Plan. The following table sets out compensation paid to directors in their capacity as such in the financial year ended June 30, 2020:
|
|
|
Fees
|
|
Share-
|
|
Option
|
|
Non-equity
|
|
Pension
|
|
All other
|
|
Total
|
|
|
|
|
|
based
|
|
based
|
|
incentive plan
|
|
|
|
|
|
Name
|
|
earned
|
|
awards
|
|
awards
|
|
compensation
|
|
value
|
|
compensation
|
|
compensation
|
|
|
|
($)
|
|
($)
|
|
($)(1)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
|
Jack Austin
|
40,000
|
149,903
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
189,903
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rui Feng
|
10,000
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David Kong
|
10,000
|
149,903
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
159,930
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greg Hawkins
|
10,000
|
149,903
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
159,930
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John McCluskey
|
5,000
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
5,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Martin Wafforn
|
10,000
|
149,903
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
159,930
|
|
Note:
(1) The Company has adopted IFRS 2 – Share-based Payment to account for the issuance of stock options to employees and non-employees. The fair value of Options is estimated at the grant date using the Black-Scholes Option Pricing Model which requires the input of a number of assumptions. The assumptions used reflect management's best estimates, but involve inherent uncertainties based on market conditions outside of the control of the Company.
Outstanding Share-based Awards and Option-based Awards
The following tables table summarizes awards outstanding at fiscal year ended June 30, 2020, for each non-executive director.
|
|
|
Option-Based Awards
|
|
|
Share-Based Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market or
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of
|
|
Number of
|
|
Payout
|
|
Market or
|
|
|
|
|
|
|
|
|
|
|
|
Shares or
|
|
Value of
|
|
Payout Value
|
|
|
|
|
Number of
|
|
|
|
|
|
Unexercised
|
|
Units of
|
|
Share-Based
|
|
of Vested
|
|
|
|
|
Securities
|
|
|
|
|
|
In-The-
|
|
Shares
|
|
Awards that
|
|
Share-Based
|
|
|
|
|
Underlying
|
|
Option
|
|
Option
|
|
Money
|
|
that have
|
|
have not
|
|
Awards not
|
|
|
|
|
Unexercised
|
|
Exercise Price
|
|
Expiration
|
|
Options (1)
|
|
not Vested
|
|
Vested
|
|
Paid Out or
|
|
|
Name
|
Options
|
($)
|
|
Date
|
($)
|
(#)
|
($)
|
|
Distributed ($)
|
|
|
Jack Austin
|
|
-
|
|
-
|
|
-
|
|
-
|
|
23,925
|
|
132,305
|
|
Nil
|
|
|
|
|
75,000
|
1.15
|
|
31-Jul-2022
|
328,500
|
-
|
-
|
-
|
|
|
|
|
100,000
|
2.15
|
|
22-Feb-2024
|
338,000
|
-
|
-
|
-
|
|
|
David Kong
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
115,000
|
0.55
|
|
31-Oct-2021
|
572,700
|
23,925
|
132,305
|
|
Nil
|
|
|
|
|
75,000
|
1.15
|
|
31-July-2022
|
328,500
|
-
|
-
|
-
|
|
|
|
|
100,000
|
2.15
|
|
22-Feb-2024
|
338,000
|
-
|
-
|
-
|
|
|
Greg Hawkins
|
|
-
|
-
|
-
|
-
|
23,925
|
132,305
|
|
Nil
|
|
|
|
|
125,000
|
0.55
|
|
31-Oct-2021
|
622,500
|
-
|
-
|
-
|
|
|
|
|
75,000
|
1.15
|
|
31-July-2022
|
328,500
|
-
|
-
|
-
|
|
|
|
|
100,000
|
2.15
|
|
22-Feb-2024
|
338,000
|
-
|
-
|
-
|
|
|
Martin Wafforn
|
-
|
-
|
-
|
-
|
23,925
|
132,305
|
|
Nil
|
|
|
|
|
200,000
|
1.57
|
|
07-Dec-2022
|
792,000
|
-
|
-
|
-
|
|
|
|
|
100,000
|
2.15
|
|
22-Feb-2024
|
338,000
|
-
|
-
|
-
|
|
Note:
(1) The value of the unexercised in-the-money options is based on the closing price of the Common Shares on the TSX-V of $5.53 per Common Share as at June 30, 2020 (using the last trading date price of $5.47 as of June 29, 2020) net of the exercise price of the Options.
- 55 -
Incentive Plan Awards – Value Vested or Earned During the Year
The following table discloses the number of option-based grants to each non-executive directors of the Company that have vested during the fiscal year ended June 30, 2020 and provides the aggregate dollar value that would have been realized if these Options had been exercised on the vesting date by determining the difference between the market price of the underlying securities and the exercise price of the Options on the vesting date.
|
|
|
|
|
|
|
Non-equity incentive plan
|
|
|
|
Option-based awards – Value
|
|
Share-based awards – Value
|
|
compensation – Value earned
|
|
|
|
vested during the year
|
|
vested during the year
|
|
during the year
|
|
Name
|
|
($)(1)
|
|
($)
|
|
($)
|
|
Jack Austin
|
237,996
|
44,102
|
|
Nil
|
|
David Kong
|
237,996
|
44,102
|
|
Nil
|
|
Greg Hawkins
|
237,996
|
44,102
|
|
Nil
|
|
John McCluskey
|
408,164
|
|
Nil
|
|
Nil
|
|
Martin Wafforn
|
303,499
|
44,102
|
|
Nil
|
Note:
(1) This amount is calculated based on the dollar value that would have been realized by determining the difference between the closing market price of the Common Shares and the exercise price of the Options on the vesting date.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The only equity compensation plan which the Company has in place is the Existing Omnibus Plan which was approved by the Shareholders on November 29, 2019. A copy of the Existing Omnibus Plan is attached as Appendix A to the Company's management information circular for the year ended June 30, 2019 and may be obtained by contacting the Company at the address on the cover of this Circular or under the Company's profile on SEDAR at www.sedar.com.
The Existing Omnibus Plan has been established to attract and retain employees, consultants, officers or directors to the Company and to motivate them to advance the interests of the Company by affording them with the opportunity to acquire an equity interest in the Company. The Existing Omnibus Plan is administered by the directors and Compensation Committee. The maximum number of Common Shares that may be reserved for issuance for all purposes under the Existing Omnibus Plan is 10% of the issued and outstanding Common Shares, from time to time. Any Common Shares reserved for issuance pursuant to an Award which for any reason is cancelled or terminated without having been exercised will again be available for grant under the Existing Omnibus Plan, provided, however that any RSU or PSU that has been exercised will no longer be available to be subsequently granted the Existing Omnibus Plan.
The Company has an authorized capital of an unlimited number of common shares without par value, of which 152,310,111 Common Shares were issued and outstanding as fully paid and non-assessable as of the Record Date. As at the Record Date, the total number of Common Shares which may be subject to issuance pursuant to Awards granted under the Existing Omnibus Plan is 15,231,011 (representing 10% of the Company's issued and outstanding Common Shares).
The following table sets out equity compensation plan information as at the end of the financial year ended June 30, 2020.
- 56 -
Equity Compensation Plan Information as at June 30, 2020
|
|
|
Number of securities to be
|
|
Weighted-average exercise
|
|
Number of securities
|
|
|
|
issued upon exercise of
|
|
|
remaining available for
|
|
|
|
outstanding options,
|
|
price of outstanding options,
|
|
future issuance under equity
|
|
Plan Category
|
|
warrants and rights
|
|
warrants and rights
|
|
compensation plans
|
|
Equity compensation plans approved by security holders
|
|
5,576,634 Common Shares
|
$1.14
|
|
9,654,377 Common Shares
|
|
|
|
|
|
|
|
|
|
Equity compensation plans not approved by security holders
|
|
Nil
|
|
N/A
|
|
Nil
|
|
|
|
|
|
|
|
|
|
Total
|
|
5,576,634 Common Shares
|
$1.14
|
|
9,654,377 Common Shares
|
INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS
During the Company's last completed financial year-ended June 30, 2020, no director or executive officer of the Company, no proposed nominee for election as a director of the Company, and no associate of any of the foregoing persons has been indebted to the Company or any of its subsidiaries, nor has any of these individuals been indebted to another entity which indebtedness is the subject of a guarantee, support agreement, letter of credit or other similar arrangement or understanding provided by the Company or any of its subsidiaries.
MANAGEMENT CONTRACTS
There are no management functions of the Company that are to any substantial degree performed by a person or company other than the directors or executive/senior officers (or private companies controlled by them, either directly or indirectly) of the Company or its subsidiaries.
DISSENT RIGHTS
If you are a Registered Shareholder, you are entitled to exercise Dissent Rights from the Arrangement Resolution by strictly following and adhering to the Dissent Procedures.
Any Registered Shareholder is ultimately entitled to be paid the fair value of their Common Shares if such Registered Shareholder duly dissents in respect of the Arrangement in strict accordance with the Dissent Procedures provided that the Arrangement becomes effective. A Registered Shareholder is not entitled to dissent with respect to such holder's Common Shares if such Registered Shareholder votes any of those Common Shares in favour of the Arrangement Resolution. A Dissenting Shareholder ceases to have any rights as a Shareholder, other than the right to be paid the fair value of such holder's Common Shares, and the Common Shares held by such Dissenting Shareholder will be deemed to be repurchased by the Company in accordance with the terms of the Plan of Arrangement.
A brief summary of the Dissent Procedures is set out below. A Registered Shareholder's failure to follow exactly the Dissent Procedures will result in the loss of such Registered Shareholder's Dissent Rights. If you are a Registered Shareholder and wish to dissent, you should obtain your own legal advice and carefully read the provisions of Division 2 of Part 8 of the BCBCA, the Plan of Arrangement and the Interim Order which are attached at Schedules "F", "D" and "E" respectively. The Court, upon hearing the application for the Final Order, has the discretion to alter the Dissent Procedures described herein based on the evidence presented at such hearing.
A Registered Shareholder wishing to dissent must send a written notice of dissent (a "Dissent Notice") contemplated by Section 242 of the BCBCA which must be received by the Company, in the manner set out below, not later than 9:00 a.m. (Vancouver time) on the Business Day that is at least two Business Days before the date of the Meeting. All notices of dissent to the Arrangement pursuant to Section 242 of the BCBCA should be delivered by mail or hand delivery to New Pacific Metals Corp., Suite 1750 – 1066 West Hastings Street, Vancouver, British Columbia V6E 3X1 (Attention: Corporate Secretary and General Counsel). A vote against the Arrangement Resolution, an abstention, or the execution of a proxy to vote against the Arrangement Resolution, does not constitute a Dissent Notice.
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Beneficial Shareholders with Common Shares registered in the name of a broker, custodian, nominee or other Intermediary who wish to dissent should be aware that only Registered Shareholders are entitled to exercise Dissent Rights. Accordingly, a non-Registered Shareholder desiring to exercise Dissent Rights must make arrangements for the Common Shares beneficially owned by such Shareholder to be registered in his, her or its name prior to the time the Dissent Notice is required to be received or, alternatively, make arrangements for the Registered Shareholder to exercise Dissent Rights on the beneficial holder's behalf.
After the Arrangement Resolution is approved by Shareholders and within one month after the Company notifies the dissenting Registered Shareholder of the Company's intention to act upon the Arrangement Resolution pursuant to Section 243 of the BCBCA, the dissenting Registered Shareholder must, pursuant to Section 244(1) of the BCBCA, send to the Company a written notice that such holder requires the purchase of all of the Common Shares in respect of which such holder has given notice of dissent, together with the share certificate or certificates representing those Common Shares (including a written statement prepared in accordance with Subsection 244(1)(c) of the BCBCA if the dissent is being exercised by the Registered Shareholder on behalf of a Beneficial Shareholder). Any dissenting Registered Shareholder who has duly complied with Section 244(1) of the BCBCA and the Company may agree on the amount of the fair value of their Dissent Shares calculated immediately before the passing of the Arrangement Resolution, or, if there is no such agreement, either such dissenting Registered Shareholder or the Company may apply to the Court (although the Company is under no obligation to do so), and the Court may determine the fair value of their Dissent Shares calculated immediately before the passing of the Arrangement Resolution and make consequential orders and give directions as the Court considers appropriate. Promptly after the determination of the fair value of such Dissent Shares, such amount shall be paid out to the dissenting Registered Shareholder in cash by the Company. Failure to comply strictly with and adhere to the Dissent Procedures may result in the loss of all rights thereunder. A dissenting Registered Shareholder who does not strictly comply with the Dissent Procedures or, for any other reason, is not entitled to be paid fair value for their Dissent Shares will be deemed to have participated in the Arrangement on the same basis as non-dissenting Shareholders.
The Arrangement Agreement provides that, unless otherwise waived, it is a condition to the obligations of the Company and Whitehorse to complete the Arrangement that, on or before the Effective Date, holders of not more than an aggregate of 5% of the issued and outstanding Common Shares shall have exercised Dissent Rights. If the number of outstanding Common Shares in respect of which Dissent Rights have been exercised exceeds 5%, the Arrangement will not proceed unless the Company waives such condition.
The above is only a summary of the Dissent Procedures which are technical and complex. If you are a Registered Shareholder and wish to exercise your Dissent Rights, you should seek your own legal advice as failure to strictly comply with the Dissent Procedures, will result in the loss of your Dissent Rights. For a general summary of certain income tax implications to a Dissenting Shareholder, see "Material Income Tax Considerations – Certain Canadian Federal Income Tax Considerations – Holders Resident in Canada – Dissenting Resident Holders" and "Material Income Tax Considerations – Certain Canadian Federal Income Tax Considerations – Holders Not Resident in Canada – Dissenting Non-Resident Holders". Registered Shareholders considering exercising Dissent Rights should also seek the advice of their own tax, legal and financial advisors.
CERTAIN SECURITIES LAW MATTERS
Canada Securities Laws
The following discussion is only a general overview of certain requirements of Canadian securities laws applicable to trades in securities of the Company or Whitehorse. All holders of securities are urged to consult with their own legal counsel to ensure that any resale of their securities of the Company or Whitehorse complies with applicable securities legislation.
The New Common Shares issued and Spin-Out Shares distributed pursuant to the Arrangement will be issued in reliance on exemptions from prospectus requirements of applicable Canadian securities laws. In accordance with the applicable securities legislation, the New Common Shares and Spin-Out Shares may be resold without restriction, provided that the sale is not a "control distribution" as defined by applicable securities laws, no unusual effort is made to prepare the market or create a demand for the securities, no extraordinary commission or consideration is paid in respect of the sale and, if the selling securityholder is an insider or officer of the Company or Whitehorse, as applicable, such securityholder has no reasonable grounds to believe that the Company or Whitehorse, as the case may be, is in default of securities legislation.
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United States Securities Laws
The New Common Shares and Spin-Out Shares to be issued and distributed, respectively, pursuant to the Arrangement will not be registered under the 1933 Act or the securities laws of any state of the United States, and will be issued and distributed in reliance upon the exemption from registration under the 1933 Act provided by Section 3(a)(10) thereof and available exemptions from applicable state registration requirements. Section 3(a)(10) of the 1933 Act provides an exemption from registration under the 1933 Act for offers and sales of securities issued in exchange for one or more bona fide outstanding securities where the terms and conditions of the issuance and exchange of such securities have been approved by a court authorized to grant such approval after a hearing upon the substantive and procedural fairness of the terms and conditions of the issuance and exchange at which all persons to whom the securities will be issued have the right to appear and receive timely and adequate notice thereof. The Court is authorized to conduct a hearing at which the substantive and procedural fairness of the terms and conditions of the Arrangement will be considered. The Court issued the Interim Order on August 27, 2020 and, subject to the approval of the Arrangement by the Shareholders at the Meeting, it is expected that a hearing on the Arrangement will be held on October 2, 2020 at 9:45 a.m. (Vancouver time), or as soon thereafter as counsel may be heard, at the Law Courts, 800 Smithe Street, Vancouver, British Columbia. All Shareholders are entitled to appear and be heard at this hearing. The Final Order will constitute a basis for the exemption from the registration requirements of the 1933 Act provided by Section 3(a)(10) thereof with respect to the New Common Shares to be issued and the Spin-Out Shares to be distributed to the Shareholders pursuant to the Arrangement. Prior to the hearing on the Final Order, the Court will be informed of this effect of the Final Order.
Shareholders who are not "affiliates" of the Company or Whitehorse immediately after the Arrangement and have not been "affiliates" of the Company or Whitehorse within 90 days of the resale in question, may resell New Common Shares or Spin-Out Shares received by them in the Arrangement within or outside the United States without restriction under the 1933 Act. Shareholders who are "affiliates" of the Company or Whitehorse after the Arrangement or within 90 days of the resale in question may not resell their New Common Shares or Spin-Out Shares in the absence of registration under the 1933 Act, unless an exemption from registration is available, such as the exemptions afforded by Regulation S or Rule 144 under the 1933 Act. For the purposes of the 1933 Act, an "affiliate" of the Company or Whitehorse is a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with the Company or Whitehorse, whether through the ownership of voting securities, by contract, or otherwise, and generally includes executive officers and directors as well as principal shareholders, as the case may be.
Each of the Company and Whitehorse is expected to continue to qualify as a "foreign issuer" as defined in Regulation S on the Effective Date. Therefore, subject to applicable Canadian requirements, holders of New Common Shares or Spin-Out Shares who are affiliates of the Company or Whitehorse, respectively, solely by virtue of serving as an officer or director, may immediately resell such securities outside the United States without registration under the 1933 Act pursuant to Regulation S. Any such sales must be made in "offshore transactions" within the meaning of Regulation S and neither the seller, nor an affiliate, nor any person acting on their behalf may engage in "directed selling efforts" (as defined in Regulation S) in the United States. Additionally, no selling concession, fee or other remuneration may be paid in connection with any such offer or sale other than a usual and customary broker's commission that would be received by a person executing such transaction as agent. For the purposes of Regulation S, "directed selling efforts" means any activity undertaken for the purpose of, or that could reasonably be expected to have the effect of, conditioning the market in the United States for any of the New Common Shares or Spin-Out Shares.
For the purposes of Regulation S, an "offshore transaction" is a transaction that meets the following requirements: (i) the offer is not made to a person in the United States, and (ii) either (A) at the time the buy order is originated, the buyer is outside the United States, or the seller and any person acting on its behalf reasonably believe that the buyer is outside the United States, or (B) the transaction is executed in, on or through the facilities of a designated offshore securities market (which would currently include the TSX-V and the TSX), and neither the seller nor any person acting on its behalf knows that the transaction has been prearranged with a buyer in the United States; and (iii) offers and sales are not specifically targeted at identifiable groups of U.S. citizens abroad.
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Certain additional Regulation S restrictions are applicable to a holder of New Common Shares or Spin-Out Shares who will be an affiliate of the Company or Whitehorse, respectively, other than by virtue of his status as an officer or director.
In addition, under Rule 144, persons who are affiliates of the Company or Whitehorse, as applicable, after the Arrangement or within 90 days of the period immediately prior to the Effective Date, will be entitled to resell in the United States during any three-month period, that number of New Common Shares or Spin-Out Shares that does not exceed the greater of one percent of the then outstanding securities of such class, subject to certain restrictions on manner of sale, notice requirements, aggregation rules and the availability of current public information about the Company or Whitehorse (as to which there can be no assurance). Affiliates of the Company or Whitehorse prior to the Arrangement who are not affiliates of the Company or Whitehorse after the Arrangement must, for 90 days following the Arrangement, comply with the requirements set forth in the preceding sentence but thereafter may resell such New Common Shares or Spin-out Shares without regard to any of these requirements, provided that such persons have not been affiliates of Whitehorse during the 90 days preceding the resale.
The foregoing discussion is only a general overview of the requirements of United States securities laws for the resale of the New Common Shares and Spin-out Shares received pursuant to the Plan of Arrangement. Shareholders are urged to consult their legal advisors prior to disposing of New Common Shares or Spin-Out Shares received in the Arrangement to determine the extent of all applicable resale provisions.
The Replacement Options to be issued pursuant to the Arrangement will not be registered under the 1933 Act or the securities laws of any state of the United States, and will be distributed in reliance upon the exemption from registration under the 1933 Act provided by Section 3(a)(10) thereof and similar available exemptions from applicable state registration requirements. The New Common Shares issuable upon exercise of the Replacement Options will not be registered under the 1933 Act or any state securities laws. The distribution of such New Common Shares will not be covered by the registration exemption provided by Section 3(a)(10) of the 1933 Act, and the exercise of the Replacement Options in the United States, or by or for the account or benefit of any U.S. person (as defined in Rule 902(k) of Regulation S) will be conditioned on the availability of an exemption from the registration requirements of the 1933 Act and applicable state securities laws.
MATERIAL INCOME TAX CONSIDERATIONS
THE TAX CONSEQUENCES OF THE ARRANGEMENT WILL VARY DEPENDING UPON THE PARTICULAR CIRCUMSTANCES OF EACH SHAREHOLDER AND OTHER FACTORS. ACCORDINGLY, SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE ARRANGEMENT.
Certain Canadian Federal Income Tax Considerations
The following is a summary of the principal Canadian federal income tax considerations generally applicable under the Tax Act to a beneficial owner of a Common Share who disposes of or exchanges, or is deemed to have disposed of or exchanged, a Class A Share pursuant to the Arrangement and who, for purposes of the Tax Act and at all relevant times, (a) deals at arm's length with and is not affiliated with the Company or Whitehorse, and (b) holds all Common Shares, and will hold all Class A Shares, New Common Shares, and Whitehorse Shares held or acquired under the Arrangement, as capital property (each, a "Holder"). A Common Share, Class A Share, New Common Share, or Whitehorse Share, as applicable, will generally be considered to be capital property to a holder thereof for purposes of the Tax Act provided that the holder does not use or hold such share in the course of carrying on a business of trading or dealing in securities and has not acquired such share in one or more transactions considered to be an adventure or concern in the nature of trade.
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This summary is not applicable to a Holder: (a) that is a "financial institution" for purposes of the mark-to-market rules; (b) that is a "specified financial institution"; (c) that is a partnership; (d) an interest in which is a "tax shelter" or a "tax shelter investment"; (e) that has elected to determine its Canadian tax results in a foreign currency pursuant to the functional currency reporting rules; (f) that has entered or will enter into, in respect of the Common Shares, the Class A Shares, the New Common Shares, or the Whitehorse Shares, as the case may be, a "synthetic disposition arrangement" or a "derivative forward agreement"; (g) that will receive dividends on the Common Shares, the New Common Shares, or the Whitehorse Shares, as the case may be, under or as part of a "dividend rental arrangement", (h) that is a "foreign affiliate" of a taxpayer resident in Canada, or (i) that is a corporation resident in Canada and is, or becomes, or does not deal at arm's length with a corporation resident in Canada that is or becomes, as part of a transaction or event or series of transactions or events that includes the acquisition of the New Common Shares, controlled by a non-resident corporation for purposes of the "foreign affiliate dumping" rules, each within the meaning of the Tax Act. Any such Holders should consult their own tax advisors to determine the particular Canadian federal income tax consequences to them of the Arrangement.
This summary does not address tax considerations applicable to holders of Options or RSUs and may not address all considerations applicable to Holders that acquired Common Shares pursuant to the exercise of a Option or settlement of an RSU. Any such holders should consult their own tax advisors to determine the particular Canadian federal income tax consequences to them of the Arrangement.
This summary is based on the facts set out in this Circular, the assumptions set out herein, the current provisions of the Tax Act and the regulations thereto in force as at the date of this Circular, and the Company's understanding of the current administrative and assessing practices and policies of the CRA published in writing prior to the date hereof. This summary takes into account all specific proposals to amend the Tax Act publicly announced by or on behalf of the Minister of Finance (Canada) prior to the date hereof (the "Proposed Amendments") and assumes that all Proposed Amendments will be enacted in the form proposed; however, no assurance can be given that the Proposed Amendments will be enacted as proposed, or at all. This summary does not otherwise take into account or anticipate any changes in law or administrative or assessing practice whether by legislative, regulatory, administrative or judicial action nor does it take into account tax legislation or considerations of any province, territory or foreign jurisdiction, which may be different from those discussed herein.
This summary is of a general nature only and is not exhaustive of all possible Canadian federal income or other tax considerations applicable to the Arrangement. The income and other tax consequences of acquiring, holding or disposing of securities will vary depending on a Holder's particular status and circumstances, including the country, province or territory in which the Holder resides or carries on business. This summary is not intended to be, nor should it be construed to be, legal or tax advice to any particular Holder. No representations are made with respect to the income or other tax consequences to any particular Holder. No advance income tax ruling has been obtained from the CRA to confirm the tax consequences of the Arrangement. Shareholders should consult their own tax advisors for advice with respect to the income and other tax consequences of the Arrangement in their particular circumstances, including the application and effect of the income and other tax laws of any applicable country, province, state or local tax authority.
This summary does not discuss any non-Canadian income or other tax consequences of the Arrangement. Holders resident or subject to taxation in a jurisdiction other than Canada should be aware that the Arrangement may have tax consequences both in Canada and in such other jurisdiction. Such consequences are not described herein. Holders should consult with their own tax advisors with respect to their particular circumstances and the tax considerations applicable to them.
Holders Resident in Canada
The following portion of the summary is generally applicable to a Holder who, for purposes of the Tax Act and any applicable tax treaty or convention, and at all relevant times, is or is deemed to be a resident of Canada and is not exempt from tax under Part I of the Tax Act (a "Resident Holder").
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Amendment of Articles of the Company and Re-designation of Common Shares as Class A Shares
Consistent with the published administrative position of the CRA, the amendments, pursuant to the Arrangement, to the authorized share structure, Notice of Articles and Articles of the Company to re-name and re-designate the Common Shares as Class A Shares and to create special rights and restrictions attached thereto to provide the holders thereof with two votes in respect of each Class A Share should not, in and of itself, result in Holders being deemed to have disposed of their Common Shares or otherwise constitute a taxable event for the purposes of the Tax Act. As such, the adjusted cost base, within the meaning of the Tax Act, to a Resident Holder of their Common Shares immediately prior to such amendments will continue to be the adjusted cost base of their Class A Shares immediately after such amendments.
Exchange of Class A Shares for New Common Shares and Spin-Out Shares
Pursuant to the Arrangement, the authorized share structure, Notice of Articles, and Articles of the Company will be amended to create and authorize the issuance of the New Common Shares and each outstanding Class A Share will be transferred to the Company in consideration for the issuance by the Company of one New Common Share and the pro rata distribution of Spin-Out Shares. Consistent with the published administrative position of the CRA, such transactions should be considered to occur "in the course of a reorganization of capital" of the Company, within the meaning of section 86 of the Tax Act. Accordingly, a Resident Holder whose Class A Shares are exchanged for New Common Shares and Spin-Out Shares under the Arrangement will be considered to have disposed of the Class A Shares for proceeds of disposition equal to the greater of: (a) the Resident Holder's adjusted cost base of the Class A Shares immediately before the effective time of the exchange; and (b) the fair market value, at the effective time of the exchange, of the Spin-Out Shares received by the Resident Holder. Such proceeds of disposition would generally be reduced by the amount of the dividend, if any, referred to in the following paragraph that the Resident Holder is deemed to have received (which is not expected to be the case). Consequently, a Resident Holder will realize a capital gain only if, and to the extent that, the fair market value of the Spin-Out Shares received on the exchange exceeds the adjusted cost base of the Resident Holder's Class A Shares immediately before the effective time of the exchange. See "Certain Canadian Federal Income Tax Considerations - Holders Resident in Canada - Taxation of Capital Gains and Capital Losses" below for a general description of the taxation of capital gains and losses under the Tax Act.
The Company expects that the aggregate fair market value of the Spin-Out Shares when they are distributed pursuant to the Arrangement will not exceed the aggregate "paid-up capital", as defined in the Tax Act, of the Class A Shares immediately before the share exchange. Accordingly, the Company should not be deemed to have paid, nor should a Resident Holder be deemed to receive, a dividend as a result of the distribution of Spin-Out Shares in exchange for Class A Shares under the Arrangement. If, however, the fair market value of the Spin-Out Shares at the time of their distribution were to exceed the aggregate paid-up capital of the Class A Shares immediately before that time (which is not expected to be the case), the Company would be deemed to have paid a dividend on the Common Shares equal to the amount of the excess and each Resident Holder would be deemed to have received a pro rata portion of the dividend, based on the proportion of Common Shares held. See "Certain Canadian Federal Income Tax Considerations - Holders Resident in Canada - Dividends on New Common Shares or Whitehorse Shares (Post- Arrangement)" below for a general description of the taxation of dividends under the Tax Act.
The aggregate cost to a Resident Holder of the New Common Shares acquired on the share exchange will be equal to the amount, if any, by which the adjusted cost base of the Resident Holder's Class A Shares, immediately before the exchange, exceeds the fair market value, at the time of the exchange, of the Spin-Out Shares acquired by such Resident Holder on the share exchange. The aggregate cost to a Resident Holder of the Spin-Out Shares acquired on the share exchange will be equal to the fair market value of the Spin-Out Shares at the time of exchange. A Resident Holder who acquires Spin-Out Shares pursuant to the Arrangement and who holds other Whitehorse Shares will generally be subject to the detailed cost averaging rules in the Tax Act in determining the adjusted cost base to the Resident Holder of each Whitehorse Share. Such Resident Holders should consult with their own tax advisors.
Dividends on New Common Shares or Whitehorse Shares (Post-Arrangement)
A Resident Holder who is an individual (other than certain trusts) will be required to include in income any dividends received or deemed to be received on the New Common Shares or the Whitehorse Shares, as the case may be, and will be subject to the gross-up and dividend tax credit rules applicable to taxable dividends received from taxable Canadian corporations, including the enhanced gross-up and dividend tax credit rules that apply to any dividends designated by the Company or Whitehorse, as the case may be, as "eligible dividends" as defined in the Tax Act. There can be no assurance that any dividend paid by the Company or by Whitehorse, as applicable, will be designated as an "eligible dividend" and neither the Company nor Whitehorse make any commitments in this regard.
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Dividends received or deemed to be received by an individual and certain trusts may give rise to a liability for minimum tax under the Tax Act. Resident Holders should consult their own tax advisors with respect to the minimum tax provisions.
A Resident Holder that is a corporation will be required to include in income any dividend received or deemed to be received on its New Common Shares or Whitehorse Shares, as the case may be, and generally will be entitled to deduct an equivalent amount in computing its taxable income, subject to certain limitations in the Tax Act. A Resident Holder that is a "private corporation" or a "subject corporation" (each as defined in the Tax Act) may also be liable under Part IV of the Tax Act to pay a special tax (refundable in certain circumstances) on any dividend that it receives or is deemed to receive on its New Common Shares or Whitehorse Shares, as the case may be, to the extent that the dividend is deductible in computing the corporation's taxable income. A Resident Holder that is, throughout the year, a "Canadian-controlled private corporation", as defined in the Tax Act, may be subject to an additional refundable tax on its "aggregate investment income" which is defined to include dividends that are not deductible in computing taxable income. Subsection 55(2) of the Tax Act provides that, where certain corporate holders of shares receive a dividend or deemed dividend in specified circumstances, all or part of such dividend may be treated as a capital gain from the disposition of capital property and not as a dividend. For a description of the tax treatment of capital gains and capital losses, see "Certain Canadian Federal Income Tax Considerations - Holders Resident in Canada - Taxation of Capital Gains and Capital Losses" below.
Disposition of New Common Shares or Whitehorse Shares (Post-Arrangement)
A Resident Holder that disposes or is deemed to dispose of a New Common Share or a Whitehorse Share, as the case may be, after the Arrangement (other than a disposition to the issuer corporation that is not a sale in the open market in the manner in which shares would normally be purchased by any member of the public in an open market) will recognize a capital gain (or sustain a capital loss) equal to the amount by which the proceeds of disposition of the New Common Share or the Whitehorse Share, as applicable, exceeds (or is less than) the adjusted cost base to the Resident Holder of such New Common Share or Whitehorse Share, as applicable, determined immediately before the disposition, and any reasonable costs of disposition. For a description of the tax treatment of capital gains and capital losses, see "Certain Canadian Federal Income Tax Considerations - Holders Resident in Canada - Taxation of Capital Gains and Capital Losses" below.
Taxation of Capital Gains and Capital Losses
Generally, one-half of any capital gain realized by a Resident Holder in a taxation year will be included in computing the Resident Holder's income in that taxation year as a taxable capital gain and, generally, one-half of any capital loss realized in a taxation year (an "allowable capital loss") must be deducted from the taxable capital gains realized by the Resident Holder in the same taxation year, in accordance with the rules contained in the Tax Act. Allowable capital losses in excess of taxable capital gains realized by a Resident Holder in a particular taxation year may be carried back and deducted in any of the three preceding taxation years or carried forward and deducted in any subsequent taxation year against net taxable capital gains realized by the Resident Holder in such taxation year, subject to and in accordance with the rules contained in the Tax Act.
Capital gains realized by an individual and certain trusts may give rise to a liability for minimum tax under the Tax Act. Resident Holders should consult their own tax advisors with respect to the minimum tax provisions. A Resident Holder that is, throughout the year, a "Canadian-controlled private corporation", as defined in the Tax Act, may be subject to an additional refundable tax on its "aggregate investment income" which is defined to include taxable capital gains.
The amount of any capital loss realized by a Resident Holder that is a corporation on the disposition of a New Common Share or Whitehorse Share, as applicable, may be reduced by the amount of dividends received or deemed to be received by it on such share (or on a share for which the share has been substituted) to the extent and under the circumstances prescribed by the Tax Act. Similar rules may apply where a corporation is a member of a partnership or a beneficiary of a trust that owns shares, directly or indirectly through a partnership or a trust. Resident Holders to whom these rules may apply should consult their own tax advisors.
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Dissenting Resident Holders
A Resident Holder who validly exercises Dissent Rights and who receives a cash payment from the Company equal to the fair value of such Resident Holder's Common Shares (a "Dissenting Resident Holder") will be deemed to receive a taxable dividend equal to the amount, if any, by which the amount received (excluding interest) for the Dissenting Resident Holder's Common Shares exceeds the paid-up capital, within the meaning of the Tax Act, of such Common Shares determined immediately before the Arrangement. The general tax consequences to a Dissenting Resident Holder of being deemed to have received a dividend are described above under the heading "Certain Canadian Federal Income Tax Considerations - Holders Resident in Canada - Dividends on New Common Shares or Whitehorse Shares (Post- Arrangement)". The Dissenting Resident Holder will also be deemed to have received proceeds of disposition for the Common Shares equal to the amount (excluding interest) received by the Dissenting Resident Holder from the Company less the amount of the deemed dividend referred to above. Consequently, the Dissenting Resident Holder will recognize a capital gain (or sustain a capital loss) to the extent that such proceeds of disposition exceed (or are exceeded by) the adjusted cost base of such Dissenting Resident Holder's Common Shares. The general tax consequences to a Dissenting Resident Holder of realizing a capital gain or capital loss are described above under the heading, "Certain Canadian Federal Income Tax Considerations - Holders Resident in Canada - Taxation of Capital Gains and Losses".
Any interest awarded to a Dissenting Resident Holder will be included in such Holder's income for the purposes of and in accordance with the Tax Act.
Additional income tax considerations may be relevant to Resident Holders who fail to perfect or withdraw their claims pursuant to the Dissent Rights.
Resident Holders should consult their own tax advisors with respect to the tax consequences to them of exercising Dissent Rights.
Eligibility for Investment
Subject to the provisions of any particular plan, the New Common Shares will, when issued pursuant to the Arrangement, constitute qualified investments under the Tax Act for a trust governed by a registered retirement savings plan ("RRSP"), a registered retirement income fund ("RRIF"), a registered disability savings plan ("RDSP"), a registered education savings plan ("RESP"), a tax-free savings account ("TFSA") or a deferred profit sharing plan (collectively, "Registered Plans"), provided that, at such time, the New Common Shares are listed on a "designated stock exchange", within the meaning of the Tax Act (which currently includes the TSX) or the Company is otherwise a "public corporation" (other than a mortgage investment corporation) for the purposes of the Tax Act. The Company expects that the New Common Shares will be qualified investments as described above at the time such shares are issued pursuant to the Arrangement.
Subject to the provisions of any particular plan, the Spin-Out Shares will constitute qualified investments under the Tax Act for a Registered Plan at a particular time provided that, at such time, the Whitehorse Shares are listed on a "designated stock exchange", within the meaning of the Tax Act (which currently includes the TSX-V) or Whitehorse is otherwise a "public corporation" for the purposes of the Tax Act. The Company and Whitehorse expect that the Spin-Out Shares will be qualified investments as described above at the time such shares are distributed pursuant to the Arrangement, either because the Whitehorse Shares will be considered to be listed on the TSX-V at the time of their distribution pursuant to the Arrangement or because the Whitehorse Shares will become listed on the TSX-V shortly thereafter and Whitehorse will timely make a specific tax election to constitute a public corporation from all times from its incorporation to the time it becomes a public corporation as provided in the Arrangement Agreement.
Notwithstanding the foregoing, if the New Common Shares or the Whitehorse Shares, as applicable, are "prohibited investments", within the meaning of the Tax Act, for a particular RRSP, RRIF, RDSP, RESP, or TFSA, the annuitant, holder or subscriber, as the case may be, of the Registered Plan will be subject to a penalty tax under the Tax Act. The New Common Shares and the Whitehorse Shares will generally not be a "prohibited investment" for these purposes unless the annuitant, holder or subscriber, as the case may be, of the Registered Plan, (a) does not deal at arm's length with the Company or Whitehorse, as applicable, for purposes of the Tax Act, or (b) has a "significant interest", as defined in the Tax Act, in the Company or Whitehorse, as applicable. In addition, the New Common Shares or Whitehorse Shares will generally not be a "prohibited investment" if such shares are "excluded property" for purposes of the prohibited investment rules for a Registered Plan.
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Holders, subscribers, or annuitants, as the case may be, of Registered Plans which currently hold Common Shares and will acquire New Common Shares and Spin-Out Shares pursuant to the Arrangement are urged to consult their own tax advisors having regard to their own particular circumstances.
Holders Not Resident in Canada
The following portion of the summary is generally applicable to a Holder who, for purposes of the Tax Act and any applicable income tax treaty or convention, and at all relevant times, is not and is not deemed to be a resident of Canada and does not use or hold, and is not deemed to use or hold, Common Shares and will not use or hold, or be deemed to use or hold, Class A Shares, New Common Shares, or Whitehorse Shares in connection with carrying on a business in Canada (a "Non-Resident Holder"). This portion of the summary is not generally applicable to a Non- Resident Holder carrying on an insurance business in Canada and elsewhere; (b) a "financial institution"; or (c) an "authorized foreign bank", each as defined in the Tax Act.
This portion of the summary assumes that, at all relevant times prior to the re-designation of the Common Shares as Class A Shares pursuant to the Arrangement, the Common Shares will be listed on a "designated stock exchange" (which includes the TSX), within the meaning of the Tax Act, and that, at all times following such re-designation and prior to the exchange of the Class A Shares for New Common Shares and Spin-Out Shares pursuant to the Arrangement, the Class A Shares will be listed on a designated stock exchange (which includes the TSX). The Company has requested the TSX to confirm that the New Common Shares will be considered to be listed for trading on the TSX at the time of their issuance pursuant to the Arrangement, and it is assumed for the purposes of this summary, that the New Common Shares will be so listed, although no assurances can be provided in this regard. This portion of the summary also assumes that the Whitehorse Shares will be listed on a designated stock exchange (which includes the TSX-V) when distributed pursuant to the Arrangement. Whitehorse will request the TSX-V to confirm that the Spin-Out Shares will be considered to be listed for trading on the TSX-V at the time of their distribution pursuant to the Arrangement, and it is assumed for the purposes of this summary, that the Whitehorse Shares will be so listed, although no assurances can be provided in this regard. In each case, listing will be subject to the Company or Whitehorse, as the case may be, fulfilling all the applicable listing requirements of the TSX or TSX-V, as the case may be.
Status of Common Shares, Class A Shares, New Common Shares or Whitehorse Shares as "Taxable Canadian Property"
Generally, a Common Share, Class A Share, New Common Share, or Whitehorse Share, as the case may be, of a particular Non-Resident Holder will not be "taxable Canadian property" (within the meaning of the Tax Act) of a Non- Resident Holder at any time at which such share is listed on a "designated stock exchange" within the meaning of the Tax Act (which includes the TSX and the TSX-V), unless at any time during the 60-month period that ends at that time: (A) one or any combination of (i) the Non-Resident Holder, (ii) persons with whom the Non-Resident Holder does not deal at arm's length for purposes of the Tax Act, and (iii) partnerships in which the Non-Resident Holder or a person described in (ii) holds a membership interest directly or indirectly through one or more partnerships, owned 25% or more of the issued shares of any class or series of the capital stock of the Company or Whitehorse, as applicable, and (B) more than 50% of the fair market value of the Common Shares, Class A Shares, New Common Shares, or the Whitehorse Shares, as the case may be, was derived (directly or indirectly) from one or any combination of: (i) real or immovable properties situated in Canada, (ii) "Canadian resource properties", (iii) "timber resource properties", and (iv) options in respect of, or interests in, or for civil law rights in, any of the foregoing property whether or not the property exists, all as defined for the purposes of the Tax Act.
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Based on the current assets of Whitehorse, it is expected that the Whitehorse Shares will constitute taxable Canadian property to a Non-Resident Holder during the period, if any, between the time the Spin-Out Shares are distributed to the Non-Resident Holder pursuant to the Arrangement and the time that the Whitehorse Shares are listed on the TSX-V.
Common Shares, Class A Shares, New Common Shares and/or Whitehorse Shares may also be deemed to be "taxable Canadian property" in certain circumstances as set out in the Tax Act.
In the event that a Common Share, Class A Share, New Common Share, or Whitehorse Share is "taxable Canadian property", within the meaning of the Tax Act, to a Non-Resident Holder at the time of the disposition of such share, including pursuant to the Arrangement, such Non-Resident Holder should consult its own tax advisor as to the Canadian federal income tax consequences of the disposition, including any Canadian compliance obligations.
Amendment of Articles of the Company and Re-designation of Common Shares as Class A Shares
Consistent with the published administrative position of the CRA, the amendments, pursuant to the Arrangement, to the authorized share structure, Notice of Articles and Articles of the Company to re-name and re-designate the Common Shares as Class A Shares and to create special rights and restrictions attached thereto to provide the holders thereof with two votes in respect of each Class A Share should not, in and of itself, result in Holders being deemed to have disposed of their Common Shares or otherwise constitute a taxable event for the purposes of the Tax Act. The adjusted cost base to a Non-Resident Holder of their Common Shares immediately prior to such amendments should continue to be the adjusted cost base of their Class A Shares immediately after such amendments.
Exchange of Class A Shares for New Common Shares and Spin-Out Shares
A Non-Resident Holder whose Class A Shares are exchanged for New Common Shares and Spin-Out Shares under the Arrangement will not be subject to tax under the Tax Act on any capital gain realized on such exchange unless the Class A Shares are "taxable Canadian property" to the Non-Resident Holder at the effective time of the share exchange and the Class A Shares are not "treaty-protected property", each within the meaning of the Tax Act.
In the event that a Class A Share is taxable Canadian property to a Non-Resident Holder at the effective time of the share exchange, the tax consequences described above under "Certain Canadian Federal Income Tax Considerations - Holders Resident in Canada - Exchange of Class A Shares for New Common Shares and Whitehorse Shares" will generally apply.
The Company expects that the aggregate fair market value of the Spin-Out Shares when they are distributed pursuant to the Arrangement will not exceed the aggregate "paid-up capital", as defined in the Tax Act, of the Class A Shares immediately before the share exchange. Accordingly, the Company should not be deemed to have paid, nor should a Non-Resident Holder be deemed to receive, a dividend as a result of the distribution of Spin-Out Shares in exchange for Common Shares under the Arrangement. If, however, the fair market value of the Spin-Out Shares at the time of their distribution were to exceed the aggregate paid-up capital of the Common Shares immediately before that time (which is not expected to be the case), the Company would be deemed to have paid a dividend on the Class A Shares equal to the amount of the excess and each Non-Resident Holder would be deemed to have received a pro rata portion of the dividend, based on the proportion of Common Shares held. See "Certain Canadian Federal Income Tax Considerations - Holders Not Resident in Canada - Dividends on New Common Shares or Whitehorse Shares (Post- Arrangement)" below for a general description of the taxation of dividends under the Tax Act, including the Canadian withholding tax implications thereof.
Dividends on New Common Shares or Whitehorse Shares (Post-Arrangement)
Dividends paid or credited, or deemed to be paid or credited, on New Common Shares or Whitehorse Shares, as the case may be, to a Non-Resident Holder will be subject to Canadian withholding tax at a rate of 25% of the gross amount of the dividend, unless the rate is reduced under the provisions of an applicable income tax convention between Canada and the Non-Resident Holder's jurisdiction of residence. The rate of withholding tax under the Canada-U.S. Income Tax Convention (1980) (the "Treaty") applicable to a Non-Resident Holder who is a resident of the United States for the purposes of the Treaty who is the beneficial owner of the dividend, who is entitled to benefits under the Treaty, and who holds less than 10% of the voting stock of the Company or Whitehorse, as the case may be, generally will be 15%. The Company or Whitehorse, as the case may be, will be required to withhold and deduct the required amount of withholding tax from the dividend, and to remit it to the CRA for the account of the Non-Resident Holder. Non-Resident Holders who may be eligible for a reduced rate of withholding tax on dividends pursuant to any applicable income tax convention should consult with their own tax advisors with respect to taking all appropriate steps in this regard.
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Disposition of New Common Shares or Whitehorse Shares (Post-Arrangement)
A Non-Resident Holder that disposes or is deemed to dispose of a New Common Share or Whitehorse Share, as the case may be, after the Arrangement will not be subject to tax under the Tax Act on any capital gain realized on such disposition unless the New Common Share or Whitehorse Share, as applicable, constitutes "taxable Canadian property" of the Non-Resident Holder at the time of the disposition and such share is not "treaty-protected property", each within the meaning of the Tax Act.
In the event that a New Common Share or Whitehorse Share is taxable Canadian property to a Non-Resident Holder at the time of the disposition, the tax consequences described above under "Certain Canadian Federal Income Tax Considerations - Holders Resident in Canada - Disposition of the Company or Whitehorse Shares (Post- Arrangement)" will generally apply. Non-Resident Holders may also be subject to Canadian tax compliance obligations in such a circumstance and should consult with their own tax advisors as to the same.
Dissenting Non-Resident Holders
A Non-Resident Holder who validly exercises Dissent Rights and who receives a cash payment from the Company equal to the fair value of such Non-Resident Holder's Common Shares (a "Dissenting Non-Resident Holder") will be deemed to receive a taxable dividend equal to the amount, if any, by which the amount received (excluding interest) for the Dissenting Non-Resident Holder's Common Shares exceeds the paid-up capital, within the meaning of the Tax Act, of such Common Shares determined immediately before the Arrangement. The general tax consequences to a Dissenting Non-Resident Holder of being deemed to have received a dividend are described above under the heading "Certain Canadian Federal Income Tax Considerations - Holders Not Resident in Canada - Dividends on New Common Shares or Whitehorse Shares (Post-Arrangement)", including the Canadian withholding tax implications thereof. The Dissenting Non-Resident Holder will also be deemed to have received proceeds of disposition for the Common Shares equal to the amount (excluding interest) received by the Dissenting Non-Resident Holder from the Company less the amount of the deemed dividend referred to above. Consequently, the Dissenting Non-Resident Holder will recognize a capital gain (or sustain a capital loss) to the extent that such proceeds of disposition exceed (or are exceeded by) the adjusted cost base of such Dissenting Resident Holder's Common Shares. A Dissenting Non- Resident Holder will not be subject to tax under the Tax Act in respect of any capital gain realized unless the Common Shares are "taxable Canadian property" to the Non-Resident Holder and are not "treaty-protected property", each within the meaning of the Tax Act. A Dissenting Non-Resident Holder whose Common Shares are taxable Canadian property should consult its own tax advisor as to the Canadian tax consequences of exercising Dissent Rights.
Any interest awarded to a Dissenting Non-Resident Holder in respect of the exercise of Dissent Rights will not be subject to Canadian withholding tax, provided that such interest does not constitute "participating debt interest" within the meaning of the Tax Act.
Additional income tax considerations may be relevant to Non-Resident Holders who fail to perfect or withdraw their claims pursuant to the Dissent Rights.
Non-Resident Holders should consult their own tax advisors with respect to the tax consequences to them of exercising Dissent Rights.
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Certain United States Federal Income Tax Considerations
Shareholders who are resident in, or citizens of, the United States are advised to consult their own tax advisors to determine the particular United States tax consequences to them of the Arrangement in light of their particular situation, as well as any tax consequences that may arise under the laws of any other relevant foreign, state, local, or other taxing jurisdiction. This Circular does not contain a description of the United States tax consequences of the Arrangement or the ownership of New Common Shares, Spin-Out Shares, Replacement Options or adjusted RSUs.
INTEREST OF INFORMED PERSONS IN MATERIAL TRANSACTIONS
Except as disclosed in this Circular, during the most recently completed financial year, no informed person of the Company, nominee for election as a director or any associate or affiliate of an informed person or nominee, had any material interest, direct or indirect, in any transaction or any proposed transaction which has materially affected or would materially affect the Company or any of its subsidiaries. An "informed person" means: (a) a director or executive officer of the Company; (b) a director or executive officer of a person or company that is itself an informed person or subsidiary of the Company; (c) any person or company who beneficially owns, directly or indirectly, voting securities of the company or who exercises control or direction over voting securities of the Company or a combination of both carrying more than 10% of the voting rights other than voting securities held by the person or company as underwriter in the course of a distribution; and (d) the Company itself, if and for so long as, it has purchased, redeemed or otherwise acquired any of its shares.
Material Transactions - Since July 1, 2019
Related Party Transactions
The following summarizes the Company's relationship with related parties:
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Years ended June 30,
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Transactions with related parties
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2020
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2019
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Silvercorp
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$
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787,008
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$
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304,561
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Related party transactions are entered into based on normal market conditions at the amounts agreed on by the parties. As at June 30, 2020, the balances with related parties, which are unsecured, non-interest bearing, and due on demand, are as follows:
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Due to related parties
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June 30, 2020
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June 30, 2019
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Silvercorp
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$
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84,742
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$
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89,189
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Silvercorp has two common directors and one officer with the Company and shares office space and provides various general and administrative services to the Company. During the year ended June 30, 2020, the Company recorded total expenses of $787,008 (year ended June 30, 2019 - $304,561) for services rendered and expenses incurred by Silvercorp on behalf of the Company.
AUDITOR
Deloitte LLP, Chartered Professional Accountants, of Vancouver, British Columbia, are the auditors for the Company and are independent with respect to the Company within the meaning of the Rules of Professional Conduct of the Institute of Chartered Professional Accountants of British Columbia.
OTHER BUSINESS
Management knows of no other matters which will come before the Meeting, other than as set forth above and in the Notice of Meeting, but if such should occur, the persons named in the enclosed Form of Proxy intend to vote on them in accordance with their best judgment exercising discretionary authority with respect to amendments or variations of
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matters identified in the Notice of Meeting and other matters which may properly come before the Meeting, or any adjournments thereof.
ADDITIONAL INFORMATION
Additional information relating to the Company is available under the Company's profile under SEDAR at www.sedar.com.
Financial information regarding the Company and its affairs is provided in the Company's comparative financial statements for its financial year ended June 30, 2020 and the MD&A. Shareholders may contact the Company at the address set out on the face page of this Circular to request free copies of the Company's financial statements and MD&A. Alternatively, they can be found under the Company's profile on SEDAR at www.sedar.com and the Company's website at www.newpacificmetals.com.
BOARD APPROVAL
The contents of this Circular have been approved and its mailing has been authorized by the directors of the Company.
Dated at Vancouver, British Columbia, this 27th day of August, 2020.
BY ORDER OF THE BOARD OF DIRECTORS
"Mark Cruise"
Dr. Mark Cruise
Chief Executive Officer and Director
New Pacific Metals Corp.
SCHEDULE "A"
ARRANGEMENT RESOLUTION
NOW THEREFORE BE IT RESOLVED as a special resolution of the shareholders of New Pacific Metals Corp. (the "Company"), that:
1. The arrangement (the "Arrangement") under Section 288 of the Business Corporations Act (British Columbia) (the "BCBCA") involving the Company, its shareholders and Whitehorse Gold Corp. ("Whitehorse"), as more particularly described and set forth in the information circular of the Company dated August 27, 2020 (the "Circular"), accompanying the notice of meeting (as the Arrangement may be, or may have been, modified or amended), is hereby authorized, approved and adopted.
2. The plan of arrangement, as it may be or has been amended (the "Plan of Arrangement"), involving the Company, its shareholders and Whitehorse, and implementing the Arrangement, the full text of which is set out in Exhibit A to Schedule "D" to the Circular (as the Plan of Arrangement may be, or may have been, modified or amended in accordance with its terms), is hereby authorized, approved and adopted.
3. The arrangement agreement (the "Arrangement Agreement") between the Company and Whitehorse dated August 25, 2020 and all the transactions contemplated therein, the actions of the directors of the Company in approving the Arrangement and any amendments thereto and the actions of the directors and officers of the Company in executing and delivering the Arrangement Agreement and any amendments thereto are hereby confirmed, ratified, authorized and approved.
4. Notwithstanding that these resolutions have been passed (and the Arrangement adopted) or that the Arrangement has been approved by the Supreme Court of British Columbia, the directors of the Company are hereby authorized and empowered, without further notice to, or approval of, any securityholders of the Company:
(a) to amend the Arrangement Agreement or the Plan of Arrangement to the extent permitted by the Arrangement Agreement or the Plan of Arrangement; or
(b) subject to the terms of the Arrangement Agreement, not to proceed with the Arrangement.
5. Any one or more directors or officers of the Company is hereby authorized, for and on behalf and in the name of the Company, to execute and deliver, all such agreements, applications, forms, waivers, notices, certificates, confirmations and other documents and instruments and to do or cause to be done all such other acts and things as in the opinion of such director or officer may be necessary, desirable or useful for the purpose of giving effect to these resolutions, the Arrangement Agreement and the completion of the Plan of Arrangement in accordance with the terms of the Arrangement Agreement, including:
(a) all actions required to be taken by or on behalf of the Company, and all necessary filings and obtaining the necessary approvals, consents and acceptances of appropriate regulatory authorities; and
(b) the signing of the certificates, consents and other documents or declarations required under the Arrangement Agreement or otherwise to be entered into by the Company;
such determination to be conclusively evidenced by the execution and delivery of such document, agreement or instrument or the doing of any such act or thing.
SCHEDULE "B"
WHITEHORSE FINANCING RESOLUTION
NOW THEREFORE BE IT RESOLVED as an ordinary resolution of the Disinterested Shareholders (within the meaning of the Circular (as defined below)) of New Pacific Metals Corp. (the "Company"), that:
1. The issuance of up to 30,000,000 common shares in the capital of Whitehorse Gold Corp. (the "Whitehorse Shares") on a private placement basis at a price of $0.30 per share (the "Whitehorse Financing"), including the issuance of up to 11,192,333 Whitehorse Shares to insiders of the Company and Whitehorse, under the terms of Subscription Agreements to be entered into between the Company and purchasers under the Whitehorse Financing, as more particularly set out in the information circular of the Company dated August 27, 2020 (the "Circular"), is hereby authorized, approved and adopted.
2. The directors of the Company are hereby authorized to make any changes to the form of Subscription Agreement as may be required by the Toronto Stock Exchange and TSX Venture Exchange.
3. Notwithstanding that these resolutions have been passed, the Whitehorse Financing is conditional upon receipt of final approval by the Toronto Stock Exchange, the directors of the Company are hereby authorized and empowered, without further notice to, or approval of, any securityholders of the Company, to abandon all or any part of these resolutions at any time prior to giving effect thereto.
4. Any one or more directors or officers of the Company is hereby authorized, for and on behalf and in the name of the Company, to execute and deliver, all such agreements, applications, forms, waivers, notices, certificates, confirmations and other documents and instruments and to do or cause to be done all such other acts and things as in the opinion of such director or officer may be necessary, desirable or useful for the purpose of giving effect to these resolutions and the Whitehorse Financing, including:
(a) all actions required to be taken by or on behalf of the Company, and all necessary filings and obtaining the necessary approvals, consents and acceptances of appropriate regulatory authorities; and
(b) the signing of the certificates, consents and other documents or declarations required in connection with the Whitehorse Financing or otherwise to be entered into by the Company;
such determination to be conclusively evidenced by the execution and delivery of such document, agreement or instrument or the doing of any such act or thing.
SCHEDULE "C"
FAIRNESS OPINION
(attached)
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New Pacific Metals Corp.
Fairness Opinion on the Arrangement involving Whitehorse Gold Corp. and the Concurrent Private Placement Financing of Whitehorse Gold Corp.
Prepared by: Stephen W. Semeniuk, CFA
Effective Date: August 24, 2020
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1
Table of Contents
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Table of Contents
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2
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Summary and Conclusions
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3
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Introduction
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5
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Description of Whitehorse Gold Corp
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6
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Description of the Tagish Lake Gold Project
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7
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NI 43-101 Technical Reports Submitted by NUAG
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10
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Valuing In Situ Mineral Resources
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11
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Summary Table - Reference Comparables
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14
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Credentials of the Writer
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14
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Proposed Whitehorse Private Placement
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15
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Considerations as to Fairness
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15
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Opinion on the Pricing of the Whitehorse Private Placement
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16
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Conclusion as to Fairness
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19
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Statement of Qualifications
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20
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Summary and Conclusions
The writer was engaged to provide the fairness opinion on the proposed statutory plan of arrangement (‘Arrangement) under the British Columbia Business Corporations Act (‘BCBCA’) by which New Pacific Metals Corp. (‘NUAG’) and Whitehorse Gold Corp. (‘Whitehorse’) will proceed with a series of transactions whereby NUAG will distribute all of the Whitehorse common shares (‘Whitehorse Shares’) held by NUAG (such Whitehorse Shares, being the 'Spin-Out Shares’) to the holders of NUAG common shares (‘NUAG Shareholders’) such that holders of NUAG common shares other than any NUAG dissenting shareholders will become holders of the Spin-Out Shares and Whitehorse will cease to be a subsidiary of NUAG. The valuator considers the distribution of the Spin-Out Shares to NUAG Shareholders to be the first element of the Arrangement.
The second element of the Arrangement, which is a condition to the completion of the Arrangement, is a private placement of up to 30,000,000 Whitehorse Shares (the ‘Whitehorse Private Placement’) including the issuance of up to 11,192,333 Whitehorse Shares to certain insiders of NUAG, at a price of $0.30 per Whitehorse Share, for gross proceeds of up to $9 million, such that following the Arrangement and completion of the Whitehorse Private Placement for 30,000,000 Whitehorse Shares, there is expected to be 50,000,001 Whitehorse Shares outstanding. Whitehorse, as a junior mining exploration company with no immediate prospect of generating revenues will require working capital to become a going concern, to hire professional staff, to evaluate, plan and support the exploration and development of the Tagish Lake Gold Project. To this end, NUAG agreed to provide a start up loan to Whitehorse to be repaid through part of the proceeds of the Whitehorse Private Placement as a condition to closing of the Arrangement.
The purpose of the Arrangement and the related transactions is to reorganize NUAG into two separate publicly-traded companies: (a) NUAG, which will be an exploration and development company focused on NUAG’s assets in Bolivia and (b) Whitehorse, which will be an exploration and development company focused on the Tagish Lake Gold Project consisting of the gold resources located on the claims in the Mt. Skukum area near Whitehorse, Yukon. The Arrangement will result in, among other things, participating NUAG Shareholders holding, immediately following completion of the Arrangement, all of the issued and outstanding common shares of NUAG following the Arrangement and a pro rata number of Spin-Out Shares.
Based on the information provided to the valuator, his observations and analyses as well as other relevant factors applicable to the companies, it is the valuator’s considered opinion that the Arrangement and the Whitehorse Private Placement, when taken as a whole (and when each is considered individually) is fair, from a financial point of view, to the NUAG securityholders (including NUAG Shareholders).
3
This opinion is given for the sole and exclusive use of the Board of Directors of NUAG and NUAG Shareholders. The writer reserves the right to amend or withdraw the conclusions reached in this Fairness Opinion, if a material change occurs in any of the facts, representations and reports which have been relied upon in preparing this report, or if information provided to the writer and upon which he has relied, is inaccurate in any material respect. This report should not be construed as a recommendation to buy or sell any of the securities mentioned herein and no representations or warranties of any kind are intended, neither nor implied.
4
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August 24, 2020
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Board of Directors
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Board of Directors
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New Pacific Minerals Corp.
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Whitehorse Gold Corp.
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Suite 1750 - 1066 West Hastings Street
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Suite 1750 – 1066 West Hastings Street
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Vancouver, BC V6E 3X1
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Vancouver, BC V6E 3X1
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Gentlemen,
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You have engaged the writer to provide the fairness opinion on the proposed statutory plan of arrangement (‘Arrangement') under the British Columbia Business Corporations Act (‘BCBCA’) by which New Pacific Metals Corp. (‘NUAG’) and Whitehorse Gold Corp. (‘Whitehorse’) will proceed with a series of transactions whereby NUAG will distribute all of the Whitehorse common shares (‘Whitehorse Shares') held by NUAG (such Whitehorse Shares, being the 'Spin-Out Shares') to the holders ('NUAG Shareholders') of NUAG common shares ('NUAG Shares') such that NUAG Shareholders, other than dissenting NUAG Shareholders, will become holders of the Spin-Out Shares and Whitehorse will cease to be a subsidiary of NUAG. The valuator considers the distribution of the Spin-Out Shares to NUAG Shareholders to be the first element of the Arrangement.
To effect the proposed Arrangement, the NUAG Shares will be re-named and re-designated as NUAG Class A shares to facilitate the distribution of Spin-Out Shares to NUAG Shareholders at which point NUAG will cease to be a holder of the Spin-Out Shares and the capital account of NUAG will be reduced by the fair market value of the Whitehorse Spin-Out Shares. Current NUAG Shareholders will be asked to exchange their existing NUAG Shares for new NUAG Shares on a share for share basis and a pro rata portion of the Spin-Out Shares held by NUAG (approximately 0.13 Spin-Out Shares per NUAG Share as at the date hereof).
Similarly, dissenting NUAG Shareholders will not become holders of any Spin-Out Shares and will be paid the fair market value (‘FMV’) attributed to the NUAG shares such dissenting NUAG Shareholders hold immediately prior to the effective date of the distribution.
Holders of NUAG options will receive, for NUAG options held immediately prior to the effective time of the Arrangement, replacement NUAG options to acquire replacement NUAG Shares. The exercise price of the replacement NUAG option will be adjusted using a weighted average trading price formula that is acceptable to the Toronto Stock Exchange and which ensures that the economic value of a NUAG option is not enhanced. Holders of NUAG RSUs will be credited with, for NUAG RSUs held immediately prior to the effective time of the Arrangement, additional NUAG RSUs to reflect the reduction in FMV of replacement NUAG Shares and NUAG RSUs following the effective date of the Arrangement will be referable in value to the replacement NUAG Shares. All other terms and conditions of the replacement NUAG options and adjusted NUAG RSUs will be identical to the NUAG options and non-adjusted NUAG RSUs, respectively.
5
The second element of the Arrangement, which is a condition to the completion of the Arrangement, is a private placement of up to 30,000,000 Whitehorse Shares (the 'Whitehorse Private Placement'), including the issuance of up to 11,192,333 to certain insiders of NUAG, at a price of $0.30 per Whitehorse Share, for gross proceeds of up to $9 million, such that following the Arrangement and completion of the Whitehorse Private Placement for 30,000,000 Whitehorse Shares, there is expected to be 50,000,001 Whitehorse Shares outstanding. Whitehorse, as a junior mining exploration with no immediate prospect of generating revenues will require working capital to become a going concern, to hire professional staff, to evaluate, plan and support the exploration and development of the Tagish Lake Gold Project (the 'TLG Project). To this end, NUAG agreed to provide a start up loan to Whitehorse to be repaid through part of the proceeds of the Whitehorse Private Placement as a condition to closing of the Arrangement. The Whitehorse Placement will be subject to disinterested NUAG Shareholder approval. The details of the Whitehorse Private Placement, as now foreseen, are described in a separate section.
Description of Whitehorse Gold Corp.
Whitehorse was incorporated under the BCBCA on November 27, 2019 and is a 100% owned subsidiary of NUAG.
On February 12, 2020, Whitehorse entered into a share exchange agreement with NUAG, pursuant to which NUAG transferred to Whitehorse all of the issued and outstanding shares (the 'Tagish Shares') of Tagish Lake Gold Corp. ('TLGC') in exchange for (1) an aggregate of 20,000,001 Whitehorse Shares; and (2) a promise to pay the sum of CAD$3,000,000 plus interest to New Pacific on demand ('Share Exchange Debt'). Subsequent to June 30, 2020, NUAG announced its intention to spin-out Whitehorse and the TLG Project by way of directly or indirectly distributing the Spin-Out Shares to NUAG Shareholders on a pro rata basis by way of a plan of arrangement under the BCBCA.
When NUAG acquired its initial interest in the TLG Project in early 2010, the price of gold had been trading in a range of $1,100/oz to $1,200/oz. The price of gold reached a high of US$1,896/oz in 2011 and then traded back to within a range of $1,600/oz to $1,800/oz before breaking below $1,500/oz in 2013. Since NUAG’s acquisition of TLGC in December 2010, one exploration season has been completed on the TLG Project (work commenced on May 18, 2011 and ended on October 9, 2011). The TLG Project was placed on care and maintenance status from the end of exploration work until November 2014 at which time the camp was sealed and unmanned. Summer flooding in June 2014 closed the public road access to the TLG Project and the asset was written down to nil value.
6
Description of the Tagish Lake Gold Project
TLG Project is located 80 kilometres by road south of Whitehorse, Yukon, Canada. By helicopter the TLG Project is situated approximately 55 kilometres from the Whitehorse Airport. The land package is comprised of 1,510 mineral claims covering approximately 254 square kilometres. None of the claims are subject to any royalties, back-in rights or other encumbrances. Within the property, three geographically distinct zones of mineralization have been identified: the Skukum Creek, Goddell, and Mt. Skukum deposits. The latter deposit was briefly mined between February 1986 and August 1988 by Total Erikson with recovery of 77,790 troy ounces of gold.
The TLG Project was acquired by NUAG through the 2010 acquisition of all outstanding shares of TLGC. Since the acquisition of the TLG Project in December 2010, NUAG was only able to complete one exploration season that commenced on May 18, 2011 and ended on October 9, 2011. Between the end of exploration work and November 2014, the property was placed on care and maintenance. The property's previous infrastructure included an all-weather access road, extensive underground workings and roads to each project site, a 300 tonne per day mill, a tailings reclamation site, service buildings and an all-weather 50-person camp that has been sealed and unmanned since November 2014. All major onsite equipment items were removed and sold. Permafrost is prevalent in the area thereby restricting any unauthorized access to any residual underground infrastructure.
As at June 30, 2020, the carrying amount of the TLG Project was re-measured to its recoverable amount, being its fair value less costs of disposal (‘FVLCD’), based on in situ multiples. As a result, Whitehorse recognized an impairment reversal of $11,714,944 for the period from incorporation on November 27, 2019 to June 30, 2020. The continuity schedule of mineral property interest is summarized as follows:
7
|
Cost
|
|
TLG Project
|
|
|
Balance, November 27, 2019
|
$
|
-
|
|
|
Capitalized exploration expenditures
|
|
|
|
|
Acquisition of TLG Project
|
|
104,205
|
|
|
Permitting
|
|
851
|
|
|
Impairment Reversal
|
|
11,714,944
|
|
|
Balance, June 30, 2020
|
$
|
11,820,000
|
|
Over the years, numerous companies were involved in conducting exploration on the Mt. Skukum properties. But the past expenditures of the predecessor explorers bear little significance to today’s value of the subject properties. Based on information contained in the NI 43 101 technical reports a significant amount of exploration work has been conducted on the TLG Project. Historical exploration included surface surveys, trenching, geochemical and geo physical surveys, trenching and surface and underground drilling. The technical reports summarize surface and underground drilling for a combined total of 121,000 metres in more than 910 holes. It is reported that more than 910 holes and 7,630 metres of underground drifting and crosscuts were developed.
NUAG undertook an exploration program in 2011 that included digital data compilation, supplemental sampling of historical drill holes and conducting 12,488 metres of drilling in 51 holes from surface as well as underground.
During the year ended June 30, 2014, NUAG decided to cease operations at the TLG Project and realized impairment charges in the total amount of $39,966,831 taken in fiscal year 2014 against the carrying amounts of the project’s mineral interests and plant and equipment. These charges were followed by a charge of $175,901 for expenses incurred in the 2015 fiscal year.
Three geographically distinct target zones have been identified on the property. Prior mining operations were conducted on the Mt. Skukum Zone and exploration drifts have been driven on the Skukum Creek Zone and Goddell Zone. Some of the past exploration activities on the various zones are described to indicate that other parties likely would have recognized impairment charges associated with their activities on the TLG Project.
Agip Canada Ltd. (‘Agip’) conducted exploration in the Mt. Skukum (map area #1 – see appendix to this report) in 1980 and in 1984 entered into a joint venture agreement with a predecessor of Total Energold to develop a mine and 270 tpd mill. Mining was conducted between February 1986 and August 1988 recovering 77,790 oz of gold. Subsequently, in 1991 the Mt. Skukum claims and mill were acquired by Wheaton River Minerals Ltd. (‘Wheaton’). In September 1994, Wheaton’s 820 claims, augmented to include the Skukum Creek claims discussed below, and the Mt. Skukum mill were sold to Omni Resources Inc. (‘Omni’). Omni amalgamated with Trumpeter Yukon Gold Inc. (‘Trumpeter’) in November 2000 to form TLGC.
8
The Skukum Creek area, map area #2, was originally staked in 1922 to cover anomalous gold and antimony indications. Exploration was conducted by a series of companies including the rehabilitation of the adit where a grab sample returned 13.03 g/t Au and 82.29 g/t Ag. In 1984 the Skukum Creek claims were purchased by Omni through an agreement with the prospector who had originally staked the claims for another party which were then transferred to Skukum Gold Inc. (‘SGI’) and finally to Omni via purchase from Wheaton. Omni conducted extensive exploration on Skukum Creek area, including diamond drilling as well as reverse circulation drilling that outlined 10 anomalous gold zones.
In 1988, SGI and Omni entered a joint venture to bring the Skukum Creek into production. Underground work conducted in 1988 included 1,571 metres of tunneling to provide for drifting and sampling at the 1300 and 1350 levels along the Rainbow and Kuhn veins. Underground drilling into the Kuhn, Rainbow and Sterling zones amounted to 13 holes with a combined length of 1,416 metres. Surface drilling consisted of 24 holes over a combined length of 5,165 metres that tested the Sterling zone as well as the two prior-mentioned zones. For zones referenced above see maps included in the Appendix.
In June 1991, the Skukum Creek property reverted to Omni as SGI failed to meet the conditions of the joint venture agreement between the parties. In August 1991, Wheaton purchased the assets of SGI that included the nearby the Mt. Skukum property and mill and entered into an agreement with Omni to bring the Skukum Creek property into production. Wheaton backed out of the agreement in 1994 and the Skukum Creek project and the Skukum mine and mill were transferred to Omni.
Through a joint venture agreement, Omni acquired a 60% initial interest in the Goddell property (map area #3) from Arkona Resources Inc. (‘Arkona’) in 1995. A 10% royalty interest held by Taurus Ventures Ltd. was later acquired by Omni. Also in 1996, Omni granted an option to Trumpeter to acquire a 50% interest in the Mt. Skukum properties. Trumpeter fulfilled its obligations under the agreement in 1997.
The ownership position in the Skukum claim group had increased as TLGC acquired the remaining 30% interest in the Goddell property from a successor company to Arkona. This move combined the three Skukum area gold deposits into a single 100% owned land package and expanding the size of the TLG Project areas beyond the Mt. Skukum mine and Skukum Creek project areas to include the Goddell interests.
9
NUAG completed the acquisition of all outstanding shares of TLGC in December 2010 through a plan of arrangement. The acquisition was made by offer of either $0.10 in cash, or 0.137 of a NUAG share or a combination of 50% in cash and 50% in NUAG shares. The purchase consideration was booked as $20,392,409. Of this amount $1,476,286 represented cash, and $17,018,303 was assigned as the value of 15,613,122 NUAG shares that were issued and the balance represented other transaction costs and balance sheet items.
NI 43 101 Reports Submitted by NUAG
On September 14, 2012, NUAG filed an updated National Instrument 43‐101 (‘NI 43‐101’) report for the Skukum Creek, Goddell, and Mt. Skukum projects. On August 14, 2013, a revised version of the 2012 NI 43‐101 report was filed.
Further to the original NI 43-101 technical report filed on September 14, 2012, NUAG filed an amended and restated 43-101 technical report with an effective date of July 16, 2013, in response to concerns as set out by the BC Securities Commission to the September 14, 2012 report. NUAG undertook drilling in 2011 that is referenced in the July 2013 43-101 report although not segregated in a separate section of that report. The work was performed by four drilling contractors. The program consisted of 51 drill holes over a combined total of 12,487.77 metres of which number 2,266.25 metres represents abandoned core. Significantly, as stated in the Summary section of the restated and amended report ‘none of the changes made in this revision to the September 14, 2012 filing materially affect the GeoSim Services, Inc.’s opinions, conclusion and recommendations, and the effective date of remains July 16, 2012’. The resource estimates that appear in the 2012 and 2013 43-101 reports are identical and pertain to the three project target zones within the SLP area. The resources in the Skukum Creek Zone are identified as separate areas that can be located on the map in the appendix, these being indicated as Rainbow Zone, Kuhn Zone, Berg Zone and Rainbow 2 Zone.
The NI 43-101 technical reports presented the mineral resource estimates for the three project targets. A cut-off grade of 3.0 g/t gold equivalent was used as being consistent with the cut-off grade for other mineral deposits of similar characteristics of scale and location. The gold and silver prices used for the resource estimates of July 16, 2012 were US$1,300 oz Au and US$26.00 oz Ag.
Sustaining revenue levels for mining operations must consider the cyclicality of Au and Ag prices whereas market spot prices, at times, are can be influenced by emotional factors such as fear and greed. Based on average July prices to the 30th, the combined gross value of contained Au and Ag in the three project target areas has increased by approximately 30% from the sustaining revenue prices referenced in the 2012 technical reports. The historical resources outlined in the TLG Project, by the writer’s calculations amount to 582,458 AuEq oz or 601,353 AuEq oz depending on what silver to gold ratio is used. The 90:1 Au to Ag ratio is based on the average of the beginning day and ending day closing prices for June 30th and July 30th, actually calculated as being 89.3 : 1. The following table summarizes the total TLG Project resources by zone and categories and provides conversions to AuEq oz. For some valuation calculations that will follow, the contained gold equivalent ounces were rounded to 600,000 AuEq.
10
|
|
tonnes
|
Au g/t
|
Ag g/t
|
oz AU
|
oz Ag
|
|
Indicated
|
|
|
|
|
|
|
Skukum Creek
|
1,086,800
|
5.54
|
159.0
|
193,700
|
5,547,600
|
|
Goddell Gully
|
329,700
|
8.13
|
|
86,210
|
|
|
Inferred
|
|
|
|
|
|
|
Lake Zone
|
90,500
|
9.25
|
13.0
|
26,900
|
37,800
|
|
Skukum Creek
|
586,000
|
4.74
|
105.0
|
89,200
|
1,972,700
|
|
Goddell Creek
|
483,900
|
7.13
|
|
110,867
|
|
|
Total tonnes
|
2,576,900
|
|
|
|
|
|
Total oz
|
|
|
|
506,877
|
7,558,100
|
|
Equivalent oz Au with Ag @100:1 ratio
|
|
582,458
|
|
|
Equivalent oz Au with Ag @ 90:1 ratio
|
|
590,856
|
|
|
Equivalent oz Au with Ag @ 80:1 ratio
|
|
601,353
|
|
NUAG considers the 3.0 g/t cutoff grade does not demonstrate economic viability although the current prices for Au and Ag have increased significantly to approximately US$1,960 oz Au and US$24 oz Ag. The combined gross values of the contained metals in the three project targets have increased by approximately 30% using average July prices to the 30th, but the gain is offset by the 25% decline in Canadian currency since 2012 meaning that equipment and other input costs and supplies will offset gains from higher values for Au and Ag. However, the total amount of the TLG resources, in all categories, is relatively small compared to many recent gold and silver resources transactions than contain millions of ounces of gold equivalent resources. The following table summarizes the TLG Project resources by zone.
Valuing In Situ Metal Resources
Under CIMVal Standards and Guidelines, the two valuation approaches for valuing exploration projects are market and cost. The writer considers the cost method to be problematic. Costs may be relevant if incurred over a relatively short span of time, but if exploration activities were conducted by numerous parties over longer periods of time, inflation and changes in technology may challenge the relative significance of such expenditures a process that the writer describes as an attrition of value. Consequently, the past expenditures of predecessor explorers may bear little significance to today’s value of the subject properties.
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The valuator considers the Parrish and Mullen article in Mining Magazine, June 1998, represents a landmark article in valuing mineral projects. The authors reviewed approximately 35 mineral property acquisitions largely involving gold and copper projects. The authors found that the price of copper projects ranged upwards from 1% of in situ resources and gold projects from 2% and upwards depending on the advancement of the projects. Prices of other base metals projects tended to be priced at a lower limit of 0.5% likely due to their smaller scale. These observations provided a system for comparing or establishing prices for mineral resources projects within the context of current market conditions or those existing when such transactions occurred.
The pricing differentiation of different metal resources is due to many factors. Financing costs for gold projects are lower through the use of low-interest, gold loans thereby making gold projects worth more on the basis of present value calculations not to mention gold’s inherent reserve value, portability and liquidity relative to most other metals. Gold and copper projects are usually larger than other base metals projects with up to 80% to 90% of recoverable contained metal.
The pricing of metal and mineral reserves and resources relative to the current market pricing of the underlying metal or mineral commodities facilitates pricing comparisons. Prices for many metal commodities are subject to cyclical influences and prices can vary widely. The transaction values of the corresponding deposits of such metal and mineral reserves and resources will tend to reflect the market pricing of the underlying commodities. In such cases the appropriate measure of resources value should relate to the underlying in situ value of the resources because often the payment in such transactions may consist entirely or in part with shares, which will likely reflect cyclical influences and fluctuate in value.
In short, the stock prices of a companies producing copper and/or precious metals will tend to move in the direction of the price changes of the respective metals. However, as will be pointed out in the discussion of some market comparable transactions, there may be a distinction, if the payment in shares for properties or projects is made by a seasoned market participant or by a newly listed junior company. Conversely, political factors or potential environmental problems or regulatory permitting problems are factors that could tend to suppress the value of in the ground mineral resources.
12
In recent months there has been a flurry of acquisition activity involving companies holding gold and/or silver-oriented projects. However, actual mine producers of gold and silver as well as junior explorer gold companies in the process of outlining larger deposits with higher grades of undeveloped resources are not suitable comparables for valuing the TLG Project with its resources in all categories approaching 600,000 gold equivalent ounces. For contrast, Shandong Gold’s currently outstanding offer to purchase Cardinal Resources Ltd. (‘Cardinal’) at a revised offer of A$0.70 per share that Cardinal’s directors have recommended acceptance and which they estimate values Cardinal as being A$395 million (i.e. US$280 million) targets the Namdini project in Ghana, West Africa. The project is at the feasibility stage and proven and probable reserves are stated as 5.1 million ounces and represent approximately 70% of the global resources of 7.0 million ounces as previously outlined in the measured, indicated and inferred categories. However, as the spot price of gold has now surpassed US$2,050 per ounce Shandong’s revised offer of A$0.70 per Cardinal share represents US$40 per ounce or 2.1% of contained gold resources based on the price of gold at the time of offer. This calculation makes no provision for positive exploration results reported for Cardinal’s Ndongo project located 15 kilometres from the Namdini project.
The historic resources at the TLG Project in all categories (measured, indicated and inferred) at approximately 600,000 ounces of gold equivalent ounces represent less than 10% of the 7.0 million oz Au resources outlined at Cardinal’s Namdini project. The Narndini project and the TLG Project, represent extremes in size, geology (i.e. surface versus narrow veins) and geography (climate, energy consumption) and potential timing to production. Consequently, in searching for market comparable transactions, an important consideration is that larger projects provide economies of scale and can command pricing premia. Conversely, it is logical to expect that projects with lesser amounts of resources may be priced at lower values for units acquired.
Some recent acquisitions of Au-oriented companies have involved operating mines as well as undeveloped resources but are not considered suitable comparables for valuing the TLG Project. Higher prices for actual producers of Au and Ag impact the value of such companies as commodity prices rise because there is an immediate effect on operating margins. The values of undeveloped resources may not appreciate quickly due to the various risks and time involved in getting such deposits into production. The historic resources outlined at the TLG Project amount to approximately 600,000 au eq oz whereas at least two of the eight smaller acquisitions involved resources in the range of 3,000,000 to 5,000,000 Au eq oz. The following table shows the eight reference transactions selected to establish a range of value for TLG Project.
13
|
Summary Table – Reference Comparables
|
|
|
|
Parties or Assets Transacted
|
Adjusted Value
|
% of
|
In Situ Value
|
|
Month/Year
|
|
|
|
|
Silvercorp/JDS Silver
|
$15.1 mm
|
0.71%
|
Mar/2013
|
|
Hecla/Revett
|
$27.9 mm
|
0.30%
|
Mar/2015
|
|
First Mining/Clifton Star
|
$7.6 mm
|
1.32%
|
Feb/2016
|
|
Endeavour/Oro Silver
|
$10.5 mm
|
3.15%
|
May/2016
|
|
Hecla/Mines Management
|
$36.8 mm
|
0.50%
|
May/2016
|
|
Bluestone/Goldcorp
|
$33.0 mm
|
2.95%
|
Jan/2017
|
|
Integra/Delamar & Florida Mtn.
|
$52.4 mm
|
1.07%
|
Sept/2017
|
|
Titan Minerals/Core Gold
|
$70.0 mm
|
0.93%
|
June/2019
|
The valuer arrived at a range of value for the TLG Project as being within a range of 0.8% to 1.0% of the value of approximately 600,000 in situ gold equivalent ounces contained in all resource categories. In dollar terms the value is within a range of US$9.12 million to US$11.40 million or approximately $12.16 million to $15.20 million, if held within a publicly listed company. If such assets were to be held in a non listed entity, a significant illiquidity discount would be expected to apply. The effective date of the valuation when submitted is July 30, 2020.
Credentials of the Writer
The Valuator, is an experienced independent financial consultant that has been providing securities valuation services, fairness opinions and financial consulting and research services to lawyers, governments, investment dealers and industry participants since 1991. The Independent Valuator holds a M.B.A. degree from Michigan State University and is a CFA charter holder.
The Independent Valuator has held securities research positions with Odlum Brown Ltd. and Brink Hudson and Lefever Ltd. and was previously Vice President, Research, with LOM Western Securities Ltd. and as a condition of employment was required to pass the Partners, Directors and Officers examination administered by the Canadian Securities Institute and was subsequently registered by the British Columbia Securities Commission under the category: Trading Partner, Director, Officer. The Independent Valuator also served as Research and Financial Analyst with the Vancouver Stock Exchange & Securities Commission (i.e. Matkin Commission) in 1993.
14
The Valuator has confirmed that he has no past, present or intended interest in the Common Shares, the Whitehorse Shares, the Company, Whitehorse, or their respective associates and affiliates, and has no prior association with the Company or Whitehorse except that between 2006 and 2013, the Independent Valuator provided opinions to the Company regarding the acquisition of Yangtze Mining Ltd. and its subsequent sale to Silvercorp, and the Company’s acquisition of Fortress Mining Inc. The Independent Valuator also provided an opinion to Silvercorp on the values of certain restricted securities.
Proposed Whitehorse Private Placement
The initial capitalization of Whitehorse consists of 20,000,001 shares. Based on the valuator’s estimate of the value of the TLG Project, NUAG has calculated the Net Asset Value (‘NAV’) of Whitehorse as $0.432 per share. The supporting calculations are shown below.
|
TLG Project
|
$12.16 million
|
|
Working Capital
|
$0.40 million
|
|
New Pacific-Whitehorse Debt
|
$(3.61) million
|
|
Expenses Related to Arrangement and Whitehorse Private
|
$(0.31) million
|
|
Placement
|
|
|
Whitehorse NAV
|
$8.64 million
|
|
Whitehorse Shares outstanding(2)
|
20,000,001
|
|
NAV per Whitehorse Share
|
$0.432
|
A condition of the Arrangement is the completion of the Whitehorse Private Placement, being a private placement of up to 30,000,000 Whitehorse Shares at a price of $0.30 per Whitehorse Share. The valuator established that the value of the TLG Project was in a range of $12.16 million to $15.20 million. Consultants for NUAG estimated that the potential cost of remediation of the tailings from past mining activities, infrastructure removal and permitting to secure regulator and social approval to advance new exploration and development activities on the part of Whitehorse to be in a range of $1.0 million to $5.0 million. With these facts in mind the NAV of Whitehorse Shares as presented above appears reasonable as the market comparable transactions referred to by the Valuator pertain to public companies listed on organized stock exchanges.
Considerations as to Fairness
In assessing the fairness of the elements of the Arrangement and the Whitehorse Private Placement as set out in the introduction of this report, the valuator analyzed, reviewed and considered numerous factors. Among such are the following:
15
• the absence of ownership dilution implications inherent in the first element of the Arrangement as the respective ownership positions of NUAG and Whitehorse, except for dissenting NUAG Shareholders, will remain unchanged;
• current NUAG Shareholders, except for dissenting NUAG Shareholders, may be able to dispose of their Whitehorse Shares or acquire additional Whitehorse Shares when the Company attains a listing on the TSXV
• the arrangement will facilitate the financing of the exploration and development activities required to advance the TLG Project as NUAG’s main exploration focus, since 2017, has become the Silver Sand project (‘SSP’) in Bolivia and has been able to raise funds and establish a strategic partnership on that basis;
• the fact that on becoming a separate entity from NUAG, Whitehorse will immediately require to access funding to become a viable operating business entity and to qualify for a listing on an organized stock exchange;
• often such immediate funding requirements can be made available through private placements of shares with investors who are able to forego the illiquidity of their investment as such shares are typically not tradable; and
• the pricing of private placements to fulfil regulatory requirements.
Opinion on the Pricing of the Whitehorse Private Placement
The proposed Whitehorse Private Placement, being a private placement of up to 30,000,000 Whitehorse Shares priced at $0.30 per Whitehorse Share to raise up to $9.0 million is priced at a discount of $0.132 to the calculated NAV of Whitehorse Shares. The NAV of the shares is a proxy for the market price of Whitehorse Shares as the reference transactions referred to by the valuator pertain to public companies listed on organized stock exchanges. Raising funds through a private placement is time and cost effective. The writer understands that insiders of NUAG have expressed indications of interest to subscribe to up to approximately 37% of the Whitehorse Private Placement (assuming completion of the maximum offering amount). The Valuator is of the opinion that the indicated discount of approximately 31% implied by the proposed pricing of $0.30 per Whitehorse Share for the Whitehorse Private Placement is fair and reasonable.
Spanning a period of perhaps 40 years, the literature of finance is now replete with accumulated studies dealing with illiquidity discounts. Some of these studies focused on the valuation of minority interests in shares of private companies on the basis of illiquidity due to lack marketability or regulatory or contractual restrictions on resale of publicly listed shares issued under regulated or contractual escrow requirements or, prior to 2008, to share holdings that were subject to Rule 144 provisions in the United States. One notable example of the latter is the research by William Silber3 that concluded that stock subject to Rule 144 with a two-year trading restriction priced at an average discount of 33.75% to identical registered shares.
16
Other studies focused on the valuation of privately held companies prior to going public. Of note is the fact that in 1977 even the United States Internal Revenue Service (‘IRS’) issued ruling 77- 287 recognizing the validity of restricted stock studies as supporting lack of marketability discounts. The IRS release was intended to provide information and guidance to taxpayers, Internal Revenue Service personnel and others concerned with valuation, for Federal tax purposes, of securities that could be immediately resold because they are restricted from resale pursuant to Federal securities laws. The IRS ruling made reference to and drew on the Security Exchange Commission’s Investment Company Act Release No. 5847, dated October 21, 1969, that concluded there could be no automatic formula to value the restricted securities in portfolios and that it was the responsibility on the boards of directors of investment companies to establish the ‘fair value’ of each such issue held.
Subsequently, Congress directed the SEC to undertake ‘an analysis of the purchases, sales, and holding of securities by financial institutions, to determine the effect of institutional activity upon the securities market’. The study report was released in March 1971 in eight volumes. The fifth volume of the Institutional Investors Study (‘IIS’) focused on restricted securities and dealt with the characteristics of the restricted securities purchasers and issuers, the size of transactions (dollars and shares), the marketability discounts on different trading markets, and the resale provisions.
This research project provided some guidance for measuring discounts as it contains information, based on the actual experience of the marketplace, showing that, during the survey period (January 1, 1966, through June 30, 1969) the amount of discount allowed for restricted securities from the trading price of the unrestricted securities was generally related to a number factors with the foremost being the level and consistency of earnings and sales, the relative size of the issuer in terms of sales and trading market of the shares in question with larger illiquidity discounts observed in issues of companies listed on markets junior to the NYSE.
It is worth expanding on some aspects of the impact of earnings and sales, or lack thereof as consistently having a significant influence on the size of restricted securities discounts according to the IIS. Earnings played the major part in establishing the ultimate discounts at which these stocks were sold from the current market price. Apparently earnings patterns, rather than sales patterns, determine the degree of risk of an investment. The dollar amount of sales of issuers' securities also has a major influence on the amount of discount at which restricted securities sell from the current market price. The results of the IIS generally indicate that the companies with the lowest dollar amount of sales during the period or investigation accounted for most of the transactions involving the highest discount rates, while they accounted for only a small portion of all transactions involving the lowest discount rates.
17
According to the study, discount rates were highest on restricted stocks with unrestricted counterparts traded over-the-counter, followed by those with unrestricted counterparts listed on the American Stock Exchange, while the discount rates for those stocks with unrestricted counterparts listed on the NYSE were the smallest. Some other attributes affecting value were issue specific such as pre-emptive purchase rights on new security issues, the ability to appoint directors and preferential dividend provisions to name a few of such characteristics. IRS Ruling 77-287 incorporated the above points in some form and added the relative negotiating strengths of the buyer and seller and the market performance of publicly traded shares of the same class as the restricted shares.
The large body of literature dealing with illiquidity discounts exists because US markets are very liquid compared to their counterparts in other countries. The studies are generally classified as ‘restricted stock studies’ and ‘pre-IPO studies’. Some companies have shares outstanding that are not registered for public trading or subject to escrow restrictions that limit or prevent public trading until certain criteria are met. Some private placements and acquisition transactions as well as regulatory requirements are examples as to how such restrictions can arise.
Concurrently with restricted stock studies, other researchers focussed on the quantification of valuation discounts observed when privately held companies subsequently completed initial public offerings. The discounts were calculated on the pricing of financings made available to private companies by venture capitalists and the subsequent pricing of IPOs when such companies were taken public. Numerous studies have been completed that have reviewed literally hundreds of transactions. Discounts ranging from 10% to 85% my surprise some readers but first level discounts in a range of 45% to 55% applied to value private companies relative to comparable peer companies are easily supported. However, US courts generally have preferred references being made to specific cases to demonstrate discounts rather than citing average or median results of studies. It has been suggested to the Valuator that the taxation authorities in Canada seem less inclined to accept significant illiquidity discounts. A chapter ‘Discounts and Premia’ is included in the Seminar Proceedings ‘Valuation of Closely Held Companies and Inactively Traded Securities’ published by the Institute of Chartered Financial Analyst in 1990 and therefore can be considered as part of the profession’s body of knowledge.
18
Conclusions as to Fairness
The purpose of the Arrangement and the related transactions is to reorganize NUAG into two separate publicly-traded companies: (a) NUAG, which will be an exploration and development company focused on NUAG's assets in Bolivia and (b) Whitehorse, which will be an exploration and development company focused on the TLG Project, consisting of the gold resources located on the claims in the Mt. Skukum area near Whitehorse, Yukon Territory. The Arrangement will result in, among other things, participating NUAG Shareholders holding, immediately following completion of the Arrangement, all of the issued and outstanding common shares of NUAG following the Arrangement and a pro rata number of Spin-Out Shares (representing approximately 40% of the issued and outstanding Whitehorse Shares following completion of the Arrangement and the Whitehorse Private Placement, assuming the Whitehorse Private Placement is fully subscribed).
Based on the above information, observations and analyses by the writer as well as other relevant factors applicable to the companies, it is the writer’s considered opinion that the Arrangement and the Whitehorse Private Placement, when taken as a whole (and when each is considered individually), is fair, from a financial point of view, to the NUAG securityholders (including NUAG Shareholders).
This opinion is given for the sole and exclusive use of the Board of Directors of NUAG and the NUAG Shareholders. The writer reserves the right to amend or withdraw the conclusions reached in this Fairness Opinion, if a material change occurs in any of the facts, representations and reports which have been relied upon in preparing this report, or if information provided to the writer and upon which he has relied, is inaccurate in any material respect. This report has been prepared solely for the purpose of providing information. It should not be construed as a recommendation to buy or sell any of the securities mentioned herein and no representations or warranties of any kind are intended, neither implied nor should be inferred.
Yours truly,
(signed) "Stephen Semeniuk"
Stephen W. Semeniuk, CFA
19
Statement of Qualifications
I, Stephen Semeniuk, of 3845 Southridge Avenue, West Vancouver, Canada hereby certify that:
1. I am a graduate with a B. Comm. (Hons.) degree from the University of Windsor.
2. I completed an M.B.A. degree, finance major, from Michigan State University.
3. I am a CFA® charter holder, having completed the program offered by the Institute of Chartered Financial Analysts, charter #6621.
4. I have been practicing as an independent financial consultant since January 1991 in providing securities valuation services, fairness opinions, and financial consulting and research services to lawyers, government, investment dealers and industry.
5. I was formerly Vice President, Research of LOM Western Securities Ltd., at that time, the leading underwriter of junior resources and industrial companies in Western Canada. I have also held securities research positions with Vancouver-based Odlum Brown Ltd. and Brink Hudson and Lefever Ltd.
6. I have also held financial planning and operations analysis positions with British Columbia Resources Investment Corporation, Power Corporation of Canada, Chemcell Ltd. and Ford Motor Company of Canada.
7. The Fairness Opinion in respect of the Arrangement and Whitehorse Private Placement was prepared at the request of the Directors of the Company. The Fairness Opinion is based on information, documents, and data provided to me as well as other data, materials and analyses I collected or prepared. I reserve the right to amend or withdraw the conclusions reached in this report, if a material change occurs in or if any of the facts, information or representations provided to me is materially inaccurate.
8. In preparing this Fairness Opinion, I was not required to visit the TLG Project as I relied on the reports and assessments prepared and, in some cases, publicly filed by experts hired by other parties involved in prior exploration of the TLG Project.
9. I consent to use of this Fairness Opinion by New Pacific Metals Corp. and Whitehorse Gold Corp. for corporate, judicial, audit and regulatory purposes, if so required. The Fairness Opinion, however, should not be construed as a recommendation to buy or sell any shares mentioned in this report. No such representations are intended or implied.
(signed) "Stephen Semeniuk"
_____________________________________, West Vancouver, B.C., August 24, 2020.
Stephen W. Semeniuk, B. Comm., MBA, CFA
SCHEDULE "D"
ARRANGEMENT AGREEMENT AND PLAN OF ARRANGEMENT
(attached)
EXECUTION VERSION
ARRANGEMENT AGREEMENT
THIS ARRANGEMENT AGREEMENT is dated as of the 25th day of August, 2020,
BETWEEN:
NEW PACIFIC METALS CORP., a company existing under the Business Corporations Act (British Columbia)
("New Pacific")
AND:
WHITEHORSE GOLD CORP., a company existing under the Business Corporations Act (British Columbia)
("Whitehorse")
WHEREAS:
A. Whitehorse is a wholly-owned subsidiary of New Pacific which has been incorporated to facilitate and participate in the Arrangement (as defined herein) and which, indirectly through its wholly-owned subsidiary, Tagish Lake (as defined herein), is the owner of the Tagish Lake Gold Project;
B. New Pacific and Whitehorse wish to proceed with a corporate restructuring by way of a statutory arrangement under the BCBCA (as defined herein), pursuant to which New Pacific and Whitehorse will participate in a series of transactions whereby, among other things, New Pacific will distribute Spin-Out Shares (as defined herein) to the holders of New Pacific Existing Shares (as defined herein) such that the holders of New Pacific Existing Shares (other than New Pacific Dissenting Shareholders) will become holders of Spin-Out Shares and Whitehorse will cease to be a subsidiary of New Pacific;
C. New Pacific proposes to convene a meeting of the New Pacific Shareholders to consider an Arrangement pursuant to Part 9, Division 5 of the BCBCA, on the terms and conditions set forth in the Plan of Arrangement attached as Exhibit A hereto; and
D. Each of the parties to this Agreement has agreed to participate in and support the
Arrangement.
NOW THEREFORE, in consideration of the premises and the respective covenants and agreements herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by each of the parties hereto, the parties hereto hereby covenant and agree as follows:
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ARTICLE 1
DEFINITIONS, INTERPRETATION AND EXHIBIT
1.1 Definitions. In this Agreement including the Recitals, unless there is something in the subject matter or context inconsistent therewith, the following capitalized words and terms will have the following meanings:
(a) "Agreement" means this arrangement agreement, including the exhibits attached hereto as the same may be supplemented or amended from time to time;
(b) "Arrangement" means the arrangement pursuant to the Arrangement Provisions as contemplated by the provisions of this Agreement and the Plan of Arrangement;
(c) "Arrangement Provisions" means Part 9, Division 5 of the BCBCA;
(d) "Arrangement Resolution" means the special resolution of the New Pacific Shareholders to approve the Arrangement, as required by the Interim Order and the BCBCA;
(e) "BCBCA" means the Business Corporations Act, S.B.C. 2002, c. 57, as amended;
(f) "Board of Directors" means the current board of directors of New Pacific;
(g) "Business Day" means a day which is not a Saturday, Sunday or statutory holiday in Vancouver, British Columbia;
(h) "Constating Documents" means the Articles and related Notice of Articles under the BCBCA of New Pacific or Whitehorse, as applicable;
(i) "Court" means the Supreme Court of British Columbia;
(j) "Disinterested New Pacific Shareholders" means the New Pacific Shareholders which are not directly or indirectly (including through an associate or affiliate) participating in the Whitehorse Financing;
(k) "Dissent Procedures" means the rules pertaining to the exercise of Dissent Rights as set forth in Division 2 of Part 8 of the BCBCA and Article 5 of the Plan of Arrangement;
(l) "Dissent Rights" means the rights of a registered New Pacific Shareholder to dissent from the Arrangement Resolution in accordance with the provisions of the BCBCA, as modified by the Interim Order, and to be paid the fair value of the New Pacific Existing Shares in respect of which the holder dissents;
(m) "Effective Date" means the date that the Arrangement becomes effective as agreed to by New Pacific and Whitehorse in accordance with the Final Order;
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(n) "Effective Time" means such time on the Effective Date as agreed to by New Pacific and Whitehorse;
(o) "Final Order" means the final order of the Court approving the Arrangement;
(p) "Information Circular" means the management information circular of New Pacific, including all schedules thereto, to be sent to the New Pacific Shareholders in connection with the Meeting, together with any amendments or supplements thereto;
(q) "Interim Order" means the interim order of the Court providing advice and directions in connection with the Meeting and the Arrangement;
(r) "Meeting" means the annual general and special meeting of the New Pacific Shareholders and any adjournment(s) or postponement(s) thereof to be held to, among other things, consider and, if deemed advisable, approve the Arrangement and the Whitehorse Financing;
(s) "New Pacific Class A Shares" means the New Pacific Existing Shares after they have been re-named and re-designated as "Class A common shares without par value" pursuant to Section 3.1(b) of the Plan of Arrangement;
(a) "New Pacific Dissenting Shareholder" means a registered holder of New Pacific Existing Shares who is entitled to and does validly dissent in respect of the Arrangement in strict compliance with the Dissent Procedures, and who has not withdrawn or been deemed to have withdrawn such exercise of Dissent Rights at the Effective Time, but only with respect to the New Pacific Existing Shares in respect of which Dissent Rights are validly exercised by such registered holder;
(t) "New Pacific Existing Shares" means the common shares without par value in the capital of New Pacific, as they exist immediately prior to the Effective Time;
(u) "New Pacific Shareholder" means a registered or beneficial holder of New Pacific Existing Shares or New Pacific Class A Shares, as the context requires;
(v) "New Pacific Shares" means the common shares without par value in the capital of New Pacific, to be created pursuant to Section 3.1(c) of the Plan of Arrangement, and to be issued to the New Pacific Shareholders pursuant to Section 3.1(d)(i) of the Plan of Arrangement;
(w) "New Pacific–Whitehorse Debt" means the interest-bearing indebtedness of Whitehorse owing to New Pacific having a principal amount of $3,000,000, as issued by Whitehorse to New Pacific under the Share Exchange Agreement, plus the interest-bearing debt in the principal amount of $500,000 owing by Whitehorse to New Pacific, and which will be fully repaid and extinguished prior to the Effective Time;
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(x) "party" means either New Pacific or Whitehorse and "parties" means, collectively, New Pacific and Whitehorse;
(y) "Person" means and includes an individual, sole proprietorship, partnership, unincorporated association, unincorporated syndicate, unincorporated organization, trust, body corporate, a trustee, executor, administrator or other legal representative and the Crown or any agency or instrumentality thereof;
(z) "Plan of Arrangement" means the plan of arrangement attached to this Agreement as Exhibit A, as the same may be amended from time to time;
(aa) "Registrar" means the Registrar of Companies under the BCBCA;
(bb) "Share Exchange Agreement" means the share exchange agreement dated effective as of February 12, 2020 between New Pacific and Whitehorse, as amended from time to time, providing for, among other things, the acquisition by Whitehorse of all of the issued and outstanding shares of Tagish Lake from New Pacific;
(cc) "Spin-Out Shares" means that number of Whitehorse Shares held by New Pacific immediately prior to Section 3.1(d) of the Plan of Arrangement, to be distributed to the New Pacific Shareholders pursuant to Section 3.1(d)(ii) of the Plan of Arrangement;
(dd) "Tagish Lake" means Tagish Lake Gold Corp., a company existing under the BCBCA which is a wholly-owned subsidiary of Whitehorse;
(ee) "Tagish Lake Gold Project" means the Tagish Lake gold project in the Yukon, Canada, indirectly owned by Whitehorse through Tagish Lake;
(ff) "Tax Act" means the Income Tax Act (Canada), as amended from time to time;
(gg) "TSX" means the Toronto Stock Exchange;
(hh) "TSXV" means the TSX Venture Exchange;
(ii) "U.S. Securities Act" means the United States Securities Act of 1933, as amended;
(jj) "Whitehorse Financing" means the private placement by Whitehorse of Whitehorse Shares to raise net proceeds of at least $6,000,000, or such other amount as the board of directors of Whitehorse may determine, on terms acceptable to Whitehorse, such private placement to be completed prior to the Effective Time;
(kk) "Whitehorse Financing Resolution" means the ordinary resolution of the Disinterested New Pacific Shareholders to approve the Whitehorse Financing; and
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(ll) "Whitehorse Shares" means the common shares without par value in the capital of Whitehorse.
1.2 Currency. All amounts of money which are referred to in this Agreement are expressed in lawful money of Canada unless otherwise specified.
1.3 Interpretation Not Affected by Headings. The division of this Agreement into articles, sections, subsections, paragraphs and subparagraphs and the insertion of headings are for convenience of reference only and will not affect the construction or interpretation of the provisions of this Agreement. The terms "this Agreement", "hereof", "herein", "hereunder" and similar expressions refer to this Agreement and the exhibits hereto as a whole and not to any particular article, section, subsection, paragraph or subparagraph hereof and include any agreement or instrument supplementary or ancillary hereto.
1.4 Number and Gender. In this Agreement, unless the context otherwise requires, words importing the singular will include the plural and vice versa and words importing the use of either gender will include both genders and neuter and words importing persons will include firms and corporations.
1.5 Date for any Action. In the event that any date on which any action is required to be taken hereunder by New Pacific or Whitehorse is not a Business Day in the place where the action is required to be taken, such action will be required to be taken on the next succeeding day which is a Business Day in such place.
1.6 Meaning. Words and phrases used herein and defined in the BCBCA will have the same meaning herein as in the BCBCA unless otherwise specified or the context otherwise requires.
1.7 Exhibits. Attached hereto and deemed to be incorporated into and form part of this Agreement as Exhibit A is the Plan of Arrangement.
ARTICLE 2
ARRANGEMENT
2.1 Arrangement. The parties agree to effect the Arrangement pursuant to the Arrangement Provisions on the terms and subject to the conditions contained in this Agreement and the Plan of Arrangement.
2.2 Effective Date of Arrangement. The Arrangement will become effective on the Effective Date, commencing at the Effective Time, as set out in the Plan of Arrangement.
2.3 Commitment to Effect. Subject to termination of this Agreement pursuant to Article 6, the parties will each use all reasonable efforts and do all things reasonably required to cause the conditions described in Section 5.1 to be complied with prior to the Effective Date. Without limiting the generality of the foregoing, the parties will proceed forthwith to apply for the Interim Order and New Pacific will call the Meeting and mail the Information Circular to the New Pacific Shareholders.
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2.4 Filing of Final Order. Subject to the rights of termination contained in Article 6 upon the New Pacific Shareholders approving the Arrangement by special resolution in accordance with the provisions of the Interim Order and the BCBCA, New Pacific obtaining the Final Order and the other conditions contained in Article 5 being complied with or waived, New Pacific on its behalf and on behalf of Whitehorse will file with the Registrar:
(a) the records and information required by the Registrar pursuant to the Arrangement Provisions; and
(b) a copy of the Final Order.
2.5 U.S. Securities Law Matters. The parties agree that the Arrangement will be carried out with the intention that the New Pacific Shares and Spin-Out Shares delivered or deemed to be delivered upon completion of the Arrangement to New Pacific Shareholders will be issued and distributed, respectively, by New Pacific in reliance on the exemption from the registration requirements of the U.S. Securities Act provided by Section 3(a)(10) thereof. In order to ensure the availability of the exemption under Section 3(a)(10) of the U.S. Securities Act, the parties agree that the Arrangement will be carried out on the following basis:
(a) the Arrangement will be subject to the approval of the Court and the Court will hold a hearing approving the fairness of the terms and conditions of the Arrangement;
(b) prior to the hearing required to approve the Arrangement, the Court will be advised as to the intention of the parties to rely on the exemption under Section 3(a)(10) of the U.S. Securities Act;
(c) the Court will be required to satisfy itself as to the substantive and procedural fairness of the terms and conditions of the Arrangement to the New Pacific Shareholders subject to the Arrangement;
(d) New Pacific will ensure that each New Pacific Shareholder entitled to receive New Pacific Shares and Spin-Out Shares on completion of the Arrangement will be given adequate notice advising them of their right to attend the hearing of the Court to give approval of the Arrangement and providing them with sufficient information necessary for them to exercise that right;
(e) the New Pacific Shareholders entitled to receive New Pacific Shares and Spin-Out Shares on completion of the Arrangement will be advised that such New Pacific Shares and Spin-Out Shares issued in the Arrangement have not been registered under the U.S. Securities Act and will be issued in reliance on the exemption under Section 3(a)(10) of the U.S. Securities Act;
(f) the Final Order approving the Arrangement that is obtained from the Court will expressly state that the terms and conditions of the Arrangement is approved by the Court as being fair, substantively and procedurally, to the New Pacific Shareholders;
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(g) the Interim Order approving the Meeting will specify that each New Pacific Shareholder will have the right to appear before the Court at the hearing of the Court to give approval of the Arrangement so long as the New Pacific Shareholder enters an appearance within a reasonable time and in accordance with the requirements of Section 3(a)(10) under the U.S. Securities Act; and
(h) the Final Order shall include a statement substantially to the following effect:
"This Order will serve as a basis of a claim to an exemption, pursuant to Section 3(a)(10) of the United States Securities Act of 1933, as amended, from the registration requirements otherwise imposed by that Act, regarding the issuance or deemed issuance of New Pacific Shares and Spin-Out Shares pursuant to the Plan of Arrangement."
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties. Each of the parties hereby represents and warrants to the other party that:
(a) it is a corporation duly incorporated and validly subsisting under the laws of its jurisdiction of incorporation, and has full capacity and authority to enter into this Agreement and to perform its covenants and obligations hereunder;
(b) it has taken all corporate actions necessary to authorize the execution and delivery of this Agreement and to consummate the transactions contemplated herein and this Agreement has been duly executed and delivered by it;
(c) neither the execution and delivery of this Agreement nor the performance of any of its covenants and obligations hereunder will constitute a material default under, or be in any material contravention or breach of (i) any provision of its Constating Documents or other governing corporate documents, (ii) any judgment, decree, order, law, statute, rule or regulation applicable to it, or (iii) any agreement or instrument to which it is a party or by which it is bound; and
(d) no dissolution, winding up, bankruptcy, liquidation or similar proceedings has been commenced or are pending or proposed in respect of it.
ARTICLE 4
COVENANTS
4.1 Covenants. Each of the parties covenants with the other that it will do and perform all such acts and things, and execute and deliver all such agreements, assurances, notices and other documents and instruments, as may reasonably be required to facilitate the carrying out of the intent and purpose of this Agreement.
4.2 Interim Order and Final Order. The parties acknowledge that New Pacific will apply to and obtain from the Court, pursuant to the Arrangement Provisions, the Interim Order providing for, among other things, the calling and holding of the Meeting for the purpose of considering and, if deemed advisable, approving and adopting the Arrangement Resolution. The parties each covenant and agree that if the approval of the Arrangement by the New Pacific Shareholders as set out in Section 5.1(b) is obtained, New Pacific will thereafter (subject to the exercise of any discretionary authority granted to New Pacific's directors) take the necessary actions to submit the Arrangement to the Court for approval and apply for the Final Order and, subject to compliance with any of the other conditions provided for in Article 5 and to the rights of termination contained in Article 6, file the material described in Section 2.4 with the Registrar.
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4.3 Tax-Related Post-Closing Covenants.
(a) Each of the parties covenants and agrees with and in favour of the other that it will cooperate in the preparation and filing, in the form and within the time limits prescribed or otherwise contemplated in the Tax Act or other applicable tax law, of all tax returns, filings, notifications, designations and elections under the Tax Act in respect of the transactions contemplated in the Plan of Arrangement and this Agreement (and any similar tax returns, filings, elections, notifications or designations that may be required under applicable provincial or foreign legislation).
(b) Whitehorse will elect, in its return of income filed under the Tax Act for its first taxation year, to be deemed to be a "public corporation", within the meaning of the Tax Act, from the date of its incorporation until the time it becomes a public corporation by virtue of the listing of the Whitehorse Shares on the TSXV as contemplated in Section 5.1(f), such election to be made pursuant to the post- amble of the definition of "public corporation" in subsection 89(1) of the Tax Act.
ARTICLE 5
CONDITIONS
5.1 Conditions Precedent. The respective obligations of the parties to complete the transactions contemplated by this Agreement will be subject to the satisfaction of the following conditions:
(a) the Interim Order will have been granted in form and substance satisfactory to New Pacific;
(b) the Arrangement Resolution, with or without amendment, will have been approved and adopted at the Meeting by the New Pacific Shareholders in accordance with the Arrangement Provisions, the Constating Documents of New Pacific, the Interim Order and the requirements of any applicable regulatory authorities;
(c) the Whitehorse Financing Resolution, with or without amendment, will have been approved and adopted at the Meeting by the Disinterested New Pacific Shareholders in accordance with the Constating Documents of New Pacific and subject to the requirements of the TSX;
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(d) the Final Order will have been obtained in form and substance satisfactory to each of New Pacific and Whitehorse;
(e) the TSX will have approved (i) the Arrangement, including the substitutional listing of the New Pacific Shares as of the effective time of Section 3.1(e)(i) of the Plan of Arrangement, and (ii) the Whitehorse Financing (subject to standard post- closing conditions imposed by the TSX in similar circumstances);
(f) the TSXV will have approved the listing of the Whitehorse Shares as of the effective time of Section 3.1(e)(ii) of the Plan of Arrangement (subject to standard post-closing listing conditions imposed by the TSXV in similar circumstances);
(g) the Whitehorse Financing will have been completed prior to the Effective Time;
(h) Whitehorse will have fully repaid the principal amount and any accrued interest under the New Pacific–Whitehorse Debt and such debt will have been extinguished and the parties will have confirmed that there is no inter-company debt existing between New Pacific and each of Whitehorse and Tagish Lake as of the Effective Time;
(i) if requested by New Pacific pursuant to the Share Exchange Agreement, New Pacific and Whitehorse will have jointly made and filed the election in the prescribed form and manner pursuant to Section 85(1) of the Tax Act as contemplated in the Share Exchange Agreement prior to the Effective Time;
(j) all other consents, orders, regulations and approvals, including regulatory and judicial approvals and orders required or necessary or desirable for the completion of the transactions provided for in this Agreement and the Plan of Arrangement will have been obtained or received from the Persons, authorities or bodies having jurisdiction in the circumstances each in form acceptable to New Pacific and Whitehorse;
(k) there will not be in force any order or decree restraining or enjoining the consummation of the transactions contemplated by this Agreement and the Plan of Arrangement;
(l) no law, regulation or policy will have been proposed, enacted, promulgated or applied which interferes or is inconsistent with the completion of the Arrangement and Plan of Arrangement, including any material change to the Tax Act or other income tax laws of Canada, which would reasonably be expected to have a material adverse effect on any of New Pacific, the New Pacific Shareholders, Whitehorse or holders of Whitehorse Shares if the Arrangement is completed;
(m) notices of dissent pursuant to Article 5 of the Plan of Arrangement will not have been delivered by New Pacific Shareholders holding greater than 5% of the outstanding New Pacific Existing Shares; and
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(n) this Agreement will not have been terminated under Article 6.
Except for the conditions set forth in Sections 5.1(a), (b), (d), (e)(i), (f) and (m), which may not be waived, any of the other conditions in this Section 5.1 may be waived by either New Pacific or Whitehorse at its discretion.
5.2 Pre-Closing. Unless this Agreement is terminated earlier pursuant to the provisions hereof, pre-closing will occur electronically on the Business Day immediately preceding the Effective Date at such time or on such other date as the parties may mutually agree, and each of them will deliver to the other:
(a) the documents required to be delivered by it hereunder to complete the transactions contemplated hereby, provided that each such document required to be dated the Effective Date will be dated as of, or become effective on, the Effective Date at the time specified in the Plan of Arrangement and will be held in escrow to be released upon the occurrence of the Effective Date; and
(b) written confirmation as to the satisfaction or waiver by it of the conditions in its favour contained in this Agreement.
5.3 Merger of Conditions. The conditions set out in Section 5.1 will be conclusively deemed to have been satisfied, waived or released upon the occurrence of the Effective Date.
5.4 Merger of Representations, Warranties and Certain Covenants. The representations and warranties in Section 3.1 will be conclusively deemed to be correct as of the Effective Date and the covenants in Section 4.1 will be conclusively deemed to have been complied with in all respects as of the Effective Date, and each will accordingly merge in and not survive the effectiveness of the Arrangement.
ARTICLE 6
AMENDMENT AND TERMINATION
6.1 Amendment. Subject to any mandatory applicable restrictions under the Arrangement Provisions or the Final Order, this Agreement, including the Plan of Arrangement, may at any time and from time to time before or after the holding of the Meeting, but prior to the Effective Date, be amended by the written agreement of the parties hereto without, subject to applicable law, further notice to or authorization on the part of the New Pacific Shareholders.
6.2 Termination. Subject to Section 6.3, this Agreement may at any time before or after the holding of the Meeting, and before or after the granting of the Final Order, but in each case prior to the Effective Date, be terminated by direction of the Board of Directors of New Pacific without further action on the part of the New Pacific Shareholders and nothing expressed or implied herein or in the Plan of Arrangement will be construed as fettering the absolute discretion by the Board of Directors of New Pacific to elect to terminate this Agreement and discontinue efforts to effect the Arrangement for whatever reasons it may consider appropriate.
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6.3 Cessation of Right. The right of New Pacific or Whitehorse or any other party to amend or terminate the Plan of Arrangement pursuant to Section 6.1 and Section 6.2 will be extinguished upon the occurrence of the Effective Date.
ARTICLE 7
GENERAL
7.1 Notices. All notices which may or are required to be given pursuant to any provision of this Agreement will be given or made in writing and will be delivered or sent by electronic mail, addressed as follows:
in the case of New Pacific:
1750 - 1066 West Hastings Street
Vancouver, British Columbia
V6E 3X1
|
Attention:
|
Mark Cruise
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Email:
|
|
in the case of Whitehorse:
1750 - 1066 West Hastings Street
Vancouver, British Columbia
V6E 3X1
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Attention:
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Kevin Weston
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Email:
|
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in each case with a copy to:
Bennett Jones LLP
Suite 2400 - 666 Burrard Street
Vancouver, British Columbia
V6C 2X8
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Attention:
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Kwang Lim
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Email:
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7.2 Assignment. Neither of the parties may assign its rights or obligations under this Agreement or the Arrangement without the prior written consent of the other.
7.3 Binding Effect. This Agreement and the Arrangement will be binding upon and will enure to the benefit of the parties and their respective successors and permitted assigns.
7.4 Waiver. Any waiver or release of the provisions of this Agreement, to be effective, must be in writing and executed by the party granting such waiver or release.
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7.5 Governing Law. This Agreement will be governed by and be construed in accordance with the laws of the Province of British Columbia and the laws of Canada applicable therein.
7.6 Counterparts. This Agreement may be executed in one or more counterparts, each of which will be deemed to be an original but all of which together will constitute one and the same instrument.
7.7 Expenses. All expenses incurred by a party in connection with this Agreement, the Arrangement and the transactions contemplated hereby and thereby will be borne by the party that incurred the expense or as otherwise mutually agreed by the parties.
7.8 Entire Agreement. This Agreement constitutes the entire agreement between the parties with respect to the subject matter of this Agreement and supersedes all prior and contemporaneous agreements, understandings, negotiations and discussions, whether oral or written, of the parties.
7.9 Time of Essence. Time is of the essence of this Agreement.
(Remainder of page left intentionally blank. Signature page follows.)
IN WITNESS WHEREOF the parties have executed this Agreement as of the date first above written.
NEW PACIFIC METALS CORP.
By: (signed) "Mark Cruise"
Authorized Signatory
WHITEHORSE GOLD CORP.
By: (signed) "Kevin Weston"
Authorized Signatory
EXHIBIT A
TO THE ARRANGEMENT AGREEMENT
DATED AS OF THE 25th DAY OF AUGUST, 2020 BETWEEN
NEW PACIFIC METALS CORP. AND WHITEHORSE GOLD
CORP.
PLAN OF ARRANGEMENT UNDER PART 9, DIVISION 5 OF
THE BUSINESS CORPORATIONS ACT (BRITISH
COLUMBIA)
ARTICLE 1
DEFINITIONS AND INTERPRETATION
1.1 Definitions. In this plan of arrangement, unless there is something in the subject matter or context inconsistent therewith, the following capitalized words and terms will have the following meanings:
(a) "Arrangement" means the arrangement pursuant to the Arrangement Provisions on the terms and conditions set out herein;
(b) "Arrangement Agreement" means the arrangement agreement dated as of August 25, 2020 between New Pacific and Whitehorse, as may be supplemented or amended from time to time;
(c) "Arrangement Provisions" means Part 9, Division 5 of the BCBCA;
(d) "BCBCA" means the Business Corporations Act, S.B.C. 2002, c. 57, as amended;
(e) "Board of Directors" means the current board of directors of New Pacific;
(f) "Business Day" means a day which is not a Saturday, Sunday or statutory holiday in Vancouver, British Columbia;
(g) "Court" means the Supreme Court of British Columbia;
(h) "Depositary" means Computershare Investor Services Inc., or such other depositary as New Pacific may determine;
(i) "Dissent Procedures" means the rules pertaining to the exercise of Dissent Rights as set forth in Division 2 of Part 8 of the BCBCA and Article 5 of this Plan of Arrangement;
(j) "Dissent Rights" means the rights of a registered New Pacific Shareholder to dissent from the Arrangement Resolution in accordance with the provisions of the BCBCA, as modified by the Interim Order, and to be paid the fair value of the New Pacific Existing Shares in respect of which the holder dissents;
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(k) "Dissent Shares" means all New Pacific Existing Shares held by New Pacific Dissenting Shareholders at the Effective Time and in respect of which Dissent Rights were validly exercised;
(l) "Effective Date" means the date that the Arrangement becomes effective as agreed to by New Pacific and Whitehorse in accordance with the Final Order;
(m) "Effective Time" means such time on the Effective Date as agreed to by New Pacific and Whitehorse;
(n) "Encumbrance" means any lien, charge, claim, adverse interest, security interest, third party right or encumbrance of any kind or nature;
(o) "Final Order" means the final order of the Court approving the Arrangement;
(p) "FMV Reduction of a New Pacific Share" means the reduction in the fair market value of a New Pacific Existing Share, immediately prior to the Effective Time, as compared to a New Pacific Share, that arises solely as a result of the distribution by New Pacific of the Spin-Out Shares pursuant to Section 3.1(d)(ii) of this Plan of Arrangement, and which will be calculated by subtracting (i) the volume weighted average trading price of a New Pacific Share on the TSX for a five-day trading period commencing on the first trading day upon which the New Pacific Shares commence trading on the TSX after the Effective Date from (ii) the volume weighted average trading price of a New Pacific Existing Share on the TSX for a five-day trading period ending immediately before the Effective Date, subject to any requirements of the TSX;
(q) "Information Circular" means the management information circular of New Pacific, including all schedules thereto, to be sent to the New Pacific Shareholders in connection with the Meeting, together with any amendments or supplements thereto;
(r) "Interim Order" means the interim order of the Court providing advice and directions in connection with the Meeting and the Arrangement;
(s) "Letter of Transmittal" means the letter of transmittal in respect of the Arrangement to be sent to New Pacific Shareholders together with the Information Circular;
(t) "Meeting" means the annual general and special meeting of the New Pacific Shareholders and any adjournments thereof to be held to, among other things, consider and, if deemed advisable, approve the Arrangement;
(u) "New Pacific" means New Pacific Metals Corp., a company existing under the
BCBCA;
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(v) "New Pacific Class A Shares" means the New Pacific Existing Shares after they have been re-named and re-designated as "Class A common shares without par value" pursuant to Section 3.1(b) of this Plan of Arrangement;
(w) "New Pacific Dissenting Shareholder" means a registered holder of New Pacific Existing Shares who is entitled to and does validly dissent in respect of the Arrangement in strict compliance with the Dissent Procedures, and who has not withdrawn or been deemed to have withdrawn such exercise of Dissent Rights at the Effective Time, but only with respect to the New Pacific Existing Shares in respect of which Dissent Rights are validly exercised by such registered holder;
(x) "New Pacific Existing Shares" means the common shares without par value in the capital of New Pacific, as they exist immediately prior to the Effective Time;
(y) "New Pacific Shareholder" means a registered or beneficial holder of New Pacific Existing Shares or New Pacific Class A Shares, as the context requires;
(z) "New Pacific Shares" means the common shares without par value in the capital of New Pacific, to be created pursuant to Section 3.1(c) of this Plan of Arrangement, and to be issued to the New Pacific Shareholders pursuant to Section 3.1(d)(i) of this Plan of Arrangement;
(aa) "Omnibus Plan" means the existing share based compensation plan of New Pacific as updated and amended from time to time;
(bb) "Option" means an option to purchase New Pacific Existing Shares granted pursuant to the Omnibus Plan which is outstanding as of the Effective Time;
(cc) "Plan of Arrangement" means this plan of arrangement, as the same may be amended from time to time;
(dd) "Registrar" means the Registrar of Companies under the BCBCA;
(ee) "Replacement Option" means an option to purchase a New Pacific Share granted by New Pacific to a holder of an Option in accordance with Section 3.1(f) of this Plan of Arrangement, with the exercise price of each such Replacement Option determined in accordance with this Plan of Arrangement and the other terms and conditions of each such Replacement Option determined in accordance with the Omnibus Plan and any agreements thereunder including, where necessary, appropriate adjustments to any performance-based or other vesting conditions, as such plan and agreements may be amended by the board of directors of New Pacific or a committee thereof;
(ff) "RSU" means a restricted share unit of New Pacific granted pursuant to the Omnibus Plan which is outstanding as of the Effective Time;
(gg) "Spin-Out Shares" means that number of Whitehorse Shares held by New Pacific immediately prior to Section 3.1(d) of this Plan of Arrangement, to be distributed to the New Pacific Shareholders pursuant to Section 3.1(d)(ii) of this Plan of Arrangement;
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(hh) "Tax Act" means the Income Tax Act (Canada), R.S.C. 1985 (5th Supp.) c.1, as amended;
(ii) "TSX" means the Toronto Stock Exchange;
(jj) "TSXV" means the TSX Venture Exchange;
(kk) "U.S. Securities Act" means the United States Securities Act of 1933, as amended;
(ll) "Whitehorse" means Whitehorse Gold Corp., a company incorporated under the BCBCA; and
(mm) "Whitehorse Shares" means the common shares without par value in the capital of Whitehorse.
1.2 Interpretation Not Affected by Headings. The division of this Plan of
Arrangement into articles, sections, subsections, paragraphs and subparagraphs and the insertion of headings are for convenience of reference only and will not affect the construction or interpretation of this Plan of Arrangement. Unless otherwise specifically indicated, the terms "this Plan of Arrangement", "hereof", "hereunder" and similar expressions refer to this Plan of Arrangement as a whole and not to any particular article, section, subsection, paragraph or subparagraph and include any agreement or instrument supplementary or ancillary hereto.
1.3 Number and Gender. Unless the context otherwise requires, words importing the singular number only will include the plural and vice versa, words importing the use of either gender will include both genders and neuter and words importing persons will include firms and corporations.
1.4 Meaning. Words and phrases used herein and defined in the BCBCA will have the same meaning herein as in the BCBCA, except as otherwise provided or unless the context otherwise requires.
1.5 Date for any Action. If any date on which any action is required to be taken under this Plan of Arrangement is not a Business Day, such action will be required to be taken on the next succeeding Business Day.
1.6 Governing Law. This Plan of Arrangement will be governed by and construed in accordance with the laws of the Province of British Columbia and the federal laws of Canada applicable therein.
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ARTICLE 2
ARRANGEMENT AGREEMENT
2.1 Arrangement Agreement. This Plan of Arrangement is made pursuant and subject to the provisions of the Arrangement Agreement.
2.2 Arrangement Effectiveness. The Arrangement and this Plan of Arrangement will become final and conclusively binding on New Pacific, the New Pacific Shareholders (including New Pacific Dissenting Shareholders), the holders of Options, the holders of RSUs and holders of Whitehorse Shares commencing at the Effective Time without any further act or formality as required on the part of any person, except as expressly provided herein. New Pacific and Whitehorse shall execute a certificate confirming the Effective Date and the Effective Time.
ARTICLE 3
THE ARRANGEMENT
3.1 The Arrangement. Commencing at the Effective Time, each of the steps, events or transactions set out below shall, except for steps, events or transactions deemed to occur concurrently with other steps, events or transactions as set out below, occur and shall be deemed to occur consecutively in ten minute intervals in the following order (or in such other manner, order or times as the parties to the Arrangement Agreement may agree in writing) without any further act or formality, except as otherwise provided herein:
(a) Each New Pacific Existing Share held by a New Pacific Dissenting Shareholder shall be, and shall be deemed to have been, transferred by the holder thereof to, and acquired for cancellation, by New Pacific (free and clear of any Encumbrances), and:
(i) such New Pacific Dissenting Shareholders shall cease to be holders of such New Pacific Existing Shares and to have any rights as New Pacific Shareholders other than the right to be paid fair value for such New Pacific Existing Shares by New Pacific in accordance with Article 5 of this Plan of Arrangement;
(ii) all such New Pacific Existing Shares so transferred to New Pacific pursuant to this Section 3.1(a) shall be cancelled;
(iii) the balance of the capital account maintained by New Pacific in respect of the New Pacific Existing Shares shall be reduced by an amount equal to the product obtained when (A) the balance of the capital account maintained by New Pacific in respect of the New Pacific Existing Shares immediately prior to the effective time of this Section 3.1(a) is multiplied by (B) a fraction, the numerator of which is the number of New Pacific Existing Shares surrendered and cancelled pursuant to this Section 3.1(a), and the denominator of which is the number of New Pacific Existing Shares outstanding immediately prior to the effective time of this Section 3.1(a); and
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(iv) such New Pacific Dissenting Shareholders' names shall be removed from the register of holders of New Pacific Existing Shares maintained by or on behalf of New Pacific as it relates to the New Pacific Existing Shares so transferred.
(b) The authorized share structure, Notice of Articles and Articles of New Pacific shall be amended to re-name and re-designate the New Pacific Existing Shares as "Class A common shares without par value", being the New Pacific Class A Shares, and to create special rights and restrictions attached thereto to provide the holders thereof with two votes in respect of each New Pacific Class A Share held, and, concurrently therewith, outside of and not as part of this Plan of Arrangement, the New Pacific Class A Shares will be represented for listing purposes on the TSX by the continued listing of the New Pacific Existing Shares.
(c) In conjunction with the reorganization of the capital of New Pacific contemplated in this Section 3.1, the authorized share structure, Notice of Articles and Articles of New Pacific shall be amended to create and authorize the issuance of (in addition to the shares it is authorized to issue immediately before such amendment) an additional class of shares to be designated as "Common Shares without par value", being the New Pacific Shares, which shares shall be unlimited in number and have terms and special rights and restrictions identical to those of the New Pacific Existing Shares immediately prior to giving effect to Section 3.1(b) of this Plan of Arrangement.
(d) Pursuant to a reorganization of the capital of New Pacific contemplated in this Section 3.1, all New Pacific Class A Shares outstanding immediately after giving effect to Section 3.1(b) of this Plan of Arrangement shall be, and shall be deemed to be, simultaneously surrendered and transferred by the holder thereof to New Pacific (free and clear of any Encumbrances), and in sole exchange therefor New Pacific shall:
(i) issue to the New Pacific Shareholders one New Pacific Share for each New Pacific Class A Share so exchanged; and
(ii) subject to Section 3.2 of this Plan of Arrangement, distribute to the New Pacific Shareholders the Spin-Out Shares held by New Pacific (other than any Spin-Out Shares set aside pursuant to Section 5.3), pro rata to the number of New Pacific Class A Shares held by them and surrendered to New Pacific pursuant to this Section 3.1(d);
and:
(iii) such New Pacific Shareholders shall cease to be holders of such New Pacific Class A Shares or have any rights as holders of New Pacific Class A Shares and shall be removed from the register of holders of New Pacific Class A Shares maintained by or on behalf of New Pacific;
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(iv) all such New Pacific Class A Shares so transferred to New Pacific pursuant to this Section 3.1(d) shall be cancelled;
(v) such New Pacific Shareholders' names shall be added to the register of holders of New Pacific Shares maintained by or on behalf of New Pacific;
(vi) New Pacific shall cease to be a holder of the Spin-Out Shares distributed pursuant to Section 3.1(d)(ii) of this Plan of Arrangement and shall be removed from the register of holders of Whitehorse Shares maintained by or on behalf of Whitehorse; and
(vii) such New Pacific Shareholders' names shall be added as holders to the register of holders of Whitehorse Shares, to the extent of the Spin-Out Shares, maintained by or on behalf of Whitehorse, and
in connection therewith, the balance in the capital account maintained by New Pacific in respect of the New Pacific Class A Shares shall be reduced to nil and the balance of the capital account maintained by New Pacific in respect of the New Pacific Shares shall be increased by an amount equal to the "paid-up capital" (as determined for purposes of the Tax Act) of the New Pacific Class A Shares immediately prior to this Section 3.1(d) minus the fair market value of the Spin- Out Shares distributed pursuant to this Section 3.1(d). For greater certainty, the exchange of New Pacific Class A Shares for New Pacific Shares and the Spin-Out Shares pursuant to this Section 3.1(d) is intended to be governed by section 86 of the Tax Act.
(e) Concurrently with Section 3.1(d) of this Plan of Arrangement, outside of and not as part of this Plan of Arrangement:
(i) the New Pacific Existing Shares (representing for listing purposes the New Pacific Class A Shares) will be delisted from the TSX and the New Pacific Shares will be, simultaneously and without interruption, listed for trading on the TSX (subject to standard post-closing listing conditions imposed by the TSX in similar circumstances); and
(ii) the Whitehorse Shares will be listed for trading on the TSXV (subject to standard post-closing listing conditions imposed by the TSXV in similar circumstances).
(f) Concurrently with Section 3.1(d) of this Plan of Arrangement, pursuant to and in accordance with the Omnibus Plan, and in order to reflect the FMV Reduction of a New Pacific Share, each Option outstanding immediately prior to this Section 3.1(f) shall be, and shall be deemed to be, simultaneously surrendered and transferred by the holder thereof to New Pacific (free and clear of any Encumbrances), and as the sole consideration therefor, New Pacific shall grant to such holders thereof a number of Replacement Options (with the aggregate number of Replacement Options being rounded down to the nearest whole number), such that, for each New Pacific Existing Share the holder would have been entitled to acquire under the Option, the holder will instead be entitled to acquire one New Pacific Share pursuant to the corresponding Replacement Option for an exercise price (within the meaning of the Omnibus Plan) (rounded up to the nearest cent) that has been reduced to reflect the FMV Reduction of a New Pacific Share, provided that, for greater certainty:
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(i) the exercise price of the Replacement Option shall be further adjusted to the extent, if any, required to ensure that (A) the amount by which the total value of the New Pacific Shares which may be acquired under the Replacement Option exceeds the aggregate exercise price payable thereunder, determined immediately after this Section 3.1(f), does not exceed (B) the amount by which the total value of the New Pacific Existing Shares which could be acquired under the Option exceeds the aggregate exercise price payable thereunder, determined immediately prior to this Section 3.1(f);
(ii) the holder of an Option will receive no consideration other than the Replacement Option in respect of the transfer of the Option pursuant to this Section 3.1(f);
(iii) no Replacement Options will be exercisable until after the date that is after five trading days following the date the New Pacific Shares appear on the TSX's publicly disseminated trading list;
(iv) the other terms and conditions of the Replacement Option will be identical to the Option so exchanged; and
(v) the Options so transferred to New Pacific pursuant to this Section 3.1(f) shall be cancelled.
For greater certainty, the exchange of the Options for Replacement Options pursuant to this Section 3.1(f) is intended to be governed by subsection 7(1.4) of the Tax Act.
(g) Concurrently with Section 3.1(d), pursuant to and in accordance with the Omnibus Plan, the notional account maintained by New Pacific for each Participant (within the meaning of the Omnibus Plan) pursuant to the Omnibus Plan shall be adjusted such that the aggregate number of RSUs credited to each such Participant as of immediately prior to this Section 3.1(g) shall be proportionately increased (and rounded down to the nearest whole number) by crediting the Participant with additional RSUs to reflect the FMV Reduction of a New Pacific Share, and the "Share" as defined in the Omnibus Plan applicable to each RSU shall refer to a New Pacific Share in place of a New Pacific Existing Share; and further provided that all other terms and conditions of the RSUs as adjusted pursuant to this Section 3.1(g) shall be identical to the non-adjusted RSUs.
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(h) The authorized share structure, Notice of Articles and Articles of New Pacific will be amended by eliminating the New Pacific Class A Shares and deleting the special rights and restrictions attached thereto, such that, following such amendment, New Pacific will be authorized to issue an unlimited number of New Pacific Shares.
(i) Any remaining Spin-Out Shares (including any portion or fraction of a Spin-Out Share) registered in the name of New Pacific (excluding, for the avoidance of doubt, any Spin-Out Shares distributed by New Pacific pursuant to Section 3.1(d)(ii) of this Plan of Arrangement or set aside pursuant to Section 5.3 of this Plan of Arrangement) shall be surrendered by New Pacific to Whitehorse (free and clear of all Encumbrances) for cancellation without any payment or repayment of capital in respect thereof, and upon such surrender, New Pacific shall be removed from the register of holders of Whitehorse Shares maintained by or on behalf of Whitehorse in respect of such Spin-Out Shares.
3.2 No Fractional Shares. Notwithstanding any other provision of this Plan of Arrangement, no fractional Spin-Out Shares will be distributed by New Pacific pursuant to Section 3.1(d)(ii) of the Plan of Arrangement. If a New Pacific Shareholder would, but for this Section 3.2, otherwise be entitled under this Plan of Arrangement to receive a fractional Spin- Out Share, the number of Spin-Out Shares actually distributable to such New Pacific Shareholder shall, notwithstanding any other provision of this Plan of Arrangement, be rounded down to the next lower whole number, and the fractional entitlement shall be cancelled without any compensation or other consideration therefor. For greater certainty, in calculating such fractional interests, all fractional entitlements of any particular New Pacific Shareholder shall be aggregated prior to rounding.
3.3 Deemed Fully Paid and Non-Assessable Shares. All New Pacific Shares and New Pacific Class A Shares issued pursuant hereto will be deemed to be validly issued and outstanding as fully paid and non-assessable shares for all purposes of the BCBCA.
3.4 Supplementary Actions. Notwithstanding that the transactions and events set out in Section 3.1 of this Plan of Arrangement will occur and will be deemed to occur in the chronological or concurrent order therein set out without any act or formality, each of New Pacific and Whitehorse will be required to make, do and execute or cause and procure to be made, done and executed all such further acts, deeds, agreements, transfers, assurances, instruments or documents as may be required to give effect to, or further document or evidence, any of the transactions or events set out in Section 3.1 of this Plan of Arrangement, including, without limitation, any resolutions of directors authorizing the issue, transfer or redemption of shares, any share transfer powers evidencing the transfer of shares and any receipt therefor, any necessary additions to or deletions from share registers, and agreements for stock options.
3.5 Withholding. Each of New Pacific, Whitehorse and the Depositary will be entitled to deduct and withhold from any cash payment or any issue, transfer or distribution of New Pacific Shares or Spin-Out Shares made pursuant to this Plan of Arrangement such amounts as may be required to be deducted and withheld pursuant to the Tax Act or any other applicable law, and any amount so deducted and withheld will be deemed for all purposes of this Plan of Arrangement to be paid, issued, transferred or distributed to the person entitled thereto under the Plan of Arrangement, provided such amount is remitted to the appropriate governmental authority. Without limiting the generality of the foregoing, any New Pacific Shares or Spin-Out Shares so deducted and withheld may be sold on behalf of the person entitled to receive them for the purpose of generating cash proceeds, net of brokerage fees and other reasonable expenses, sufficient to satisfy all remittance obligations relating to the required deduction and withholding, and any cash remaining after such remittance will be paid to the person forthwith.
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3.6 U.S. Securities Law Matters. The Court is advised that the Arrangement will be carried out with the intention that the New Pacific Shares issued and Spin-Out Shares distributed by New Pacific on completion of the Arrangement will be issued and distributed, respectively, in reliance on the exemption from the registration requirements of the U.S. Securities Act provided by Section 3(a)(10) of the U.S. Securities Act.
ARTICLE 4
CERTIFICATES
4.1 New Pacific Class A Shares. Recognizing that the New Pacific Existing Shares will be re-named and re-designated as New Pacific Class A Shares pursuant to Section 3.1(b) of this Plan of Arrangement and that the New Pacific Class A Shares will be exchanged for New Pacific Shares pursuant to Section 3.1(d) of this Plan of Arrangement, New Pacific will not issue replacement share certificates representing the New Pacific Class A Shares.
4.2 Spin-Out Share Certificates. As soon as practicable following the Effective Date, Whitehorse will deliver or cause to be delivered to the Depositary certificates representing the Spin-Out Shares of which each former registered holder of New Pacific Existing Shares will be the registered holder of in accordance with the provisions of Section 3.1(d) of this Plan of Arrangement, which certificates will be held by the Depositary as agent and nominee for such holders for distribution thereto in accordance with the provisions of Section 6.1 of this Plan of Arrangement.
4.3 New Pacific Share Certificates. As soon as practicable following the Effective Date, New Pacific will deliver or cause to be delivered to the Depositary certificates representing the New Pacific Shares issued to former registered holders of New Pacific Existing Shares in accordance with the provisions of Section 3.1(d) of this Plan of Arrangement, which certificates will be held by the Depositary as agent and nominee for such holders for distribution thereto in accordance with the provisions of Section 6.1 of this Plan of Arrangement.
4.4 Option Grant Agreements. Any grant agreement, certificate or other documentation previously evidencing an Option shall, following the effective time of Section 3.1(f) of this Plan of Arrangement, evidence and be deemed to evidence a Replacement Option without any further action required of New Pacific or the holder thereof.
ARTICLE 5
RIGHTS OF DISSENT
5.1 Dissent Right. Registered holders of New Pacific Existing Shares may exercise Dissent Rights with respect to their New Pacific Existing Shares in connection with the Arrangement pursuant to the Interim Order and in the manner set forth in the Dissent Procedures, as they may be amended by the Interim Order, Final Order or any other order of the Court, and provided that such dissenting New Pacific Shareholder delivers a written notice of dissent to New Pacific at least two Business Days before the day of the Meeting or any adjournment or postponement thereof.
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5.2 Dealing with Dissent Shares. New Pacific Shareholders who duly exercise Dissent Rights with respect to their Dissent Shares and who:
(a) are ultimately entitled to be paid fair value for their Dissent Shares will be deemed to have transferred their Dissent Shares to New Pacific for cancellation as of the effective time of Section 3.1(a) of this Plan of Arrangement; or
(b) for any reason are ultimately not entitled to be paid for their Dissent Shares, will be deemed to have participated in the Arrangement on the same basis as a non- dissenting New Pacific Shareholder and will be entitled to receive only the securities contemplated in Section 3.1 hereof that such New Pacific Shareholder would have received pursuant to the Arrangement if such New Pacific Shareholder had not exercised Dissent Rights,
but in no case will New Pacific be required to recognize such persons as holding New Pacific Existing Shares on or after the Effective Date.
5.3 Reservation of Spin-Out Shares. If a New Pacific Shareholder exercises Dissent Rights, New Pacific will, on the Effective Date, set aside and not distribute that number of whole Spin-Out Shares which are attributable to the New Pacific Existing Shares for which Dissent Rights have been exercised. If such dissenting New Pacific Shareholder is ultimately not entitled to be paid for their Dissent Shares, New Pacific will distribute to such dissenting New Pacific Shareholder his, her or its pro rata portion of the Spin-Out Shares. If such dissenting New Pacific Shareholder duly complies with the Dissent Procedures and is ultimately entitled to be paid for their Dissent Shares, then New Pacific will retain the portion of the Spin-Out Shares attributable to such dissenting New Pacific Shareholder and such Spin- Out Shares shall be surrendered by New Pacific to Whitehorse (free and clear of all Encumbrances) for cancellation without any payment or repayment of capital in respect thereof, and upon such surrender, New Pacific shall be removed from the register of holders of Whitehorse Shares maintained by or on behalf of Whitehorse.
ARTICLE 6
DELIVERY OF SHARES
6.1 Delivery of Shares.
(a) Upon surrender to the Depositary for cancellation of a certificate that immediately before the Effective Time represented one or more outstanding New Pacific Existing Shares, together with a duly completed and executed Letter of Transmittal and such additional documents and instruments as the Depositary may reasonably require, the holder of such surrendered certificate will be entitled to receive in exchange therefor, and the Depositary will deliver to such holder following the Effective Time, a certificate representing the New Pacific Shares and a certificate representing the Spin-Out Shares that such holder is entitled to receive in accordance with Section 3.1(d) of this Plan of Arrangement.
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(b) After the Effective Time and until surrendered for cancellation as contemplated by Section 6.1(a) of this Plan of Arrangement, each certificate that immediately prior to the Effective Time represented one or more New Pacific Existing Shares will be deemed at all times to represent only the right to receive in exchange therefor a certificate representing the New Pacific Shares and a certificate representing the Spin-Out Shares that such holder is entitled to receive in accordance with Section 3.1(d) of this Plan of Arrangement.
6.2 Lost Certificates. If any certificate that immediately prior to the Effective Time represented one or more outstanding New Pacific Existing Shares that were exchanged for New Pacific Shares and Spin-Out Shares in accordance with Section 3.1(d) of this Plan of Arrangement, will have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the holder claiming such certificate to be lost, stolen or destroyed, the Depositary will deliver in exchange for such lost, stolen or destroyed certificate, the New Pacific Shares and Spin-Out Shares that such holder is entitled to receive in accordance with Section 3.1(d) of this Plan of Arrangement. When authorizing such delivery of New Pacific Shares and Spin-Out Shares that such holder is entitled to receive in exchange for such lost, stolen or destroyed certificate, the holder to whom such securities are to be delivered will, as a condition precedent to the delivery of such New Pacific Shares and Spin-Out Shares give a bond satisfactory to New Pacific, Whitehorse and the Depositary in such amount as New Pacific, Whitehorse and the Depositary may direct, or otherwise indemnify New Pacific, Whitehorse and the Depositary in a manner satisfactory to New Pacific, Whitehorse and the Depositary, against any claim that may be made against New Pacific, Whitehorse or the Depositary with respect to the certificate alleged to have been lost, stolen or destroyed and will otherwise take such actions as may be required by the Articles of New Pacific.
6.3 Distributions with Respect to Unsurrendered Certificates. No dividend or other distribution declared or made after the Effective Time with respect to New Pacific Shares or Spin-Out Shares with a record date after the Effective Time will be delivered to the holder of any unsurrendered certificate that, immediately prior to the Effective Time, represented outstanding New Pacific Existing Shares unless and until the holder of such certificate will have complied with the provisions of Section 6.1 or Section 6.2 of this Plan of Arrangement, as applicable. Subject to applicable law and to Section 3.5 of this Plan of Arrangement, at the time of such compliance, there will, in addition to the delivery of the New Pacific Shares and Spin- Out Shares to which such holder is thereby entitled, be delivered to such holder, without interest, the amount of the dividend or other distribution with a record date after the Effective Time theretofore paid with respect to such New Pacific Shares and/or Spin-Out Shares, as applicable.
6.4 Limitation and Proscription. To the extent that a former holder of New Pacific Existing Shares will not have complied with the provisions of Section 6.1 or Section 6.2 of this Plan of Arrangement, as applicable, on or before the date that is six years after the Effective Date (the "Final Proscription Date"), then the New Pacific Shares and Spin-Out Shares that such former holder was entitled to receive will be automatically cancelled without any repayment of capital in respect thereof and the New Pacific Shares and Spin-Out Shares to which such former holder of New Pacific Existing Shares was entitled, will be delivered to Whitehorse (in the case of the Whitehorse Shares) or New Pacific (in the case of the New Pacific Shares) by the Depositary and certificates representing such New Pacific Shares and Spin-Out Shares will be cancelled by New Pacific and Whitehorse, as applicable, and the interest of the former holder of New Pacific Existing Shares in such New Pacific Shares and Spin-Out Shares or to which it was entitled will be terminated as of such Final Proscription Date.
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6.5 Paramountcy. From and after the Effective Time: (i) this Plan of Arrangement will take precedence and priority over any and all New Pacific Existing Shares, Options and RSUs issued or granted prior to the Effective Time; and (ii) the rights and obligations of the registered holders of New Pacific Existing Shares and of New Pacific, Whitehorse, the Depositary and any transfer agent or other depositary therefor, will be solely as provided for in this Plan of Arrangement.
ARTICLE 7
AMENDMENTS & WITHDRAWAL
7.1 Amendments. New Pacific, in its sole discretion, reserves the right to amend, modify and/or supplement this Plan of Arrangement from time to time at any time prior to the Effective Time provided that any such amendment, modification or supplement must be contained in a written document that is filed with the Court and, if made following the Meeting, approved by the Court.
7.2 Amendments Made Prior to or at the Meeting. Any amendment, modification or supplement to this Plan of Arrangement may be proposed by New Pacific at any time prior to or at the Meeting with or without any prior notice or communication, and if so proposed and accepted by the New Pacific Shareholders voting at the Meeting, will become part of this Plan of Arrangement for all purposes.
7.3 Amendments Made After the Meeting. Any amendment, modification or supplement to this Plan of Arrangement may be proposed by New Pacific after the Meeting but prior to the Effective Time and any such amendment, modification or supplement which is approved by the Court following the Meeting will be effective and will become part of the Plan of Arrangement for all purposes. Notwithstanding the foregoing, any amendment, modification or supplement to this Plan of Arrangement may be made following the granting of the Final Order unilaterally by New Pacific, provided that it concerns a matter which, in the reasonable opinion of New Pacific, is of an administrative nature required to better give effect to the implementation of this Plan of Arrangement and is not adverse to the financial or economic interests of any holder of New Pacific Existing Shares.
7.4 Withdrawal. Notwithstanding any prior approvals by the Court or by New Pacific Shareholders, the Board of Directors may decide not to proceed with the Arrangement and to revoke the Arrangement Resolution at any time prior to the Effective Time, without further approval of the Court or the New Pacific Shareholders.
SCHEDULE "E"
INTERIM ORDER
(attached)
SCHEDULE "F"
DISSENT PROVISIONS OF THE BUSINESS CORPORATIONS ACT (BRITISH COLUMBIA)
Definitions and application
237 (1) In this Division:
"dissenter" means a shareholder who, being entitled to do so, sends written notice of dissent when and as required by section 242;
"notice shares" means, in relation to a notice of dissent, the shares in respect of which dissent is being exercised under the notice of dissent;
"payout value" means,
(a) in the case of a dissent in respect of a resolution, the fair value that the notice shares had immediately before the passing of the resolution,
(b) in the case of a dissent in respect of an arrangement approved by a court order made under section 291 (2) (c) that permits dissent, the fair value that the notice shares had immediately before the passing of the resolution adopting the arrangement,
(c) in the case of a dissent in respect of a matter approved or authorized by any other court order that permits dissent, the fair value that the notice shares had at the time specified by the court order, or
(d) in the case of a dissent in respect of a community contribution company, the value of the notice shares set out in the regulations,
excluding any appreciation or depreciation in anticipation of the corporate action approved or authorized by the resolution or court order unless exclusion would be inequitable.
(2) This Division applies to any right of dissent exercisable by a shareholder except to the extent that
(a) the court orders otherwise, or
(b) in the case of a right of dissent authorized by a resolution referred to in section 238 (1) (g), the court orders otherwise or the resolution provides otherwise.
Right to dissent
238 (1) A shareholder of a company, whether or not the shareholder's shares carry the right to vote, is entitled to dissent as follows:
(a) under section 260, in respect of a resolution to alter the articles
(i) to alter restrictions on the powers of the company or on the business the company is permitted to carry on,
(ii) without limiting subparagraph (i), in the case of a community contribution company, to alter any of the company's community purposes within the meaning of section 51.91, or
(iii) without limiting subparagraph (i), in the case of a benefit company, to alter the company's benefit provision;
(b) under section 272, in respect of a resolution to adopt an amalgamation agreement;
(c) under section 287, in respect of a resolution to approve an amalgamation under Division 4 of Part 9;
(d) in respect of a resolution to approve an arrangement, the terms of which arrangement permit dissent;
(e) under section 301 (5), in respect of a resolution to authorize or ratify the sale, lease or other disposition of all or substantially all of the company's undertaking;
(f) under section 309, in respect of a resolution to authorize the continuation of the company into a jurisdiction other than British Columbia;
(g) in respect of any other resolution, if dissent is authorized by the resolution;
(h) in respect of any court order that permits dissent.
(1.1) A shareholder of a company, whether or not the shareholder's shares carry the right to vote, is entitled to dissent under section 51.995 (5) in respect of a resolution to alter its notice of articles to include or to delete the benefit statement.
(2) A shareholder wishing to dissent must
(a) prepare a separate notice of dissent under section 242 for
(i) the shareholder, if the shareholder is dissenting on the shareholder's own behalf, and
(ii) each other person who beneficially owns shares registered in the shareholder's name and on whose behalf the shareholder is dissenting,
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(b) identify in each notice of dissent, in accordance with section 242 (4), the person on whose behalf dissent is being exercised in that notice of dissent, and
(c) dissent with respect to all of the shares, registered in the shareholder's name, of which the person identified under paragraph (b) of this subsection is the beneficial owner.
(3) Without limiting subsection (2), a person who wishes to have dissent exercised with respect to shares of which the person is the beneficial owner must
(a) dissent with respect to all of the shares, if any, of which the person is both the registered owner and the beneficial owner, and
(b) cause each shareholder who is a registered owner of any other shares of which the person is the beneficial owner to dissent with respect to all of those shares.
Waiver of right to dissent
239 (1) A shareholder may not waive generally a right to dissent but may, in writing, waive the right to dissent with respect to a particular corporate action.
(2) A shareholder wishing to waive a right of dissent with respect to a particular corporate action must
(a) Provide to the company a separate waiver for
(i) the shareholder, if the shareholder is providing a waiver on the shareholder's own behalf, and
(ii) each other person who beneficially owns shares registered in the shareholder's name and on whose behalf the shareholder is providing a waiver, and
(b) identify in each waiver the person on whose behalf the waiver is made.
(3) If a shareholder waives a right of dissent with respect to a particular corporate action and indicates in the waiver that the right to dissent is being waived on the shareholder's own behalf, the shareholder's right to dissent with respect to the particular corporate action terminates in respect of the shares of which the shareholder is both the registered owner and the beneficial owner, and this Division ceases to apply to
(a) the shareholder in respect of the shares of which the shareholder is both the registered owner and the beneficial owner, and
(b) any other shareholders, who are registered owners of shares beneficially owned by the first mentioned shareholder, in respect of the shares that are beneficially owned by the first mentioned shareholder.
(4) If a shareholder waives a right of dissent with respect to a particular corporate action and indicates in the waiver that the right to dissent is being waived on behalf of a specified person who beneficially owns shares registered in the name of the shareholder, the right of shareholders who are registered owners of shares beneficially owned by that specified person to dissent on behalf of that specified person with respect to the particular corporate action terminates and this Division ceases to apply to those shareholders in respect of the shares that are beneficially owned by that specified person.
Notice of resolution
240 (1) If a resolution in respect of which a shareholder is entitled to dissent is to be considered at a meeting of shareholders, the company must, at least the prescribed number of days before the date of the proposed meeting, send to each of its shareholders, whether or not their shares carry the right to vote,
(a) a copy of the proposed resolution, and
(b) a notice of the meeting that specifies the date of the meeting, and contains a statement advising of the right to send a notice of dissent.
(2) If a resolution in respect of which a shareholder is entitled to dissent is to be passed as a consent resolution of shareholders or as a resolution of directors and the earliest date on which that resolution can be passed is specified in the resolution or in the statement referred to in paragraph (b), the company may, at least 21 days before that specified date, send to each of its shareholders, whether or not their shares carry the right to vote,
(a) a copy of the proposed resolution, and
(b) a statement advising of the right to send a notice of dissent.
(3) If a resolution in respect of which a shareholder is entitled to dissent was or is to be passed as a resolution of shareholders without the company complying with subsection (1) or (2), or was or is to be passed as a directors' resolution without the company complying with subsection (2), the company must, before or within 14 days after the passing of the resolution, send to each of its shareholders who has not, on behalf of every person who beneficially owns shares registered in the name of the shareholder, consented to the resolution or voted in favour of the resolution, whether or not their shares carry the right to vote,
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(a) a copy of the resolution,
(b) a statement advising of the right to send a notice of dissent, and
(c) if the resolution has passed, notification of that fact and the date on which it was passed.
(4) Nothing in subsection (1), (2) or (3) gives a shareholder a right to vote in a meeting at which, or on a resolution on which, the shareholder would not otherwise be entitled to vote.
Notice of court orders
241 If a court order provides for a right of dissent, the company must, not later than 14 days after the date on which the company receives a copy of the entered order, send to each shareholder who is entitled to exercise that right of dissent
(a) a copy of the entered order, and
(b) a statement advising of the right to send a notice of dissent.
Notice of dissent
242 (1) A shareholder intending to dissent in respect of a resolution referred to in section 238 (1) (a), (b), (c), (d), (e) or (f) or (1.1) must,
(a) if the company has complied with section 240 (1) or (2), send written notice of dissent to the company at least 2 days before the date on which the resolution is to be passed or can be passed, as the case may be,
(b) if the company has complied with section 240 (3), send written notice of dissent to the company not more than 14 days after receiving the records referred to in that section, or
(c) if the company has not complied with section 240 (1), (2) or (3), send written notice of dissent to the company not more than 14 days after the later of
(i) the date on which the shareholder learns that the resolution was passed, and
(ii) the date on which the shareholder learns that the shareholder is entitled to dissent.
(2) A shareholder intending to dissent in respect of a resolution referred to in section 238 (1) (g) must send written notice of dissent to the company
(a) on or before the date specified by the resolution or in the statement referred to in section 240 (2) (b) or (3)
(b) as the last date by which notice of dissent must be sent, or
(b) if the resolution or statement does not specify a date, in accordance with subsection (1) of this section.
(3) A shareholder intending to dissent under section 238 (1) (h) in respect of a court order that permits dissent must send written notice of dissent to the company
(a) within the number of days, specified by the court order, after the shareholder receives the records referred to in section 241, or
(b) if the court order does not specify the number of days referred to in paragraph (a) of this subsection, within 14 days after the shareholder receives the records referred to in section 241.
(4) A notice of dissent sent under this section must set out the number, and the class and series, if applicable, of the notice shares, and must set out whichever of the following is applicable:
(a) if the notice shares constitute all of the shares of which the shareholder is both the registered owner and beneficial owner and the shareholder owns no other shares of the company as beneficial owner, a statement to that effect;
(b) if the notice shares constitute all of the shares of which the shareholder is both the registered owner and beneficial owner but the shareholder owns other shares of the company as beneficial owner, a statement to that effect and
(i) the names of the registered owners of those other shares,
(ii) the number, and the class and series, if applicable, of those other shares that are held by each of those registered owners, and
(iii) a statement that notices of dissent are being, or have been, sent in respect of all of those other shares;
(c) if dissent is being exercised by the shareholder on behalf of a beneficial owner who is not the dissenting shareholder, a statement to that effect and
(i) the name and address of the beneficial owner, and
(ii) a statement that the shareholder is dissenting in relation to all of the shares beneficially owned by the beneficial owner that are registered in the shareholder's name.
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(5) The right of a shareholder to dissent on behalf of a beneficial owner of shares, including the shareholder, terminates and this Division ceases to apply to the shareholder in respect of that beneficial owner if subsections (1) to (4) of this section, as those subsections pertain to that beneficial owner, are not complied with.
Notice of intention to proceed
243 (1) A company that receives a notice of dissent under section 242 from a dissenter must,
(a) if the company intends to act on the authority of the resolution or court order in respect of which the notice of dissent was sent, send a notice to the dissenter promptly after the later of
(i) the date on which the company forms the intention to proceed, and
(ii) the date on which the notice of dissent was received, or
(b) if the company has acted on the authority of that resolution or court order, promptly send a notice to the dissenter.
(2) A notice sent under subsection (1) (a) or (b) of this section must
(a) be dated not earlier than the date on which the notice is sent,
(b) state that the company intends to act, or has acted, as the case may be, on the authority of the resolution or court order, and
(c) advise the dissenter of the manner in which dissent is to be completed under section 244.
Completion of dissent
244 (1) A dissenter who receives a notice under section 243 must, if the dissenter wishes to proceed with the dissent, send to the company or its transfer agent for the notice shares, within one month after the date of the notice,
(a) a written statement that the dissenter requires the company to purchase all of the notice shares,
(b) the certificates, if any, representing the notice shares, and
(c) if section 242 (4) (c) applies, a written statement that complies with subsection (2) of this section.
(2) The written statement referred to in subsection (1) (c) must
(a) be signed by the beneficial owner on whose behalf dissent is being exercised, and
(b) set out whether or not the beneficial owner is the beneficial owner of other shares of the company and, if so, set out
(i) the names of the registered owners of those other shares,
(ii) the number, and the class and series, if applicable, of those other shares that are held by each of those registered owners, and
(iii) that dissent is being exercised in respect of all of those other shares.
(3) After the dissenter has complied with subsection (1),
(a) the dissenter is deemed to have sold to the company the notice shares, and
(b) the company is deemed to have purchased those shares, and must comply with section 245, whether or not it is authorized to do so by, and despite any restriction in, its memorandum or articles.
(4) Unless the court orders otherwise, if the dissenter fails to comply with subsection (1) of this section in relation to notice shares, the right of the dissenter to dissent with respect to those notice shares terminates and this Division, other than section 247, ceases to apply to the dissenter with respect to those notice shares.
(5) Unless the court orders otherwise, if a person on whose behalf dissent is being exercised in relation to a particular corporate action fails to ensure that every shareholder who is a registered owner of any of the shares beneficially owned by that person complies with subsection (1) of this section, the right of shareholders who are registered owners of shares beneficially owned by that person to dissent on behalf of that person with respect to that corporate action terminates and this Division, other than section 247, ceases to apply to those shareholders in respect of the shares that are beneficially owned by that person.
(6) A dissenter who has complied with subsection (1) of this section may not vote, or exercise or assert any rights of a shareholder, in respect of the notice shares, other than under this Division.
Payment for notice shares
245 (1)A company and a dissenter who has complied with section 244 (1) may agree on the amount of the payout value of the notice shares and, in that event, the company must
(a) promptly pay that amount to the dissenter, or
(b) if subsection (5) of this section applies, promptly send a notice to the dissenter that the company is unable lawfully to pay dissenters for their shares.
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(2) A dissenter who has not entered into an agreement with the company under subsection (1) or the company may apply to the court and the court may
(a) determine the payout value of the notice shares of those dissenters who have not entered into an agreement with the company under subsection (1), or order that the payout value of those notice shares be established by arbitration or by reference to the registrar, or a referee, of the court,
(b) join in the application each dissenter, other than a dissenter who has entered into an agreement with the company under subsection (1), who has complied with section 244 (1), and
(c) make consequential orders and give directions it considers appropriate.
(3) Promptly after a determination of the payout value for notice shares has been made under subsection (2) (a) of this section, the company must
(a) pay to each dissenter who has complied with section 244 (1) in relation to those notice shares, other than a dissenter who has entered into an agreement with the company under subsection (1) of this section, the payout value applicable to that dissenter's notice shares, or
(b) if subsection (5) applies, promptly send a notice to the dissenter that the company is unable lawfully to pay dissenters for their shares.
(4) If a dissenter receives a notice under subsection (1) (b) or (3) (b),
(a) the dissenter may, within 30 days after receipt, withdraw the dissenter's notice of dissent, in which case the company is deemed to consent to the withdrawal and this Division, other than section 247, ceases to apply to the dissenter with respect to the notice shares, or
(b) if the dissenter does not withdraw the notice of dissent in accordance with paragraph (a) of this subsection, the dissenter retains a status as a claimant against the company, to be paid as soon as the company is lawfully able to do so or, in a liquidation, to be ranked subordinate to the rights of creditors of the company but in priority to its shareholders.
(5) A company must not make a payment to a dissenter under this section if there are reasonable grounds for believing that
(a) the company is insolvent, or
(b) the payment would render the company insolvent.
Loss of right to dissent
246 The right of a dissenter to dissent with respect to notice shares terminates and this Division, other than section 247, ceases to apply to the dissenter with respect to those notice shares, if, before payment is made to the dissenter of the full amount of money to which the dissenter is entitled under section 245 in relation to those notice shares, any of the following events occur:
(a) the corporate action approved or authorized, or to be approved or authorized, by the resolution or court order in respect of which the notice of dissent was sent is abandoned;
(b) the resolution in respect of which the notice of dissent was sent does not pass;
(c) the resolution in respect of which the notice of dissent was sent is revoked before the corporate action approved or authorized by that resolution is taken;
(d) the notice of dissent was sent in respect of a resolution adopting an amalgamation agreement and the amalgamation is abandoned or, by the terms of the agreement, will not proceed;
(e) the arrangement in respect of which the notice of dissent was sent is abandoned or by its terms will not proceed;
(f) a court permanently enjoins or sets aside the corporate action approved or authorized by the resolution or court order in respect of which the notice of dissent was sent;
(g) with respect to the notice shares, the dissenter consents to, or votes in favour of, the resolution in respect of which the notice of dissent was sent;
(h) the notice of dissent is withdrawn with the written consent of the company;
(i) the court determines that the dissenter is not entitled to dissent under this Division or that the dissenter is not entitled to dissent with respect to the notice shares under this Division.
Shareholders entitled to return of shares and rights
247 If, under section 244 (4) or (5), 245 (4) (a) or 246, this Division, other than this section, ceases to apply to a dissenter with respect to notice shares,
(a) the company must return to the dissenter each of the applicable share certificates, if any, sent under section 244 (1) (b) or, if those share certificates are unavailable, replacements for those share certificates,
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(b) the dissenter regains any ability lost under section 244 (6) to vote, or exercise or assert any rights of a shareholder, in respect of the notice shares, and
the dissenter must return any money that the company paid to the dissenter in respect of the notice shares under, or in purport
SCHEDULE "G"
WHITEHORSE GOLD CORP. FOLLOWING THE ARRANGEMENT
The following describes the proposed business of Whitehorse following the completion of the Arrangement, and should be read together with this Circular. Except where the context otherwise requires, all of the information contained in this Schedule "G" is made on the basis that the Arrangement has been completed as described in the Circular. This Schedule "G" is qualified in its entirety by, and should be read together with, the detailed information contained or referred to elsewhere, or incorporated by reference, in the Circular and applicable Schedules.
Capitalized words used in this Schedule "G" and not otherwise defined shall have the meaning ascribed to such terms in the Circular.
FORWARD LOOKING STATEMENTS
This Schedule "G" includes and incorporates statements that constitute forward-looking statements. All forward- looking statements included in or incorporated by reference into this Schedule "G" are qualified in their entirety by the cautionary statements described in this Circular under the heading "Forward Looking Statements". The forward- looking statements contained herein are made as of the date of this Circular and, except as required by applicable law, neither the Company nor Whitehorse undertakes any obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
Readers are cautioned that the actual results achieved will vary from the information provided herein and that such variations may be material. Consequently, there are no representations by the Company or Whitehorse that actual results achieved will be the same in whole or in part as those set out in the forward-looking statements.
CORPORATE STRUCTURE
Whitehorse was incorporated as "Whitehorse Gold Corp." on November 27, 2019 under the BCBCA. Its head office and registered office is located at Suite 1750 – 1066 West Hastings Street, Vancouver, British Columbia, V6E 3X1. Whitehorse has one wholly-owned subsidiary: Tagish Lake. Tagish Lake was formed on November 30, 2000 under the BCBCA as a result of an amalgamation between Omni Resources Inc. and Trumpeter Yukon Gold Inc.
Whitehorse is currently a wholly-owned subsidiary of the Company. Following the Arrangement and the distribution of the Spin-Out Shares by the Company to the Shareholders, Whitehorse will no longer be a wholly-owned subsidiary of the Company and Whitehorse will be owned by the Shareholders and the participants in the Whitehorse Financing. Assuming the Whitehorse Financing is fully subscribed, the Shareholders will own approximately 40% of Whitehorse and the participants in the Whitehorse Financing will own approximately 60% of Whitehorse (without accounting for the fact that certain Shareholders will also be participants in the Whitehorse Financing).
DESCRIPTION OF THE BUSINESS
Whitehorse was incorporated on November 27, 2019. Whitehorse entered into the Share Exchange Agreement with the Company, pursuant to which Whitehorse became the holder of all of the issued and outstanding shares of Tagish Lake on February 12, 2020. Since such date, Whitehorse has been working towards recommencing activities at the Tagish Lake Gold Project, which is 100% owned by Tagish Lake.
The Tagish Lake Gold Project will be considered Whitehorse's material property. The Tagish Lake Gold Project lies in the south western portion of the Yukon, Canada, approximately 55 km south of Whitehorse, Yukon. The land package consists of 1,051 mineral claims covering approximately 170km2. Upon completion of the Arrangement, Whitehorse intends to focus on further exploration and development of the Tagish Lake Gold Project.
Details regarding the business of Tagish Lake for the last three completed financial years are further described in the Tagish Lake Audited Financial Statements and MD&A attached to the Circular as Schedule "H".
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Other than the Arrangement, the Whitehorse Financing and listing of the Whitehorse Shares on the TSX-V, Whitehorse does not expect there to be any material changes in Whitehorse's business during the current financial year.
Whitehorse Financing
The Whitehorse Financing involves the private placement of up to 30,000,000 Whitehorse Shares for gross proceeds of up to $9 million. The Whitehorse Financing is being conducted in connection with the Arrangement, and, if approved by Disinterested Shareholders at the Meeting and all conditions to the Whitehorse Financing are satisified, will close prior to the Effective Time. The Arrangement is conditional on the completion of the Whitehorse Financing. Up to an aggregate of 743,333 Whitehorse Shares are being purchased by the following directors and officers of Whitehorse for gross proceeds of up to $223,000: Mark Cruise, Lorne Waldman, Kevin Weston, Jean Zhang and Steve Stakiw. In connection with the Whitehorse Financing, Whitehorse does not currently expect to pay any finder's fees or similar commissions. The Whitehorse Shares issued in the Whitehorse Financing will be subject to any applicable TSX-V escrow requirements and hold periods under applicable Canadian securities laws. See "Particulars of the Matters to be Acted Upon – Whitehorse Financing" for further details.
Specialized Skill and Knowledge
All aspects of Whitehorse's business activities require specialized skills and knowledge. Such skills and knowledge include the fields of geology, mining, metallurgy, engineering, environment issues, permitting, social issues, and accounting. Competition in the resource mining industry has made it more difficult to locate and retain competent employees in such fields.
Competitive Conditions
Competition in the mineral exploration industry is intense. Whitehorse competes with other mining companies, many of which have greater financial resources and technical facilities for the acquisition and development of mineral concessions, claims, leases and other interests, as well as for the recruitment and retention of qualified employees and consultants.
Business Cycles
The mining business is subject to mineral price and investment climate cycles. The marketability of minerals is also affected by worldwide economic and demand cycles. In recent years, the significant demand for minerals in some countries has driven increased commodity process. It is difficult to assess if the current commodity prices are long- term trends, and there is uncertainty as to the recovery, or otherwise, of the world economy. If the global conditions weaken and commodity prices decline as a consequence, a continuing period of lower prices could significantly affect the economic potential of the Tagish Lake Gold Project.
Economic Dependence
Whitehorse's business is not substantially dependent on any contract such as a contract to see the major part of its products or services or to purchase the major part of its requirements for goods, services or raw materials, or on any franchise, license or other agreement to use a patent, formula, trade secret, process or trade name upon which its business depends.
Bankruptcy and Similar Procedures
There is no bankruptcy, receivership or similar proceedings against Whitehorse, nor is Whitehorse aware of any such pending or threatened proceedings. There have not been any voluntary bankruptcy, receivership or similar proceedings by Whitehorse since inception or currently proposed for the current financial year.
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Employees
Whitehorse currently has 4 employees. Upon completion of the Arrangement, Whitehorse expects to have approximately 4 employees.
Tagish Lake Gold Project
The Tagish Lake Gold Project Technical Report, prepared by Ronald G. Simpson, P. Geo of GeoSim Services Inc., is the most recent technical report prepared for the Tagish Lake Gold Project in accordance with NI 43-101. The disclosure set out below regarding the Tagish Lake Gold Project is based on, without material modification or revision, the disclosure in Tagish Lake Gold Project Technical Report, which has been incorporated by reference into this Circular. The Tagish Lake Gold Project Technical Report is available for review under the Company's SEDAR profile at www.sedar.com. The Tagish Lake Gold Project Technical Report contains more detailed information and qualifications than are set out below and readers are encouraged to review the Tagish Lake Gold Project Technical Report. This summary is subject to all of the assumptions, information and qualifications set forth therein.
The Tagish Lake Gold Project is located in south western Yukon Territory, Canada, approximately 55 kilometers south of the territory's capital city, Whitehorse. The approximately 170km2 property consists of 1,051 full or fractional quartz mining claims and 3 crown grants which encompass the Skukum Creek gold-silver prospect, the Goddell gold prospect, and the past-producing Mt. Skukum gold mine. The Tagish Lake Gold Project is directly held by Tagish Lake. In September 2010, the Company completed the acquisition of a 100% interest in Tagish Lake through a court- approved plan of arrangement under the BCBCA. Tagish Lake is currently a wholly-owned subsidiary of Whitehorse, which in turn is a wholly owned subsidiary of the Company. Following completion of the Arrangement, Tagish Lake will remain a wholly-owned subsidiary of the Company.
The Tagish Lake Gold Project can be accessed by all-weather road from Whitehorse, Yukon Territory. Alternatively, the Tagish Lake Gold Project can be reached by helicopter from the Whitehorse Airport, which is 55 kilometers to the north-northwest of the Tagish Lake Gold Project.
The Tagish Lake Gold Project is situated on the boundary between the Jurassic andesites and siliciclastic rocks of the Stikine Terrane and Paleozoic gneisses of the Nisling Terrane. This package is intruded by the late Triassic to Jurassic Bennett Granite and Cretaceous intrusions of the Coast Plutonic Complex which includes: the Mt. McNeil granodiorite, the Mt. Ward granite and Carbon Hill quartz monzonite. Intermediate Cretaceous volcanic rocks of the Mt. Nansen Group deposited approximately coeval with the Coast Plutonic Complex, are present at the Tagish Lake Gold Project east of the Wheaton River. These rocks are separated from the late Paleocene to early Eocene rocks of the Mount Skukum volcanic complex, which outcrop in the northwestern part of the property, by east- to northeast- trending structures.
Three deposit types at the Tagish Lake Gold Project are typically structurally controlled gold±silver±base metal bearing veins, vein breccias or mylonites. The Mt. Skukum deposit is a structurally controlled epithermal gold deposit hosted in Eocene volcanics. Low temperature auriferous quartz-calcite-adularia veins occur along brittle fractures and faults with little shearing, and appear to be formed at shallow levels. The Skukum Creek deposit is a structurally controlled, polymetallic gold-silver, deep epithermal vein deposit hosted in Mid-Cretaceous Mt. McNeil granodiorite. In the Skukum Creek area, zones of mineralization are hosted primarily by a series of linked, northeast-trending faults that may represent splays off the Berney Creek fault system. The Goddell deposit is a structurally controlled shearhosted gold deposit. Mineralization is associated with altered andesite dykes within the shear zone. The shear zone is located within Mid-Cretaceous Carbon Hill granodiorites.
A considerable amount of historical exploration, including diamond drilling and underground exploration, has been undertaken at the Tagish Lake Gold Project. Historical exploration consisted of surface geological surveys, geochemical surveys, ground and airborne geophysical surveys, trenching, and surface and underground drilling. Approximately 121,000m was drilled in more than 910 holes, and 7,630 metres of underground drifting and crosscutting were developed, mainly at Mt. Skukum, Skukum Creek and Goddell.
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In 2011, the Company undertook an exploration program consisting of digital data compilation; surface geochemical sampling, surface geological mapping, supplementary core sampling of historical drill holes, surface and underground diamond drilling, metallurgical testwork, rehabilitation of underground workings and camp upgrades. A total of 51 diamond drill holes totaling 12,487.77 metres were completed at various deposits and prospects at the Tagish Lake Gold Project, including Mt. Skukum (Lake Zone), Skukum Creek and Goddell.
As part of the preparation for a current resource estimate of the Lake Zone, Skukum Creek and Goddell, drill core verification samples confirmed the presence of gold and silver mineralization with comparable grades to those reported historically for the Lake Zone, and for samples collected by the Company during the 2011 diamond drilling exploration. Current resource estimates for the Mt. Skukum (Lake Zone), Skukum Creek and Goddell have been prepared by GeoSim Services, Inc. using all available exploration data, up to and including the results of the Company's 2011 exploration program. The current resource estimates, using a 3 g/t gold or 3 g/t gold-equivalent cut- off, are summarized below:
• Mt. Skukum (Lake Zone):
o Inferred Mineral Resource of 90,500 tonnes at 9.51 g/t Au equivalent;
• Skukum Creek:
o Indicated Mineral Resource of 1,086,800 tonnes at 8.73 g/t Au equivalent; and,
o Inferred Mineral Resource of 586,000 tonnes at 6.83 g/t Au equivalent.
• Goddell Gully:
o Indicated Mineral Resource of 329,700 tonnes at 8.13 g/t Au; and,
• Inferred Mineral Resource of 483,900 tonnes at 7.13 g/t Au.
The selected base case cut-off grade of 3.0 g/t gold or gold equivalent is considered to be generally consistent with the economic cut-off for other mineral deposits of similar characteristics, scale and location (using metal prices of US$1,300 per ounce Au and US$26 per ounce Ag). The effective date for the foregoing resource estimates is July 16, 2012.
AVAILABLE FUNDS AND PRINCIPAL PURPOSES
Available Funds
As part of the Arrangement, Whitehorse intends on completing the Whitehorse Financing. Pursuant to the Whitehorse Financing, Whitehorse will issue up to 30,000,000 Whitehorse Shares at a price of $0.30 per Whitehorse Share for gross proceeds of up to $9 million. Whitehorse does not currently expect to pay any type of finders' fee in connection with the Whitehorse Financing.
As a result of the Whitehorse Financing, following completion of the Arrangement, it is anticipated that Whitehorse will have total available funds of up to $5.4 million after repayment of the New Pacific-Whitehorse Debt. The New Pacific-Whitehorse Debt was incurred by Whitehorse in connection with the Share Exchange Agreement and funds provided by the Company to Whitehorse for purposes of interim working capital. Following closing of the Arrangement and Whitehorse Financing, Whitehorse is expected to have working capital of approximately $5.4 million.
Principal Purposes
The following table summarizes the expenditures anticipated by Whitehorse required to achieve its business objectives during the 12 months following completion of the Arrangement:
|
Principal Purpose
|
|
Cost
|
|
Exploration, Development and Social Programs (2020-2021)
|
|
$4.0 million
|
|
Expenses Relating to the Arrangement and Whitehorse Financing Not Borne by the Company
|
|
$0.31 million
|
|
Working Capital and General Corporate Purposes
|
|
$0.98 million
|
|
TOTAL
|
|
$5.29 million
|
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Whitehorse intends to spend the funds available to it as stated in the table above. However, there may be circumstances where, for sound business reasons, a reallocation of funds may be necessary for Whitehorse to achieve its objectives or to pursue other opportunities that management believes are in the interests of Whitehorse. If the Whitehorse Financing is completed for gross proceeds of less than $6 million, Whitehorse will spend the funds in the manner set out above, adjusted for such lower amount of gross proceeds in the manner determined by Whitehorse management. See "Risk Factors – Risks Relating to Whitehorse's Business" in this Schedule "G".
SELECTED CONSOLIDATED FINANCIAL INFORMATION AND MANAGEMENT'S DISCUSSION AND ANALYSES
The following selected financial information and management's discussion and analysis should be read in conjunction with the Tagish Lake Audited Financial Statements and MD&A attached as Schedule "H" to the Circular, the Whitehorse Audited Financial Statements and MD&A attached as Schedule "I" to the Circular, and the Whitehorse Pro-forma Financial Statements attached as Schedule "J" to the Circular.
|
|
From the incorporation
|
|
|
on November 27, 2019 to
|
|
|
June 30, 2020
|
|
Operating expenses
|
$(138,323)
|
|
Impairment reversal of mineral property interests
|
$11,714,944
|
|
Comprehensive income for the period
|
$11,496,896
|
|
Total Assets
|
$12,269,831
|
|
Total Liabilities
|
$3,632,387
|
Net income of Whitehorse for the period from incorporation on November 27, 2019 to June 30, 2020 was $11,496,896, which mainly resulted from the impairment reversal of Tagish Lake Gold Project and offset by operating expense and interest expense.
Operating expenses for the period from incorporation on November 27, 2019 to June 30, 2020 were $138,323. Items included in operating expenses were as follows:
(i) Professional fees for the period were $9,010 related to the establishment of Whitehorse and spin-out related services with the Company, including the share exchange and promissory note arrangements.
(ii) Salaries and benefits expense for the period were $98,741.
(iii) Office and administration expenses for the period were $29,829.
Impairment reversal of mineral property interests for the period from incorporation on November 27, 2019 to June 30, 2020 was $11,714,944 related to the Tagish Lake Gold Project. Interest expense for the period from incorporation on November 27, 2019 to June 30, 2020 was $79,754 related to interests for the promissory note of $3,500,000 due to the Company at an annual interest rate of 6%.
DESCRIPTION OF SHARE CAPITAL
Whitehorse is authorized to issue an unlimited number of Whitehorse Shares. The holders of Whitehorse Shares are entitled to one vote per share at all meetings of Whitehorse Shareholders. The Whitehorse Shares are also entitled to dividends, if and when declared by the Whitehorse Board, and to the distribution of the residual assets of Whitehorse in the event of the liquidation, dissolution or winding-up of Whitehorse.
DIVIDEND POLICY
Whitehorse has not paid any dividends since its incorporation. Whitehorse does not anticipate paying any dividends in the short-term. Any decision to pay dividends on the Whitehorse Shares in the future will be made by the Whitehorse Board in its discretion on the basis of earnings, financial requirements, business objectives and opportunities and such other factors and conditions as it may consider relevant at such time. See "Risk Factors – Risks Relating to Whitehorse's Business" in this Schedule "G".
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EQUITY PLAN DESCRIPTIONS AND INFORMATION
On July 2, 2020, the Whitehorse Board approved the Whitehorse Option Plan, a summary of which is described below. The Whitehorse Option Plan will be subject to approval of the Whitehorse Shareholders at the next scheduled meeting of Whitehorse Shareholders following completion of the Arrangement, as well as the requirements of the TSX-V in connection with Whitehorse's listing application and if Whitehorse is listed on the TSX-V.
The Whitehorse Option Plan was established to attract and retain employees, consultants, officers or directors to Whitehorse and to motivate them to advance the interests of Whitehorse by affording them with the opportunity to acquire an equity interest in Whitehorse. The Whitehorse Option Plan will be administered by the directors and the Compensation Committee.
The following information is intended as a brief description of the Whitehorse Option Plan and is qualified in its entirety by the full text of the Whitehorse Option Plan attached as Schedule "Q".
The Whitehorse Option Plan provides for the following terms and restrictions of stock option grants:
(a) Directors, officers, employees and consultants of Whitehorse or any of its subsidiaries are eligible to receive grants of options under the Whitehorse Option Plan.
(b) The maximum number of Whitehorse Shares issuable under the Whitehorse Option Plan, together with the number of Whitehorse Shares issuable under outstanding options granted otherwise than under the Whitehorse Option Plan, shall not exceed 10% of the issued and outstanding Whitehorse Shares. If a stock option is surrendered, terminated or expires without being exercised, the Whitehorse Shares reserved for issuance pursuant to such stock option shall be available for new stock options granted under the Whitehorse Option Plan.
(c) The aggregate number of Whitehorse issued to insiders in any 12-month period under the Whitehorse Option Plan or any other share compensation arrangements of Whitehorse shall not exceed 10% of the outstanding Whitehorse Shares.
(d) The aggregate number of stock options granted to any one person (and Companies wholly owned by that person) in a 12-month period must not exceed 5% of the issued Whitehorse Shares, calculated on the date a stock option is granted to the person (unless Whitehorse has obtained the requisite disinterested Whitehorse Shareholder approval).
(e) The aggregate number of options granted to any one consultant in a 12-month period must not exceed 2% of the issued Whitehorse Shares, calculated at the date a stock option is granted to the Consultant.
(f) The aggregate number of options granted to all persons retained to provide investor relations activities must not exceed 2% of the issued Whitehorse Shares in any 12-month period, calculated at the date a stock option is granted to any such person. For the purposes of the Whitehorse Option Plan, persons retained to provide investor relations activities shall include any consultant that performs investor relations activities and any employee or director whose role and duties primarily consist of investor relations activities.
(g) Major terms of the Whitehorse Option Plan terms in regards to exercise price, expiry, vesting, assignment, and cessation are as follows:
(i) The exercise price per Whitehorse Share for a stock option shall not be less than the last daily closing price per Whitehorse Share on the TSX-V on the last trading day immediately preceding any grant of stock options on the date of grant;
G-7
(ii) Every stock option granted pursuant to this Whitehorse Option Plan shall have a term not exceeding, and shall therefore expire no later than, ten years after the date of grant;
(iii) Pursuant to the policies of the TSX-V, the Whitehorse Board shall determine the manner in which a stock option shall vest and become exercisable;
(iv) No stock option granted under the Whitehorse Option Plan or any right thereunder or in respect thereof shall be transferable or assignable otherwise than by will or pursuant to the laws of succession except that, if permitted by the rules and policies of the TSX-V, an optionee shall have the right to assign any stock option granted to him hereunder to a trust, RRSP, RESP or similar legal entity established by such optionee;
(v) If an officer, employee or consultant is terminated for cause, each stock option held by such optionee shall terminate and shall therefore cease to be exercisable upon such termination for cause;
(vi) If a director, officer, employee or consultant dies prior to the expiry of his stock option, his legal representatives may, within the lesser of one year from the date of the optionee's death or the expiry date of the stock option, exercise that portion of an stock option granted to the director, officer, employee, or consultant under the Whitehorse Option Plan which remains outstanding;
(vii) If a director, officer, employee or consultant ceases to be an eligible person under the Whitehorse Option Plan for any reason whatsoever (other than for termination for cause or death) each stock option held by such party will cease to be exercisable 90 days after the termination date. The Whitehorse Board may extend the date of such termination and the resulting period in which the stock option remains exercisable to a date not exceeding the expiry date; and
(viii) In the event of a change of control, all stock options that are not vested shall vest immediately and automatically without further action by the Whitehorse Board, subject to any restrictions imposed by the TSX-V pursuant to its policies stated herein or otherwise at the time of vesting. Stock options granted to investor relations providers are not eligible for accelerated vesting without prior TSX-V approval.
(h) The Whitehorse Board may amend any stock option with the consent of the affected optionee and the TSX- V, including any shareholder approval as required by the TSX-V. Disinterested Whitehorse Shareholder approval will be obtained for any reduction in the exercise price if the optionee is an insider of Whitehorse at the time of the proposed amendment.
On July 2, 2020, Whitehorse granted the following Whitehorse Options to the following individuals:
|
Name
|
Number of Whitehorse Options
|
|
|
Kevin Weston
|
1,000,000
|
|
|
Steve Stakiw
|
500,000
|
|
|
Tim Kingsley
|
500,000
|
|
|
Mark Cruise
|
350,000
|
|
|
Wanjin Yang
|
300,000
|
|
|
Lorne Waldman
|
250,000
|
|
|
Yong-Jae Kim
|
250,000
|
|
|
Jalen Yuan
|
125,000
|
|
|
Jean Zhang
|
125,000
|
|
|
Monica Chen
|
20,000
|
|
|
Luke Sun
|
20,000
|
|
|
Sheryl Gao
|
10,000
|
|
|
Total
|
3,450,000
|
|
G-8
The foregoing Whitehorse Options have an exercise price of $0.05 per Whitehorse Share, a term of 10 years, and vest over a 3 year period in 1/6 increments, beginning on the 6-month anniversary following the date of grant, in accordance with the Whitehorse Option Plan. The grant of the foregoing Whitehorse Options, including the terms thereof, will be subject to the review and approval of the TSX-V.
PRIOR SALES
Whitehorse issued one Whitehorse Share on November 27, 2019, which was immediately transferred to the Company. Pursuant to the terms of the Share Exchange Agreement, Whitehorse issued an additional 20,000,000 Whitehorse Shares to the Company on February 12, 2020. On July 2, 2020, Whitehorse granted the Whitehorse Options described above under the heading "Equity Plan Descriptions and Information".
ESCROWED SECURITIES AND SECURITIES SUBJECT TO CONTRACTUAL RESTRICTIONS ON TRANSFERS
To the knowledge of Whitehorse, as of the date of the Circular, no securities of any class of securities of Whitehorse are held in escrow or subject to contractual restrictions on transfer. Whitehorse expects some or all of the Whitehorse Shares issued in the Whitehorse Financing and the Whitehorse Options to be subject to applicable escrow requirements of the TSX-V.
VOTING SHARES AND PRINCIPAL HOLDERS THEREOF
Whitehorse is authorized to issue an unlimited number of Whitehorse Shares. As at the date of this Circular, there was 20,000,001 Whitehorse Shares outstanding, being the Spin-Out Shares. There are no other shares issued or outstanding of any other class.
To the knowledge of the directors and executive officers of Whitehorse, no person, firm or company, will upon completion of the Arrangement and the Whitehorse Financing, beneficially own, directly or indirectly, or exercise control or direction over, voting securities carrying more than 10% of the voting rights attached to any class of voting securities of Whitehorse other than as set out below.
|
Name
|
|
Number of Shares(1)
|
|
Percentage of Outstanding Whitehorse Shares(1)
|
|
Silvercorp
|
|
11,540,815
|
|
23.08%
|
Note:
(1) After giving effect to the Arrangement and the Whitehorse Financing, assuming that the Whitehorse Financing is fully subscribed and that Silvercorp participates up to the amount set out in the Circular under the heading "Whitehorse Financing – Description".
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets out the names, province or state and country of residence of the directors of Whitehorse, their principal occupations, business or employment within the five preceding years, the date of their appointment as director, and the number of Whitehorse Shares and Whitehorse Options each will beneficially own, directly or indirectly, or over which control or direction is exercised, as at completion of the Arrangement:
|
|
|
|
|
|
|
Number of
|
|
Number of
|
|
Name, province or state
|
|
|
|
|
|
Whitehorse Shares
|
|
Whitehorse Options
|
|
and country of residence
|
|
|
|
|
|
beneficially owned,
|
|
beneficially owned,
|
|
and positions, current
|
|
Principal occupation for
|
|
Date
|
|
directly or indirectly,
|
|
directly or indirectly,
|
|
and former, if any, held
|
|
|
|
or controlled or
|
|
or controlled or
|
|
in the Company
|
|
last five years
|
|
Appointed
|
|
directed(3)
|
|
directed
|
|
Mark Cruise(1)(2)
|
|
Current CEO of the
|
|
March 4,
|
|
333,333
|
|
350,000
|
|
|
|
Company; Former President
|
2020
|
|
|
|
|
|
|
|
and CEO of Trevali Mining
|
|
|
|
|
|
|
|
|
|
Corp.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lorne Waldman(1)(2)
|
|
Former Corporate Secretary
|
|
March 4,
|
|
163,131
|
|
250,000
|
|
|
|
and In-House Legal Counsel
|
|
2020
|
|
|
|
|
|
|
|
of Silvercorp
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kevin Weston(1)
|
|
Current CEO of Whitehorse;
|
|
August 20,
|
|
100,000
|
|
1,000,000
|
|
|
|
Consultant, VP Operations of
|
|
2020
|
|
|
|
|
|
|
|
Jaguar Mining Inc. and COO
|
|
|
|
|
|
|
|
|
|
at JDS Silver Inc.
|
|
|
|
|
|
|
G-9
Notes:
(1) Proposed member of the Audit Committee.
(2) Proposed member of the Compensation Committee.
(3) After giving effect to the Arrangement and the Whitehorse Financing, assuming that the Whitehorse Financing is fully subscribed and that such director participates up to the amount set out in the Circular under the heading "Whitehorse Financing – Description".
After completion of the Arrangement, the directors of Whitehorse will be elected by the Whitehorse Shareholders at each annual meeting of Whitehorse Shareholders, and will hold office until the next annual meeting of Whitehorse, unless: (i) his or her office is earlier vacated in accordance with the Articles of Whitehorse; or (ii) he or she becomes disqualified to act as a director.
Director and Officer Compensation
The following table sets for all direct and indirect compensation paid, payable, awarded, granted, given or otherwise provided, directly or indirectly, by Whitehorse any subsidiary thereof to each officer and each director of Whitehorse, in any capacity, including, for greater certainly, all plan and non-plan compensation, direct and in-direct pay, remuneration, economic or financial award, reward, benefit, gift or perquisite paid, payable, awarded, granted, given or otherwise provided to the officer or director for services provided and for services to be provided, directly or indirectly, to Whitehorse or any subsidiary thereof:
|
|
|
Salary,
|
|
|
|
|
|
|
|
|
consulting
|
|
Committee
|
|
Value of all
|
|
|
Name
|
|
fee,
|
|
or meeting
|
Value of
|
other
|
Total
|
|
and
|
|
retainer or
|
Bonus
|
fees
|
perquisites
|
compensation
|
compensation
|
|
position
|
Year
|
commission ($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
|
|
|
|
|
|
|
|
|
|
Kevin Weston(1)
|
2020(2)
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
|
CEO and Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jean Zhang(3)
|
2020(2)
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
|
CFO and Corporate
|
|
|
|
|
|
|
|
|
Secretary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tim Kingsley(4)
|
2020(2)
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
|
VP, Exploration
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steve Stakiw(5)
|
2020(2)
|
52,500
|
Nil
|
Nil
|
Nil
|
Nil
|
52,500
|
|
VP, Corporate Affairs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark Cruise(6)
|
2020(2)
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
|
Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lorne Waldman(7)
|
2020(2)
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
|
Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael Horner(8)
|
2020(2)
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
|
Former President,
|
|
|
|
|
|
|
|
|
CEO and Director
|
|
|
|
|
|
|
|
Notes:
(1) Mr. Weston was appointed as CEO effective July 7, 2020 and was appointed as a Director effective August 20, 2020.
(2) The period beginning on the date of Whitehorse's incorporation (November 27, 2019) ending on June 30, 2020.
(3) Ms. Zhang was appointed as CFO effective August 26, 2020.
(4) Mr. Kingsley was appointed VP, Exploration effective July 15, 2020.
(5) Mr. Stakiw was appointed VP, Corporate Affairs effective March 16, 2020
(6) Mr. Cruise was appointed as a Director effective March 4, 2020.
(7) Mr. Waldman was appointed as a Director effective March 4, 2020.
(8) Mr. Horner resigned as: (i) CEO effective July 7, 2020; (ii) President effective August 12, 2020; and (iii) a Director effective August 20, 2020.
G-10
Stock Options and Other Compensation Securities
The following table provides a summary of all compensation securities granted or issued to each director and officer by Whitehorse during the most recently completed financial year ended June 30, 2020 for services provided or to be provided, directly or indirectly, to Whitehorse or any of its subsidiaries.
|
Compensation Securities
|
|
|
|
Number of
|
|
|
Closing price of
|
Closing price of
|
|
|
|
|
compensation
|
|
|
security or
|
security or
|
|
|
|
|
securities, number
|
|
Issue,
|
underlying
|
underlying
|
|
|
|
Type of
|
of underlying
|
Date of
|
conversion or
|
security on date of
|
security at year
|
|
|
Name and
|
compensation
|
securities, and
|
issue or
|
exercise price
|
grant
|
end
|
Expiry
|
|
position
|
security
|
percentage of class
|
grant
|
($)
|
($)
|
($)
|
date
|
|
Kevin Weston
|
Stock options
|
1,000,000
|
July 2,
|
0.05
|
N/A(1)
|
N/A(1)
|
July 2, 2030
|
|
CEO
|
|
|
2020
|
|
|
|
|
|
Jean Zhang
|
Stock options
|
125,000
|
July 2,
|
0.05
|
N/A(1)
|
N/A(1)
|
July 2, 2030
|
|
CFO and
|
|
|
2020
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
Secretary
|
|
|
|
|
|
|
|
|
Tim Kingsley
|
Stock options
|
500,000
|
July 2,
|
0.05
|
N/A(1)
|
N/A(1)
|
July 2, 2030
|
|
VP,
|
|
|
2020
|
|
|
|
|
|
Exploration
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steve Stakiw,
|
Stock options
|
500,000
|
July 2,
|
0.05
|
N/A(1)
|
N/A(1)
|
July 2, 2030
|
|
VP, Corporate
|
|
|
2020
|
|
|
|
|
|
Affairs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark Cruise
|
Stock options
|
350,000
|
July 2,
|
0.05
|
N/A(1)
|
N/A(1)
|
July 2, 2030
|
|
Director
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lorne
|
Stock options
|
250,000
|
July 2,
|
0.05
|
N/A(1)
|
N/A(1)
|
July 2, 2030
|
|
Waldman
|
|
|
2020
|
|
|
|
|
|
Director
|
|
|
|
|
|
|
|
Note:
(1) The Whitehorse Shares are not currently traded on any public market.
Exercise of Stock Options
No director or officer exercised any compensation securities during the most recently completed financial period ending on June 30, 2020.
Description of Director and Officer Compensation
Compensation of Directors
There are no arrangements under which directors of Whitehorse who were not officers were compensated by Whitehorse or its subsidiaries during the most recently completed financial year end for their services in their capacity as directors or consultants, except as disclosed below.
Termination and Change of Control Benefits
There are no provisions in any contract, agreement, plan or arrangement, that provides for payments to an officer at, following or in connection with any termination (whether voluntary, involuntary or constructive), resignation, retirement, a change of control in Whitehorse or a change in the officer's responsibilities, except as disclosed above under the heading "Compensation of Officers".
G-11
Oversight and Description of Director and Officer Compensation
Given Whitehorse's status as an early-stage exploration company, the Whitehorse Board does not feel that a compensation committee is required to evaluate compensation. The Whitehorse Board reviews and approves compensation paid to Whitehorse's directors and officers.
Compensation objectives include the following:
• attracting and retaining highly-qualified individuals;
• creating among directors, officers, consultants and employees, a corporate environment which will align their interests with those of the Whitehorse Shareholders; and
• ensuring competitive compensation that is also affordable for Whitehorse.
The compensation program is designed to provide competitive levels of compensation. Whitehorse recognizes the need to provide a total compensation package that will attract and retain qualified and experienced executives as well as align the compensation level of each executive to that executive's level of responsibility. In general, Whitehorse's directors and officers may receive compensation that comprises three components:
• salary, wages or contractor payments;
• stock option grants; and
• bonuses.
The objectives and reasons for this system of compensation are to allow Whitehorse to remain competitive compared to its peers in attracting experienced personnel. The salaries are set on the basis of a review and comparison of salaries paid to executives at similar companies.
Grants of Whitehorse Options are designed to reward directors and officers for success on a similar basis as the Whitehorse Shareholders, although the level of reward provided by a particular stock option grant is dependent upon the volatile stock market.
Any bonuses paid are allocated on an individual basis and are based on review by the Whitehorse Board of the work planned during the year and the work achieved during the year, including work related to mineral exploration, administration, financing, shareholder relations and overall performance. The bonuses are paid to reward work done above the base level of expectations set by the base salary, wages or contractor payments.
As a junior mineral exploration company, Whitehorse remains at risk of losing qualified personnel to companies with greater financial resources and it attempts to mitigate this risk wherever possible through appropriate written contracts.
Option-Based Awards
The Whitehorse Option Plan is used to attract, retain and incentivize qualified and experienced personnel. The Whitehorse Option Plan is an important part of Whitehorse's long-term incentive strategy for its officers, as well as for other persons eligible to receive grants of Whitehorse Options thereunder, permitting them to participate in any appreciation of the market value of Whitehorse Shares over a stated period of time. The Whitehorse Option Plan is designed to foster a proprietary interest in stock ownership, and to reinforce a commitment to Whitehorse's long-term growth, performance and success as well as increasing shareholder value. See "Equity Plan Descriptions and Information" above.
The Whitehorse Board reviews the grant of Whitehorse Options to officers from time to time, based on various factors such as the officer's level of responsibility and role and importance in Whitehorse achieving its corporate goals, objectives and prospects. Previous grants of Whitehorse Options are taken into account when consider new grants of Whitehorse Options to officers.
G-12
Whitehorse has no equity compensation plans other than the Whitehorse Option Plan.
Use of Financial Instruments
Whitehorse does not have a policy that would prohibit a officers or director from purchasing financial instruments, including prepaid variable forward contracts, equity swaps, collars or units of exchange funds, that are designed to hedge or offset a decrease in market value of equity securities granted as compensation or held, directly or indirectly, by the officers or director. However, management is not aware of any officers or director purchasing such an instrument.
Corporate Cease Trade Orders, Bankruptcies, Penalties and Sanctions
No director of Whitehorse is, or within the ten years prior to the date of the Circular has been, a director or executive officer of any company, including Whitehorse, that while that person was acting in that capacity:
(a) was the subject of a cease trade order or similar order or an order that denied the company access to any exemption under securities legislation for a period of more than 30 consecutive days; or
(b) was subject to an event that resulted, after the director ceased to be a director or executive officer of the company being the subject of a cease trade order or similar order or an order that denied the relevant company access to any exemption under securities legislation, for a period of more than 30 consecutive days; or
(c) within a year of that person ceasing to act in that capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets.
CORPORATE GOVERNANCE PRACTICES
Board of Directors
The Whitehorse Board will have responsibility for the stewardship of Whitehorse including responsibility for strategic planning, identification of the principal risks of Whitehorse's business and implementation of appropriate systems to manage these risks, succession planning (including appointing, training and monitoring senior management), communications with investors and the financial community and the integrity of Whitehorse's internal control and management information systems.
The Whitehorse Board will set long term goals and objectives for Whitehorse and will formulate the plans and strategies necessary to achieve those objectives and to supervise senior management in their implementation. The Whitehorse Board may delegate the responsibility for managing the day-to-day affairs of Whitehorse to senior management but will retain a supervisory role in respect of, and ultimate responsibility for, all matters relating to Whitehorse and its business. The Whitehorse Board is responsible for protecting Whitehorse Shareholders' interests and ensuring that the incentives of the Whitehorse Shareholders and of management are aligned.
The Whitehorse Board is currently comprised of three directors, being Mark Cruise, Lorne Waldman and Kevin Weston. Except for Kevin Weston, the Whitehorse Board considers all of the current directors to be "independent" in that they will be independent and free from any interest and any business or other relationship which could or could reasonably be perceived to, materially interfere with the director's ability to act with the best interests of Whitehorse, other than interests and relationships arising from shareholding, following the Arrangement. Mr. Weston is not considered to be independent, due to his role as the CEO of Whitehorse.
G-13
Directorships
As set out below, certain of the current directors of Whitehorse are also directors of other reporting issuers:
|
Director
|
|
Other Issuer
|
|
Mark Cruise
|
|
New Pacific Metals Corp., Velocity Minerals Ltd.
|
|
Lorne Waldman
|
|
N/A
|
|
Kevin Weston
|
|
N/A
|
Orientation and Continuing Education
Whitehorse has not yet developed an official orientation or training program for new directors. As required, new directors will have the opportunity to become familiar with Whitehorse by meeting with the other directors, officers and employees and by reviewing Whitehorse's corporate records and corporate governance policies. Orientation activities will be tailored to the particular needs and experience of each director and the overall needs of the Whitehorse Board. The Whitehorse Board will continue to look at outside sources to strengthen their skills. The Whitehorse Board members are encouraged to communicate with management, auditors and technical consultants; to keep themselves current with industry trends and developments and changes in legislation with management's assistance; and to attend related industry seminars.
Ethical Business Conduct
The Whitehorse Board will adopt a Code of Business Ethics and Conduct (the "Whitehorse Code") applicable to all of its directors, officers and employees, including the CEO, the CFO and other persons performing financial reporting functions. The Whitehorse Code will be used to communicate to directors, officers and employees standards for business conduct in the use of Whitehorse's resources and assets, and to identify and clarify proper conduct in areas of potential conflict of interest. The Whitehorse Code will be designed to deter wrongdoing and promote (a) honest and ethical conduct; (b) compliance with laws, rules and regulations; (c) prompt internal reporting of Whitehorse Code violations; and (d) accountability for adherence to the Whitehorse Code. Violations from standards established in the Whitehorse Code, and specifically under "Whistleblower" situations, will be reported to the chairperson of the Whitehorse Audit Committee and will be able to be reported anonymously.
The Whitehorse Board must also comply with the conflict of interest provisions of the BCBCA, as well as the relevant securities regulatory instruments, to ensure that directors exercise independent judgment in considering transactions and agreements in respect of which a director or executive officer has a material interest.
Other Board Committees
In addition to the Whitehorse Audit Committee, described in the next section, the Whitehorse Board will establish a Compensation Committee.
Each of the proposed committees of the Whitehorse Board will be comprised of a majority of independent directors. The Compensation Committee will be responsible for the review of all compensation paid by Whitehorse to the Whitehorse Board, senior management and employees of Whitehorse and any subsidiaries, to report to the Whitehorse Board on the results of those reviews and to make recommendations to the Whitehorse Board for adjustments to such compensation. Mark Cruise and Lorne Waldman are the proposed members of the compensation committee.
Assessments
The Whitehorse Board has not, as yet, adopted any formal procedures for regularly assessing the effectiveness of the Whitehorse Board, its committees or individual directors with respect to their effectiveness and contributions. Nevertheless, their effectiveness is subjectively measured on an ongoing basis by each director based on their assessment of the performance of the Whitehorse Board, its committees or the individual directors compared to their expectation of performance. In doing so, the contributions of an individual director are informally monitored by the other Whitehorse Board members, bearing in mind the business strengths of the individual and the purpose of originally nominating the individual to the Whitehorse Board.
G-14
AUDIT COMMITTEE
Overview
The audit committee of the Whitehorse Board (the "Whitehorse Audit Committee") will be principally responsible for:
(a) recommending to the Whitehorse Board the external auditor to be nominated for election by the Whitehorse Shareholders at each annual general meeting of Whitehorse Shareholders and negotiating the compensation of such external auditor;
(b) overseeing the work of the external auditor;
(c) reviewing Whitehorse's annual and interim financial statements, management discussion and analysis and press releases regarding earnings before they are reviewed and approved by the Whitehorse Board and publicly disseminated by Whitehorse; and
(d) reviewing Whitehorse's financial reporting procedures and internal controls to ensure adequate procedures are in place for Whitehorse's public disclosure of financial information extracted or derived from its financial statements, other than disclosure described in the previous paragraph.
Audit Committee Charter
The Whitehorse Board has adopted a charter (the "Whitehorse Charter") for the Whitehorse Audit Committee which sets out the committee's mandate, organization, powers and responsibilities. The complete Whitehorse Charter is attached as Schedule "K" to the Circular.
Composition of the Audit Committee
The Whitehorse Audit Committee is expected to be comprised of Mark Cruise, Lorne Waldman and Kevin Weston. A majority of the members of the Whitehorse Audit Committee will be independent directors in accordance with the requirements of NI 52-110.
The following table sets out the names of the members of the Audit Committee and whether they will be "independent" are and "financially literate".
|
Name of Member
|
|
Independent(1)
|
|
Financially Literate(2)
|
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Mark Cruise
|
|
Yes
|
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Yes
|
|
Lorne Waldman
|
|
Yes
|
|
Yes
|
|
Kevin Weston
|
|
No
|
|
Yes
|
Notes:
(1) To be considered to be independent, a member of the Whitehorse Audit Committee must not have any direct or indirect "material relationship" with Whitehorse as defined under applicable securities laws. A material relationship is a relationship which could, in the view of the Whitehorse Board, reasonably interfere with the exercise of a member's independent judgment. Kevin Weston is not "independent" by virtue of being the CEO of Whitehorse.
(2) To be considered financially literate, a member of the Whitehorse Audit Committee must have the ability to read and understand a set of financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of the issues that can reasonably be expected to be raised by Whitehorse's financial statements.
G-15
Relevant Education and Experience
All proposed members of the Whitehorse Audit Committee are experienced business people with a background and experience in financial matters; each has a broad understanding of the accounting principles used to prepare financial statements and varied experience as to general application of such accounting principles, as well as the internal controls and procedures necessary for financial reporting, garnered from working in their individual fields of endeavor. In addition, each member of the Whitehorse Audit Committee has knowledge of the role of an audit committee in the realm of reporting companies. Following are the biographies of members of the Whitehorse Audit Committees:
• Mark Cruise: Dr. Mark Cruise is a professional geologist and mining entrepreneur with in excess of 25 years global base and precious metal experience with both Major, Mid-Tier and Junior exploration, development and mining companies. He has extensive experience in equity and debt capital markets in addition to financial reporting and associated controls in increasing positions of authority throughout his career including most recently as co-founder and CEO of Trevali Mining Corporation.
• Lorne Waldman: Lorne Waldman, MBA, LL.B., was a corporate lawyer and senior executive for over 20 years, for NYSE and TSX listed reporting issuers in both the mining and electronics industry. He is a current member of the Law Society of British Columbia and was a Senior Vice President of Silvercorp, a TSX and NYSE American listed company. Prior to that, he held a senior management positions, including Corporate Secretary and in-house legal counsel with a NYSE listed electronics manufacturer. He has extensive experience in a wide range of corporate and securities matters, investor relations, corporate communications and first nations collaboration. He also recently served a director, and audit committee member for Nam Tai Property Inc., a NYSE listed real estate company.
• Kevin Weston: Kevin Weston is a Mining Engineer graduate from McGill University in Montreal, Quebec, Canada. With over 35 years' experience in the mining industry Kevin has worked in project evaluation, mine development and mine operations throughout the world. His most recent assignments were as VP Operations for a Brazilian gold mining company and COO for the financing and development of a base metals operation in Canada.
Complaints
The Whitehorse Audit Committee will establish a "Whistleblower Policy" which will outline procedures for the confidential, anonymous submission by employees regarding Whitehorse's accounting, auditing and financial reporting obligations, without fear of retaliation of any kind. If an applicable individual has any concerns about accounting, audit, internal controls or financial reporting matters which they consider to be questionable, incorrect, misleading or fraudulent, the applicable individual is urged to come forward with any such information, complaints or concerns, without regard to the position of the person or persons responsible for the subject matter of the relevant complaint or concern.
INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS
No individual who is a director or executive officer or employee of Whitehorse or an associate of any such director, officer or employee is indebted to Whitehorse and no indebtedness of any such individual to another entity is the subject of a guarantee, support agreement, letter of credit or other similar arrangement or understanding provided by Whitehorse.
STOCK EXCHANGE LISTING
There is no current trading market for the Whitehorse Shares. It is a condition of the Arrangement that the Whitehorse Shares distributed pursuant to the Arrangement be listed on the TSX-V. Listing of the Whitehorse Shares on the TSX- V will be subject to Whitehorse satisfying all of the applicable initial listing requirements of the TSX-V. There can be no certainty that Whitehorse will meet the initial listing requirements of the TSX-V nor that the TSX-V will approve any listing application made by Whitehorse. See "Risk Factors – Risks Relating to Whitehorse's Business" in this Schedule "G".
G-16
RISK FACTORS
Below are certain risk factors relating to Whitehorse that Shareholders should carefully consider in connection with and following the Arrangement. The following information is a summary only of certain risk factors and is qualified in its entirety by reference to, and must be read in conjunction with, the detailed information that appears elsewhere in the Circular. Additional risk factors relating to the Company and the Shareholders in connection with the Arrangement and Whitehorse Financing are set out in the Circular under the headings entitled "Risk Factors Relating to the Arrangement", "Risk Factors Relating to the Whitehorse Financing" as well as certain risk factors generally applicable to Whitehorse set out in the MD&A under the heading "Risk Factors".
Risks Related to Whitehorse with the Arrangement
Whitehorse may not Realize Anticipated Benefits of the Arrangement
The Company and Whitehorse are proposing to complete the Arrangement to strengthen the position of each entity in the mining and exploration industry and to create the opportunity to realize certain benefits, including those set forth in the Circular. Achieving the benefits of the Arrangement depends in part on the ability of Whitehorse to effectively capitalize on its scale, to realize the anticipated capital and operating synergies, to profitably sequence the growth prospects of its asset base and to maximize the potential of its improved growth opportunities and capital funding opportunities. A variety of factors, including those risk factors set forth in the Circular and in the documents referred to herein, may adversely affect the ability of Whitehorse to achieve the anticipated benefits of the Arrangement.
Whitehorse may be unable to Operate as an Independent Entity
Following the Arrangement, the separation of Whitehorse from the other business of the Company may materially affect Whitehorse. Whitehorse may not be able to implement successfully the changes necessary to operate independently. Whitehorse may incur additional costs relating to operating independently that could materially affect its cash flows and results of operations. Whitehorse may require the Company to provide Whitehorse with certain services and facilities on a transitional basis. Whitehorse may, as a result, be dependent on such services and facilities until it is able to provide or obtain its own.
No History of Operations, Earnings or Dividends
Upon the Arrangement becoming effective, Whitehorse will become an independent public company. The operating history of the Company cannot be regarded as the operating history of Whitehorse. The ability of Whitehorse to raise capital, satisfy its obligations and provide a return to its shareholders will be dependent on future performance. It will not be able to rely on the capital resources and cash flows of the Company.
Whitehorse has not yet commenced operations and therefore has no history of earnings or of a return on investment, and there is no assurance that certain of its royalty or streaming interests or other assets will generate earnings, operate profitably or provide a return on investment in the future. The likelihood of success of Whitehorse must also be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered in connection with the establishment of any business. Whitehorse's proposed business strategies described in the Circular incorporate its management's best analysis of potential markets, opportunities and difficulties that it may face. No assurance can be given that the underlying assumptions will be achieved. Whitehorse has never paid a dividend and, while it currently intends to seek to pay dividends in the future, has no current plans to pay dividends. The future dividend policy of Whitehorse will be determined by the Whitehorse Board.
Market Price and Listing of Whitehorse Shares
Whitehorse will seek to have the Whitehorse Shares listed and posted for trading on the TSX-V. The listing of the Whitehorse Shares will be subject to the satisfaction of all of the TSX-V's initial listing requirements. If Whitehorse receives final approval for listing the Whitehorse Shares on the TSX-V, there is no assurance that it will maintain such listing on the TSX-V or a listing on any other exchange or quotation service. There can be no assurance that an active trading market will develop or be sustained for the Whitehorse Shares. Shareholders may not be able to resell the Whitehorse Shares received pursuant to the Arrangement, which may affect the pricing of the Whitehorse Shares in the secondary market, the transparency and availability of trading prices and the liquidity of the Whitehorse Shares. If an active or liquid market for the Whitehorse Shares fails to develop or be sustained, the price at which the Whitehorse Shares trade may be adversely affected.
G-17
An investment in Whitehorse's securities is highly speculative, due to the high-risk nature of its business, lack of diversification and the present stage of its development. Whitehorse Shareholders may lose their entire investment.
Risks Relating to Whitehorse's Business
No Revenues or Ongoing Mining Operations
Whitehorse is a development stage mineral company and has no revenue from operations and no ongoing mining operations of any kind. Whitehorse has not developed or operated any mines, and has no operating history upon which an evaluation of Whitehorse's future success or failure can be made. Whitehorse's ability to achieve and maintain profitable mining operations is dependent upon a number of factors, including its ability to successfully build and operate mines, processing plants, and related infrastructure. Whitehorse may not successfully establish mining operations or profitably produce metals at its properties. As such, Whitehorse does not know if it will ever generate revenues. Such conditions, along with other matters set forth in the Whitehorse Audited Financial Statements and MD&A attached as Schedule "I" to the Circular, indicate that uncertainty exists that may cast a doubt on Whitehorse's ability to continue as a going concern.
Discretion in Use of Proceeds
Whitehorse intends to use the net proceeds of the Whitehorse Financing as set forth under "Available Funds and Principal Purposes". Management of Whitehorse maintains broad discretion to spend the proceeds in ways that it deems most efficient and may use the net proceeds other than as described and in ways that shareholders may not consider desirable. As a result, shareholders will be relying on the judgment of management for the application of the net proceeds of the Whitehorse Financing. The failure to apply the net proceeds as set forth under " Available Funds and Principal Purposes" or the failure of Whitehorse to achieve its stated business objectives set forth in such section, could adversely affect Whitehorse's business.
Mineral Deposits may not be Economical
The determination of whether any mineral deposits at the Tagish Lake Gold Project are economical is affected by numerous factors beyond the control of Whitehorse. These factors include: (a) the metallurgy of the mineralization forming the mineral deposit; (b) market fluctuations for metal prices; (c) the proximity and capacity of natural resource markets and processing equipment; and (d) government regulations, governing prices, taxes, royalties, land tenure, land use, importing and exporting of minerals, and environmental protection.
Changes in Market Price of Metals
The potential of Whitehorse's mineral projects to be economically mined is significantly affected by changes in the market price of metals. The market price of metals is volatile and is impacted by numerous factors beyond the control of Whitehorse, including: (a) expectations with respect to the rate of inflation; (b) the relative strength of the U.S. dollar and certain other currencies; (c) interest rates; (d) global or regional political or economic conditions; (e) supply and demand for jewellery and industrial products containing metals; and (f) sales by central banks, other holders, speculators, and producers of gold and other metals in response to any of the above factors. A decrease in the market price of metals could make it difficult or impossible to finance the exploration or development of Whitehorse's mineral projects or cause Whitehorse to determine that it is impractical to continue development of such projects, which would have a material adverse effect on the financial condition and results of operations of Whitehorse. There can be no assurance that the market price of metals will not decrease.
G-18
Mining Operations May Not be Established or Profitable
Whitehorse has no history of production. The future development of Whitehorse's mineral project will require additional financing, permits, design, construction, processing plant, and related infrastructure. As a result, Whitehorse will be subject to all of the risks associated with establishing new mining operations and business enterprises, including: (a) the timing and cost, which will be considerable, of obtaining all necessary permits including environmental, construction, and operating permits; (b) the timing and cost, which will be considerable, of the construction of mining and processing facilities; (c) the availability and costs of skilled labour, power, water, transportation, and mining equipment; (d) the availability and cost of appropriate smelting and/or refining arrangements; (e) the need to obtain necessary environmental and other governmental approvals and permits, and the timing of those approvals and permits; and (f) the availability of funds to finance construction and development activities.
It is common in new mining operations to experience unexpected problems and delays during permitting, construction, development, and mine start-up. In addition, delays in the commencement of mineral production often occur, and once commenced, the production of a mine may not meet expectations or the estimates set forth in feasibility or other studies. Accordingly, there are no assurances that Whitehorse will successfully establish mining operations or become profitable.
Estimates of Mineralization Figures
The mineralization figures presented in the Tagish Lake Gold Project Technical Report are based upon estimates made by qualified persons. These estimates are imprecise and depend upon interpretation of geologic formations, grade, and metallurgical characteristics and upon statistical inferences drawn from drilling and sampling analysis, any or all of which may prove to be unreliable. Material changes in mineral resources or mineral reserves, grades, stripping ratios, or recovery rates may affect the economic viability of any project. Estimates can also be affected by such factors as environmental permitting regulations and requirements, weather, environmental factors, unforeseen technical difficulties, unusual or unexpected geological formations, and work interruptions. There can be no assurance that: (a) the estimates made by qualified persons upon which the mineralization figures presented in the Tagish Lake Gold Project Technical Report are based will be accurate; (b) mineral resource or other mineralization figures will be accurate; or (c) this mineralization could be mined or processed profitably.
Mineralization estimates for the Tagish Lake Gold Project may require adjustments or downward revisions based upon further exploration or development work. It is possible that the following may be encountered: unusual or unexpected geologic formations or other geological or grade problems, unanticipated changes in metallurgical characteristics and silver recovery, and unanticipated ground or earth conditions. If mining operations are commenced, the grade of mineralization ultimately mined, if any, may differ from that indicated by drilling results. Estimates of mineral recovery rates used in mineral reserve and mineral resource estimates are uncertain and there can be no assurance that mineral recovery rates in small scale tests will be duplicated in large scale tests under on-site conditions or in production scale.
Management of Whitehorse is currently working with technical advisors and qualified persons to obtain updated information on the Tagish Lake Gold Project. Given the Tagish Lake Gold Project Technical Report was prepared in 2013, the information therein may require certain updates.
Operations and Exploration Subject to Governmental Regulations
Whitehorse's operations and exploration and development activities are subject to extensive laws and regulations governing various matters, including: (a) environmental protection; (b) management and use of toxic substances and explosives; (c) management of natural resources; (d) management of tailings and other wastes; (e) mine construction; (f) exploration, development of mines, production and post-closure reclamation; exports; (g) price controls; (h) taxation and mining royalties; (i) regulations concerning business dealings with indigenous groups; (j) labour standards and occupational health and safety, including mine safety; and (k) historic and cultural preservation. Failure to comply with applicable laws and regulations may result in civil or criminal fines or penalties or enforcement actions, including orders issued by regulatory or judicial authorities, enjoining or curtailing operations, or requiring corrective measures, installation of additional equipment, or remedial actions, any of which could result in Whitehorse incurring significant expenditures. Whitehorse may also be required to compensate private parties suffering loss or damage by reason of a breach of such laws, regulations, or permitting requirements. It is also possible that future laws and regulations, or a more stringent enforcement of current laws and regulations by governmental authorities, could cause additional expenses, capital expenditures, restrictions on or suspensions of Whitehorse's operations, if any, and delays in the development of the Tagish Lake Gold Project.
G-19
Impact of Environmental Laws and Regulations
Whitehorse's mineral project is subject to regulation by governmental agencies under various environmental laws. These laws address emissions into the air, discharges into water, management of waste, management of hazardous substances, protection of natural resources, antiquities and endangered species, and reclamation of lands disturbed by mining operations. Compliance with environmental laws and regulations may require significant capital outlays on behalf of Whitehorse and may cause material changes or delays in Whitehorse's intended activities. There can be no assurance that future changes in environmental regulations will not adversely affect Whitehorse's business, and it is possible that future changes in these laws or regulations could have a significant adverse impact on some portion of Whitehorse's business, causing it to re-evaluate those activities at that time.
Mining is Inherently Dangerous
The business of mining is subject to a number of risks and hazards including environmental hazards, industrial accidents, labour disputes, cave-ins, pit wall failures, flooding, fires, rock bursts, explosions, power outages, periodic interruptions due to inclement or hazardous weather conditions, and other acts of God or unfavourable operating conditions. Such risks could result in damage to, or destruction of, mineral properties or processing facilities, personal injury or death, loss of key employees, environmental damage, delays in mining, increased production costs, monetary losses, and possible legal liability.
Where considered practical to do so, Whitehorse will maintain insurance against risks in the operation of its business in amounts which it believes to be reasonable. Such insurance, however, contains exclusions and limitations on coverage. There can be no assurance that such insurance will continue to be available, will be available at economically acceptable premiums, or will be adequate to cover any resulting liability. In some cases, coverage is not available or is considered too expensive relative to the perceived risk. Whitehorse may suffer a material adverse effect on its business if it incurs losses related to any significant events that are not covered sufficiently or at all by its insurance policies.
Financing Risks
Whitehorse expects to be substantially dependent upon the equity and debt capital markets or alternative sources of funding to pursue additional investments. There can be no assurance that such financing will be available to Whitehorse on acceptable terms or at all.
Additional equity or debt financings may significantly dilute Whitehorse Shareholders, increase Whitehorse's leverage or require Whitehorse to grant security over its assets. If Whitehorse is unable to obtain such financing, it may not be able to develop the Tagish Lake Gold Project or execute on its business strategy. If Whitehorse is unable to obtain financing for business activities, it may determine to allocate income, if any, from other investments to finance business activities.
Competition
The mining industry is intensely competitive. Whitehorse will compete with other mining companies, many of which have greater financial resources for the acquisition of mineral claims, permits, and concessions, as well as for the recruitment and retention of qualified employees. Increased competition could adversely affect Whitehorse's ability to attract necessary capital funding.
G-20
Title to Mineral Properties
Establishing title to mineral properties is a very detailed and time-consuming process. Title to the area of mineral properties may be disputed. While Whitehorse has investigated title to all of its mineral claims and, to the best of its knowledge, title to all of its properties are in good standing, Whitehorse's mineral properties may be subject to prior unregistered agreements or transfers and title may be affected by such undetected defects. There may be valid challenges to the title of Whitehorse's properties which, if successful, could impair exploration, development and/or operations. Whitehorse's mineral properties may be subject to aboriginal land claims, prior unregistered agreements or transfers and title may be affected by undetected defects. Whitehorse cannot give any assurance that title to its properties will not be challenged.
Potential Conflicts of Interest
Some of the individuals who are or will be Whitehorse's officers and directors are directors or officers of other resource or mining-related companies, including the Company, and these associations may give rise to conflicts of interest from time to time. As a result of these conflicts of interest, Whitehorse may miss the opportunity to participate in certain transactions, which may have a material adverse effect on Whitehorse's financial position.
Attracting and Retaining Qualified Management
Whitehorse will be dependent on the services of key executives and other highly skilled personnel focused on advancing its corporate objectives, as well as the identification of new opportunities for growth and funding. Due to Whitehorse's relatively small size, the loss of these individuals or its inability to attract and retain additional highly skilled employees required for its activities may have a material adverse effect on Whitehorse's business and financial condition.
Market for Securities
There is currently no market through which the Whitehorse Shares may be sold and investors may not be able to resell the Whitehorse Shares acquired under the Plan of Arrangement. There can be no assurance that an active trading market will develop for the Whitehorse Shares following the completion of the Arrangement, or if developed, that such a market will be sustained at the trading price of the Whitehorse Shares on the TSX-V immediately after the Effective Date.
Fluctuations in the Market Value of Whitehorse Shares
If the Whitehorse Shares are publicly traded, the market price of the Whitehorse Shares may be affected by many variables not directly related to the corporate performance of Whitehorse, including the market in which it is traded, the strength of the economy generally, the availability and attractiveness of alternative investments and the breadth of the public market for its shares. The effect of these and other factors on the market price of the Whitehorse Shares in the future cannot be predicted. The lack of an active public market could have a material adverse effect on the price of the Whitehorse Shares.
Global Financial Conditions may be Volatile
Market events and conditions, including the ongoing novel coronavirus pandemic, disruptions in the international credit markets and other financial systems, along with political instability have resulted in commodity prices remaining volatile. These conditions have also caused a loss of confidence in global credit markets resulting in the collapse of, and government intervention in, major banks, financial institutions and insurers and creating a climate of greater volatility, tighter regulations, less liquidity, widening credit spreads, less price transparency, increased credit losses and tighter credit conditions. Notwithstanding various actions by governments, concerns about the general condition of the capital markets, financial instruments, banks and investment banks, insurers and other financial institutions caused the broader credit markets to be volatile and interest rates to remain at historical lows. These events are illustrative of the effect that events beyond Whitehorse's control may have on commodity prices, demand for metals, including gold and silver, availability of credit, investor confidence, and general financial market liquidity, all of which may adversely affect Whitehorse's business. Global financial conditions have always been subject to volatility. Access to public financing has been negatively impacted by sovereign debt concerns in Europe and emerging markets, as well as concerns over global growth rates and conditions. These and other factors may impact the ability of Whitehorse to obtain equity or debt financing in the future and, if obtained, the favourability of the terms of such financing to Whitehorse. Increased levels of volatility and market turmoil can adversely impact Whitehorse's operations and the price of the Whitehorse Shares.
G-21
PROMOTER
Under applicable Canadian securities laws, the Company may be considered a promoter of Whitehorse in that it took the initiative in founding Whitehorse for the purpose of implementing the Arrangement. Following the Effective Date, the Company will not beneficially own any Whitehorse Shares.
LEGAL PROCEEDINGS AND REGULATORY ACTIONS
There are no legal proceedings to which the Company or Whitehorse is a party to, or in respect of which any of its assets are the subject of, which is or will be material to Whitehorse, and Whitehorse is not aware of any such legal proceedings that are contemplated.
Since incorporation, there have not been any penalties or sanctions imposed against Whitehorse by a court relating to provincial or territorial securities legislation or by a securities regulatory authority, nor have there been any other penalties or sanctions imposed by a court or regulatory body against Whitehorse, and Whitehorse has not entered into any settlement agreements before a court relating to provincial or territorial securities legislation or with a securities regulatory authority.
INTERESTS OF CERTAIN PERSONS IN MATERIAL TRANSACTIONS
Except as set elsewhere in this Circular, none of the proposed directors or executive officers of Whitehorse, or any person that is expected to beneficially own or control or direct more than 10% of any class or series of shares of Whitehorse, or any associate or affiliate of any of the foregoing persons, has or has had any material interest in any past transaction within the three years before the date of this Circular, or any proposed transaction, that has materially affected or would materially affect Whitehorse or Tagish Lake.
Certain directors of Whitehorse are also the directors and officers of the Company.
AUDITORS, TRANSFER AGENT AND REGISTRAR
Deloitte LLP, Chartered Professional Accountants, of Vancouver, British Columbia, are the auditors for Whitehorse and are independent with respect to Whitehorse within the meaning of the Rules of Professional Conduct of the Institute of Chartered Professional Accountants of British Columbia.
The transfer agent and registrar of the Whitehorse Shares is expected to be Computershare Investor Services Inc. at its offices in Vancouver, British Columbia, Canada.
MATERIAL CONTRACTS
There are no other contracts, other than those entered into in the ordinary course of Whitehorse's business, that are material to Whitehorse and which were entered into in the most recently completed financial year ended June 30, 2020, or before the most recently completed financial year but are still in effect as of the date of this Circular.
EXPERTS
Deloitte LLP, is the auditors of the Company, Whitehorse and Tagish Lake.
G-22
Ronald G. Simpson, P. Geo, of GeoSim Services Inc. prepared the Tagish Lake Gold Project Technical Report which is referred to in this Circular. Mr. Simpson is a Qualified Person for the purposes of NI 43-101 and is independent of the Company and Whitehorse, and has reviewed, verified and approved the technical and scientific disclosure contained in this Schedule "G".
FINANCIAL STATEMENT DISCLOSURE
See Schedule "H" to the Circular for the Tagish Lake Audited Financial Statements and MD&A.
See Schedule "I" to the Circular for the Whitehorse Audited Financial Statements and MD&A.
See Schedule "J" to the Circular for the Whitehorse Pro-forma Financial Statements.
SCHEDULE "H"
TAGISH LAKE GOLD CORP. AUDITED FINANCIAL STATEMENTS AND MD&A
(attached)
Tagish Lake Gold Corp.
Audited Financial Statements
For the years ended June 30, 2020, 2019 and 2018
|
Deloitte LLP
939 Granville Street
Vancouver, BC V6Z1L3
Canada
Tel: 604-669-4466
Fax: 604-685-0395
www.deloitte.ca
|
Independent Auditor’s Report
To the Shareholders of
New Pacific Metals Corp.
Opinion
We have audited the financial statements of Tagish Lake Gold Corp. (the “Company”), which comprise the statements of financial position as at June 30, 2020, 2019 and 2018, and the statements of comprehensive income(loss), changes in equity and cash flows for the years then ended, and notes to the financial statements, including a summary of significant accounting policies (collectively referred to as the “financial statements”).
In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as at June 30, 2020, 2019 and 2018, and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”).
Basis for Opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards (“Canadian GAAS”). Our responsibilities under those standards are further described in the Auditor’s
Responsibilities for the Audit of the Financial Statements section of our report. We are independent of
the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Material Uncertainty related to Going Concern
We draw attention to Note 2 in the financial statements, which indicates that the Company has not generated any revenues from operations. As at June 30, 2020, the Company’s current liabilities exceeded its current assets by $7,852. As stated in Note 2, these events or conditions, along with other matters as set forth in Note 2, indicate that a material uncertainty exists that may cast significant doubt on the Company’s ability to continue as a going concern. Our opinion is not modified in respect of this matter.
Other Information
Management is responsible for the other information. The other information comprises the information, other than the financial statements and our auditor’s report thereon, in the Management’s Discussion and Analysis.
Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.
We obtained the Management’s Discussion and Analysis prior to the date of this auditor’s report. If, based on the work we have performed on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact in this auditor’s report. We have nothing to report in this regard.
Responsibilities of Management and Those Charged with Governance for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with IFRS, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting process.
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian GAAS will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
As part of an audit in accordance with Canadian GAAS, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
/s/ Deloitte LLP
Chartered Professional Accountants
Vancouver, British Columbia
August 25, 2020
Tagish Lake Gold Corp.
Statements of Financial Position
(Expressed in Canadian dollars)
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Notes
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June 30, 2020
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June 30, 2019
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June 30, 2018
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ASSETS
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Current Assets
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|
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Cash
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$
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19,414
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$
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29,887
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$
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17,775
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|
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GST receivable
|
|
|
499
|
|
|
124
|
|
|
50
|
|
|
|
|
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19,913
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30,011
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|
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17,825
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Non-current Assets
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|
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|
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|
|
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Reclamation deposit
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15,075
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15,075
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15,075
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Mineral property interests
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3
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11,820,000
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-
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|
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-
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Total Assets
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$
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11,854,988
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$
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45,086
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$
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32,900
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LIABILITIES AND EQUITY
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Current Liabilities
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Accounts payable and accrued liabilities
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$
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7,765
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$
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-
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$
|
200
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|
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Due to Whitehorse Gold Corp.
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4
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20,000
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|
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-
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|
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-
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|
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Total Liabilities
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|
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27,765
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-
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$
|
200
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EQUITY
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Share capital
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5
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71,731,951
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71,593,946
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$
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71,379,392
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|
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Deficit
|
|
|
(59,904,728
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)
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|
(71,548,860
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)
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|
(71,346,692
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)
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Total Equity
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$
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11,827,223
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$
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45,086
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$
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32,700
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|
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TOTAL LIABILITIES AND EQUITY
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$
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11,854,988
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$
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45,086
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$
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32,900
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See accompanying notes to the financial statements
Page | 1
Tagish Lake Gold Corp.
Statements of Comprehensive Income (Loss)
(Expressed in Canadian dollars)
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Years ended June 30,
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Notes
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2020
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2019
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2018
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Operating expenses
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Management fee
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4
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$
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30,000
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$
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60,000
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$
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60,000
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Regulatory and filing fees
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-
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77,233
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97,037
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Professional fees
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4,165
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5,629
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9,632
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Office and administration
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36,647
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59,306
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2,054
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|
|
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70,812
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|
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202,168
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|
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168,723
|
|
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Impairment reversal of mineral property interests
|
3
|
|
11,714,944
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|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Comprehensive income (loss)
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|
$
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11,644,132
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|
$
|
(202,168
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)
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$
|
(168,723
|
)
|
See accompanying notes to the financial statements
Page | 2
Tagish Lake Gold Corp.
Statements of Cash Flows
(Expressed in Canadian dollars)
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Years Ended June 30,
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Notes
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2020
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2019
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2018
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Cash provided by (used in)
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Operating activities
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|
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|
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|
|
|
|
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Comprehensive income (loss)
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|
$
|
11,644,132
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|
$
|
(202,168
|
)
|
$
|
(168,723
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)
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|
Add (deduct) items not affecting cash :
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|
|
|
|
|
|
|
|
|
|
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Impairment reversal on mineral property interest
|
3
|
|
(11,714,944
|
)
|
|
-
|
|
|
-
|
|
|
Changes in non-cash operating working capital
|
|
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7,390
|
|
|
(274
|
)
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|
(1,653
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)
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|
Net cash used in operating activities
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|
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(63,422
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)
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(202,442
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)
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(170,376
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)
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|
|
|
|
|
|
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|
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|
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Investing activities
|
|
|
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|
|
|
|
|
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Capital expenditure on mineral property interest
|
3
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|
(105,056
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)
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|
-
|
|
|
-
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Net cash used in investing activities
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|
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(105,056
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)
|
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-
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|
-
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|
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|
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Financing activities
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Funds received from Whitehorse Gold
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4
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20,000
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|
|
-
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|
|
-
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|
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Capital contribution
|
5
|
|
138,005
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214,554
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|
|
180,000
|
|
|
Net cash provided by financing activities
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|
|
158,005
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|
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214,554
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|
|
180,000
|
|
|
|
|
|
|
|
|
|
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Increase (decrease) in cash
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|
|
(10,473
|
)
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|
12,112
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|
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9,624
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|
|
|
|
|
|
|
|
|
|
|
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Cash, beginning of the year
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|
$
|
29,887
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|
$
|
17,775
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$
|
8,151
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|
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Cash, end of the year
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|
$
|
19,414
|
|
$
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29,887
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|
$
|
17,775
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|
|
|
|
|
|
|
|
|
|
|
|
|
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Changes in non-cash operating working capital
|
|
|
|
|
|
|
|
|
|
|
|
GST receivable
|
|
|
(375
|
)
|
|
(74
|
)
|
|
246
|
|
|
Accounts payable and accrued liabilities
|
|
|
7,765
|
|
|
(200
|
)
|
|
(1,899
|
)
|
|
|
|
|
7,390
|
|
|
(274
|
)
|
|
(1,653
|
)
|
See accompanying notes to the financial statements
Page | 3
Tagish Lake Gold Corp.
Statements of Changes in Equity
(Expressed in Canadian dollars, except for share figures)
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Notes
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Share capital
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|
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Deficit
|
|
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Total Equity
|
|
|
|
|
Number of shares
|
|
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Amount
|
|
|
Balance, July 1, 2017
|
|
|
138,990,892
|
|
$
|
71,199,392
|
|
$
|
(71,177,969
|
)
|
$
|
21,423
|
|
|
Capital contribution
|
5
|
|
-
|
|
|
180,000
|
|
|
-
|
|
|
180,000
|
|
|
Comprehensive loss
|
|
|
-
|
|
|
-
|
|
|
(168,723
|
)
|
|
(168,723
|
)
|
|
Balance, June 30, 2018
|
|
|
138,990,892
|
|
$
|
71,379,392
|
|
$
|
(71,346,692
|
)
|
$
|
32,700
|
|
|
Capital contribution
|
5
|
|
-
|
|
|
214,554
|
|
|
-
|
|
|
214,554
|
|
|
Comprehensive loss
|
|
|
-
|
|
|
-
|
|
|
(202,168
|
)
|
|
(202,168
|
)
|
|
Balance, June 30, 2019
|
|
|
138,990,892
|
|
$
|
71,593,946
|
|
$
|
(71,548,860
|
)
|
$
|
45,086
|
|
|
Capital contribution
|
5
|
|
-
|
|
|
138,005
|
|
|
-
|
|
|
138,005
|
|
|
Comprehensive income
|
|
|
-
|
|
|
-
|
|
|
11,644,132
|
|
|
11,644,132
|
|
|
Balance, June 30, 2020
|
|
|
138,990,892
|
|
$
|
71,731,951
|
|
$
|
(59,904,728
|
)
|
$
|
11,827,223
|
|
See accompanying notes to the financial statements
Page | 4
1. CORPORATE INFORMATION
Tagish Lake Gold Corp. (the “Company”) is a Canadian mining company engaged in exploring and developing its Tagish Lake Gold Project (“TLG Project”) located in Yukon, Canada. Three identified deposits of high-grade gold and gold/silver are in the TLG Project: (a) past producer Mount Skukum; (b) Skukum Creek; and (c) Goddell Gully. The Company has been a 100% owned subsidiary of New Pacific Metals Corp. (“New Pacific”) since December 20, 2010. On February 12, 2020, New Pacific entered into a share exchange agreement with one of its 100% owned subsidiaries, Whitehorse Gold Corp. (“Whitehorse Gold”), to transfer its ownership in the Company to Whitehorse Gold.
The head office, registered address and records office of the Company are located at 1066 Hastings Street, Suite 1750, Vancouver, British Columbia, Canada, V6E 3X1.
2. SIGNIFICANT ACCOUNTING POLICIES
(a) Statement of Compliance and Going Concern
These financial statements have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”). The policies applied in these financial statements are based on IFRS in effect as of June 30, 2020. These financial statements are presented in Canadian dollars, which is the Company’s functional currency.
These financial statements have been prepared on a going concern basis. The Company has not generated any revenues from operations. As at June 30, 2020, the Company’s current liabilities exceeded its current assets by $7,852. The above conditions, along with other factors indicated the existence of material uncertainties that may cast significant doubt upon the Company’s ability to continue as a going concern. The Company’s ability to continue operations in the normal course of business is dependent on several factors, including the operating of its mineral property, as well as the ability to secure additional financing from its parent company Whitehorse Gold. Whitehorse Gold will be required to raise additional funds in the future for the development of its projects and other activities through the issuance of additional equity or debt. Following completing the spin-out transaction (Note 8), Whitehorse Gold intends to apply for a listing on the TSX Venture Exchange as well as raise funds through a private placement financing.
The financial statements of the Company as at and for the years ended June 30, 2020, 2019 and 2018 were authorized for issue in accordance with a resolution of the Board of Directors (the “Board”) dated on August 25, 2020.
(b) Mineral Property Interests
The cost of acquiring mineral rights and properties either as an individual asset purchase or as part of a business combination is capitalized and represents the property’s fair value at the date of acquisition. Fair value is determined by estimating the value of the property’s reserves, resources and exploration potential.
Exploration and evaluation costs, incurred associated with specific mineral rights and properties prior to demonstrable technical feasibility and commercial viability of extracting a mineral resource, are capitalized. When a positive economic analysis of the mineral deposit is completed, the capitalized costs of the related property are transferred to mineral property and depreciated using the units of production method on commencement of commercial production.
Page | 5
(c) Impairment of Long-lived Assets
Long-lived assets, including mineral property interests and plant and equipment are reviewed and tested for impairment when indicators of impairment are considered to exist. Impairment assessments are conducted at the level of cash-generating units (“CGU”) or at the individual asset level, whichever is the lowest level for which identifiable cash inflows are largely independent of the cash flows of other assets. An impairment loss is recognized for any excess of carrying amount of a CGU over its recoverable amount, which is the greater of its fair value less costs to sell and value in use.
For exploration and evaluation assets, indication of impairment includes but is not limited to expiration of the right to explore, substantive expenditures in the specific area is neither budgeted nor planned, and exploration for and evaluation of mineral resources in the specific area have not led to the discovery of commercially viable quantities of mineral resources.
Impairment losses are reversed if there is evidence the loss no longer exists or has decreased. This reversal is recognized in net income in the period the reversal occurs limited by the carrying value that would have been determined, net of any depreciation, had no impairment charge been recognized in prior years.
(d) Income Taxes
Current tax for each taxable entity is based on the taxable income at the substantively enacted statutory tax rate at the balance sheet date and includes adjustments to taxes payable or recoverable in respect to previous periods.
Current tax assets and current tax liabilities are only offset if a legally enforceable right exists to set off the amounts, and the Company intends to settle on a net basis, or to realize the asset and settle the liability simultaneously.
Deferred tax is recognized using the liability method on temporary differences at the reporting date between the tax bases of assets and liabilities, and their carrying amounts for financial reporting purposes. Deferred tax assets are recognized for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses, can be utilized, except:
- where the deferred tax asset or liability relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
- in respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are recognized only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at the end of each reporting period and are recognized to the extent that it has become probable that future taxable profit will be available to allow the deferred tax asset to be recovered.
Page | 6
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realized or the liability is settled, based on tax rates and tax laws that have been substantively enacted by the end of the reporting period.
Deferred tax relating to items recognized outside profit or loss is recognized in other comprehensive income or directly in equity.
Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.
(e) Financial Instruments
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
Initial recognition:
On initial recognition, all financial assets and financial liabilities are recorded at fair value adjusted for directly attributable transaction costs except for financial assets and liabilities classified as fair value through profit or loss (“FVTPL”), in which case transaction costs are expensed as incurred.
Subsequent measurement of financial assets:
Subsequent measurement of financial assets depends on the classification of such assets.
I. Non-equity instruments:
IFRS 9 includes a single model that has only two classification categories for financial instruments other than equity instruments: amortized cost and fair value. To qualify for amortized cost accounting, the instrument must meet two criteria:
i. The objective of the business model is to hold the financial asset for the collection of the cash flows; and
ii. All contractual cash flows represent only principal and interest on that principal.
All other instruments are mandatorily measured at fair value.
II. Equity instruments:
At initial recognition, for equity instruments other than held for trading, the Company may make an irrevocable election to designate it as either FVTPL or fair value through other comprehensive income (“FVTOCI”).
Financial assets classified as amortized cost are measured using the effective interest method. Amortized cost is calculated by taking into account any discount or premiums on acquisition and fees that are an integral part of the effective interest method. Amortization from the effective interest method is included in finance income.
Financial assets classified as FVTPL are measured at fair value with changes in fair values recognized in profit or loss. Equity investments designated as FVTOCI are measured at fair value with changes in fair values recognized in other comprehensive income (“OCI”). Dividends from that investment are recorded in profit or loss when the Company's right to receive payment of the dividend is established unless they represent a recovery of part of the cost of the investment.
Page | 7
Impairment of financial assets carried at amortized cost:
The Company assesses at the end of each reporting period whether there is objective evidence that financial assets or group of financial assets measured at amortized cost are impaired. Impairment losses and reversal of impairment losses, if any, are recognized in profit or loss in the period they are incurred.
Subsequent measurement of financial liabilities
Financial liabilities classified as amortized cost are measured using the effective interest method. Amortized cost is calculated by taking into account any discount or premiums on acquisition and fees that are an integral part of the effective interest method. Amortization using the effective interest method is included in finance costs.
Financial liabilities classified as FVTPL are measured at fair value with gains and losses recognized in profit or loss.
The Company classifies its financial instruments as follows:
- Financial assets classified as FVTPL: cash and cash equivalents,
- Financial assets classified as amortized cost: GST receivable; and
- Financial liabilities classified as amortized cost: accounts payable and accrued liabilities and due to Whitehorse Gold Corp.
Derecognition of financial assets and financial liabilities:
A financial asset is derecognized when:
- The rights to receive cash flows from the asset have expired; or
- The Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass- through’ arrangement; and either (a) the Company has transferred substantially all the risks and rewards of the asset, or (b) the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
Gains and losses on derecognition of financial assets and liabilities classified as amortized cost are recognized in profit or loss when the instrument is derecognized or impaired, as well as through the amortization process.
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability. In this case, a new liability is recognized, and the difference in the respective carrying amounts is recognized in the consolidated statement of income.
Offsetting of financial instruments:
Financial assets and liabilities are offset and the net amount is reported in the consolidated statement of financial position if and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the assets and settle liabilities simultaneously.
Fair value of financial instruments:
The fair value of financial instruments that are traded in active markets at each reporting date is determined by reference to quoted market prices, without deduction for transaction costs. For financial instruments that are not traded in active markets, the fair value is determined using appropriate valuation techniques, such as using a recent arm’s length market transaction between knowledgeable and willing parties, discounted cash flow analysis, reference to the current fair value of another instrument that is substantially the same, or other valuation models.
Page | 8
(f) Significant Judgments and Estimation Uncertainties
Many amounts included in the financial statements require management to make judgments and/or estimates. These judgments and estimates are continuously evaluated and are based on management’s experience and knowledge of relevant facts and circumstances. Actual results may differ from the amounts included in the consolidated statement of financial position.
Areas of significant judgment include:
- Capitalization of expenditures with respect to exploration and evaluation and development costs to be included in mineral rights and properties.
- Recognition, measurement and impairment or impairment reversal assessment for mineral rights and properties.
Areas of significant estimates include:
- The estimated fair values of CGUs for impairment or impairment reversal tests, including estimates of CGU’s fair value based on market information, cost of disposal and resource estimates.
3. MINERAL PROPERTY INTERESTS
The TLG Project is located 80 kilometres by road south of Whitehorse, Yukon, Canada, and consists of 1,051 mineral claims covering approximately 254 square kilometres. Within the property, three geographically distinct projects have been identified: the Skukum Creek, Goddell, and Mt. Skukum projects.
The Company completed a single exploration season in 2011 prior to placing the Project on care and maintenance. During the year ended June 30, 2020, the Company performed strategic reviews on its TLG Project. In Q4, fiscal 2020, significant changes with favourable effects on the TLG Project have taken place. The Company obtained a Class 1 exploration permit, commenced desktop technical studies and analysis of the project including an updated exploration plan. As a result, the Company reversed the previously recorded impairment on TLG Project to its recoverable amount, being its fair value less costs of disposal (“FVLCD”). The fair value was determined using a market approach based on the pricing parameters implied by the market value of selected comparable transactions involving the sale of similar companies or mineral properties. Specifically, the comparable in-situ resource multiples (Enterprise Value (“EV”) per ounce of contained gold (“EV/R&R”)) observed in comparable transactions has been used to estimate the fair value. As a result, the Company recognized an impairment recovery of $11,714,944 for the year ended June 30, 2020.
For the year ended June 30, 2020, total expenditures of $105,056 (year ended June 30, 2019 and 2018 - $nil and $nil, respectively) were capitalized under the project.
Page | 9
The continuity schedule of mineral property interest is summarized as follows:
|
Cost
|
|
Tagish Lake
|
|
|
Balance, July 1, 2017
|
$
|
-
|
|
|
Balance, June 30, 2018
|
$
|
-
|
|
|
Balance, June 30, 2019
|
$
|
-
|
|
|
Capitalized exploration expenditures
|
|
|
|
|
Permitting
|
|
105,056
|
|
|
Impairment reversal
|
|
11,714,944
|
|
|
Balance, June 30, 2020
|
$
|
11,820,000
|
|
4. RELATED PARTY TRANSACTIONS
Related party transactions are made on terms agreed upon by the related parties. The balances with related parties are unsecured, non-interest bearing, and due on demand.
The Company is a subsidiary of Whitehorse Gold since February 12, 2020. During the year ended June 30, 2020, Whitehorse Gold advanced funds of $20,000 to the Company to facilitate its operating activities (years ended June 30, 2019, $nil).
The Company is subsidiary of New Pacific since December 20, 2010. For the year ended June 30, 2020, the Company incurred management fee of $30,000 to New Pacific (year ended June 30, 2019 and 2018 - $60,000 and $60,000, respectively) for its managerial and administrative services.
5. SHARE CAPITAL
The Company has authorized share capital of unlimited number of common shares without par value.
The Company has been a direct wholly-owned subsidiary of New Pacific from December 20, 2010 to February 11, 2020. From February 12, 2020 to June 30, 2020, the Company was an indirect wholly-owned subsidiary of New Pacific through its ownership by Whitehorse Gold. New Pacific made capital contributions to the Company throughout the period to cover its operational needs.
For the year ended June 30, 2020, New Pacific made capital contribution of $138,005 (years ended June 30, 2019 and 2018 - $214,554 and $180,000, respectively) to the Company.
6. FINANCIAL INSTRUMENTS
The Company manages its exposure to financial risks, including liquidity risk and credit risk in accordance with its risk management framework. The Company’s Board has overall responsibility for the establishment and oversight of the Company’s risk management framework and reviews the Company’s policies on an ongoing basis.
(a) Fair Value
The Company classifies its fair value measurements within a fair value hierarchy, which reflects the significance of inputs used in making the measurements as defined in IFRS 13 – Fair Value Measurement (“IFRS 13”).
Page | 10
Level 1 – Unadjusted quoted prices at the measurement date for identical assets or liabilities in active markets.
Level 2 – Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3 – Unobservable inputs which are supported by little or no market activity.
The following table sets forth the Company’s financial assets that are measured at fair value on a recurring basis by level within the fair value hierarchy as at June 30, 2020, 2019, and 2018 that are not otherwise disclosed. As required by IFRS 13, financial assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
|
|
|
Fair value as at June 30, 2020
|
|
|
Recurring measurements
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
$
|
19,414
|
|
$
|
-
|
|
$
|
-
|
|
$
|
19,414
|
|
|
|
|
|
|
|
Recurring measurements
|
|
Fair value as at June 30, 2019
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
$
|
29,887
|
|
$
|
-
|
|
$
|
-
|
|
$
|
29,887
|
|
|
|
|
|
|
|
Recurring measurements
|
|
Fair value as at June 30, 2018
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
$
|
17,775
|
|
$
|
-
|
|
$
|
-
|
|
$
|
17,775
|
|
Fair value of other financial instruments excluded from the table above approximates their carrying amount as of June 30, 2020, 2019 and 2018 respectively.
There were no transfers into or out of Level 3 during the years ended June 30, 2020, 2019 and 2018.
(b) Liquidity Risk
The Company has a history of losses and no operating revenues from its operations. Liquidity risk is the risk that the Company will not be able to meet its short term business requirements. The Company relies on its parent company’s funding through capital contributions or loan advances to cover its liquidity risk. As at June 30, 2020, the Company believes it will obtain sufficient funding from its parent company to meet the Company’s short-term financial liabilities and its planned exploration expenditures on the TLG project for, but not limited to, the next 12 months.
Page | 11
In the normal course of business, the Company enters into contracts that give rise to commitments for future minimum payments. The following summarizes the remaining contractual maturities of the Company’s financial liabilities:
|
|
|
June 30, 2020
|
|
|
June 30, 2019
|
|
|
June 30, 2018
|
|
|
|
|
Due within a year
|
|
|
Accounts payable and accrued liabilities
|
$
|
7,765
|
|
$
|
-
|
|
$
|
200
|
|
|
Due to Whitehorse Gold Corp.
|
|
20,000
|
|
|
-
|
|
|
-
|
|
|
|
$
|
27,765
|
|
$
|
-
|
|
$
|
200
|
|
(c) Credit Risk
Credit risk is the risk of financial loss to the Company if the counterparty to a financial instrument fails to meets its contractual obligations. The Company’s exposure to credit risk is primarily associated with cash and cash equivalents and receivables. The carrying amount of financial assets included on the statement of financial position represents the maximum credit exposure.
The Company has deposits of cash equivalents that meet minimum requirements for quality and liquidity as stipulated by the Board. Management believes the risk of loss to be remote, as majority of its cash and cash equivalents are held with major financial institutions. As at June 30, 2020, the Company had a GST receivable balance of $499 (June 30, 2019 and 2018 - $124 and $50, respectively).
7. INCOME TAX
The provision for income taxes differs from the amount computed by applying the cumulative Canadian federal and provincial income tax rates to the loss before income tax provision due to the following:
|
|
|
Years ended June 30,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
Canadian statutory tax rate
|
|
27.00%
|
|
|
27.00%
|
|
|
28.50%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
$
|
11,644,132
|
|
$
|
(202,168
|
)
|
$
|
(168,723
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (recovery) computed at Canadian statutory rates
|
|
3,143,916
|
|
|
(54,585
|
)
|
|
(48,086
|
)
|
|
Temporary differences changes due to change in tax rates
|
|
-
|
|
|
-
|
|
|
1,169,287
|
|
|
Change in unrecognized deferred tax assets
|
|
(3,143,916
|
)
|
|
54,585
|
|
|
(1,123,732
|
)
|
|
Adjustments in respect of prior years
|
|
-
|
|
|
-
|
|
|
2,531
|
|
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
Deferred tax assets are recognized to the extent that the realization of the related tax benefit through future taxable profit is probable. The ability to realize the tax benefits is dependent upon numerous factors, including the future profitability of operations in the jurisdiction in which the tax benefit arise. Deductible temporary differences and unused tax losses for which no deferred tax assets have been recognized are attributable to the following:
|
|
|
June 30, 2020
|
|
|
June 30, 2019
|
|
|
June 30, 2018
|
|
|
Non-capital loss carry forward
|
$
|
7,877,423
|
|
$
|
7,806,612
|
|
$
|
7,604,444
|
|
|
Plant and equipment
|
|
2,980,856
|
|
|
2,980,856
|
|
|
2,980,856
|
|
|
Mineral property interests
|
|
18,469,089
|
|
|
30,184,033
|
|
|
30,184,033
|
|
|
Investment tax credit
|
|
1,624,391
|
|
|
1,624,391
|
|
|
1,624,391
|
|
|
|
$
|
30,951,759
|
|
$
|
42,595,892
|
|
$
|
42,393,724
|
|
Page | 12
As of June 30, 2020, the Company has the following net operating losses, expiring various years to 2040 and available to offset future taxable income in Canada:
|
|
|
Canada
|
|
|
2030
|
|
1,108,972
|
|
|
2031
|
|
1,031,233
|
|
|
2032
|
|
1,321,934
|
|
|
2033
|
|
1,173,305
|
|
|
2034
|
|
1,337,753
|
|
|
2035
|
|
1,339,406
|
|
|
2037
|
|
123,118
|
|
|
2038
|
|
168,723
|
|
|
2039
|
|
202,167
|
|
|
2040
|
|
70,812
|
|
|
|
$
|
7,877,423
|
|
8. SUBSEQUENT EVENT
Subsequent to June 30, 2020, New Pacific announced its plans, subject to customary approvals, to spin- out Whitehorse Gold and the TLG Project by way of directly or indirectly distributing Whitehorse Gold common shares to New Pacific’s shareholders on a pro rata basis through a plan of arrangement under the Business Corporations Act (British Columbia).
Page | 13
DATE OF REPORT: August 25, 2020
This MD&A for Tagish Lake Gold Corp. (the “Company”) should be read in conjunction with the Company’s audited financial statements for the years ended June 30, 2020, 2019 and 2018 along with the related notes contained therein. In addition, the Company reports its financial position, financial performance and cash flow in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. The Company’s significant accounting policies are set out in Note 2 of the audited financial statements for the years ended June 30, 2020, 2019 and 2018.
CORPORATE INFORMATION
Tagish Lake Gold Corp. (the “Company”) is a Canadian mining company engaged in exploring and developing the Tagish Lake Gold Project (“TLG Project”) located in the Yukon Territory (“Yukon”), Canada. Three identified deposits of high-grade gold and gold/silver form the TLG Project: (a) past producer Mount Skukum; (b) Skukum Creek; and (c) Goddell Gully. The Company is a 100% owned subsidiary of New Pacific Metals Corp. (“New Pacific”) since December 20, 2010. On February 12, 2020, New Pacific entered into a share exchange agreement with one of its 100% owned subsidiaries, Whitehorse Gold Corp. (“Whitehorse Gold”), to transfer its ownership in the Company to Whitehorse Gold.
The head office, registered address and records office of the Company are located at 1066 Hastings Street, Suite 1750, Vancouver, British Columbia, Canada, V6E 3X1.
PROJECT OVERVIEW
The TLG Project, covering an area of 166 km2, is located in Yukon Territory, Canada, and consists of 1,051 mining claims hosting three identified gold and gold-silver mineral deposits: Skukum Creek, Goddell Gully and Mount Skukum, respectively.
The Company completed a single exploration season in 2011 prior to placing the Project on care and maintenance. During the year ended June 30, 2020, the Company performed strategic reviews on its TLG Project. In Q4, fiscal 2020, significant changes with favourable effects on the TLG Project have taken place. The Company obtained a Class 1 exploration permit, commenced desktop technical studies and analysis of the project including an updated exploration plan. As a result, the Company reversed the previously recorded impairment on TLG Project to its recoverable amount, being its fair value less costs of disposal (“FVLCD”). The fair value was determined using a market approach based on the pricing parameters implied by the market value of selected comparable transactions involving the sale of similar companies or mineral properties. Specifically, the comparable in-situ resource multiples (Enterprise Value (“EV”) per ounce of contained gold (“EV/R&R”)) observed in comparable transactions has been used to estimate the fair value. As a result, the Company recognized an impairment recovery of $11,714,944 for the year ended June 30, 2020.
For the year ended June 30, 2020, total expenditures of $105,056 (year ended June 30, 2019 and 2018 - $nil and $nil, respectively) were capitalized under the project.
On July 22, 2020, New Pacific announced that, subject to customary approvals, it intends to (directly or indirectly) distribute all Whitehorse Gold common shares to the Company’s shareholders on a pro rata basis by way of a plan of arrangement under the Business Corporations Act (British Columbia) and apply to list the Whitehorse Gold common shares on TSX Venture Exchange.
The continuity schedule of mineral property interest is summarized as follows:
|
Cost
|
|
Tagish Lake
|
|
|
Balance, July 1, 2018
|
$
|
-
|
|
|
Balance, June 30, 2019
|
$
|
-
|
|
|
Capitalized exploration expenditures
|
|
|
|
|
Permitting
|
|
105,056
|
|
|
Impairment reversal
|
|
11,714,944
|
|
|
Balance, June 30, 2020
|
$
|
11,820,000
|
|
FINANCIAL RESULTS
Selected Annual Information
|
|
|
Fiscal 2020
|
|
|
Fiscal 2019
|
|
|
Fiscal 2018
|
|
|
Operating expenses
|
$
|
(70,812
|
)
|
$
|
(202,168
|
)
|
$
|
(168,723
|
)
|
|
Impairment reversal of mineral property interests
|
|
11,714,944
|
|
|
-
|
|
|
-
|
|
|
Net income (loss)
|
|
11,644,132
|
|
|
(202,168
|
)
|
|
(168,723
|
)
|
|
Total assets
|
|
11,854,988
|
|
|
45,086
|
|
|
32,900
|
|
|
Total liabilities
|
|
27,765
|
|
|
-
|
|
|
200
|
|
Net income for the year ended June 30, 2020 was $11,644,132 (year ended June 30, 2019 - net loss of $202,168). The Company’s financial results were mainly impacted by the following: (i) operating expenses of $70,812 for the year ended June 30, 2020 (year ended June 30, 2019 - $202,168); and (ii) impairment reversal of mineral property interests of $11,714,944 for the year ended June 30, 2020 (year ended June 30, 2019 – $nil).
Operating expenses for the year ended June 30, 2020 were $70,812 (year ended June 30, 2019 - $202,168). Items included in operating expenses were as follows:
(i) Management fees for the year ended June 30, 2020 were $30,000 (year ended June 30, 2019, $60,000). The Company’s parent company New Pacific charges management fee for providing managerial and administrative services to the Company.
(ii) Regulatory and filing fees for the year ended June 30, 2020 were $nil (year ended June 30, 2019 - $77,233). The Company pays regulatory fees to the Yukon Government in order to maintain a good standing of its mineral claims for the TLG Project. Such fees were capitalized under mineral property interests for the year ended June 30, 2020. For the year ended June 30, 2019, regulatory fees of $77,233 were expensed since the TLG Project was on care and maintenance.
(iii) Professional fees for the year ended June 30, 2020 were $4,165 (year ended June 30, 2019 - $5,629). Professional fees were regular legal expenses related to general corporate and business matters.
(iv) Office and administration expenses for the year ended June 30, 2020 were $36,647 (year ended June 30, 2019 - $59,306).
Impairment reversal of mineral property interests for the year ended June 30, 2020 was $11,714,944related to the TLG Project.
LIQUIDITY AND CAPITAL RESOURCES
1. Cash Flows
Cash used in operating activities for the year ended June 30, 2020 was $63,422 (year ended June 30, 2019 – $202,442).
Cash used in investing activities for the year ended June 30, 2020 was $105,056 (year ended June 30, 2019 – $nil) for expenditures spent on the TLG Project.
Cash provided by financing activities for the year ended June 30, 2020 was $158,005 (year ended June 30, 2019 – $214,554). For the year ended June 30, 2020, $20,000 was funds advanced by Whitehorse Gold (year ended June 30, 2019 - $nil) and $138,005 was capital contribution from New Pacific (year ended June 30, 2019 - $214,554).
Liquidity and Capital Resources
As at June 30, 2020, the Company had working capital deficit of $7,852 (June 30, 2019 – working capital of $30,011), comprised of cash and cash equivalents of $19,414 (June 30, 2019 - $29,887) and GST receivable of $499 (June 30, 2019 - $124) offset by current liabilities of $27,765 (June 30, 2019 - $nil). As a wholly owned subsidiary the Company relies on funding from its parent Company through capital contribution or loan advances to cover its operational needs. Management believes that its parent company has sufficient funds to support its normal exploration and operating requirements on an ongoing basis.
FINANCIAL INSTRUMENTS
The Company manages its exposure to financial risks, including liquidity risk and credit risk in accordance with its risk management framework. The Company’s board has overall responsibility for the establishment and oversight of the Company’s risk management framework and reviews the Company’s policies on an ongoing basis.
(a) Fair Value
The Company classifies its fair value measurements within a fair value hierarchy, which reflects the significance of inputs used in making the measurements as defined in IFRS 13 – Fair Value Measurement (“IFRS 13”).
Level 1 – Unadjusted quoted prices at the measurement date for identical assets or liabilities in active markets.
Level 2 – Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3 – Unobservable inputs which are supported by little or no market activity.
The following table sets forth the Company’s financial assets that are measured at fair value on a recurring basis by level within the fair value hierarchy as at June 30, 2020 and 2019 that are not otherwise disclosed. As required by IFRS 13, financial assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
|
|
|
Fair value as at June 30, 2020
|
|
|
Recurring measurements
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
$
|
19,414
|
|
$
|
-
|
|
$
|
-
|
|
$
|
19,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring measurements
|
|
Fair value as at June 30, 2019
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
$
|
29,887
|
|
$
|
-
|
|
$
|
-
|
|
$
|
29,887
|
|
Fair value of other financial instruments excluded from the table above approximates their carrying amount as of June 30, 2020 and 2019, respectively.
There were no transfers into or out of Level 3 during the years ended June 30, 2020 and 2019.
(b) Liquidity Risk
The Company has no operating revenues from its operations. There is a risk that the Company will not be able to meet its short-term business requirements. The Company relies on funding from its parent company through capital contributions and/or loan advances to cover its liquidity risk. As of June 30, 2020, the Company believes it will obtain sufficient funding from its parent company to meet the Company’s short-term financial liabilities and its planned exploration expenditures on the TLG project for, but not limited to, the next 12 months.
In the normal course of business, the Company enters into contracts that give rise to commitments for future minimum payments. The following summarizes the remaining contractual maturities of the Company’s financial liabilities:
|
|
|
June 30, 2020
|
|
|
June 30, 2019
|
|
|
June 30, 2018
|
|
|
|
|
Due within a year
|
|
|
Accounts payable and accrued liabilities
|
$
|
7,765
|
|
|
-
|
|
|
200
|
|
|
Due to Whitehorse Gold Corp.
|
|
20,000
|
|
|
-
|
|
|
-
|
|
|
|
$
|
27,765
|
|
|
-
|
|
|
200
|
|
(c) Credit Risk
Credit risk is the risk of financial loss to the Company if the counterparty to a financial instrument fails to meet its contractual obligations. The Company’s exposure to credit risk is primarily associated with cash and cash equivalents and receivables. The carrying amount of financial assets included on the statement of financial position represents the maximum credit exposure.
The Company has deposits of cash equivalents that meet minimum requirements for quality and liquidity. Management believes the risk of loss to be remote, as majority of its cash and cash equivalents are held with major financial institutions. As at June 30, 2020, the Company had a GST receivable balance of $499 (June 30, 2019 - $124).
RELATED PARTY TRANSACTIONS
Related party transactions are made on terms agreed upon by the related parties. The balances with related parties are unsecured, non-interest bearing, and due on demand.
The Company is a subsidiary of Whitehorse Gold since February 12, 2020. During the year ended June 30, 2020, Whitehorse Gold advanced funds of $20,000 to the Company to facilitate its operating activities (year ended June 30, 2019 - $nil).
The Company is a subsidiary of New Pacific since December 20, 2010. For the year ended June 30, 2020, the Company incurred management fee of $30,000 to New Pacific (year ended June 30, 2019 - $60,000) for its managerial and administrative services.
OFF-BALANCE SHEET ARRANGEMENTS
The Company does not have any off-balance sheet financial arrangements.
PROPOSED TRANSACTIONS
Other than the spin-out transaction described below, there are no proposed acquisitions or disposals of assets or business, other than those in the ordinary course of business, approved by the Board as at the date of this MD&A.
Plan of Arrangement
It is proposed that the spin-out will occur by way of a plan of arrangement (the “Arrangement”) under the Business Corporations Act (British Columbia) pursuant to which New Pacific shareholders will be entitled to receive common shares of Whitehorse Gold on a pro rata basis.
The Arrangement will be subject to the approval of New Pacific shareholders at a special meeting that is expected to be held by the end of September 2020, requisite regulatory and stock exchange approval, and the continued discretion of New Pacific's management and board of directors. The Arrangement will also be subject to court approval.
Further details of the Arrangement, including, without limitation, the applicable ratio for the number of Whitehorse Gold common shares to be received by New Pacific shareholders, the record date for determining which shareholders will be entitled to receive Whitehorse Gold common shares and vote on the Arrangement at the special meeting, and the date for the special meeting, will be provided in due course. There can be no assurance that the Arrangement will be completed on the terms described herein or at all.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of the consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the amounts reported on the consolidated financial statements. These critical accounting estimates represent management’s estimates that are uncertain and any changes in these estimates could materially impact the Company’s consolidated financial statements. Management continuously reviews its estimates and assumptions using the most current information available. The Company’s critical accounting policies and estimates are described in Note 2 of the audited consolidated financial statements for the year ended June 30, 2020.
OUTSTANDING SHARE DATA
As at the date of this MD&A, the following securities were outstanding:
Share Capital
Authorized – unlimited number of common shares without par value.
Issued and outstanding – 138,990,892 common shares with a recorded value of $71.7 million. Shares subject to escrow or pooling agreements – nil.
RISK FACTORS
There are numerous risks involved with mining and exploration companies and the Company is subject to these risks. The Company’s major risks (in no particular order) and the strategy for managing these risks are as follows:
COVID-19
The current outbreak of COVID-19 pandemic could have a material adverse effect on the Company’s business and operations, as well as impacting global economic conditions. Government efforts to control the spread of the virus have resulted in, among others, travel restrictions to Yukon, Canada and reduced economic activities in Canada. The international response to the spread of COVID-19 has led to significant restrictions on travel, temporary business closures, quarantines, global stock and financial market volatilities, labour shortage and delay in logistics, and a general reduction in consumer activities. All of these could affect commodity prices, interest rates, credit risk, social security and inflation. Such public health crisis at the moment or in the future may negatively affect the Company's operations along with the operations of its suppliers, contractors, service providers and local communities.
While the COVID-19 pandemic has already had significant, direct impacts on the Company’s operations and business, the extent to which the pandemic will continue to impact our operations are highly uncertain and cannot be predicted with confidence as at the date of this MD&A. These uncertainties include, but are not limited to, the duration of the outbreak, Canadian governments’ mandates to curtail the spreading of the virus, the Company’s ability to resume operations efficiently or economically. It is also uncertain whether the Company will be able to maintain an adequate financial condition and have sufficient capital, or have the ability to raise capital. Any of these uncertainties, and others, could have further material adverse effect on the Company’s business and operations.
Exploration and Development
Long-term operation of the Company’s business and its profitability are dependent, in part, on the cost and success of its exploration and future development programs. Mineral exploration and development involves a high degree of risk and historically few properties that are explored are ultimately developed into producing mines. There is no assurance that the Company’s mineral exploration and future development programs will result in any discoveries of bodies of mineral resources or mineral reserves. There is also no assurance that, even if commercially viable quantities of mineral resources or mineral reserves are discovered, a mineral property will be brought into commercial production. Development of the Company’s mineral properties will only commence if the Company obtains satisfactory exploration results. Discovery of mineral deposits is dependent upon a number of factors, including the technical skill of the exploration geoscientists involved. The commercial viability of a mineral deposit is also dependent upon a number of factors including: the particular attributes of the deposit such as size, grade and proximity to infrastructure; metal prices; and government regulations including regulations relating to royalties, allowable production, importing and exporting of minerals and environmental protection. Most of the above factors are beyond the control of the Company. Unsuccessful exploration or development programs could have a material adverse impact on the Company’s operations and profitability. The Company’s exploration activities are subject to a number of other specific risks and hazards including:
• industrial accidents;
• failure of processing and mining equipment;
• labour disputes;
• supply problems and delays;
• encountering unusual or unexpected geologic formations or other geological or grade problems;
• encountering unanticipated ground or water conditions;
• cave-ins, pit wall failures, flooding, rock bursts and fire;
• periodic interruptions due to inclement or hazardous weather conditions;
• uncertainties relating to the interpretation of drill results;
• inherent uncertainty of cost estimates and the potential for unexpected costs and expenses;
• results of future preliminary economic assessments, pre-feasibility and feasibility studies, and the
• possibility that future exploration, development or mining results will not be consistent with the
• Company’s expectations; and
• the potential for delays in exploration or the completion of future feasibility studies.
Such risks, individually or in combination, could result in negative impacts including: damage to, or destruction of, mineral properties or processing facilities; personal injury or death; loss of key employees; environmental damage; delays in mining; monetary losses; and possible legal liabilities. Satisfying such liabilities may be very costly and could have a materially adverse effect on future cash flow, results of operations and financial condition.
Government Permits and Licenses
No guarantee can be given that the necessary government exploration and mining permits and licenses will be issued to the Company or, if they are issued, that they will be renewed in an appropriate or timely manner, or that the Company will be in a position to comply with all conditions that are imposed.
Calculation of Mineral Resources and Mineral Reserves
There is a high degree of uncertainty attributable to the calculation of mineral resources, mineral reserves and corresponding grades. Until any future estimated mineral reserves are actually mined and processed, the quantity of future mineral resources, mineral reserves, and corresponding grades, if any, as disclosed at the Company’s mineral property must be considered as estimates only. Accordingly, there can be no assurance that the Company will ever be able to delineate any mineral resources or mineral reserves at any of its currently owned projects.
Fluctuating Commodity Prices
The Company’s future revenues, if any, are expected to be derived in large part from the mining and sale of metals. Historically, the prices of those commodities has fluctuated widely, particularly in recent years, being affected by numerous factors beyond the Company’s control including: international economic and political trends; expectations of inflation; currency exchange fluctuations; interest rates; supply and demand; sales by government holders; global or regional consumptive patterns; speculative activities; availability and costs of metal substitutes; and increased production due to new mine developments and improved mining and production methods. The price of base and precious metals will have a significant influence on the market price of the Company’s shares and the value of its property. The effect of these factors on the price of base and precious metals, and therefore the viability of the Company’s exploration projects, cannot be accurately predicted. If precious and base metal prices were to decline significantly, or for an extended period of time, the Company may be unable to continue its current exploration activities or fulfil obligations under its permits or licenses.
Key Human Resources
The Company depends on the services of a number of key skilled experts, including its current board and executive officers, the loss of any one of whom could have an adverse effect on the Company’s operations. The Company’s ability to manage growth effectively will require it to continue to implement and improve management systems, and to recruit and train new employees. The Company cannot assure that it will be successful in attracting and re-training skilled and experienced specialists.
Governmental Regulation
Exploration on the Company’s property is affected to varying degrees by political stability and government regulations relating to several matters including: environmental protection, health, safety and labour, mining law reform, restrictions on production, price controls, tax increases, maintenance of claims, tenure, and expropriation of property. There is no assurance that future changes in such regulations, if any, will not adversely affect the Company’s activities.
Environmental Risks
The Company’s exploration and development activities are subject to extensive laws and regulations governing environmental protection, including laws related to reclamation bonds. Environmental laws and regulations are complex and have tended to become more stringent over time. Failure to comply with applicable environmental health and safety laws may result in injunctions, damages, suspension or revocation of permits, and imposition of penalties. There can be no assurance that the Company has been, or will be, at all times in complete compliance with current and future environmental and health and safety laws and that compliance with environmental permits and regulations will not materially adversely affect the Company’s business, results of operations or financial condition.
Additional Financing
If the Company’s exploration programs are successful in establishing mineral resources and subsequently commercially viable mineral reserves, additional funds will be required for the development of such a deposit and to place it in commercial production. One potential source of future funds is through the sale of equity capital. There is no assurance that this source will continue to be available, in required amounts or at all. If it is available, future equity financings may result in substantial dilution to shareholders. Another alternative for the financing of further exploration would be the offering by the Company of an interest in the property to be earned by another party or parties carrying out further exploration or development thereof. There can be no assurance the Company will be able to conclude any such agreements, on favourable terms or at all.
Title to Property
While the Company has investigated title to all of its mineral claims and, to the best of its knowledge, title to all of its property is in good standing, the Company’s mineral property may be subject to prior unregistered agreements or transfers and title may be affected by such undetected defects. There may be valid challenges to the title of the Company’s property which, if successful, could impair exploration, development and/or operations. The Company cannot give any assurance that title to its property will not be challenged. None of the Company’s mineral property has been surveyed, and the precise location and extent thereof may be in doubt.
Recent and Current Market Conditions
Over recent years worldwide securities markets, including those in the United States and Canada, have experienced a high level of price and volume volatility. Accordingly, the market price of securities of many mining companies, particularly those considered exploration or development-stage companies, have experienced unprecedented shifts and/or volatility in price which have not necessarily been related to the underlying asset values or prospects of such companies. As a consequence, market forces may render it difficult or impossible for the Company to secure investors to participate in new share issues at an attractive price for the Company, or at all. Therefore, there can be no assurance that significant fluctuations will not materially adversely impact on the Company’s ability to raise equity funding.
Competition
The mining industry is intensely competitive in all phases of its activities, and such competition could adversely affect the Company’s ability to acquire suitable resource properties in the future.
Feasibility and Engineering Reports
The Company carries out exploration operations at the Tagish Lake Gold Property in accordance with the applicable exploration permits. The Company has not yet completed, and may not complete, a preliminary feasibility or feasibility study or report which would permit the Company to consider advancing a project to the development stage.
Insurance
The Company’s exploration activities are subject to the risks normally inherent in the industry: these risks include, but are not limited to, environmental hazards; flooding; periodic or seasonal hazardous climate or weather conditions; or unexpected rock formations. The Company may become subject to liability which it cannot insure, or against which it may elect not to insure, due to high premium costs or other reasons. Where considered practical to do so the Company maintains insurance against risks in the operation of its business in amounts which the Company believes to be reasonable. Such insurance, however, contains exclusions and limitations on coverage. The Company cannot provide any assurance that such insurance will continue to be available, will be available at economically acceptable premiums or will be adequate to cover any resulting liability. In some cases, coverage is not available or considered too expensive relative to the perceived risk.
Conflicts of Interest
Conflicts of interest may arise as a result of the directors, officers and promoters of the Company also holding positions as directors and/or officers of other companies. Some of those persons who are directors and officers of the Company have and will continue to be engaged in the identification and evaluation of assets and businesses and companies on their own behalf and on behalf of other companies; accordingly, situations may arise where the directors and officers may in direct competition with the Company. Conflicts, if any, will be subject to the procedures and remedies under the Business Corporations Act (British Columbia).
FORWARD LOOKING STATEMENTS
Except for statements of historical fact relating to the Company, certain information contained herein constitutes forward-looking statements. Forward-looking statements are frequently characterized by words such as “plan”, “expect”, “project”, “intend”, “believe”, “anticipate”, and other similar words, or statements that certain events or conditions “may” or “will” or “can” occur. Forward-looking statements are based on the opinions and estimates of management on the date the statements are made, and are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking statements. These factors include global economic and social impact of COVID-19, the fluctuating equity prices, bond prices, commodity prices, calculation of resources, reserves and mineralization, foreign exchange risks, interest rate risk, foreign investment risk, loss of key personnel, conflicts of interest, dependence on management, uncertainties relating to the availability and costs of financing needed in the future and other factors described in this MD&A. Although the forward-looking statements contained in this MD&A are based upon what management believes are reasonable assumptions, there can be no assurance that actual results will be consistent with these forward-looking statements. All forward-looking statements in this MD&A are qualified by these cautionary statements. Accordingly, readers should not place undue reliance on such statements. Other than specifically required by applicable laws, the Company is under no obligation and expressly disclaims any such obligation to update or alter the forward-looking statements whether as a result of new information, future events or otherwise except as may be required by law. These forward- looking statements are made as of the date of this MD&A.
Additional information relating to the Company can be obtained under the New Pacific’s profile on SEDAR at www.sedar.com, and on New Pacific’s website at www.newpacificmetals.com.
SCHEDULE "I"
WHITEHORSE GOLD CORP. AUDITED FINANCIAL STATEMENTS AND MD&A
(attached)
Whitehorse Gold Corp.
Audited Consolidated Financial Statements
From incorporation on November 27, 2019 to June 30, 2020
|
Deloitte LLP
939 Granville Street
Vancouver, BC V6Z1L3
Canada
Tel: 604-669-4466
Fax: 604-685-0395
www.deloitte.ca
|
Independent Auditor’s Report
To the Shareholders of
New Pacific Metals Corp.
Opinion
We have audited the consolidated financial statements of Whitehorse Gold Corp. (the “Company”), which comprise the consolidated statement of financial position as at June 30, 2020, the consolidated statements of comprehensive income, changes in equity and cash flows from incorporation on November 27, 2019 to June 30, 2020, and notes to the financial statements, including a summary of significant accounting policies (collectively referred to as the “financial statements”).
In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as at June 30, 2020, and its financial performance and its cash flows for the period then ended in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”).
Basis for Opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards (“Canadian GAAS”). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Material Uncertainty related to Going Concern
We draw attention to Note 2 in the financial statements, which indicates that the Company has not generated any revenues from operations. As at June 30, 2020, the Company’s current liabilities exceeded its current assets by $3,211,469. As stated in Note 2, these events or conditions, along with other matters as set forth in Note 2, indicate that a material uncertainty exists that may cast significant doubt on the Company’s ability to continue as a going concern. Our opinion is not modified in respect of this matter.
Other Information
Management is responsible for the other information. The other information comprises the information, other than the financial statements and our auditor’s report thereon, in the Management’s Discussion and Analysis.
Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.
We obtained the Management’s Discussion and Analysis prior to the date of this auditor’s report. If, based on the work we have performed on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact in this auditor’s report. We have nothing to report in this regard.
Responsibilities of Management and Those Charged with Governance for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with IFRS, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting process.
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian GAAS will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
As part of an audit in accordance with Canadian GAAS, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
/s/ Deloitte LLP
Chartered Professional Accountants
Vancouver, British Columbia
August 25, 2020
Whitehorse Gold Corp.
Consolidated Statement of Financial Position
(Expressed in Canadian dollars)
|
|
|
|
As at
|
|
|
|
Notes
|
|
June 30, 2020
|
|
|
ASSETS
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
Cash
|
|
$
|
419,860
|
|
|
Receivables
|
|
|
1,058
|
|
|
|
|
|
420,918
|
|
|
Non-current Assets
|
|
|
|
|
|
Reclamation deposit
|
|
|
15,075
|
|
|
Property and equipment
|
4
|
|
13,838
|
|
|
Mineral property interests
|
5
|
|
11,820,000
|
|
|
Total Assets
|
|
$
|
12,269,831
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
18,097
|
|
|
Payables due to a related party
|
6
|
|
114,290
|
|
|
Promissory notes due to a related party
|
6
|
|
3,500,000
|
|
|
Total Liabilities
|
|
|
3,632,387
|
|
|
|
|
|
|
|
|
EQUITY
|
|
|
|
|
|
Share capital
|
7
|
|
-
|
|
|
Retained earnings
|
|
|
8,637,444
|
|
|
|
|
|
8,637,444
|
|
|
TOTAL LIABILITIES AND EQUITY
|
|
$
|
12,269,831
|
|
See accompanying notes to the consolidated financial statements
Page | 1
Whitehorse Gold Corp.
Consolidated Statements of Comprehensive Income
(Expressed in Canadian dollars)
|
|
|
|
From incorporation on
|
|
|
|
|
|
November 27, 2019 to
|
|
|
|
Notes
|
|
June 30, 2020
|
|
|
Operating expenses
|
|
|
|
|
|
Depreciation
|
|
$
|
46
|
|
|
Investor relations
|
|
|
697
|
|
|
Professional fees
|
|
|
9,010
|
|
|
Salaries and benefits
|
|
|
98,741
|
|
|
Office and administration
|
|
|
29,829
|
|
|
|
|
|
138,323
|
|
|
|
|
|
|
|
|
Other income (expenses)
|
|
|
|
|
|
Impairment reversal of mineral property interests
|
|
|
11,714,944
|
|
|
Foreign exchange gain
|
|
|
29
|
|
|
Interest expense
|
6
|
|
(79,754
|
)
|
|
|
|
|
11,635,219
|
|
|
Comprehensive income for the period
|
|
$
|
11,496,896
|
|
|
|
|
|
|
|
|
Earnings per common share
|
|
|
|
|
|
Basic and diluted earnings per share
|
|
$
|
0.89
|
|
|
Weighted average number of common shares - basic and diluted
|
|
|
12,870,371
|
|
See accompanying notes to the consolidated financial statements
Page | 2
Whitehorse Gold Corp.
Consolidated Statements of Cash Flows
(Expressed in Canadian dollars)
|
|
|
|
From incorporation on
|
|
|
|
|
|
November 27, 2019 to
|
|
|
|
Notes
|
|
June 30, 2020
|
|
|
Cash provided by (used in)
|
|
|
|
|
|
Operating activities
|
|
|
|
|
|
Comprehensive income
|
|
$
|
11,496,896
|
|
|
Interest expense
|
|
|
79,754
|
|
|
Depreciation
|
|
|
46
|
|
|
Impairment reversal on mineral property interests
|
|
|
(11,714,944
|
)
|
|
Unrealized foreign exchange gain
|
|
|
(29
|
)
|
|
Changes in non-cash operating working capital
|
|
|
|
|
|
Receivables
|
|
|
(643
|
)
|
|
Accounts payable and accrued liabilities
|
|
|
13,375
|
|
|
Related parties
|
|
|
34,536
|
|
|
Net cash used in operating activities
|
|
|
(91,009
|
)
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
Mineral property interest
|
|
|
|
|
|
Capital expenditures
|
5
|
|
(851
|
)
|
|
Additions
|
4
|
|
(13,884
|
)
|
|
Cash acquired through share-exchange
|
3
|
|
25,575
|
|
|
Net cash provided by investing activities
|
|
|
10,840
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
Promissory Note
|
|
|
|
|
|
Proceeds
|
6
|
|
500,000
|
|
|
Net cash provided by financing activities
|
|
|
500,000
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
29
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents
|
|
|
419,860
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of the period
|
|
|
-
|
|
|
Cash and cash equivalents, end of the period
|
|
$
|
419,860
|
|
See accompanying notes to the consolidated financial statements
Page | 3
Whitehorse Gold Corp.
Consolidated Statements of Changes in Equity
(Expressed in Canadian dollars, except for share figures)
|
|
|
|
Share capital
|
|
|
|
|
|
|
|
|
|
Notes
|
|
Number of shares
|
|
|
Amount
|
|
|
Retained earning
|
|
|
Total equity
|
|
|
Balance, November 27, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share issuance on incorporation
|
|
|
1
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
Shares issuance in exchange for net assets acquired from parent
|
3
|
|
20,000,000
|
|
|
-
|
|
|
(2,859,452
|
)
|
|
(2,859,452
|
)
|
|
Net income
|
|
|
|
|
|
-
|
|
|
11,496,896
|
|
|
11,496,896
|
|
|
Balance, June 30, 2020
|
|
|
20,000,001
|
|
$
|
-
|
|
$
|
8,637,444
|
|
$
|
8,637,444
|
|
See accompanying notes to the consolidated financial statements
Page | 4
1. CORPORATE INFORMATION
Whitehorse Gold Corp. (the “Company” or “Whitehorse Gold”) is a Canadian mining company engaged in exploring and developing mining properties. Whitehorse Gold was incorporated under the Business Corporations Act (British Columbia) on November 27, 2019. The head office, registered address and records office of the Company are located at 1066 Hastings Street, Suite 1750, Vancouver, British Columbia, Canada, V6E 3X1. The Company is a privately hold company, that is 100% owned by New Pacific Metals Corp. and operates in one operating segment and geological segment, which is the exploration of its mineral properties located in Yukon, Canada.
2. SIGNIFICANT ACCOUNTING POLICIES
(a) Statement of Compliance and Going Concern Basis
These financial statements have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”). The policies applied in these financial statements are based on IFRS in effect as of June 30, 2020. These financial statements are presented in Canadian dollars, which is the Company’s functional currency.
These financial statements have been prepared on a going concern basis. The Company has not generated any revenues from operations. As at June 30, 2020, the Company’s current liabilities exceeded its current assets by $3,211,469. The above conditions, along with other factors indicated the existence of material uncertainties that may cast significant doubt upon the Company’s ability to continue as a going concern. The Company’s ability to continue operations in the normal course of business is dependent on several factors, including the operating of its mineral property, as well as the ability to secure additional financing. The Company will be required to raise additional funds in the future for the development of its projects and other activities through the issuance of additional equity or debt. Following completing the spin-out transaction (Note 11), the Company intends to apply for a listing on the TSX Venture Exchange as well as raise funds through a private placement financing.
The consolidated financial statements of the Company from the incorporation on November 27, 2019 to June 30, 2020 were authorized for issue in accordance with a resolution of the Board of Directors (the “Board”) dated on August 25, 2020.
(b) Basis of Consolidation
These consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Tagish Lake.
Subsidiaries are consolidated from the date on which the Company obtains control up to the date of the disposition of control. Control is achieved when the Company has power over the subsidiary, is exposed or has rights to variable returns from its involvement with the subsidiary; and has the ability to use its power to affect its returns.
Balances, transactions, income and expenses between the Company and its subsidiaries are eliminated on consolidation.
Page | 5
(c) Business Combination under Common Control
The consolidated financial statements incorporate the financial statements of the combining entities or businesses in which the common control combination occurs. The net assets of the combining entities or businesses are combined using the existing book values from the controlling parties’ perspective. The consideration for the acquisition is accounted for as an equity transaction in the consolidated statement of changes in equity.
(d) Cash and Cash Equivalents
Cash and cash equivalents include cash, and short-term money market instruments that are readily convertible to cash with original terms of three months or less.
(e) Plant and Equipment
Plant and equipment are initially recorded at cost, including all directly attributable costs to bring the assets to the location and condition necessary for it to be capable of operating in the manner intended by management. Plant and equipment are subsequently measured at cost less accumulated depreciation and applicable impairment losses. Depreciation is computed using the straight-line method based on the nature and estimated useful lives as follows:
|
Computer software
|
5 Years
|
Subsequent costs that meet the asset recognition criteria are capitalized while costs incurred that do not extend the economic useful life of an asset are considered repair and maintenance, which are accounted for as an expense recognized during the period. The Company conducts an annual assessment of the residual balances, useful lives, and depreciation methods being used for plant and equipment and any changes are applied prospectively.
(f) Mineral Property Interests and Exploration and Evaluation Costs
The cost of acquiring mineral rights and properties either as an individual asset purchase or as part of a business combination, other than acquisition of assets between entities under common control (Note 2(c)), is capitalized and represents the property’s fair value at the date of acquisition. Fair value is determined by estimating the value of the property’s reserves, resources and exploration potential. Mineral rights and properties acquired in a acquisition of assets between entities under common control are recorded at the parent company’s historical cost for such assets.
Exploration and evaluation costs, incurred associated with specific mineral rights and properties prior to demonstrable technical feasibility and commercial viability of extracting a mineral resource, are capitalized. When a positive economic analysis of the mineral deposit is completed, the capitalized costs of the related property are transferred to mineral property and depreciated using the units of production method on commencement of commercial production.
Page | 6
(g) Impairment or Impairment Recovery of Long-lived Assets
Long-lived assets, including mineral property interests, plant and equipment are reviewed and tested for impairment when indicators of impairment are considered to exist. Impairment assessments are conducted at the level of cash-generating units (“CGU”) or at the individual asset level, whichever is the lowest level for which identifiable cash inflows are largely independent of the cash flows of other assets. An impairment loss is recognized for any excess of carrying amount of a CGU over its recoverable amount, which is the greater of its fair value less costs to sell and value in use. For mineral properties and processing facilities, the recoverable amount is estimated as the discounted future net cash inflows expected to be derived from expected future production, metal prices, and net proceeds from the disposition of assets on retirement, less operating and capital costs. Impairment losses are recognized in the period they are incurred.
For exploration and evaluation assets, indication of impairment includes but is not limited to expiration of the right to explore, substantive expenditures in the specific area is neither budgeted nor planned, and exploration for and evaluation of mineral resources in the specific area have not led to the discovery of commercially viable quantities of mineral resources.
Impairment losses are reversed if there is evidence the loss no longer exists or has been decreased. This reversal is recognized in net income in the period the reversal occurs limited by the carrying value that would have been determined, net of any depreciation, had no impairment charge been recognized in prior years.
(h) Income Taxes
Current tax for each taxable entity is based on the taxable income at the substantively enacted statutory tax rate at the balance sheet date and includes adjustments to taxes payable or recoverable in respect to previous periods.
Current tax assets and current tax liabilities are only offset if a legally enforceable right exists to set off the amounts, and the Company intends to settle on a net basis, or to realize the asset and settle the liability simultaneously.
Deferred tax is recognized using the liability method on temporary differences at the reporting date between the tax bases of assets and liabilities, and their carrying amounts for financial reporting purposes. Deferred tax assets are recognized for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses, can be utilized, except:
- where the deferred tax asset or liability relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
- in respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are recognized only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized.
Page | 7
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at the end of each reporting period and are recognized to the extent that it has become probable that future taxable profit will be available to allow the deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realized or the liability is settled, based on tax rates and tax laws that have been substantively enacted by the end of the reporting period.
Deferred tax relating to items recognized outside profit or loss is recognized in other comprehensive income or directly in equity.
Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.
(i) Financial Instruments
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
Initial recognition:
On initial recognition, all financial assets and financial liabilities are recorded at fair value adjusted for directly attributable transaction costs except for financial assets and liabilities classified as fair value through profit or loss (“FVTPL”), in which case transaction costs are expensed as incurred.
Subsequent measurement of financial assets:
Subsequent measurement of financial assets depends on the classification of such assets.
I. Non-equity instruments:
IFRS 9 includes a single model that has only two classification categories for financial instruments other than equity instruments: amortized cost and fair value. To qualify for amortized cost accounting, the instrument must meet two criteria:
i. The objective of the business model is to hold the financial asset for the collection of the cash flows; and
ii. All contractual cash flows represent only principal and interest on that principal.
All other instruments are mandatorily measured at fair value.
II. Equity instruments:
At initial recognition, for equity instruments other than held for trading, the Company may make an irrevocable election to designate it as either FVTPL or fair value through other comprehensive income (“FVTOCI”).
Page | 8
Financial assets classified as amortized cost are measured using the effective interest method. Amortized cost is calculated by taking into account any discount or premiums on acquisition and fees that are an integral part of the effective interest method. Amortization from the effective interest method is included in finance income.
Financial assets classified as FVTPL are measured at fair value with changes in fair values recognized in profit or loss. Equity investments designated as FVTOCI are measured at fair value with changes in fair values recognized in other comprehensive income (“OCI”). Dividends from that investment are recorded in profit or loss when the Company's right to receive payment of the dividend is established unless they represent a recovery of part of the cost of the investment.
Impairment of financial assets carried at amortized cost:
The Company assesses at the end of each reporting period whether there is objective evidence that financial assets or group of financial assets measured at amortized cost are impaired. Impairment losses and reversal of impairment losses, if any, are recognized in profit or loss in the period they are incurred
Subsequent measurement of financial liabilities
Financial liabilities classified as amortized cost are measured using the effective interest method. Amortized cost is calculated by taking into account any discount or premiums on acquisition and fees that are an integral part of the effective interest method. Amortization using the effective interest method is included in finance costs.
Financial liabilities classified as FVTPL are measured at fair value with gains and losses recognized in profit or loss.
The Company classifies its financial instruments as follows:
- Financial assets classified as FVTPL: cash and cash equivalents,
- Financial assets classified as amortized cost: receivables; and
- Financial liabilities classified as amortized cost: trade and other payables, promissory notes, and due to related parties.
Derecognition of financial assets and financial liabilities:
A financial asset is derecognized when:
- The rights to receive cash flows from the asset have expired; or
- The Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass- through’ arrangement; and either (a) the Company has transferred substantially all the risks and rewards of the asset, or (b) the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
Gains and losses on derecognition of financial assets and liabilities classified as amortized cost are recognized in profit or loss when the instrument is derecognized or impaired, as well as through the amortization process.
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability. In this case, a new liability is recognized, and the difference in the respective carrying amounts is recognized in the consolidated statement of comprehensive income.
Page | 9
Offsetting of financial instruments:
Financial assets and liabilities are offset and the net amount is reported in the consolidated statement of financial position if and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the assets and settle liabilities simultaneously.
Fair value of financial instruments:
The fair value of financial instruments that are traded in active markets at each reporting date is determined by reference to quoted market prices, without deduction for transaction costs. For financial instruments that are not traded in active markets, the fair value is determined using appropriate valuation techniques, such as using a recent arm’s length market transaction between knowledgeable and willing parties, discounted cash flow analysis, reference to the current fair value of another instrument that is substantially the same, or other valuation models.
(j) Significant Judgments and Estimation Uncertainties
Many amounts included in the financial statements require management to make judgments and/or estimates. These judgments and estimates are continuously evaluated and are based on management’s experience and knowledge of relevant facts and circumstances. Actual results may differ from the amounts included in the consolidated statement of financial position.
Areas of significant judgment include:
- Capitalization of expenditures with respect to exploration and evaluation and development costs to be included in mineral rights and properties.
- Recognition, measurement and impairment or impairment reversal assessment for mineral rights and properties.
Areas of significant estimates include:
- The estimated fair values of CGUs for impairment or impairment reversal tests, including estimates of future costs to produce proven and probable reserves, future commodity prices, discount rates, probabilities of expected cash flows from disposal and salvage value of plant and equipment.
3. ACQUISITION
On February 12, 2020, the Company entered into a share exchange agreement with its parent, New Pacific Metals (“New Pacific”), pursuant to which New Pacific transferred to the Company all the issued and outstanding shares (the “Tagish Shares”) in the authorized share structure of Tagish Lake Gold Corp. (“Tagish Lake”) in exchange for (1) an aggregate of 20,000,000 fully-paid and non-assessable common shares in the Company; and (2) a promise to pay the sum of $3,000,000 to New Pacific on demand (“Share Exchange Debt”).
The transaction is a combining of entities that under common control thus excluded from the scope of IFRS 3 Business Combination. In accordance to the Company’s accounting policy, Tagish Lake’s asset acquired and obligations assumed through the transaction was recorded at its book value on New Pacific’s record. Difference between Tagish Lake’s net assets acquired and the Share Exchange Debt was recognized in the consolidated statement of changes in equity.
Page | 10
The book value and assets acquired and obligations assumed through the transaction as at February 12,
2020 are summarized as below:
|
|
|
|
As at
|
|
|
|
Notes
|
|
February 12, 2020
|
|
|
Cash
|
|
$
|
25,575
|
|
|
Receivables
|
|
|
415
|
|
|
Reclamation deposit
|
|
|
15,075
|
|
|
Mineral property interests
|
5
|
|
104,205
|
|
|
Accounts payable and accrued liabilities
|
|
|
(4,722
|
)
|
|
Net assets acquired
|
|
|
140,548
|
|
|
Share Exchange Debt
|
|
|
(3,000,000
|
)
|
|
Difference recognized in equity
|
|
$
|
(2,859,452
|
)
|
4. PLANT AND EQUIPMENT
|
|
|
Computer
|
|
|
Cost
|
|
software
|
|
|
Balance as at November 27, 2019
|
$
|
-
|
|
|
Additions
|
|
13,884
|
|
|
Ending balance as at June 30, 2020
|
|
13,884
|
|
|
|
|
|
|
|
Accumulated depreciation, amortization and depletion
|
|
|
|
|
Balance as at November 27, 2019
|
|
-
|
|
|
Depreciation, amortization and depletion
|
|
(46
|
)
|
|
Ending balance as at June 30, 2020
|
|
(46
|
)
|
|
|
|
|
|
|
Carrying amounts
|
|
|
|
|
Balance as at November 27, 2020
|
|
-
|
|
|
Ending balance as at June 30, 2020
|
$
|
13,838
|
|
5. MINERAL PROPERTY INTERESTS
The Company acquired The Tagish Lake Gold Project (“TLG Project”) through the share exchange agreement of Tagish Shares. TLG Project, covering an area of 166 km2, is located in the Yukon Territory, Canada, and consists of 1,051 mining claims hosting three identified gold and gold-silver mineral deposits: Skukum Creek, Goddell Gully and Mount Skukum respectively.
Page | 11
In Q4, fiscal 2020, significant changes with favourable effects on the TLG Project have taken place. The Company obtained a Class 1 exploration permit, commenced desktop technical studies and analysis of the project including an updated exploration plan. As a result, the Company reversed the previously recorded impairment on TLG Project to its recoverable amount, being its fair value less costs of disposal (“FVLCD”). The fair value was determined using a market approach based on the pricing parameters implied by the market value of selected comparable transactions involving the sale of similar companies or mineral properties. Specifically, the comparable in-situ resource multiples (Enterprise Value (“EV”) per ounce of contained gold (“EV/R&R”)) observed in comparable transactions has been used to estimate the fair value. As a result, the Company recognized an impairment reversal of $11,714,944 for the period from incorporation on November 27, 2019 to June 30, 2020.
After the Company acquired TLG project though the share exchange transaction, total expenditures of $851 were capitalized under the project for renewing certain permits and claims.
The continuity schedule of mineral property interest is summarized as follows:
|
Cost
|
Note
|
|
TLG Project
|
|
|
Balance, November 27, 2019
|
|
$
|
-
|
|
|
Capitalized exploration expenditures
|
|
|
|
|
|
Acquisition of TLG
|
3
|
|
104,205
|
|
|
Permitting
|
|
|
851
|
|
|
Impairment reversal
|
|
|
11,714,944
|
|
|
Balance, June 30, 2020
|
|
$
|
11,820,000
|
|
Page | 12
6. RELATED PARTY TRANSACTIONS
Related party transactions are made on terms agreed upon by the related parties. The balances with related parties are unsecured, non-interest bearing, and due on demand. Related party transactions not disclosed elsewhere in the financial statements are as follows:
|
|
Note
|
|
June 30, 2020
|
|
|
Payables due to New Pacific
|
i
|
$
|
114,290
|
|
|
Promisory notes due to a related party
|
ii
|
$
|
3,500,000
|
|
i) New Pacific is the parent of the Company. The amounts due to New Pacific related to invoices paid by New Pacific on behalf of the Company and accrued interest for the promissory note as described below.
ii) The Company entered into shares exchange agreement for Tagish Shares with New Pacific on February 12, 2020 (note 3). As part of the exchange for the Tagish Shares, the Company signed a promissory note with New Pacific to pay $3,000,000 on demand.
The Company entered into another promissory note with New Pacific on February 12, 2020, in which the Company borrowed $500,000 from New Pacific to meet its short term operating needs.
The two promissory notes are repayable on demand and bear an annual interest of 6%. During the period from November 27, 2010 to June 30, 2020, a total of $79,754 interest expense for these promissory notes was recorded in the statement of comprehensive income.
The remuneration of key management personnel is as follows:
|
|
|
From incorporation
|
|
|
|
|
on November 27, 2019 to
|
|
|
|
|
June 30, 2020
|
|
|
Key management's salaries and benefits
|
$
|
57,271
|
|
7. SHARE CAPITAL
The Company has authorized share capital of unlimited number of common shares without par value.
8. FINANCIAL INSTRUMENTS
The Company manages its exposure to financial risks, including liquidity risk and credit risk a in accordance with its risk management framework. The Company’s Board has overall responsibility for the establishment and oversight of the Company’s risk management framework and reviews the Company’s policies on an ongoing basis.
Page | 13
(a) Fair Value
The Company classifies its fair value measurements within a fair value hierarchy, which reflects the significance of inputs used in making the measurements as defined in IFRS 7 – Financial Instruments: Disclosures (“IFRS 7”).
Level 1 – Unadjusted quoted prices at the measurement date for identical assets or liabilities in active markets.
Level 2 – Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3 – Unobservable inputs which are supported by little or no market activity.
The following table sets forth the Company’s financial assets that are measured at fair value on a recurring basis by level within the fair value hierarchy as at June 30, 2020 that are not otherwise disclosed. As required by IFRS 7, financial assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
|
|
|
Fair value as at June 30, 2020
|
|
|
Recurring measurements
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
419,860
|
|
|
-
|
|
|
-
|
|
|
419,860
|
|
Fair value of other financial instruments excluded from the table above approximates their carrying amount as of June 30, 2020.
There were no transfers into or out of Level 3 during the period from November 27, 2019 to June 30, 2020.
(b) Liquidity Risk
The Company has no operating revenues from its operations. Liquidity risk is the risk that the Company will not be able to meet its short term business requirements. As at June 30, 2020, the Company had a working capital deficit position of $3,211,469. The Company’s ability to continue operations in the normal course of business is dependent on the Company’s ability to secure additional financing.
Page | 14
In the normal course of business, the Company enters into contracts that give rise to commitments for future minimum payments. The following summarizes the remaining contractual maturities of the Company’s financial liabilities:
|
|
|
June 30, 2020
|
|
|
|
|
Due within a year
|
|
|
Total
|
|
|
Trade and other payables
|
$
|
18,097
|
|
$
|
18,097
|
|
|
Payables due to a related party
|
|
114,290
|
|
|
114,290
|
|
|
Promissory notes due to a related party
|
|
3,500,000
|
|
|
3,500,000
|
|
|
|
$
|
3,632,387
|
|
$
|
3,632,387
|
|
(c) Foreign Exchange Risk
The Company is exposed to foreign exchange risk when it undertakes transactions and holds assets and liabilities denominated in foreign currencies other than its functional currencies. The Company currently does not engage in foreign exchange currency hedging. The Company’s exposure to foreign exchange risk is summarized as follows:
|
|
|
June 30, 2020
|
|
|
United States dollars
|
$
|
632
|
|
As at June 30, 2020, with other variables unchanged, a 1% strengthening (weakening) of the US dollar against the CAD would have increased (decreased) net income by approximately $6.
(d) Credit Risk
Credit risk is the risk of financial loss to the Company if the counterparty to a financial instrument fails to meets its contractual obligations. The Company’s exposure to credit risk is primarily associated with cash and cash equivalents and receivables. The carrying amount of financial assets included on the statement of financial position represents the maximum credit exposure.
The Company has deposits of cash that meet minimum requirements for quality and liquidity as stipulated by the Board. Management believes the risk of loss to be remote, as majority of its cash and cash equivalents are held with major financial institutions. As at June 30, 2020, the Company had a receivables balance of $1,058.
9. CAPITAL MANAGEMENT
The Company’s objectives of capital management are intended to safeguard the entity’s ability to support the Company’s normal exploration and operating requirement on an ongoing basis, continue the investment in high quality assets along with safeguarding the value of its development and exploration mineral properties, and support any expansionary plans.
The capital of the Company consists of the items included in equity less cash and cash equivalents. Risk and capital management are primarily the responsibility of the Company’s corporate finance function and is monitored by the Board of Directors. The Company manages the capital structure and makes adjustments depending on economic conditions. Significant risks are monitored and actions are taken, when necessary, according to the Company’s approved policies.
Page | 15
In addition, the current outbreak of COVID-19 has caused significant disruption to global economic conditions which may adversely impact the Company’s results. Moreover, COVID-19 has also negatively impacted on the stock markets which could adversely impact the Company’s ability to raise capital.
10. INCOME TAX
The income tax reconciliation is summarized below:
|
|
|
From incorporation
|
|
|
|
|
on November 27, 2019 to
|
|
|
|
|
June 30, 2020
|
|
|
Canadian statutory tax rate
|
|
27.00%
|
|
|
Income before income taxes
|
$
|
11,496,896
|
|
|
Income tax expense computed at statutory rates
|
|
3,104,162
|
|
|
Change in unrecognized deferred tax assets
|
|
(3,104,162
|
)
|
|
|
$
|
-
|
|
Deferred tax assets are recognized to the extent that the realization of the related tax benefit through future taxable profit is probable. The ability to realize the tax benefits is dependent upon numerous factors, including the future profitability of operations in the jurisdiction in which the tax benefit arise. Deductible temporary differences and unused tax losses for which no deferred tax assets have been recognized are attributable to the following:
|
|
|
June 30, 2020
|
|
|
Non-capital loss carry forward
|
$
|
8,067,156
|
|
|
Plant and equipment
|
|
2,994,739
|
|
|
Mineral property interests
|
|
18,469,089
|
|
|
Investment tax credit
|
|
1,624,391
|
|
|
|
$
|
31,155,375
|
|
Page | 16
As of June 30, 2020, the Company has the following net operating losses, expiring various years to 2040 and available to offset future taxable income:
|
2030
|
$
|
1,108,972
|
|
|
2031
|
|
1,031,233
|
|
|
2032
|
|
1,321,934
|
|
|
2033
|
|
1,173,305
|
|
|
2034
|
|
1,337,753
|
|
|
2035
|
|
1,339,406
|
|
|
2036
|
|
-
|
|
|
2037
|
|
123,118
|
|
|
2038
|
|
168,723
|
|
|
2039
|
|
202,167
|
|
|
2040
|
|
260,545
|
|
|
|
$
|
8,067,156
|
|
11. SUBSEQUENT EVENTS
Subsequent to June 30, 2020, a total of 3,450,000 options with a life of ten years were granted to directors, officers, and employees at exercise prices of $0.05 per share subject to a vesting schedule over a three-year term with 1/6 of the options vesting every six months from the date of grant until fully vested.
On July 22, 2020, New Pacific announced that, subject to customary approvals, it intends to (directly or indirectly) distribute the Company’s common shares to its shareholders on a pro rata basis by way of a plan of arrangement under the Business Corporations Act (British Columbia) and apply to list the Whitehorse Gold common shares on TSX Venture Exchange.
Page | 17
DATE OF REPORT: August 25, 2020
This MD&A provides a review of the operations of Whitehorse Gold Corp. and its subsidiary Tagish Lake Gold Corp. (“Tagish Lake”) (collectively “Whitehorse Gold” or the “Company”) and has been prepared on the basis of available information up to the date hereof. It should be read in conjunction with the Company’s audited consolidated financial statements for the period from incorporation on November 27, 2019 to June 30, 2020 and the audited financial statements of Tagish Lake for the years ended June 30, 2020, 2019 and 2018, which have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. The Company’s significant accounting policies are set out in Note 2 of the audited consolidated financial statements for period from incorporation on November 27, 2020 to June 30, 2020.
CORPORATE INFORMATION
The Company is a Canadian mining company engaged in exploring and developing mineral properties in Canada, which was incorporated under the Business Corporations Act (British Columbia) on November 27, 2019. The head office, registered address and records office of the Company are located at 1066 Hastings Street, Suite 1750, Vancouver, British Columbia, Canada, V6E 3X1.
The Company is a 100% owned subsidiary by New Pacific Metals Corp. (“New Pacific”). On February 12, 2020, the Company entered into a share exchange agreement with New Pacific, pursuant to which New Pacific transferred to the Company all the issued and outstanding shares (the “Tagish Shares”) in the authorized share structure of Tagish Lake in exchange for (1) an aggregate of 20,000,000 fully-paid and non-assessable common shares in the Company; and (2) a promise to pay the sum of $3,000,000 to New Pacific on demand.
PROJECT OVERVIEW
The Company acquired the Tagish Lake Gold Project (“TLG Project”) through the share exchange agreement of Tagish Shares. TLG Project, covering an area of 166 km2, is located in the Yukon Territory, Canada, and consists of 1,051 mining claims hosting three identified gold and gold-silver mineral deposits: Skukum Creek, Goddell Gully and Mount Skukum respectively.
New Pacific acquired the TLG Project in December 2010 and completed a single exploration season in 2011 prior to placing the Project on care and maintenance. In Q4, fiscal 2020, significant changes with favourable effects on the TLG Project have taken place. The Company obtained a Class 1 exploration permit, commenced desktop technical studies and analysis of the project including an updated exploration plan. As a result, the Company reversed the previously recorded impairment on TLG Project to its recoverable amount, being its fair value less costs of disposal (“FVLCD”). The fair value was determined using a market approach based on the pricing parameters implied by the market value of selected comparable transactions involving the sale of similar companies or mineral properties. Specifically, the comparable in-situ resource multiples (Enterprise Value (“EV”) per ounce of contained gold (“EV/R&R”)) observed in comparable transactions has been used to estimate the fair value. As a result, the Company recognized an impairment reversal of $11,714,944 for the period from incorporation on November 27, 2019 to June 30, 2020.
After acquired TLG project though the share exchange transaction, total expenditures of $851 were capitalized under the project for renewing certain permits and claims.
|
Management’s Discussion and Analysis
|
Page 1
|
The continuity schedule of mineral property interest is summarized as follows:
|
Cost
|
|
TLG Project
|
|
|
Balance, November 27, 2019
|
$
|
-
|
|
|
Capitalized exploration expenditures
|
|
|
|
|
Acquisition of TLG
|
|
104,205
|
|
|
Permitting
|
|
851
|
|
|
Impairment reversal
|
|
11,714,944
|
|
|
Balance, June 30, 2020
|
$
|
11,820,000
|
|
FINANCIAL RESULTS
|
|
|
From the incorporation
|
|
|
|
|
on November 27, 2019 to
|
|
|
|
|
June 30, 2020
|
|
|
Operating expenses
|
$
|
138,323
|
|
|
Impairment reversal of mineral property interests
|
$
|
11,714,944
|
|
|
Comprehensive income for the period
|
$
|
11,496,896
|
|
|
Total Assets
|
$
|
12,269,831
|
|
|
Total Liabilities
|
$
|
3,632,387
|
|
Net income for the period from incorporation on November 27, 2019 to June 30, 2020 was $11,496,896, which mainly resulted from the impairment reversal of TLG project and offset by operating expense and interest expense.
Operating expenses for the period from incorporation on November 27, 2019 to June 30, 2020 were $138,323. Items included in operating expenses were as follows:
(i) Professional fees for the period were $9,010 related to the establishment of the Company and spin- out related services with New Pacific, including the share exchange and promissory note arrangements.
(ii) Salaries and benefits expense for the period were $98,741.
(iii) Office and administration expenses for the period were $29,829.
Impairment reversal of mineral property interests for the period from incorporation on November 27,2019 to June 30, 2020 was $11,714,944 related to the TLG Project.
Interest expense for the period from incorporation on November 27, 2019 to June 30, 2020 was $79,754 related to interests for the promissory note of $3,500,000 due to New Pacific at an annual interest rate of 6% .
LIQUIDITY AND CAPITAL RESOURCES
|
Management’s Discussion and Analysis
|
Page 2
|
1. Cash Flows
Cash used in operating activities for the period from incorporation on November 27, 2019 to June 30, 2020 was $91,009.
Cash provided by investing activities for the period from incorporation on November 27, 2019 to June 30, 2020 was $10,840. Cash flows from investing activities were mainly impacted by the following: (i) cash of $25,755 acquired through acquisition of Tagish Lake; (ii) purchase of $13,884 computer software in the period.
Cash provided by financing activities for the period from incorporation on November 27, 2019 to June 30, 2020 was $500,000 reflecting the proceeds received from New Pacific for the promissory note.
Liquidity and Capital Resources
As at June 30, 2020, the Company had a working capital deficit position of $3,211,469. The Company’s ability to continue operations in the normal course of business is dependent on several factors, including the operating of its mineral property, as well as the ability to secure additional financing. The Company will be required to raise additional funds in the future for the development of its projects and other activities through the issuance of additional equity or debt. Following completing the spin-out transaction, the Company intends to apply for a listing on the TSX Venture Exchange as well as raise funds through a private placement financing.
FINANCIAL INSTRUMENTS
The Company manages its exposure to financial risks, including liquidity risk and credit risk a in accordance with its risk management framework. The Company’s board of directors has overall responsibility for the establishment and oversight of the Company’s risk management framework and reviews the Company’s policies on an ongoing basis.
(a) Fair Value
The Company classifies its fair value measurements within a fair value hierarchy, which reflects the significance of inputs used in making the measurements as defined in IFRS 7 – Financial Instruments: Disclosures (“IFRS 7”).
Level 1 – Unadjusted quoted prices at the measurement date for identical assets or liabilities in active markets.
Level 2 – Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3 – Unobservable inputs which are supported by little or no market activity.
The following table sets forth the Company’s financial assets that are measured at fair value on a recurring basis by level within the fair value hierarchy as at June 30, 2020 that are not otherwise disclosed. As required by IFRS 7, financial assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
|
Management’s Discussion and Analysis
|
Page 3
|
|
|
|
Fair value as at June 30, 2020
|
|
|
Recurring measurements
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
419,860
|
|
|
-
|
|
|
-
|
|
|
419,860
|
|
Fair value of other financial instruments excluded from the table above approximates their carrying amount as of June 30, 2020.
There were no transfers into or out of Level 3 during the period from November 27, 2019 to June 30, 2020.
(b) Liquidity Risk
The Company has no operating revenues from its operations. Liquidity risk is the risk that the Company will not be able to meet its short term business requirements. As at June 30, 2020, the Company had a working capital deficit position of $3,211,469. The Company’s ability to continue operations in the normal course of business is dependent on the Company’s ability to secure additional financing..
In the normal course of business, the Company enters into contracts that give rise to commitments for future minimum payments. The following summarizes the remaining contractual maturities of the Company’s financial liabilities:
|
|
|
June 30, 2020
|
|
|
|
|
Due within a year
|
|
|
Total
|
|
|
Trade and other payables
|
$
|
18,097
|
|
$
|
18,097
|
|
|
Payables due to a related party
|
|
114,290
|
|
|
114,290
|
|
|
Promissory notes due to a related party
|
|
3,500,000
|
|
|
3,500,000
|
|
|
|
$
|
3,632,387
|
|
$
|
3,632,387
|
|
(c) Foreign Exchange Risk
The Company is exposed to foreign exchange risk when it undertakes transactions and holds assets and liabilities denominated in foreign currencies other than its functional currencies. The Company currently does not engage in foreign exchange currency hedging. The Company’s exposure to foreign exchange risk is summarized as follows:
|
|
|
June 30, 2020
|
|
|
United States dollars
|
$
|
632
|
|
As at June 30, 2020, with other variables unchanged, a 1% strengthening (weakening) of the US dollar against the CAD would have increased (decreased) net income by approximately $6.
(d) Credit Risk
|
Management’s Discussion and Analysis
|
Page 4
|
Credit risk is the risk of financial loss to the Company if the counterparty to a financial instrument fails to meets its contractual obligations. The Company’s exposure to credit risk is primarily associated with cash and cash equivalents and receivables. The carrying amount of financial assets included on the statement of financial position represents the maximum credit exposure.
The Company has deposits of cash that meet minimum requirements for quality and liquidity. Management believes the risk of loss to be remote, as majority of its cash and cash equivalents are held with major financial institutions. As at June 30, 2020, the Company had a receivables balance of $1,058.
RELATED PARTY TRANSACTIONS
Related party transactions are made on terms agreed upon by the related parties. The balances with related parties are unsecured, non-interest bearing, and due on demand. Related party transactions not disclosed elsewhere in the MD&A are as follows:
|
|
Note
|
|
June 30, 2020
|
|
|
Payables due to New Pacific
|
i
|
$
|
114,290
|
|
|
Promissory notes due to a related party
|
ii
|
$
|
3,500,000
|
|
i) New Pacific is the parent of the Company. The amounts due to New Pacific related to invoices paid by New Pacific on behalf of the Company and accrued interest for the promissory note as described below.
ii) The Company entered into shares exchange agreement for Tagish Shares with New Pacific on February 12, 2020 (note 3). As part of the exchange for the Tagish Shares, the Company signed a promissory note with New Pacific to pay $3,000,000 on demand.
The Company entered into another promissory note with New Pacific on February 12, 2020, in which the Company borrowed $500,000 from New Pacific to meet its short term operating needs.
The two promissory notes are repayable on demand and bear an annual interest of 6%. During the period from November 27, 2010 to June 30, 2020, a total of $79,754 interest expense for these promissory notes was recorded in the statement of comprehensive income.
|
Management’s Discussion and Analysis
|
Page 5
|
The remuneration of key management personnel is as follows:
|
|
|
From incorporation
|
|
|
|
|
on November 27, 2019 to
|
|
|
|
|
June 30, 2020
|
|
|
Key management's salaries and benefits
|
$
|
57,271
|
|
OFF-BALANCE SHEET ARRANGEMENTS
The Company does not have any off-balance sheet financial arrangements.
PROPOSED TRANSACTIONS
Other than the spin-out transaction described below, there are no proposed acquisitions or disposals of assets or business, other than those in the ordinary course of business, approved by the Board as at the date of this MD&A.
Plan of Arrangement
It is proposed that the spin-out will occur by way of a plan of arrangement (the “Arrangement”) under the Business Corporations Act (British Columbia) pursuant to which New Pacific shareholders will be entitled to receive common shares of Whitehorse Gold on a pro rata basis.
The Arrangement will be subject to the approval of New Pacific shareholders at a special meeting that is expected to be held by the end of September 2020, requisite regulatory and stock exchange approval, and the continued discretion of New Pacific's management and board of directors. The Arrangement will also be subject to court approval.
Further details of the Arrangement, including, without limitation, the applicable ratio for the number of Whitehorse Gold common shares to be received by New Pacific shareholders, the record date for determining which shareholders will be entitled to receive Whitehorse Gold common shares and vote on the Arrangement at the special meeting, and the date for the special meeting, will be provided in due course. There can be no assurance that the Arrangement will be completed on the terms described herein or at all.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of the consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the amounts reported on the consolidated financial statements. These critical accounting estimates represent management’s estimates that are uncertain and any changes in these estimates could materially impact the Company’s consolidated financial statements. Management continuously reviews its estimates and assumptions using the most current information available. The Company’s critical accounting policies and estimates are described in Note 2 of the audited consolidated financial statements for the period from incorporation on November 27, 2019 to June 30, 2020.
|
Management’s Discussion and Analysis
|
Page 6
|
OUTSTANDING SHARE DATA
As at the date of this MD&A, the following securities were outstanding:
Share Capital
Authorized – unlimited number of common shares without par value.
Issued and outstanding – 20,000,001 common shares with a recorded value of $nil.
Share Option
A total of 3,450,000 options with excursive price of $0.05 per share that will expire on July 2, 2030.
RISK FACTORS
There are numerous risks involved with mining and exploration companies and the Company is subject to these risks. The Company’s major risks (in no particular order) and the strategy for managing these risks are as follows:
COVID-19
The current outbreak of COVID-19 pandemic could have a material adverse effect on the Company’s business and operations, as well as impacting global economic conditions. Government efforts to control the spread of the virus have resulted in, among others, travel restrictions to Yukon, Canada and reduced economic activities in Canada. The international response to the spread of COVID-19 has led to significant restrictions on travel, temporary business closures, quarantines, global stock and financial market volatilities, labour shortage and delay in logistics, and a general reduction in consumer activities. All of these could affect commodity prices, interest rates, credit risk, social security and inflation. Such public health crisis at the moment or in the future may negatively affect the Company's operations along with the operations of its suppliers, contractors, service providers and local communities.
While the COVID-19 pandemic has already had significant, direct impacts on the Company’s operations and business, the extent to which the pandemic will continue to impact our operations are highly uncertain and cannot be predicted with confidence as at the date of this MD&A. These uncertainties include, but are not limited to, the duration of the outbreak, Canadian governments’ mandates to curtail the spreading of the virus, the Company’s ability to resume operations efficiently or economically. It is also uncertain whether the Company will be able to maintain an adequate financial condition and have sufficient capital, or have the ability to raise capital. Any of these uncertainties, and others, could have further material adverse effect on the Company’s business and operations.
Exploration and Development
Long-term operation of the Company’s business and its profitability are dependent, in part, on the cost and success of its exploration and future development programs. Mineral exploration and development involves a high degree of risk and historically few properties that are explored are ultimately developed into producing mines. There is no assurance that the Company’s mineral exploration and future development programs will result in any discoveries of bodies of mineral resources or mineral reserves. There is also no assurance that, even if commercially viable quantities of mineral resources or mineral reserves are discovered, a mineral property will be brought into commercial production. Development of the Company’s mineral properties will only commence if the Company obtains satisfactory exploration results. Discovery of mineral deposits is dependent upon a number of factors, including the technical skill of the exploration geoscientists involved. The commercial viability of a mineral deposit is also dependent upon a number of factors including: the particular attributes of the deposit such as size, grade and proximity to infrastructure; metal prices; and government regulations including regulations relating to royalties, allowable production, importing and exporting of minerals and environmental protection. Most of the above factors are beyond the control of the Company. Unsuccessful exploration or development programs could have a material adverse impact on the Company’s operations and profitability. The Company’s exploration activities are subject to a number of other specific risks and hazards including:
|
Management’s Discussion and Analysis
|
Page 7
|
• industrial accidents;
• failure of processing and mining equipment;
• labour disputes;
• supply problems and delays;
• encountering unusual or unexpected geologic formations or other geological or grade problems;
• encountering unanticipated ground or water conditions;
• cave-ins, pit wall failures, flooding, rock bursts and fire;
• periodic interruptions due to inclement or hazardous weather conditions;
• uncertainties relating to the interpretation of drill results;
• inherent uncertainty of cost estimates and the potential for unexpected costs and expenses;
• results of future preliminary economic assessments, pre-feasibility and feasibility studies, and the
• possibility that future exploration, development or mining results will not be consistent with the
• Company’s expectations; and
• the potential for delays in exploration or the completion of future feasibility studies.
Such risks, individually or in combination, could result in negative impacts including: damage to, or destruction of, mineral properties or processing facilities; personal injury or death; loss of key employees; environmental damage; delays in mining; monetary losses; and possible legal liabilities. Satisfying such liabilities may be very costly and could have a materially adverse effect on future cash flow, results of operations and financial condition.
Government Permits and Licenses
No guarantee can be given that the necessary government exploration and mining permits and licenses will be issued to the Company or, if they are issued, that they will be renewed in an appropriate or timely manner, or that the Company will be in a position to comply with all conditions that are imposed.
Calculation of Mineral Resources and Mineral Reserves
There is a high degree of uncertainty attributable to the calculation of mineral resources, mineral reserves and corresponding grades. Until any future estimated mineral reserves are actually mined and processed, the quantity of future mineral resources, mineral reserves, and corresponding grades, if any, as disclosed at the Company’s mineral property must be considered as estimates only. Accordingly, there can be no assurance that the Company will ever be able to delineate any mineral resources or mineral reserves at any of its currently owned projects.
|
Management’s Discussion and Analysis
|
Page 8
|
Fluctuating Commodity Prices
The Company’s future revenues, if any, are expected to be derived in large part from the mining and sale of metals. Historically, the prices of those commodities has fluctuated widely, particularly in recent years, being affected by numerous factors beyond the Company’s control including: international economic and political trends; expectations of inflation; currency exchange fluctuations; interest rates; supply and demand; sales by government holders; global or regional consumptive patterns; speculative activities; availability and costs of metal substitutes; and increased production due to new mine developments and improved mining and production methods. The price of base and precious metals will have a significant influence on the market price of the Company’s shares and the value of its property. The effect of these factors on the price of base and precious metals, and therefore the viability of the Company’s exploration projects, cannot be accurately predicted. If precious and base metal prices were to decline significantly, or for an extended period of time, the Company may be unable to continue its current exploration activities or fulfil obligations under its permits or licenses.
Key Human Resources
The Company depends on the services of a number of key skilled experts, including its current board and executive officers, the loss of any one of whom could have an adverse effect on the Company’s operations. The Company’s ability to manage growth effectively will require it to continue to implement and improve management systems, and to recruit and train new employees. The Company cannot assure that it will be successful in attracting and re-training skilled and experienced specialists.
Governmental Regulation
Exploration on the Company’s property is affected to varying degrees by political stability and government regulations relating to several matters including: environmental protection, health, safety and labour, mining law reform, restrictions on production, price controls, tax increases, maintenance of claims, tenure, and expropriation of property. There is no assurance that future changes in such regulations, if any, will not adversely affect the Company’s activities.
Environmental Risks
The Company’s exploration and development activities are subject to extensive laws and regulations governing environmental protection, including laws related to reclamation bonds. Environmental laws and regulations are complex and have tended to become more stringent over time. Failure to comply with applicable environmental health and safety laws may result in injunctions, damages, suspension or revocation of permits, and imposition of penalties. There can be no assurance that the Company has been, or will be, at all times in complete compliance with current and future environmental and health and safety laws and that compliance with environmental permits and regulations will not materially adversely affect the Company’s business, results of operations or financial condition.
Additional Financing
If the Company’s exploration programs are successful in establishing mineral resources and subsequently commercially viable mineral reserves, additional funds will be required for the development of such a deposit and to place it in commercial production. One potential source of future funds is through the sale of equity capital. There is no assurance that this source will continue to be available, in required amounts or at all. If it is available, future equity financings may result in substantial dilution to shareholders. Another alternative for the financing of further exploration would be the offering by the Company of an interest in the property to be earned by another party or parties carrying out further exploration or development thereof. There can be no assurance the Company will be able to conclude any such agreements, on favourable terms or at all.
|
Management’s Discussion and Analysis
|
Page 9
|
Title to Property
While the Company has investigated title to all of its mineral claims and, to the best of its knowledge, title to all of its property is in good standing, the Company’s mineral property may be subject to prior unregistered agreements or transfers and title may be affected by such undetected defects. There may be valid challenges to the title of the Company’s property which, if successful, could impair exploration, development and/or operations. The Company cannot give any assurance that title to its property will not be challenged. None of the Company’s mineral property has been surveyed, and the precise location and extent thereof may be in doubt.
Recent and Current Market Conditions
Over recent years worldwide securities markets, including those in the United States and Canada, have experienced a high level of price and volume volatility. Accordingly, the market price of securities of many mining companies, particularly those considered exploration or development-stage companies, have experienced unprecedented shifts and/or volatility in price which have not necessarily been related to the underlying asset values or prospects of such companies. As a consequence, market forces may render it difficult or impossible for the Company to secure investors to participate in new share issues at an attractive price for the Company, or at all. Therefore, there can be no assurance that significant fluctuations will not materially adversely impact on the Company’s ability to raise equity funding.
Competition
The mining industry is intensely competitive in all phases of its activities, and such competition could adversely affect the Company’s ability to acquire suitable resource properties in the future.
Feasibility and Engineering Reports
The Company carries out exploration operations at the Tagish Lake Gold Property in accordance with the applicable exploration permits. The Company has not yet completed, and may not complete, a preliminary economic assessment, preliminary feasibility or feasibility study or report which would permit the Company to consider advancing a project to the development stage.
Insurance
The Company’s exploration activities are subject to the risks normally inherent in the industry: these risks include, but are not limited to, environmental hazards; flooding; periodic or seasonal hazardous climate or weather conditions; or unexpected rock formations. The Company may become subject to liability which it cannot insure, or against which it may elect not to insure, due to high premium costs or other reasons. Where considered practical to do so the Company maintains insurance against risks in the operation of its business in amounts which the Company believes to be reasonable. Such insurance, however, contains exclusions and limitations on coverage. The Company cannot provide any assurance that such insurance will continue to be available, will be available at economically acceptable premiums or will be adequate to cover any resulting liability. In some cases, coverage is not available or considered too expensive relative to the perceived risk.
|
Management’s Discussion and Analysis
|
Page 10
|
Conflicts of Interest
Conflicts of interest may arise as a result of the directors, officers and promoters of the Company also holding positions as directors and/or officers of other companies. Some of those persons who are directors and officers of the Company have and will continue to be engaged in the identification and evaluation of assets and businesses and companies on their own behalf and on behalf of other companies; accordingly, situations may arise where the directors and officers may in direct competition with the Company. Conflicts, if any, will be subject to the procedures and remedies under the Business Corporations Act (British Columbia).
FORWARD LOOKING STATEMENTS
Except for statements of historical fact relating to the Company, certain information contained herein constitutes forward-looking statements. Forward-looking statements are frequently characterized by words such as “plan”, “expect”, “project”, “intend”, “believe”, “anticipate”, and other similar words, or statements that certain events or conditions “may” or “will” or “can” occur. Forward-looking statements are based on the opinions and estimates of management on the date the statements are made, and are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking statements. These factors include global economic and social impact of COVID-19, the fluctuating equity prices, bond prices, commodity prices, calculation of resources, reserves and mineralization, foreign exchange risks, interest rate risk, foreign investment risk, loss of key personnel, conflicts of interest, dependence on management, uncertainties relating to the availability and costs of financing needed in the future and other factors described in this MD&A. Although the forward-looking statements contained in this MD&A are based upon what management believes are reasonable assumptions, there can be no assurance that actual results will be consistent with these forward-looking statements. All forward-looking statements in this MD&A are qualified by these cautionary statements. Accordingly, readers should not place undue reliance on such statements. Other than specifically required by applicable laws, the Company is under no obligation and expressly disclaims any such obligation to update or alter the forward-looking statements whether as a result of new information, future events or otherwise except as may be required by law. These forward- looking statements are made as of the date of this MD&A.
Additional information relating to the Company can be obtained under the New Pacific’s profile on SEDAR at www.sedar.com, and on New Pacific’s website at www.newpacificmetals.com.
|
Management’s Discussion and Analysis
|
Page 11
|
SCHEDULE "J"
WHITEHORSE GOLD CORP. PRO-FORMA FINANCIAL STATEMENTS
(attached)
Whitehorse Gold Corp.
Pro Forma Financial Statements
From incorporation on November 27, 2019 to June 30, 2020
Whitehorse Gold Corp.
Unaudited Consolidated Pro Forma Statements of Financial Position
(Expressed in Canadian dollars)
|
|
|
WHG Pro forma as at
|
|
|
|
|
June 30, 2020
|
|
|
ASSETS
|
|
|
|
|
Current Assets
|
|
|
|
|
Cash
|
$
|
419,860
|
|
|
Receivables
|
|
1,058
|
|
|
|
|
420,918
|
|
|
Non-current Assets
|
|
|
|
|
Reclamation deposit
|
|
15,075
|
|
|
Property and equipment
|
|
13,838
|
|
|
Mineral property interests
|
|
11,820,000
|
|
|
Total Assets
|
$
|
12,269,831
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
Current Liabilities
|
|
|
|
|
Accounts payable and accrued liabilities
|
$
|
18,097
|
|
|
Payables due to a related party
|
|
114,290
|
|
|
Promisory notes due to a related party
|
|
3,500,000
|
|
|
Total Liabilities
|
|
3,632,387
|
|
|
|
|
|
|
|
EQUITY
|
|
|
|
|
Share capital
|
|
-
|
|
|
Retained earning
|
|
8,637,444
|
|
|
|
|
8,637,444
|
|
|
TOTAL LIABILITIES AND EQUITY
|
$
|
12,269,831
|
|
See accompanying notes to the pro forma consolidated financial statements
Page | 1
Whitehorse Gold Corp.
Unaudited Pro Forma Consolidated Statements of Comprehensive Income
(Expressed in Canadian dollars)
|
|
|
WHG
From incorporation on
November 27, 2019 to
June 30, 2020
|
|
|
Pro Forma
Adjustment
(Note 4)
|
|
|
WHG Pro Forma
From incorporation on
November 27, 2019 to
June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
$
|
46
|
|
$
|
-
|
|
$
|
46
|
|
|
Investor relations
|
|
697
|
|
|
-
|
|
|
697
|
|
|
Professional fees
|
|
9,010
|
|
|
3,810
|
|
|
12,820
|
|
|
Salaries and benefits
|
|
98,741
|
|
|
-
|
|
|
98,741
|
|
|
Office and administration
|
|
29,829
|
|
|
4,497
|
|
|
34,326
|
|
|
Management fee
|
|
-
|
|
|
15,000
|
|
|
15,000
|
|
|
|
|
138,323
|
|
|
23,307
|
|
|
161,630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income ( expenses)
|
|
|
|
|
|
|
|
|
|
|
Impairment reversal of mineral property interests
|
|
11,714,944
|
|
|
-
|
|
|
11,714,944
|
|
|
Foreign exchange gain
|
|
29
|
|
|
-
|
|
|
29
|
|
|
Interest expense
|
|
(79,754
|
)
|
|
-
|
|
|
(79,754
|
)
|
|
|
|
11,635,219
|
|
|
-
|
|
|
11,635,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income for the period
|
$
|
11,496,896
|
|
$
|
(23,307
|
)
|
$
|
11,473,589
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share
|
$
|
0.89
|
|
$
|
-
|
|
$
|
0.89
|
|
|
Weighted average number of common shares - basic and diluted
|
|
12,870,371
|
|
|
-
|
|
|
12,870,371
|
|
See accompanying notes to the pro forma consolidated financial statements
Page | 2
Whitehorse Gold Corp.
Notes to the Pro Forma Consolidated Financial Statements
For the year ended June 30, 2020
(Expressed in Canadian dollars, except for share figures)
1. PLAN OF ARRANGEMENT
On July 22, 2020, New Pacific Metals Corp. (“New Pacific”) announced that it intends to directly or indirectly distribute the Whitehorse Gold Corp.’s (“Whitehorse Gold”, or the Company) common shares to its shareholders on a pro rata basis by way of a plan of arrangement (the “Arrangement”) under the Business Corporations Act (British Columbia) pursuant to which New Pacific shareholders will be entitled to receive common shares of Whitehorse Gold on a pro rata basis.
The Arrangement will be subject to the approval of New Pacific shareholders at a special meeting that is expected to be held by the end of September 2020, requisite regulatory and stock exchange approval, and the continued discretion of New Pacific's management and board of directors. The Arrangement will also be subject to court approval.
Further details of the Arrangement, including, without limitation, the applicable ratio for the number of Whitehorse Gold common shares to be received by New Pacific shareholders, the record date for determining which shareholders will be entitled to receive Whitehorse Gold common shares and vote on the Arrangement at the special meeting, and the date for the special meeting, will be provided in New Pacific’s Management Information Circular for the 2020 Annual and Special Meeting of Shareholders to be Held at 9:00 A.M on September 30, 2020. There can be no assurance that the Arrangement will be completed on the terms described herein or at all.
2. BASIS OF PREPARATION
The unaudited pro forma consolidated financial statements of Whitehorse Gold have been prepared to give effect and reflect the Arrangement as described in Note 1 and the pro-forma assumptions and adjustment described in Note 4 below and include:
• Unaudited pro forma consolidated statement of financial position as at June 30, 2020 prepared from Whitehorse Gold’s audited consolidated statement of financial position, reflecting the transactions as if they occurred on June 30, 2020.
• Unaudited pro forma consolidated statement of income and comprehensive income for the period from November 27, 2019 to June 30, 2020 prepared from the Whitehorse Gold’s audited consolidated statement of comprehensive income for the same period, reflecting the transactions as if they occurred on November 27, 2019.
These unaudited pro forma financial statements should be read in conjunction with the audited consolidated financial statements of Whitehorse Gold for the period from incorporation on November 27, 2019 to June 30, 2020.
These unaudited pro forma consolidated financial statements are not intended to reflect the financial position and results of operations that would have occurred if the events reflected therein had been in effect at the dates indicated. Further, these pro forma consolidated financial statements are not necessarily indicative of the financial position and results of operations that may be obtained in the future.
Page | 3
Whitehorse Gold Corp.
Notes to the Pro Forma Consolidated Financial Statements
For the year ended June 30, 2020
(Expressed in Canadian dollars, except for share figures)
3. SIGNIFICANT ACCOUNTING POLICIES
The accounting policies used in the preparation of these unaudited pro forma consolidated financial statements are those as set out in Whitehorse Gold’s audited consolidated financial statements for the period from the incorporation on November 27, 2019 to June 30, 2020.
4. PRO FORMA ADJUSTMENTS
The unaudited pro forma consolidated financial statements incorporate the following pro forma adjustments and/or assumptions:
• Tagish Lake Gold Corp’s operating expenses for the period from November 27, 2019 to February 12, 2020 were added back as pro forma adjustments.
Page | 4
SCHEDULE "K"
CHARTER FOR THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
OF WHITEHORSE GOLD CORP.
(the "Company")
Adopted by the Board of Directors on August 25, 2020
1.0 Purpose of the Committee
1.1 The audit committee (the "Committee") represents the board of directors of the Company (the "Board") in discharging its responsibility relating to the accounting, reporting and financial practices of the Company and its subsidiaries, and has general responsibility for oversight of internal controls, accounting and auditing activities and legal compliance of the Company and its subsidiaries.
2.0 Members of the Committee
2.1 The Committee shall consist of no less than three directors a majority of whom shall be "independent" as defined under National Instrument 52-110, while the Company is in the developmental stage of its business. The members of the Committee shall be selected annually by the Board and shall serve at the pleasure of the Board.
2.2 At least one Member of the Committee must be "financially literate" as defined under National Instrument 52-110, having sufficient accounting or related financial management expertise to read and understand a set of financial statements, including the related notes, that present a breadth and level of complexity of the accounting issues that are generally comparable to the breadth and complexity of the issues that can reasonably be expected to be raised by the Company's financial statements.
3.0 Meeting Requirements
3.1 The Committee will, where possible, meet on a regular basis at least once every quarter, and will hold special meetings as it deems necessary or appropriate in its judgment. Meetings may be held in person or by virtual means, and shall be at such times and places as the Committee determines. Without meeting, the Committee may act by unanimous written consent of all members which shall constitute a meeting for the purposes of this charter.
3.2 A majority of the members of the Committee shall constitute a quorum.
4.0 Duties and Responsibilities
4.1 The Committee's function is one of oversight only and shall not relieve the Company's management of its responsibilities for preparing financial statements which accurately and fairly present the Company's financial results and conditions or the responsibilities of the external auditors relating to the audit or review of financial statements. Specifically, the Committee will:
(i) have the authority with respect to the appointment, retention or discharge of the independent public accountants as auditors of the Company (the "auditors") who perform the annual audit in accordance with applicable securities laws, and who shall be ultimately accountable to the Board through the Committee;
(ii) review with the auditors the scope of the audit and the results of the annual audit examination by the auditors, including any reports of the auditors prepared in connection with the annual audit;
(iii) review information, including written statements from the auditors, concerning any relationships between the auditors and the Company or any other relationships that may adversely affect the independence of the auditors and assess the independence of the auditors;
(iv) review and discuss with management and the auditors the Company's audited financial statements and accompanying management's discussion and analysis ("MD&A"), including a discussion with the auditors of their judgments as to the quality of the Company's accounting principles and report on them to the Board;
(v) review and discuss with management the Company's interim financial statements and interim MD&A and report on them to the Board;
(vi) pre-approve all auditing services and non-audit services provided to the Company by the auditors to the extent and in the manner required by applicable law or regulation. In no circumstances shall the auditors provide any non-audit services to the Company that are prohibited by applicable law or regulation;
K-2
(vii) evaluate the external auditor's performance for the preceding fiscal year, reviewing their fees and making recommendations to the Board;
(viii) periodically review the adequacy of the Company's internal controls and ensure that such internal controls are effective;
(ix) review changes in the accounting policies of the Company and accounting and financial reporting proposals that are provided by the auditors that may have a significant impact on the Company's financial reports, and report on them to the Board;
(x) approve material contracts where the Board determines that it has a conflict;
(xi) establish procedures for the receipt, retention and treatment of complaints received by the Company regarding the audit or other accounting matters;
(xii) where unanimously considered necessary by the Committee, engage independent counsel and/or other advisors at the Company's expense to advise on material issues affecting the Company which the Committee considers are not appropriate for the full Board;
(xiii) satisfy itself that management has put into place procedures that facilitate compliance with the provisions of applicable securities laws and regulation relating to insider trading, continuous disclosure and financial reporting;
(xiv) review and monitor all related party transactions which may be entered into by the Company; and
(xv) periodically review the adequacy of its charter and recommending any changes thereto to the Board.
5.0 Miscellaneous
5.1 Nothing contained in this Charter is intended to extend applicable standards of liability under statutory or regulatory requirements for the directors of the Company or members of the Committee. The purposes and responsibilities outlined in this Charter are meant to serve as guidelines rather than as inflexible rules and the Committee is encouraged to adopt such additional procedures and standards as it deems necessary from time to time to fulfill its responsibilities.
SCHEDULE "L"
NEW PACIFIC METALS CORP. FOLLOWING THE ARRANGEMENT
The following describes the proposed business of the Company following the completion of the Arrangement, and should be read together with this Circular. Except where the context otherwise requires, all of the information contained in this Schedule "L" is made on the basis that the Arrangement has been completed as described in the Circular. This Schedule "L" is qualified in its entirety by, and should be read together with, the detailed information contained or referred to elsewhere, or incorporated by reference, in the Circular and applicable Schedules.
Capitalized words used in this Schedule "L" and not otherwise defined shall have the meaning ascribed to such terms in the Circular.
CORPORATE STRUCTURE
Name and Incorporation
The Company was formed as a special limited company under the Company Act (British Columbia) on April 19, 1972. By special resolution of its shareholders dated July 21, 1983, the Company converted itself from a special limited company to a limited company Subsequently, the Company continued into Bermuda on November 6, 1997.
On November 5, 2003, the Company continued into British Columbia under the Company Act (British Columbia). On November 3, 2004, the Company changed its name to "New Pacific Metals Corp." The current BCBCA came into force on March 29, 2004, at which time, the Board approved the transition of the Company under the BCBCA and the filing of a transition application containing a Notice of Articles which replaced the existing Memorandum of Association of the Company.
At the Company's annual general and special meeting of shareholders held November 13, 2015, the shareholders passed a special resolution authorizing and approving an amendment to the articles of the Company to change the name of the Company from New Pacific Metals Corp. to "New Pacific Holdings Corp." and an ordinary resolution authorizing and approving a change of the Company's business from a mining issuer engaged in mineral exploration to an investment issuer engaged in investing in privately held and publicly traded corporations under the policies of the TSX-V. On July 1, 2016, the Company's name was changed to "New Pacific Holdings Corp." and the Company changed its business from a mining issuer listed on the TSX to an investment issuer listed on the TSX-V, trading under the symbol "NUX".
On June 30, 2017, at a special meeting of shareholders held in connection with the Company's acquisition of Empresa Minera Alcira S.A., a private mining company incorporated in Bolivia (as described further below), the shareholders passed a special resolution authorizing and approving an amendment to the articles of the Company to change the name of the Company back to "New Pacific Metals Corp." and an ordinary resolution authorizing and approving a change of the Company's business back to a mining issuer engaged in mineral exploration under the policies of the TSX-V, trading under the symbol "NUAG". On March 12, 2018, the Company's common shares commenced trading on the OTCQX Market under the symbol "NUPMF". On August 12, 2020 the Company's common shares began trading on the TSX under the symbol "NUAG" and were de-listed from trading on the TSX-V.
The head office, principal address, and registered and records office of the Company is located at Suite 1750 – 1066 West Hastings Street, Vancouver, British Columbia, Canada V6E 3X1.
The Company is a reporting issuer in all of the provinces of Canada.
Following completion of the Arrangement, the authorized share capital of the Company will consist of an unlimited number of New Common Shares.
L-2
Intercorporate Relationships
The corporate structure of the Company and its subsidiaries, as of the date hereof, is as follows:
Upon completion of the Arrangement, the Company will have the following corporate structure:
L-3
DESCRIPTION OF THE BUSINESS
Upon completion of the Arrangement, the Company will concentrate on the exploration and development of the Company Assets. For further information regarding the business of the Company, please refer to the financial statements, the MD&A, the AIF and other public disclosure documents of the Company available on SEDAR at www.sedar.com and incorporated by reference herein.
DESCRIPTION OF MINERAL PROPERTIES
As of the date hereof, the Company considers the Silver Sand Project to be a material property for the purposes of NI 43-101.
The Company's other non-material mineral properties are the Silverstrike Project and the RZY Project. For further information regarding the mineral properties of the Company, please refer to the annual information form and other public disclosure documents of the Company available on SEDAR at www.sedar.com and incorporated by reference herein.
DESCRIPTION OF CAPITAL STRUCTURE
Following completion of the Arrangement, the Company will have an authorized capital of an unlimited number of New Common Shares without par value, of which such number of New Common Shares will be issued and outstanding as fully paid and non-assessable as the number of Common Shares issued and outstanding immediately prior to the Effective Time. A further 5,579,634 New Common Shares will be reserved and allotted for issuance upon the due and proper exercise of certain incentive options outstanding as of June 30, 2020. All of the New Common Shares of the Company rank equally as to dividends, voting powers and participation in assets and in all other respects. Each New Common Share carries one vote per share at meetings of the shareholders of the Company. There are no indentures or agreements limiting the payment of dividends and there are no conversion rights, special liquidation rights, pre- emptive rights or subscription rights attached to the New Common Shares. The New Common Shares presently issued are not subject to any calls or assessments. For more information on the effect of the Arrangement on the Common Shares of the Company, please see the Circular under the heading "The Arrangement".
At the Meeting, the Shareholders will be asked to approve the Omnibus Plan prepared in accordance with the policies of the TSX. For more information on the Omnibus Plan and the effect of the Arrangement on the Awards, please see the Circular under the heading "Approval of the Amended and Restated Share Based Compensation Plan" and "The Arrangement".
As of the date hereof, the Company has no outstanding warrants.
DIVIDENDS OR DISTRIBUTIONS
The Company has not paid dividends on its common shares since incorporation. The Company has no present intention of paying dividends on its common shares. Payment of dividends of distributions in the future will be dependent on the earnings and financial condition of the Company and other factors which the directors may deem appropriate at that time.
PRO FORMA CONSOLIDATED CAPITALIZATION
Other than as described in this Schedule under the heading "Prior Sales", there have not been any material changes in the share and loan capital of the Company since the date of the audited consolidated financial statements of the Company for the year ended June 30, 2020. There will be no material changes to the Company's share and loan capital as a result of the Arrangement, other than the exchange of Common Shares for New Common Shares.
L-4
PRIOR SALES
Common Shares
The following table summarizes issuances of Common Shares by the Company for the 12-month period prior to the date of this Circular:
|
|
|
Number of
|
|
Price Per
|
|
Date of Issuance
|
|
Common Shares
|
|
Common Share
|
|
October 25, 2019
|
|
4,312,500
|
|
$4.00
|
|
June 9, 2020
|
4,238,000
|
$5.90
|
In addition to the Common Shares referenced in the table above, an aggregate of 856,399 Common Shares were issued in connection with the exercise of outstanding Options and 139,400 Common Shares were issued in connection with the settlement of RSUs for the 12-month period prior to the date of this Circular. The exercise price for such Options ranged between $0.55 and $2.30, resulting in aggregate gross proceeds of $1,020,485.
Options
No Options were granted by the Company during the 12-month period prior to the date of this Circular.
Restricted Share Units
The Company intends to settle RSUs by the issuance of Common Shares as soon as practicable after the vesting date, but retains the discretion under the Company's incentive plan, to settle the RSUs in cash or in Common Shares. The following table summarizes grants of RSUs by the Company for the 12-month period prior to the date of this Circular:
|
Date of Grant
|
|
Number of RSUs
|
|
Settlement Date
|
|
December 2, 2019
|
|
266,150
|
|
June 2, 2020
|
|
December 2, 2019
|
266,150
|
|
December 2, 2020
|
|
December 2, 2019
|
266,150
|
|
June 2, 2021
|
|
December 2, 2019
|
266,150
|
|
December 2, 2021
|
Trading Price and Volume
The Common Shares are listed and posted for trading on the TSX under the symbol "NUAG". Prior to August 12, 2020, the Common Shares were listed and posted for trading on the TSX-V. The New Common Shares will continue to be traded on the TSX upon completion of the Arrangement. The following table sets forth for the periods indicated, the high and low trading price and the aggregate volume of the Common Shares on the TSX or the TSX-V, as applicable.
|
Period
|
|
High ($)
|
|
Low ($)
|
|
Trading Volume
|
|
August 2019
|
|
3.00
|
|
2.35
|
|
1,076,518
|
|
September 2019
|
6.71
|
2.75
|
4,128,885
|
|
October 2019
|
4.63
|
4.09
|
2,671,947
|
|
November 2019
|
4.96
|
4.23
|
1,971,111
|
|
December 2019
|
5.99
|
4.60
|
1,951,768
|
|
January 2020
|
6.98
|
5.61
|
4,344,293
|
|
February 2020
|
6.78
|
4.74
|
3,002,182
|
|
March 2020
|
5.78
|
2.34
|
4,886,509
|
|
April 2020
|
6.46
|
4.07
|
6,743,738
|
|
May 2020
|
7.17
|
5.04
|
5,103,972
|
|
June 2020
|
5.89
|
4.83
|
2,866,844
|
|
July 2020
|
6.13
|
4.84
|
3,074,003
|
|
August 2020(1)
|
6.28
|
5.30
|
2,341,416
|
L-5
Note:
(1) From August 1, 2020 to August 27, 2020.
ESCROWED SECURITIES AND SECURITIES SUBJECT TO CONTRACTUAL RESTRICTION ON TRANSFER
As of the date hereof, the Company does not have, nor does it expect to have upon completion of the Arrangement, any of its securities subject to escrow or contractual restrictions on transfer, subject to regulatory approval thereof.
DIRECTORS AND EXECUTIVE OFFICERS
Name, Occupation and Security Holding
It is anticipated that there will be no change to the Board or the executive officers of the Company upon completion of the Arrangement. See the Circular under the heading "Election of Directors".
Upon completion of the Arrangement, as a group, the Company's directors and executive officers will beneficially own, or control or direct, directly or indirectly, 12,691,200 New Common Shares, or approximately 8.3% of the issued and outstanding New Common Shares (using the number of Common Shares issued and outstanding as at the trading day immediately preceding the date hereof).
For a summary of all securities held by the directors and executive officers of the Company, please refer to the Circular under the heading "Election of Directors" and "The Arrangement – Interests of Certain Persons in the Arrangement".
Conflicts of Interest
Certain proposed directors, officers and nominee directors of the Company are also directors, officers or shareholders of other companies that are similarly engaged in the business of acquiring, developing and exploiting natural resource properties. Such associations to other public companies in the resource sector may give rise to conflicts of interest from time to time. As a result, opportunities provided to a director of the Company may not be made available to the Company, but rather may be offered to a company with competing interests. The directors and senior officers of the Company are required by law to act honestly and in good faith with a view to the best interests of the Company and to disclose any personal interest which they may have in any project or opportunity of the Company, and to abstain from voting on such matters.
The proposed directors and officers of the Company are aware of the existence of Laws governing the accountability of directors and officers for corporate opportunity and requiring disclosure by the directors of conflicts of interests and the Company will rely upon such Laws in respect of any directors' and officers' conflicts of interest or in respect of any breaches of duty by any of its directors and officers.
EXECUTIVE COMPENSATION
The executive compensation structure of the Company after completion of the Arrangement is expected to be the same as that of the Company presently. For a discussion of the Company's executive compensation please see the Circular under the heading "Executive Compensation".
AUDIT COMMITTEE
The governance of the Company's audit committee after completion of the Arrangement is expected to be the same as that of the Company presently. For a discussion of the Company's audit committee please see the Circular under the heading "Audit Committee".
L-6
CORPORATE GOVERNANCE
The corporate governance policies of the Company after completion of the Arrangement are expected to be the same as that of the Company presently. For a discussion of the Company's corporate governance practices please see the Circular under the heading "Corporate Governance Disclosure".
RISK FACTORS FOR THE COMPANY FOLLOWING THE ARRANGEMENT
For a discussion of the risk factors generally applicable to the Company, please refer to the Company's AIF and MD&A under the heading "Risk Factors" as filed on the Company's SEDAR profile at www.sedar.com and incorporated by reference herein.
In addition to the foregoing, the risk factors specifically applicable to the Company after the Arrangement include those risk factors identified in the Circular under the heading "Risk Factors Relating to the Arrangement" as well as the following risk factors:
The Company may not Realize Anticipated Benefits of the Arrangement
The Company and Whitehorse are proposing to complete the Arrangement to strengthen the position of each entity in the mining and exploration industry and to create the opportunity to realize certain benefits, including those set forth in the Circular. Achieving the benefits of the Arrangement depends in part on the ability of the Company to effectively capitalize on its scale, to realize the anticipated capital and operating synergies, to profitably sequence the growth prospects of its asset base and to maximize the potential of its improved growth opportunities and capital funding opportunities. A variety of factors, including those risk factors set forth in the Circular and in the documents referred to herein, may adversely affect the ability of the Company to achieve the anticipated benefits of the Arrangement.
LEGAL PROCEEDINGS AND REGULATORY ACTIONS
Legal Proceedings
The Company is not aware of any actual or pending material legal proceedings to which the Company is or is likely to be party or of which any of its business or property is or is likely to be subject.
Regulatory Actions
There are no (a) penalties or sanctions imposed against the Company by a court relating to securities legislation or by a securities regulatory authority during its most recently completed financial year; (b) other penalties or sanctions imposed by a court or regulatory body against the Company that would likely be considered important to a reasonable investor in making an investment decision in the Company; or (c) settlement agreements the Company entered into before a court relating to securities legislation or with a securities regulatory authority during its most recently completed financial year.
INTERESTS OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS
Except as set out in the Circular and this Schedule, none of the following persons or companies have any material interest in any transaction within the three most recently completed financial years or during the current financial year that has materially affected or is reasonably expected to materially affect the Company:
(a) a director or executive officer of the Company;
(b) a person or company that beneficially owns, or controls or directs, directly or indirectly, more than 10% of any class or series of New Common Shares; and
(c) an associate or affiliate of any of the persons or companies referred to in paragraphs (a) and (b).
L-7
See the Circular under the headings "Interests of Certain Persons in Matters to be Acted Upon" and "Interest of Informed Persons in Material Transactions".
AUDITOR, TRANSFER AGENT AND REGISTRAR
Auditor
The auditor of the Company will continue to be Deloitte LLP, Chartered Professional Accountants, of Vancouver, British Columbia.
Transfer Agent and Registrar
The transfer agent and registrar of the Company and the New Common Shares will continue to be Computershare Investor Services Inc. with an office at 3rd Floor, 510 Burrard St, Vancouver, British Columbia V6C 3B9.
MATERIAL CONTRACTS
Except for contracts made in the ordinary course of business, the following will be the only material contract of the Company entered into (a) since the beginning of the last financial year ending before the date of the Circular; or (b) before the beginning of the last financial year ending before the date of the Circular if that material contract is still in effect:
• Arrangement Agreement described in the Circular under the heading "The Arrangement – The Arrangement" in the Circular.
OTHER MATERIAL FACTS
There are no other material facts other than as disclosed herein.
ADDITIONAL INFORMATION
Additional information on the Company may be found under the Company's profile on SEDAR at www.sedar.com. Additional information, including directors' and officers' remuneration and indebtedness to the Company, principal holders of the securities of the Company and securities authorized for issuance under equity compensation plans, can be found in the Circular under the corresponding headings. Additional financial information is provided in the Company's audited consolidated financial statements for the year ended June 30, 2020 and the MD&A, all of which have been filed on SEDAR and which are incorporated by reference herein.
New Pacific Metals Corp.
SHARE BASED COMPENSATION PLAN
PART 1
INTERPRETATION
1.01 Definitions Where used herein or in any amendments hereto or in any communication required or permitted to be given hereunder, the following words and phrases shall have the following meanings, respectively, unless the context requires otherwise:
(a) “Award” means a grant to a Participant of one or more Options, PSUs or RSUs pursuant to the terms of this Plan;
(b) “Award Agreement” means an Option Award Agreement, a PSU Award Agreement, and/or an RSU Award Agreement or such other written contract, certificate or other instrument or document evidencing an individual Award granted under the Plan, if any, which may, in the discretion of the Company, be evidenced in electronic form (as applicable) as the context requires;
(c) “Board” means the board of directors of the Company as constituted from time to time, and includes any committee of directors appointed by the directors as contemplated by Section 3.01 hereof;
(d) “Canadian Taxpayer” means a Participant (other than a Consultant) who is resident in Canada for the purposes of the Tax Act or is otherwise liable to pay tax under the Tax Act in respect of an Award;
(e) “Change of Control” means, at any time the occurrence of any of the following, in one transaction or a series of related transactions:
(i) the acquisition by any person or persons acting jointly or in concert (as determined by the Securities Act), whether directly or indirectly, of beneficial ownership of voting securities of the Company that, together with all other voting securities of the Company held by such persons, constitute in the aggregate, more than 50% of all of the then outstanding voting securities of the Company;
(ii) an amalgamation, merger, arrangement, consolidation, share exchange, take- over bid or other form of business combination of the Company or any of its subsidiaries with another person that results in the holders of voting securities of that other person holding, in the aggregate, more than 50% of all outstanding voting securities of the person resulting from the business combination;
(iii) the sale, lease, exchange or other disposition of all or substantially all of the property of the Company or any of its affiliates to another person, other than (A) in the ordinary course of business of the Company or of an affiliate of the Company or (B) to the Company or any one or more of its affiliates; or
(iv) a resolution is adopted to wind-up, dissolve or liquidate the Company.
Notwithstanding the foregoing, a transaction or a series of related transactions will not constitute a Change of Control if such transaction(s) result(s) in the Company, any successor to the Company, or any successor to the Company’s business, being controlled, directly or indirectly, by the same person or persons who controlled the Company, directly or indirectly, immediately before such transaction(s);
(f) “Company” means New Pacific Metals Corp.;
(g) “Consultant” means a person (other than an Employee or a Director) that:
(i) is engaged to provide on an ongoing bona fide basis, consulting, technical, management or other services to the Company or to an affiliate of the Company, other than services provided in relation to a sale of securities of the Company from treasury;
(ii) provides the services under a written contract with the Company or one of its affiliates;
(iii) in the reasonable opinion of the Company, spends or will spend a significant amount of time and attention on the affairs and business of the Company or its affiliate; and
(iv) has a relationship with the Company or its affiliates that that enables such person to be knowledgeable about the business and affairs of the Company.
(h) “Director” means any director of the Company or of any of its subsidiaries;
(i) “Dividend Equivalents” means the right, if any, granted under PART 8, to receive future payments in cash or in Shares, based on dividends declared on Shares;
(j) “Eligible Person” means a Director, Officer, Consultant or Employee who is eligible to receive Awards under the Plan;
(k) “Employee” means any individual in the employment of the Company or any of its subsidiaries or of a company providing management or administrative services to the Company;
(l) “Exchange” means the Toronto Stock Exchange;
(m) “Exchange Policy” means the policies, bylaws, rules and regulations of the Exchange governing the granting of Awards by the Company, as amended from time to time;
(n) “Grant Date” means the date on which the Award is made to an Eligible Person in accordance with the provisions hereof;
(o) “Insider” has the meaning ascribed thereto in the Exchange Policy;
(p) “Market Price” as of a particular date, shall be equal to the closing price of the Shares for the trading day immediately preceding such date as reported by the Exchange, or, if the Shares are not listed on the Exchange, on such other principal stock exchange or over-the-counter market on which the Shares are listed or quoted, as the case may be. If the Shares are not publicly traded or quoted, then the “Market Price” shall be the fair market value of the Shares, as determined by the Board, on the particular date;
(q) “Option” means an option to purchase Shares of the Company pursuant to the Plan;
(r) “Option Award Agreement” means a written award agreement, substantially in the form of Schedule A – Option Award Agreement, or such other form as the Board may approve from time to time, setting out the terms and conditions relating to an Option and entered into in accordance with Section 5.02;
(s) “Option Price” means the Market Price on the Grant Date of the Options;
(t) “Officer” means any officer of the Company or of any of its subsidiaries as defined in the Securities Act;
(u) “Outstanding Issue” means the issued and outstanding Shares, as determined by Exchange Policy and by Securities Laws;
(v) “Participants” means an Eligible Person granted Awards in accordance with the Plan;
(w) “Plan” means this share based compensation plan as from time to time amended;
(x) “Performance Criteria” means criteria established by the Board which, without limitation, may include criteria based on the Participant’s personal performance, the financial performance of the Company and/or of its subsidiaries and/or achievement of corporate goals and strategic initiatives, and that may be used to determine the vesting of the Awards, when applicable;
(y) “PSU” means a performance share unit granted in accordance with Section 6.01, the value of which on any particular date will be equal to the Market Price of one Share, and that represents the conditional right, on the terms and conditions set out in the Plan and the applicable PSU Award Agreement, to receive a cash payment equal to the Market Price of one Share on settlement of the PSU or its equivalent in Shares at the discretion of the Company;
(z) “PSU Award Agreement” means a written confirmation agreement, substantially in the form of Schedule B – PSU Award Agreement, or such other form as the Board may approve from time to time, setting out the terms and conditions relating to a PSU and entered into in accordance with Section 6.02;
(aa) “RSU” means a restricted share unit granted in accordance with Section 7.01, the value of which on any particular date will be equal to the Market Price of one Share, and that represents the conditional right, on the terms and conditions set out in the Plan and the applicable RSU Award Agreement, to receive a cash payment equal to the Market Price of one Share on settlement of the RSU or its equivalent in Shares at the discretion of the Company;
(bb) “RSU Award Agreement” means a written confirmation agreement, substantially in the form of Schedule C – RSU Award Agreement, or such other form as the Board may approve from time to time, setting out the terms and conditions relating to an RSU and entered into in accordance with Section 7.02;
(cc) “Securities Act” means the Securities Act, R.S.B.C. 1996, c.418, as amended, from time to time;
(dd) “Securities Laws” means the acts, policies, bylaws, rules and regulations of the Canadian securities commissions governing the granting of Awards by the Company, as amended from time to time;
(ee) “Service Agreement” means any written agreement between a Participant and the Company or a subsidiary of the Company (as applicable), in connection with that Participant’s employment, service or engagement as a Director, Officer, Consultant or Employee or the termination of such employment, service or engagement, as amended, replaced or restated from time to time;
(ff) “Shares” means common shares of the Company;
(gg) “Tax Act” means the Income Tax Act (Canada) and its regulations thereunder, as amended from time to time.
1.02 Gender Throughout this Plan, words importing the masculine gender shall be interpreted as including the female gender.
PART 2
PURPOSE OF PLAN
2.01 Purpose The purpose of this Plan is to attract and retain Employees, Consultants, Officers or Directors to the Company and to motivate them to advance the interests of the Company by affording them with the opportunity to acquire an equity interest in the Company through Awards granted under this Plan to purchase Shares.
PART 3
ADMINISTRATION OF PLAN
3.01 Administration This Plan shall be administered and interpreted by the Board or, if the Board so elects, by a committee (which may consist of only one person) appointed by the Board from its members, and in such circumstances, all references to the term “Board” will be deemed to be references to such Committee, except as may otherwise be determined by the Board. The day-to-day administration of the Plan may be delegated to such Officers and Employees as the Board determines.
3.02Board Authority Subject to the terms and conditions set forth in the Plan, the Board shall have the sole and absolute discretion to: (i) designate Participants; (ii) determine the type, size, price, terms, and conditions of Awards to be granted; (iii) determine the method by which an Award may be vested, settled, exercised, canceled, forfeited, or suspended; (iv) determine the circumstances under which the delivery of cash, property, or other amounts payable with respect to an Award may be deferred either automatically or at the Participant’s or the Board’s election; (v) interpret and administer, reconcile any inconsistency in, correct any defect in, and supply any omission in the Plan and any Award granted under, the Plan; (vi) establish, amend, suspend, or waive any rules and regulations and appoint such agents as the Board shall deem appropriate for the proper administration of the Plan; (vii) subject to Exchange acceptance, if applicable, accelerate the vesting, delivery, or exercisability of, or payment for or lapse of restrictions on, or waive any condition in respect of, Awards; and (viii) make any other determination and take any other action that the Board deems necessary or desirable for the administration of the Plan or to comply with any applicable law.
No member of the Board will be liable for any action or determination taken or made in good faith in the administration, interpretation, construction or application of the Plan, any Award Agreement or other document or any Awards granted pursuant to the Plan.
Unless otherwise expressly provided in the Plan, all designations, determinations, interpretations, and other decisions regarding the Plan or any Award or any documents evidencing any Award granted pursuant to the Plan shall be within the sole discretion of the Board, may be made at any time, and shall be final, conclusive, and binding upon all persons or entities, including, without limitation, the Company, any subsidiary of the Company, any Participant, any holder or beneficiary of any Award, and any shareholder of the Company.
3.03Committee's Recommendations The Board may accept all or any part of recommendations of the committee or may refer all or any part thereof back to the committee for further consideration and recommendation.
3.04Clawback Policy All Awards granted under this Plan will be subject to the Company’s Policy on Recoupment of Incentive Compensation (the “Clawback Policy”), as amended from time to time.
PART 4
RESERVE OF SHARES FOR AWARDS
4.01 Sufficient Authorized Shares to be Reserved A sufficient number of Shares shall be reserved by the Board to satisfy the exercise of Awards granted under this Plan. Shares that were the subject of Awards that have lapsed or terminated shall thereupon no longer be in reserve and may once again be subject to an Award granted under this Plan. If any Award has been exercised, the number of Shares into which such Award was exercised shall become available to be issued upon the exercise of Awards subsequently granted under the Plan; provided, however that any RSU or PSU that has been exercised will no longer be available to be subsequently granted under the Plan.
4.02 Maximum Number of Shares to be Reserved Under Plan The aggregate number of Shares which may be subject to issuance pursuant to Awards granted under this Plan, and inclusive of any other share-based compensation arrangement adopted by the Company, shall be equal to 10% of the Outstanding Issue, from time to time.
4.03 Maximum Number of Shares Reserved Unless authorized by shareholders of the Company, this Plan, together with all of the Company's other previously established or proposed stock options, stock option plans, employee stock purchase plans or any other compensation or incentive mechanisms involving the issuance or potential issuance of Shares, shall not result in:
(a) the number of Shares (i) issued to Insiders, within any one year period, and (ii) issuable to Insiders, at any time, exceeding 10% of the Outstanding Issue;
(b) the issuance to any one Insider and such Insider's associates, within a one year period, of a number of Shares exceeding 5% of the Outstanding Issue;
(c) the issuance to any one Eligible Person, in a twelve month period, of a number of RSUs and PSUs, on an aggregate basis, exceeding 1% of the Outstanding Issue at the time of granting of the Awards and the issuance to all Eligible Persons, in a twelve month period, of a number of RSUs and PSUs, on an aggregate basis, exceeding 2% of the Outstanding Issue at the time of granting of the Awards; or
(d) a number of Shares issuable to any one non-executive Director within a one-year period exceeding an Award value of $150,000 per such non-executive Director, of which no more than $100,000 may comprise Options based on a generally accepted valuation method acceptable to the Board.
4.04 Number of Shares The number of Shares reserved for issuance to any one person pursuant to Awards granted under this Plan shall not exceed 5% of the Outstanding Issue at the time of granting of the Awards.
4.05 No Fractional Shares No fractional Shares shall be issued upon the exercise of Options or the settlement of PSUs or RSUs in Shares, and, accordingly, if a Participant would become entitled to a fractional Share upon the exercise of an Option or settlement of a PSU or RSU in Shares, such Participant will only have the right to acquire the next lowest whole number of Shares, and no payment or other adjustment will be made with respect to the fractional interest so disregarded.
PART 5
OPTIONS
5.01 Grant Options may be granted to Eligible Persons at such time or times as shall be
determined by the Board by resolution. The Grant Date of an Option for purposes of the Plan will be the date on which the Option is awarded by the Board, or such later date determined by the Board, subject to applicable Securities Laws and Exchange Policy.
5.02Terms and Conditions Options shall be evidenced by an Option Award Agreement, which shall specify such terms and conditions, not inconsistent with the Plan, as the Board shall determine, including:
(a) the number of Shares to which the Options to be awarded to the Participant pertain;
(b) the exercise price of the Options, which shall not be less than the Option Price on the Grant Date;
(c) the expiry date of the Options, which will not be later than ten years from the Grant Date or such shorter period as prescribed by the Exchange;
(d) the vesting schedule of the Options; and
(e) such other terms and conditions, not inconsistent with the Plan, as the Board shall determine, including customary representations, warranties and covenants with respect to matters relating to Securities Laws.
For greater certainty, each Option Award Agreement may contain terms and conditions in addition to those set forth in the Plan.
5.03Vesting Subject to PART 10, unless otherwise determined by the Board in accordance with the provisions hereof, or unless otherwise specified in the Participant’s Service Agreement or Option Award Agreement, each Option shall vest as to one-quarter of the number of Shares granted by such Option every six months following the Grant Date for the first two anniversaries of the Grant Date of such Option (and in no circumstances shall Options vest at a rate that is faster).
5.04Method of Exercise Subject to the exercisability and termination provisions set forth in this Plan and in the applicable Option Award Agreement, Options may be exercised, in whole or in part, at any time and from time to time during the term of the Option, by the delivery of written notice of exercise (the “Exercise Notice”) by the Participant to the Company substantially in the form of Appendix A to the Option Award Agreement specifying the number of Shares to be purchased. Such notice will be accompanied by payment in full of the exercise price of the Options and any applicable tax withholdings by one of the following methods: in cash, by certified cheque or bank draft payable to the Company or by wire transfer of immediately available funds.
5.05Termination of Employment If a Director, Officer, Consultant or Employee ceases to be so engaged by the Company for any reason other than death, such Director, Officer, Consultant or Employee shall have such rights to exercise any vested Option not exercised prior to such termination within the lesser of a period of 90 calendar days after the date of termination or the expiry date of the Option, or such shorter period as may be set out in the Participant’s Option Award Agreement. For the avoidance of doubt, subject to applicable laws, no period of notice, if any, or payment instead of notice that is given or that ought to have been given under applicable law, whether by statute, imposed by a court or otherwise, in respect of such termination of employment that follows or is in respect of a period after the Participant’s termination date will be considered as extending the Participants period of employment for the purposes of determining his entitlement under the Plan. The Participant shall have no entitlement to damages or other compensation arising from or related to not receiving any Awards which would have settled or vested or accrued to the Participant after the termination date.
5.06Death If a Director, Officer, Consultant or Employee dies prior to the expiry of his Option, his legal representatives may, within the lesser of one year from the date of the Participant's death or the expiry date of the Option, exercise that portion of an Option granted to the Director, Officer, Consultant or Employee under this Plan which remains outstanding.
PART 6
PERFORMANCE SHARE UNITS
6.01 Grant PSUs may be granted to Eligible Persons at such time or times as shall be determined by the Board by resolution. The Grant Date of a PSU for purposes of the Plan will be the date on which the PSU is awarded by the Board, or such later date determined by the Board, subject to Securities Laws and Exchange Policy.
6.02Terms and Conditions Any PSU granted under this Plan shall be evidenced by a PSU Award Agreement which shall specify such terms and conditions, not inconsistent with the Plan, as the Board shall determine, including:
(a) the number of PSUs to be awarded to the Participant;
(b) the performance cycle applicable to each PSU, which shall be the period of time between the Grant Date and the date on which the Performance Criteria specified in Section 6.02(c) must be satisfied before the PSU is fully vested and may be settled by the Participant, before being subject to forfeiture or termination, which period of time, for Canadian Taxpayers, shall in no case end later than November 30 of the calendar year which is two years after the calendar year in which the Grant Date occurs;
(c) the Performance Criteria that shall be used to determine the vesting of the PSUs;
(d) whether and to what extent Dividend Equivalents will be credited to a Participant’s PSU Account in accordance with PART 8; and
(e) such other terms and conditions, not inconsistent with the Plan, as the Board shall determine, including customary representations, warranties and covenants with respect to matters relating to Securities Laws.
For greater certainty, each PSU Award Agreement may contain terms and conditions in addition to those set forth in the Plan and, if applicable. No Shares will be issued on the Grant Date and the Company shall not be required to set aside a fund for the payment of any such Awards.
6.03PSU Accounts A separate notional account shall be maintained for each Participant with respect to PSUs granted to such Participant (a “PSU Account”) in accordance with Section 14.03. PSUs awarded to the Participant from time to time pursuant to Sections 6.01 shall be credited to the Participant’s PSU Account and shall vest in accordance with Section 6.04. On the vesting of the PSUs pursuant to Section 6.04 and the corresponding issuance of cash and/or Shares to the Participant pursuant to Section 6.05, or on the forfeiture or termination of the PSUs pursuant to the terms of the Award, the PSUs credited to the Participant’s PSU Account will be cancelled.
6.04Vesting Subject to PART 10, unless otherwise determined by the Board in accordance with the provisions hereof, or unless otherwise specified in the Participant’s Service Agreement or PSU Award Agreement, each PSU shall vest as at the date that is the end of the performance cycle (which shall be the “PSU Vesting Date”), subject to any Performance Criteria having been satisfied and will be settled in accordance with Section 6.05.
6.05 Settlement
(a) The PSUs may be settled by delivery by the Participant to the Company of a notice of settlement, substantially in the form attached as Schedule 1 – Notice of Settlement of PSUs attached to the PSU Award Agreement, acknowledged by the Company. On settlement, the Company shall, for each vested PSU being settled, deliver to the Participant a cash payment equal to the Market Price of one Share as of the PSU Vesting Date, one Share, or any combination of cash and Shares equal to the Market Price of one Share as of the PSU Vesting Date, in the sole discretion of the Board. No certificates for Shares issued in settlement will be issued to the Participant until the Participant and the Company have each completed all steps required by law to be taken in connection with the issuance of the Shares, including receipt from the Participant of payment or provision for all withholding taxes due as a result of the settlement of the PSUs. The delivery of certificates representing the Shares to be issued in settlement of PSUs will be contingent upon the fulfilment of any requirements contained in the PSU Award Agreement or applicable provisions of laws.
(b) For greater certainty, for Canadian Taxpayers, in no event shall such settlement be later than December 31 of the calendar year which is three years after the calendar year in which the Grant Date occurs.
6.06Termination of Employment If a Director, Officer, Consultant or Employee ceases to be so engaged by the Company for any reason other than death, all outstanding PSUs that were vested on or before the date of the termination of employment or services of such Director, Officer, Consultant or Employee shall be settled in accordance with Section 6.05 as of the date of termination, after which time the PSUs shall in all respects terminate.
6.07Death If a Director, Officer, Consultant or Employee dies, all outstanding PSUs that were vested on or before the date of death such Director, Officer, Consultant or Employee shall be settled in accordance with Section 6.05 as of the date of death. Outstanding PSUs that were not vested on or before the date of death shall vest and be settled in accordance with Section 6.05 as of the date of death, prorated to reflect the actual period between the commencement of the performance cycle and the date of death, based on the Performance Criteria for the applicable performance period(s) up to the date of death. Subject to the foregoing, any remaining PSUs shall in all respects terminate as of the date of death.
6.08PSU Tax Considerations Any PSUs that are awarded to a Participant who is a resident of Canada or employed in Canada (each for purposes of the Tax Act) shall be structured so as to be considered to be a plan described in section 7 of the Tax Act or in such other manner to ensure that such award is not a “salary deferral arrangement” as defined in the Tax Act (or any successor to such provisions).
PART 7
RESTRICTED SHARE UNITS.
7.01 Grant RSUs may be granted to Eligible Persons at such time or times as shall be determined by the Board by resolution. The Grant Date of a RSU for purposes of the Plan will be the date on which the RSU is awarded by the Board, or such later date determined by the Board, subject to Securities Laws and Exchange Policy.
7.02 Terms and Conditions Any RSU granted under this Plan shall be evidenced by an RSU Award Agreement which shall specify such terms and conditions, not inconsistent with the Plan, as the Board shall determine, including:
(a) the number of RSUs to be awarded to the Participant;
(b) the period of time between the Grant Date and the date on which the RSU is fully vested and may be settled by the Participant, before being subject to forfeiture or termination, which period of time, for Canadian Taxpayers, shall in no case be later than November 30 of the calendar year which is two years after the calendar year in which the Grant Date occurs;
(c) whether and to what extent Dividend Equivalents will be credited to a Participant’s RSU Account in accordance with PART 8; and
(d) such other terms and conditions, not inconsistent with the Plan, as the Board shall determine, including customary representations, warranties and covenants with respect to matters relating to Securities Laws.
For greater certainty, each RSU Award Agreement may contain terms and conditions in addition to those set forth in the Plan and, if applicable. No Shares will be issued on the Grant Date and the Company shall not be required to set aside a fund for the payment of any such Awards.
7.03RSU Accounts A separate notional account shall be maintained for each Participant with respect to RSUs granted to such Participant (an “RSU Account”) in accordance with Section 14.03. RSUs awarded to the Participant from time to time pursuant to Sections 7.01 shall be credited to the Participant’s RSU Account and shall vest in accordance with Section 7.04. On the vesting of the RSUs pursuant to Section 7.04 and the corresponding issuance of cash and/or Shares to the Participant pursuant to Section 7.05, or on the forfeiture or termination of the RSUs pursuant to the terms of the Award, the RSUs credited to the Participant’s RSU Account will be cancelled.
7.04Vesting Subject to PART 10, unless otherwise determined by the Board in accordance with the provisions hereof, or unless otherwise specified in the Participant’s Service Agreement or RSU Award Agreement, each RSU shall vest when all applicable restrictions shall have lapsed (which shall be the “RSU Vesting Date”) and will be settled in accordance with Section 7.05. Unless otherwise determined by the Board in accordance with the provisions hereof, or unless otherwise specified in the Participant’s Service Agreement or RSU Award Agreement, each RSU shall vest and shall be settled on November 30th following the two year anniversary of the Grant Date.
7.05 Settlement
(a) The RSUs may be settled by delivery by the Participant to the Company of a notice of settlement, substantially in the form attached as Schedule 1 – Notice of Settlement of RSUs attached to the RSU Award Agreement, acknowledged by the Company. On settlement, the Company shall, for each vested RSU being settled, deliver to the Participant a cash payment equal to the Market Price of one Share as of the RSU Vesting Date, one Share, or any combination of cash and Shares equal to the Market Price of one Share as of the RSU Vesting Date, in the sole discretion of the Board. No certificates for Shares issued in settlement will be issued to the Participant until the Participant and the Company have each completed all steps required by law to be taken in connection with the issuance of the Shares, including receipt from the Participant of payment or provision for all withholding taxes due as a result of the settlement of the RSUs. The delivery of certificates representing the Shares to be issued in settlement of RSUs will be contingent upon the fulfillment of any requirements contained in the RSU Award Agreement or applicable provisions of laws.
(b) For greater certainty, for Canadian Taxpayers, in no event shall such settlement be later than December 31 of the calendar year which is three years after the calendar year in which the Grant Date occurs.
7.06Termination of Employment If a Director, Officer, Consultant or Employee ceases to be so engaged by the Company for any reason other than death, all outstanding RSUs that were vested on or before the date of the termination of employment or services of such Director, Officer, Consultant or Employee shall be settled in accordance with Section 7.05 as of the date of termination, after which time the RSUs shall in all respects terminate.
7.07Death If a Director, Officer, Consultant or Employee dies, all outstanding RSUs that were vested on or before the date of death of such Director, Officer, Consultant or Employee shall be settled in accordance with Section 7.05 as of the date of death. Outstanding RSUs that were not vested on or before the date of death shall vest and be settled in accordance with Section 7.05 as of the date of death, prorated to reflect the actual period between the Grant Date and the date of death. Subject to the foregoing, any remaining RSUs shall in all respects terminate as of the date of death.
7.08 RSU Tax Considerations Any RSUs that are awarded to a Participant who is a resident of Canada or employed in Canada (each for purposes of the Tax Act) shall be structured so as to be considered to be a plan described in section 7 of the Tax Act or in such other manner to ensure that such award is not a “salary deferral arrangement” as defined in the Tax Act (or any successor to such provisions).
PART 8
DIVIDEND EQUIVALENTS
8.01 Credit of Dividend Equivalents The Board may determine whether and to what extent Dividend Equivalents will be credited to a Participant’s PSU Account and RSU Account with respect to Awards of PSUs or RSUs. Dividend Equivalents to be credited to a Participant’s PSU Account or RSU Account shall be credited as follows:
(a) any cash dividends or distributions credited to the Participant’s PSU Account or RSU Account shall be deemed to have been invested in additional PSUs or RSUs, as applicable, on the payment date established for the related dividend or distribution in an amount equal to the greatest whole number which may be obtained by dividing (i) the value of such dividend or distribution on the payment date by (ii) the Market Price of one Share on such payment date, and such additional PSU or RSU, as applicable, shall be subject to the same terms and conditions as are applicable in respect of the PSU or RSU, as applicable, with respect to which such dividends or distributions were payable; and
(b) if any such dividends or distributions are paid in Shares or other securities, such Shares and other securities shall be subject to the same vesting, performance and other restrictions as apply to the PSUs or RSUs, as applicable, with respect to which they were paid.
8.02 No Dividend Equivalent No Dividend Equivalent will be credited to or paid on Awards of PSUs or RSUs that have expired or that have been forfeited or terminated.
PART 9
ADJUSTMENTS
9.01 Corporate Reorganizations The number and kind of Shares to which an Award pertains and, with respect to Options, the exercise price of the Options, shall be adjusted in the event of a reorganization, recapitalization, stock split or redivision, reduction, combination or consolidation, stock dividend, combination of shares, merger, consolidation, rights offering or any other change in the corporate structure or shares of the Company, in such manner, if any, and at such time, as the Board, in its sole discretion, may determine to be equitable in the circumstances. Failure of the Board to provide for an adjustment shall be conclusive evidence that the Board has determined that it is equitable to make no adjustment in the circumstances. If an adjustment results in a fractional share, the fraction shall be disregarded.
9.02 No Adjustment for Additional Purchases of Securities If at any time the Company grants to its shareholders the right to subscribe for and purchase pro rata additional securities of any other corporation or entity, there shall be no adjustments made to the Shares or other securities subject to an Award in consequence thereof and the Awards shall remain unaffected.
9.03 Cumulative Effect of Adjustments The adjustments provided for in this PART 9 shall be cumulative.
9.04 Amendments to Effect Adjustments On the happening of each and every of the foregoing events, the applicable provisions of the Plan shall be deemed to be amended accordingly and the Board shall take all necessary action so as to make all necessary adjustments in the number and kind of securities subject to any outstanding Award (and the Plan) and, with respect to Options, the exercise price of such Options.
PART 10
CHANGE OF CONTROL
10.01 Effect of a Change of Control Despite any other provision of the Plan, in the event of a Change of Control, all unvested Awards then outstanding will, as applicable, be substituted by or replaced with awards of the surviving corporation (or any affiliate thereof) or the potential successor (or any affiliate thereto) (the “continuing entity”) on the same terms and conditions as the original Awards, subject to appropriate adjustments that do not diminish the value of the original Awards. If, upon a Change of Control, the continuing entity fails to comply with this Section 10.01, the vesting of all then outstanding Awards (and, if applicable, the time during which such Awards may be exercised) will be accelerated in full, and any performance vesting conditions will be assessed by the board, acting in good faith, on a pro-rata basis.
10.02 Discretion to Accelerate Vesting Despite anything else to the contrary in the Plan, in the event of a potential Change of Control, the Board will have the power, in its sole discretion, to modify the terms of the Plan and/or the Awards to assist the Participants in tendering to a take-over bid or other transaction leading to a Change of Control. For greater certainty, in the event of a take-over bid or other transaction leading to a Change of Control, the Board has the power, in its sole discretion, subject to Exchange acceptance, as applicable, to accelerate the vesting of Awards and to permit Participants to conditionally exercise their Awards, such conditional exercise to be conditional upon the take-up by such offeror of the Shares or other securities tendered to such take-over bid in accordance with the terms of the take-over bid (or the effectiveness of such other transaction leading to a Change of Control). If, however, the potential Change of Control referred to in this Section 10.02 is not completed within the time specified (as the same may be extended), then despite this Section 10.02 or the definition of “Change of Control”, (i) any conditional exercise of vested Awards will be deemed to be null, void and of no effect, and such conditionally exercised Awards will for all purposes be deemed not to have been exercised, and (ii) Awards which vested pursuant to this Section 10.02 will be returned by the Participant to the Company and reinstated as authorized but unissued Shares and the original terms applicable to such Awards will be reinstated.
10.03 Termination of Awards on Change of Control If the Board has, pursuant to the provisions of Section 10.02 permitted the conditional exercise of Awards in connection with a potential Change of Control, then the Board will have the power, in its sole discretion, to terminate, immediately following actual completion of such Change of Control and on such terms as it sees fit, any Awards not exercised (including all vested and unvested Awards).
10.04 Further Assurances on Change in Control The Participant shall execute such documents and instruments and take such other actions, including exercise or settlement of Awards vesting pursuant to Section 10.02 or the Award Agreement, as may be required consistent with the foregoing; provided, however, that the exercise or settlement of Awards vesting pursuant to Section 10.02 or the Award Agreement shall be subject to the completion of the Change of Control.
10.05 Awards Need Not be Treated Identically In taking any of the actions contemplated by this PART 10, the Board shall not be obligated to treat all Awards held by any Participant, or all Awards in general, identically.
10.06 No Fractional Shares No fractional Shares or other security will be issued upon the exercise of any Award and accordingly, if as a result of a Change of Control, a Participant would become entitled to a fractional Share or other security, such participant will have the right to acquire only the next lowest whole number of Shares or other security and no payment or other adjustment will be made with respect to the fractional interest so disregarded.
PART 11
SECURITIES LAWS AND EXCHANGE POLICIES
11.01 Exchange's Rules and Policies Apply This Plan and the granting and exercise of any Awards hereunder are also subject to such other terms and conditions as are set out from time to time in the Securities Laws and Exchange Policies and such rules and policies shall be deemed to be incorporated into and become a part of this Plan. In the event of an inconsistency between the provisions of such rules and policies and of this Plan, the provisions of such rules and policies shall govern. In the event that the Company’s listing changes from one tier to another tier on a stock exchange or the Company’s shares are listed on a new stock exchange, the granting of Awards shall be governed by the rules and policies of such new tier or new stock exchange and unless inconsistent with the terms of this Plan, the Company shall be able to grant Awards pursuant to the rules and policies of such new tier or new stock exchange without requiring shareholder approval.
11.02 Eligibility The Company and the Participant are responsible for ensuring and confirming that such person is a bona fide Director, Officer, Consultant or Employee, as the case may be.
PART 12
AMENDMENT OF PLAN
12.01 Board May Amend Subject to Section 12.03 hereof, the Board may amend the Plan or Awards at any time, provided, however, that no such amendment of the Plan may be made without the consent of such affected Participant if such amendment would adversely affect the rights of such Participant under the Plan. Without limiting the generality of the foregoing, the Board may, without prior notice to the shareholders and without further shareholder approval, at any time and from time to time, amend the Plan or any provisions thereof, or the form of Award Agreement or instrument to be executed pursuant to the Plan, in such manner as the Board, in its sole discretion, determines appropriate:
(a) for the purposes of making formal minor or technical modifications to any of the provisions of the Plan;
(b) to correct any ambiguity, defective provisions, error or omission in the provisions of the Plan;
(c) to change any vesting provisions of Awards;
(d) to change the termination provisions of the Awards or the Plan;
(e) to change the persons who qualify as eligible Participants under the Plan; and
(f) to add or change provisions relating to any form of financial assistance provided by the Company to Participants that would facilitate the purchase of securities under the Plan.
12.02 Termination The Board may terminate this Plan at any time provided that such termination shall not alter the terms or conditions of any Award or materially impair any right of any Participant pursuant to any Award granted prior to the date of such termination except with the consent of such Participant and notwithstanding such termination the Company, such Awards and such Participants shall continue to be governed by the provisions of this Plan.
12.03 Amendments Requiring Shareholder Approval. Shareholder approval shall be obtained in accordance with the requirements of the Exchange for any amendment that results in:
(a) an increase in the number of Shares issuable under Awards granted pursuant to the Plan;
(b) a reduction in the exercise price of an Option, or a cancellation and reissuance of an Option;
(c) an extension of (i) the term of an Option beyond its original expiry date, or (ii) the date on which a PSU or RSU will be forfeited or terminated in accordance with its terms, other than in accordance with Section 14.05;
(d) a revision to Section 14.08 to permit Awards granted under the Plan to be transferable or assignable other than for estate settlement purposes;
(e) a revision to the insider participation limits or the non-executive director limits set out in Section 4.03;
(f) a revision to the amending provisions set forth in this PART 12; or
(g) any amendment required to be approved by shareholders under applicable law (including without limitation, pursuant to the Exchange Policies).
PART 13
EFFECT OF PLAN ON OTHER COMPENSATION OPTIONS
13.01 Other Options Not Affected This Plan amends and restates the existing stock option plan of the Company which was approved by shareholders of the Company on December 10, 2018.
PART 14
MISCELLANEOUS
14.01 No Rights as Shareholder Nothing contained in the Plan nor in any Award granted hereunder shall be deemed to give any person any interest or title in or to any Shares or any rights as a shareholder of the Company or any other legal or equitable right against the Company whatsoever with respect to Shares issuable pursuant to an Award until such person becomes the holder of record of Shares.
14.02 Employment Nothing contained in the Plan shall confer upon any Participant any right with respect to employment or continued employment or the right to continue to serve as a director or interfere in any way with the right of the Company to terminate such employment or directorship at any time. Participation in the Plan by an Eligible Person is voluntary. For greater certainty, the granting of Awards to a Participant shall not impose any obligation on the Company to grant any Awards in the future nor shall it entitle the Participant to receive future grants.
14.03 Record Keeping The Company shall maintain appropriate registers in which shall be recorded all pertinent information with respect to the granting, amendment, exercise, vesting, expiry, forfeiture and termination of Awards. Such registers shall include, as appropriate:
(a) the name and address of each Participant;
(b) the number of Awards credited to each Participant’s account;
(c) any and all adjustments made to Awards recorded in each Participant’s account; and
(d) such other information which the Company considers appropriate to record in such registers.
14.04 No Representation or Warranty The Company makes no representation or warranty as to the future market value of any Shares issued pursuant to the Plan.
14.05 Black Out Periods Notwithstanding any other provision of the Plan, if the expiry date or vesting date of an Award, other than a PSU or RSU awarded to a Canadian Taxpayer, as applicable, is during a self-imposed “black out” or similar period imposed under any insider trading policy or similar policy of the Company (a “Blackout Period”), the expiry date or vesting date, as applicable, will be automatically extended for a period of ten business days after the earlier of the end of such Blackout Period, or, provided the Blackout period has ended, the expiry date or vesting date of such Award. In the case of a PSU or RSU awarded to a Canadian Taxpayer, any settlement that is effected during a Blackout Period in order to comply with Sections 6.08 or 7.08, as applicable, in the case of a Canadian Taxpayer shall (subject to the requirements of applicable law) be settled in cash, notwithstanding any other provision hereof.
14.06 Unfunded Plan Unless otherwise determined by the Board, the Plan shall be unfunded. To the extent any Participant or his or her estate holds any rights by virtue of a grant of Awards under the Plan, such rights (unless otherwise determined by the Board) shall be no greater than the rights of an unsecured creditor of the Company.
14.07 Conformity to Plan In the event that an Award is granted or an Award Agreement is executed which does not conform in all particulars with the provisions of the Plan, or purports to grant Awards on terms different from those set out in the Plan, the Award or the grant of such Award shall not be in any way void or invalidated, but the Award so granted will be adjusted to become, in all respects, in conformity with the Plan.
14.08 Non-Transferability Except as may otherwise be specifically determined by the Board with respect to a particular Award and provided there is no change in beneficial ownership of such Award, Awards granted to a Participant pursuant to this Plan are personal to the Participant and may not be sold, pledged, assigned, hypothecated, gifted, transferred or disposed of in any manner, either voluntarily or involuntarily by operation of law, other than by will or by the laws of descent and distribution.
14.09 Term of Award Subject to Section 14.05, in no circumstances shall the term of an Award exceed ten years from the Grant Date.
14.10 Expiry, Forfeiture and Termination of Awards If for any reason an Award expires without having been exercised or is forfeited or terminated, and subject to any extension thereof in accordance with the Plan, such Award shall forthwith expire and be forfeited and shall terminate and be of no further force or effect.
14.11 Tax Withholding
(a) Notwithstanding any other provision of the Plan, all distributions, delivery of Shares or payments to a Participant (or to the liquidator, executor or administrator, as the case may be, of the estate of the Participant) under the Plan shall be made net of applicable source deductions. If the event giving rise to the withholding obligation involves an issuance or delivery of Shares, then, the withholding obligation may be satisfied by (i) having the Participant elect to have the appropriate number of such Shares sold by the Company, the Company’s transfer agent and registrar or any trustee appointed by the Company, on behalf of and as agent for the Participant as soon as permissible and practicable, with the proceeds of such sale being delivered to the Company, which will in turn remit such amounts to the appropriate governmental authorities, or (ii) any other mechanism as may be required or appropriate to conform with local tax and other rules.
The Company may also, in its sole discretion, agree to allow a Participant to satisfy its withholding obligation by surrendering the right to a receive a portion of the Shares that would otherwise be issued to the Participant, such that the number of Shares received by the Participant shall be reduced by such number of Shares as are equal in value to the withholding obligation (as determined by the Company).
(b) Notwithstanding any other provision of the Plan, the Company shall not be required to issue any Shares or make payments under this Plan until arrangements satisfactory to the Company have been made for payment of all applicable withholdings obligations.
(c) The sale of Shares by the Company, or by a broker on behalf of the Company, under Section 14.11(a) or under any other provision of the Plan will be made on the Exchange or any other alternative trading system. The Participant consents to such sale and grants to the Company an irrevocable power of attorney to effect the sale of such Shares on his behalf and acknowledges and agrees that (i) the number of Shares sold will be, at a minimum, sufficient to fund the withholding obligations net of all selling costs, which costs are the responsibility of the Participant and which the Participant hereby authorizes to be deducted from the proceeds of such sale; (ii) in effecting the sale of any such Shares, the Company or the broker will exercise its sole judgment as to the timing and the manner of sale and will not be obligated to seek or obtain a minimum price; and (iii) neither the Company nor the broker will be liable for any loss arising out of such sale of the Shares including any loss relating to the pricing, manner or timing of the sales or any delay in transferring any Shares to a Participant or otherwise.
(d) The Participant further acknowledges that the sale price of the Shares will fluctuate with the market price of the Shares and no assurance can be given that any particular price will be received upon any sale. The Company makes no representation or warranty as to the future market value of the Shares or with respect to any income tax matters affecting the Participant resulting from the grant or exercise of an Award and/or transactions in the Shares. Neither the Company, nor any of its directors, officers, Employees, shareholders or agents will be liable for anything done or omitted to be done by such person or any other person with respect to the price, time, quantity or other conditions and circumstances of the issuance of Shares under the Plan, with respect to any fluctuations in the market price of Shares or in any other manner related to the Plan.
PART 15
EFFECTIVE DATE OF PLAN
15.01 Effective Date This Plan shall become effective upon the later of the date of acceptance for filing of this Plan by the Exchange or the approval of this Plan by the shareholders of the Company, however, Awards may be granted under this Plan prior to the receipt of approval by shareholders and acceptance from the Exchange. Any Awards granted prior to such approval and acceptance will be conditional upon such approval and acceptance being given and no such Awards may be exercised or will vest unless such approval and acceptance is given.
SCHEDULE "N"
MANDATE OF THE BOARD OF DIRECTORS OF NEW PACIFIC METALS CORP.
The Board is responsible for the stewardship of the Company and for the oversight of its management and affairs.
Directors shall exercise their best business judgment in a manner consistent with their fiduciary duties. The Board's primary responsibilities, which are discharged directly and through delegation to its Committees, include the following:
• To act honestly and in good faith with a view to the best interests of the Company.
• To exercise due care, diligence and skill that reasonably prudent persons would exercise in comparable circumstances.
• Consistent with its responsibilities to the Company, to further the interests of the shareholders.
• To consider business opportunities and risks and to adopt strategic plans from time to time.
• To identify the principal risks of the Company's business, and to implement an appropriate system to manage these risks.
• To develop an investor relations and shareholder communications policy for the Company.
• To oversee management's adoption of effective internal control and management information systems.
• To review and approve annual and quarterly financial statements and the publication thereof by management.
• To approve operating plans and any capital budget plans.
• To select and approve all key executive appointments, and to monitor executive development.
• To develop the Company's approach to corporate governance, including establishing a set of corporate governance principles and guidelines that are specifically applicable to the Company.
• To adopt a code of conduct to govern employees and management in their activities for and on behalf of the Company.
• To promote a culture of integrity throughout the Company consistent with the adopted code of conduct.
• To take action on issues that by law or practice requires the independent action of a Board or one of its Committees.
• To oversee management in its implementation of effective programs to provide a safe work environment, to employ sound environmental practices, and to operate in accordance with applicable laws, regulations and permits.
• To oversee management in its implementation of an effective communications policy with regard to investors, employees, the communities in which it operates and the governments of those communities.
SCHEDULE "O"
CHARTER FOR THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS OF NEW
PACIFIC METALS CORP.
1.0 Purpose of the Committee
1.1 The purpose of the Compensation Committee is to assist the Board in discharging its duties relating to compensation of the executive officers of the Company.
2.0 Members of the Compensation Committee
2.1 The Compensation Committee shall consist, whenever possible, of no less than three Directors, a majority of whom shall be "independent" as defined under Multilateral Instrument 52-110, while the Company is in the developmental stage of its business. The members of the Committee shall be selected annually by the Board and shall serve at the pleasure of the Board.
3.0 Meeting Requirements
3.1 The Committee shall meet as necessary, but at least once each year, to enable it to fulfill its responsibilities. Without a meeting, the Committee may act by unanimous written consent of all members.
3.2 The Committee may meet by telephone conference call or by any other means permitted by law or the Company's by-laws. A majority of the members of the Committee shall constitute a quorum.
3.3 Minutes will be kept of each meeting of the Compensation Committee.
4.0 Committee Responsibilities
4.1 The Committee shall be responsible for:
(i) reviewing and approving corporate goals and objectives relative to the compensation of senior management, evaluating senior management's performance in light of those goals and objectives, and making recommendations to the board with respect to senior management's compensation level based on this evaluation;
(ii) making recommendations to the Board with respect to the compensation of other senior management and executive officers of the Company;
(iii) reviewing the adequacy and form of the compensation and benefits of the directors in their capacity as directors of the Company to ensure that such compensation realistically reflects the responsibilities and risks involved in being an effective director;
(iv) reviewing and making periodic recommendations to the Board as to the general compensation and benefits policies and practices of the Company, including incentive compensation plans and equity based plans;
(v) reviewing directors and officers compensation disclosure before the Company discloses this information;
(vi) performing such other functions as the Board may from time to time assign to the Committee;
(vii) approving all special perquisites, special cash payments, bonuses and other special compensation and benefit arrangements for the Company's executive officers; and
(viii) reviewing its charter from time to time and recommending any changes thereto to the Board.
5.0 Miscellaneous
5.1 Nothing contained in this Charter is intended to extend applicable standards of liability under statutory or regulatory requirements for the directors of the Company or members of the Committee. The purposes and responsibilities outlined in this Charter are meant to serve as guidelines rather than as inflexible rules and the Committee is encouraged to adopt such additional procedures and standards as it deems necessary from time to time to fulfill its responsibilities.
SCHEDULE "P"
CHARTER FOR THE CORPORATE GOVERNANCE COMMITTEE OF THE BOARD OF DIRECTORS
OF NEW PACIFIC METALS CORP.
New Pacific Metals Corp. (the "Company") has established a Corporate Governance (the "Committee") of the Board of Directors (the "Board") which consists of three or more directors, a majority of whom shall be independent. The Committee meets at least annually, or more frequently as required.
The Committee's mandate is to assist the Board in establishing and maintaining a sound system of corporate governance through a process of continuing assessment and enhancement.
The Committee's duties and responsibilities are:
• To advise the Chairman of the Board and the Board on matters of corporate governance, including adherence to any governance guidelines or rules established by applicable regulatory authorities.
• To advise the Board on issues of conflict of interest for individual directors.
• To examine the effectiveness of the Company's corporate governance practices at least annually and to propose such procedures and policies as the Committee believes are appropriate to ensure that the Board functions independently of management, management is accountable to the Board and procedures are in place to monitor the effectiveness of performance of the Board, committees of the Board and individual directors.
• To develop and review, together with the Chairman, CEO and the President of the Board, annual Board goals or improvement priorities.
• To identify and to recommend to the Board suitable candidates for nomination as new directors, and to review the credentials of directors standing for re-election.
• With assistance of management, to organize and provide an orientation program for new directors where appropriate.
• To periodically review the mandates of the Board and committees of the Board and determine what additional committees of the Board, if any, are required or appropriate.
• To develop such codes of conduct and other policies as are appropriate to deal with the confidentiality of the Company's information, insider trading and the Company's timely disclosure and other public company obligations.
• To take such other steps as the Committee decides are appropriate, in consultation with the Board, to ensure that proper corporate governance practices are in place for the Company, with reference to the Toronto Stock Exchange guidelines or recommendations and other regulatory requirements on corporate governance. To review its charter and assess annually the adequacy of this mandate, the effectiveness of its performance and, when necessary, and to recommend changes to the Board of Directors for its approval.
SCHEDULE "Q"
WHITEHORSE OPTION PLAN
(attached)
WHITEHORSE GOLD CORP.
(the "Company")
INCENTIVE STOCK OPTION PLAN
Date of Plan: June 25, 2020
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1. DEFINITIONS AND INTERPRETATION
1.1 Defined Terms
For the purposes of this Plan, the following terms shall have the following meanings:
(a) "Affiliate" has the meaning ascribed thereto by the Exchange;
(b) “Associate” has the meaning ascribed thereto by the Exchange;
(c) “Black-Out Period” means that period during which a trading blackout is imposed by the Company to restrict trades in the Company’s securities by an Eligible Person;
(d) "Board" means the Board of Directors committee consisting of not less than appointed to administer this Plan; of the Company or, as applicable, a three Directors of the Company duly
(e) “Change of Control” means the acquisition by any person or by any person and a Joint Actor, whether directly or indirectly, of voting securities (as defined in the Securities Act) of the Company, which, when added to all other voting securities of the Company at the time held by such person or by such person and a Joint Actor, totals for the first time not less than 50% of the outstanding voting securities of the Company or the votes attached to those securities are sufficient, if exercised, to elect a majority of the Board;”
(f) "Common Shares" means the common shares of the Company;
(g) “Company” means Whitehorse Gold Corp. and its successors;
(h) "Consultant" means an individual who provides consulting, technical, management or other services to the Company or any of its subsidiaries, and who is permitted by Exchange policy and by securities laws to receive Option, either directly or through a Company;
(i) "Director" means a director of the Company or of an Affiliate;
(j) "Disinterested Shareholder Approval" means that the proposal must be approved by a majority of the votes cast at the shareholders’ meeting other than votes attaching to securities beneficially owned by Insiders to whom shares may be issued pursuant to this Plan;
(k) "Eligible Person" means a Director, Officer, Employee or Consultant;
(l) “Employee” means any individual in the employment of the Company or any of its subsidiaries or of a company providing management or administrative services to the Company;
(m) "Exchange" means a recognized market where the securities of the Company are bought and sold;
(n) "Expiry Date" means the last day of the term for an Option, as set by the Board at the time of grant in accordance with Section 5.2 and, if applicable, as amended from time to time;
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(o) "Insider" has the meaning ascribed thereto by the Exchange;
(p) “Joint Actor” means a person acting “jointly or in concert with” another person as that phrase is interpreted in Multilateral Instrument 62-104;
(q) “Market Price” of a Share means, on any given day, the last daily closing price per Common Share on the Exchange on the last trading day immediately preceding any grant of Options;
(r) "Option" means an option to purchase Common Shares pursuant to this Plan;
(s) "Participant" means an Eligible Person who has been granted an Option;
(t) "Plan" means this Stock Option Plan; and
(u) “Securities Act” means the Securities Act, R.S.B.C. 1996, c.418, as amended from time to time.
1.2 Interpretation
References to the outstanding Common Shares at any point in time shall be computed on a non- diluted basis.
2. ESTABLISHMENT OF PLAN
2.1 Purpose
The purpose of this Plan is to advance the interests of the Company, through the grant of Options, by:
(a) providing an incentive mechanism to foster the interest of Eligible Persons in the success of the Company and its Affiliates;
(b) encouraging Eligible Persons to remain with the Company or its Affiliates; and
(c) attracting new Eligible Persons.
2.2 Number of Shares
(a) The maximum number of Shares issuable under the Plan, together with the number of Shares issuable under outstanding options granted otherwise than under the Plan, shall not exceed 10% of the issued and outstanding Shares of the Company. For greater certainty, if an Option is surrendered, terminated or expires without being exercised, the Common Shares reserved for issuance pursuant to such Option shall be available for new Options granted under this Plan.
(b) If there is a change in the outstanding Common Shares by reason of any share consolidation or split, reclassification or other capital reorganization, or a stock dividend, arrangement, amalgamation, merger or combination, or any other change to, event affecting, exchange of or corporate change or transaction affecting the Common Shares, the Board shall make, as it shall deem advisable and subject to the requisite approval of the relevant regulatory authorities, appropriate substitution and/or adjustment in:
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(i) the number and kind of shares or other securities or property reserved or to be allotted for issuance pursuant to this Plan;
(ii) the number and kind of shares or other securities or property reserved or to be allotted for issuance pursuant to any outstanding unexercised Options, and in the exercise price for such shares or other securities or property; and
(iii) the vesting of any Options, including the accelerated vesting thereof on conditions the Board deems advisable,
and if the Company undertakes an arrangement or is amalgamated, merged or combined with another corporation, the Board shall make such provision for the protection of the rights of Participants as it shall deem advisable.
(c) No fractional Common Shares shall be reserved for issuance under this Plan and the Board may determine the manner in which an Option, insofar as it relates to the acquisition of a fractional Common Share, shall be treated.
(d) The Company shall, at all times while this Plan is in effect, reserve and keep available such number of Common Shares as will be sufficient to satisfy the requirements of this Plan.
2.3 Non-Exclusivity
Nothing contained herein shall prevent the Board from adopting such other incentive or compensation arrangements as it shall deem advisable.
2.4 Effective Date
This Plan shall be subject to the approval of any regulatory authority whose approval is required. Any Options granted under this Plan prior to such approvals being given shall be conditional upon such approvals being given, and no such Options may be exercised unless and until such approvals are given.
3. ADMINISTRATION OF PLAN
3.1 Administration
(a) This Plan shall be administered by the Board. Subject to the provisions of this Plan, the Board shall have the authority:
(i) to determine the Eligible Persons to whom Options are granted, to grant such Options, and to determine any terms and conditions, limitations and restrictions in respect of any particular Option grant, including but not limited to the nature and duration of the restrictions, if any, to be imposed upon the acquisition, sale or other disposition of Common Shares acquired upon exercise of the Option, and the nature of the events and the duration of the period, if any, in which any Participant's rights in respect of an Option or Common Shares acquired upon exercise of an Option may be forfeited;
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(ii) to interpret the terms of this Plan, to make all such determinations and take all such other actions in connection with the implementation, operation and administration of this Plan, and to adopt, amend and rescind such administrative guidelines and other rules and regulations relating to this Plan, as it shall from time to time deem advisable, including without limitation for the purpose of ensuring compliance with Section 3.2 hereof.
(b) The Board's interpretations, determinations, guidelines, rules and regulations shall be conclusive and binding upon the Company, Eligible Persons, Participants and all other persons.
3.2 Compliance with Legislation
(a) This Plan, the grant and exercise of Options hereunder and the Company's obligation to sell, issue and deliver any Common Shares upon exercise of Options shall be subject to all applicable federal, provincial and foreign laws, policies, rules and regulations, to the policies, rules and regulations of any stock exchanges or other markets on which the Common Shares are listed or quoted for trading and to such approvals by any governmental or regulatory agency as may, in the opinion of counsel to the Company, be required. The Company shall not be obligated by the existence of this Plan or any provision of this Plan or the grant or exercise of Options hereunder to sell, issue, or deliver Common Shares upon exercise of Options in violation of such laws, policies, rules and regulations or any condition or requirement of such approvals.
(b) No Option shall be granted and no Common Shares sold, issued or delivered hereunder where such grant, sale, issue or delivery would require registration or other qualification of this Plan or of the Common Shares under the securities laws of any foreign jurisdiction, and any purported grant of any Option or any sale, issue and delivery of Common Shares hereunder in violation of this provision shall be void. In addition, the Company shall have no obligation to sell, issue, or deliver any Common Shares hereunder unless such Common Shares shall have been duly listed, upon official notice of issuance, with all stock exchanges on which the Common Shares are listed for trading.
(c) Common Shares sold, issued and delivered to Participants pursuant to the exercise of Options shall be subject to restrictions on resale and transfer under applicable securities laws and the requirements of any stock exchanges or other markets on which the Common Shares are listed or quoted for trading, and any certificates representing such Common Shares shall bear, as required, a restrictive legend in respect thereof.
4. OPTION GRANTS
4.1 Eligibility and Multiple Grants
Options shall only be granted to Eligible Persons. An Eligible Person may receive Options on more than one occasion and may receive separate Options, with differing terms, on any one or more occasions.
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4.2 Option Agreement
Every Option may be evidenced by an option agreement executed by the Company and the Participant, which shall, if the Participant is an Employee or Consultant, contain a representation and warranty by the Company and such Participant that such Participant is a bona fide Employee or Consultant, as the case may be, of the Company or an Affiliate. In the event of any discrepancy between this Plan and an option agreement, the provisions of this Plan shall govern.
4.3 Limitation on Grants and Exercises
(a) To Insiders:
(i) the aggregate number of Common Shares issuable to Insiders under this Plan and any other share compensation arrangements of the Company shall not exceed 10% of the outstanding Common Shares;
(ii) the aggregate number of Common Shares issued to Insiders in any 12 month period under this Plan and any share compensation arrangements of the Company shall not exceed 10% of the outstanding Common Shares.
(b) Exclusion. For purposes of subsection (a) (ii) herein, any Common Shares reserved for issuance or issued to any person pursuant to this Plan prior to the person becoming an Insider shall be excluded for purposes of the calculations in subsection (a) (ii) herein.
(c) The aggregate number of options granted to any one Person (and Companies wholly owned by that Person) in a 12 month period must not exceed 5% of the issued shares of the Issuer, calculated on the date an option is granted to the Person (unless the Issuer has obtained the requisite disinterested Shareholder approval).
(d) The aggregate number of options granted to any one Consultant in a 12 month period must not exceed 2% of the issued shares of the Issuer, calculated at the date an option is granted to the Consultant.
(e) The aggregate number of options granted to all Persons retained to provide Investor Relations Activities must not exceed 2% of the issued shares of the Issuer in any 12 month period, calculated at the date an option is granted to any such Person. For the purposes of this Plan, Persons retained to provide Investor Relations Activities shall include any Consultant that performs Investor Relations Activities and any Employee or Director whose role and duties primarily consist of Investor Relations Activities.
5. OPTION TERMS
5.1 Exercise Price
The exercise price per Common Share for an Option shall not be less than the Market Price on the date of grant.
5.2 Expiry Date
Every Option granted pursuant to this Plan shall have a term not exceeding, and shall therefore expire no later than, ten years after the date of grant.
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5.3 Vesting
Pursuant to Exchange policies the Board shall determine the manner in which an Option shall vest and become exercisable.
5.4 Assignment
No Option granted under this Plan or any right thereunder or in respect thereof shall be transferable or assignable otherwise than by will or pursuant to the laws of succession except that, if permitted by the rules and policies of the Exchange, an optionee shall have the right to assign any Option granted to him hereunder to a trust, RRSP, RESP or similar legal entity established by such optionee.
5.5 Cessation
(a) If an Officer, Employee or Consultant is terminated for cause, each Option held by such Participant shall terminate and shall therefore cease to be exercisable upon such termination for cause.
(b) If an Eligible Person dies prior to the expiry of his Option, his legal representatives may, within the lesser of one year from the date of the optionee's death or the expiry date of the Option, exercise that portion of an Option granted to the deceased Eligible Person under this Plan which remains outstanding.
(c) If a Director, Officer, Employee or Consultant ceases to be a Participant for any reason whatsoever (other than for termination for cause or for death) each Option held by such Participant will cease to be exercisable 90 days after the termination date. The Board may extend the date of such termination and the resulting period in which the Option remains exercisable to a date not exceeding the Expiry Date.
5.6 Change of Control
In the event of a Change of Control, all Options that are not vested shall vest immediately and automatically without further action by the Board, subject to any restrictions imposed by the Exchange pursuant to its policies stated herein or otherwise at the time of vesting. Options granted to Investor Relations providers are not eligible for accelerated vesting without prior Exchange approval.
6. EXERCISE PROCEDURE
6.1 Exercise Procedure
An Option may be exercised and shall be deemed to be validly exercised by the Participant only upon the Participant's delivery to the Company at its registered office:
(a) a written notice of exercise addressed to the Corporate Secretary of the Company, specifying the number of Common Shares with respect to which the Option is being exercised;
(b) the originally signed option agreement or option certificate with respect to the Option being exercised (or if the Company is holding such original, confirmation of same);
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(c) a certified cheque or bank draft made payable to the Company for the aggregate exercise price for the number of Common Shares with respect to which the Option is being exercised; and
(d) documents containing such representations, warranties, agreements and undertakings, including such as to the Participant's future dealings in such Common Shares, as counsel to the Company reasonably determines to be necessary or advisable in order to comply with or safeguard against the violation of the laws of any jurisdiction;
and on the business day following, the Participant shall be deemed to be a holder of record of the Common Shares with respect to which the Option is being exercised, and thereafter the Company shall, within a reasonable amount of time, cause certificates for such Common Shares to be issued and delivered to the Participant. If an Option expires during a Black-Out Period, then, notwithstanding any other provision of the Plan, the Option shall expire 10 days after the Black-Out Period is lifted by the Company.
6.2 Taxes
The Board and the Company may take all such measures as they deem appropriate to ensure that the Company’s obligations under the withholding provisions under income tax laws applicable to the Company and other provisions of applicable laws are satisfied with respect to the issuance of Common Shares pursuant to the Plan or the grant or exercise of Options under the Plan. Issuance of Common Shares or delivery of share certificates for Common Shares purchased pursuant to the Plan may be delayed, at the discretion of the Board, until the Board is satisfied that the applicable requirements of income tax laws and other applicable laws have been met.
7. AMENDMENTS
7.1 Amendments to Options
The Board may amend any Option with the consent of the affected Participant and the Exchange, including any shareholder approval as required by the Exchange. Disinterested Shareholder approval will be obtained for any reduction in the exercise price if the Optionee is an Insider of the Issuer at the time of the proposed amendment.
7.2 Amendments to the Plan
The Board may from time to time, subject to applicable law and prior approval, if required, of the Exchange or any other regulatory body having authority over the Company and the Plan, suspend, terminate or discontinue the Plan at any time, or amend or revise the terms of the Plan or of any Option granted under the Plan and the Option Agreement relating thereto, provided that no such amendment, revision, suspension, termination or discontinuance shall in any manner adversely affect any Option previously granted to an Optionee under the Plan without the consent of that Optionee.
Notwithstanding the foregoing, the Board is specifically authorized to amend or revise the terms of the Plan or any Option without obtaining shareholder approval in the following circumstances, provided that, in the case of any Option, no such amendment or revision may, without the consent of the Optionee, materially decrease the rights or benefits accruing to such Optionee or materially increase the obligations of such Optionee:
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(a) changes of a “housekeeping” nature including, but not limited to, of a clerical, grammatical or typographical nature;
(b) changes to correct any defect, supply any information or reconcile any inconsistency in the Plan in such manner and to such extent as shall be deemed necessary or advisable to carry out the purposes of the Plan;
(c) changes to the vesting provisions of any Option or the Plan;
(d) changes to reflect any changes in requirements of any securities regulatory authority or Exchange to which the Company is subject;
(e) changes to termination provisions of an Option which does not result in an extension beyond the Expiry Date as contemplated in section 5.5 of the Plan;
(f) in the case of any Option, such amendments or revisions contemplated in subsection 2.2(b) of the Plan; and
(g) changes to the definition of “change of control” for the purposes hereof.
8. MISCELLANEOUS
8.1 No Rights as Shareholder
Nothing in this Plan or any Option shall confer upon a Participant any rights as a shareholder of the Company with respect to any of the Common Shares underlying an Option unless and until such Participant shall have become the holder of such Common Shares upon exercise of such Option in accordance with the terms of the Plan.
8.2 No Right to Employment
Nothing in this Plan or any Option shall confer upon a Participant any right to continue in the employ of the Company or any Affiliate or affect in any way the right of the Company or any Affiliate to terminate the Participant's employment, with or without cause, at any time; nor shall anything in the Plan or any Option be deemed or construed to constitute an agreement, or an expression of intent, on the part of the Company or any Affiliate to extend the employment of any Participant beyond the time which the Participant would normally be retired pursuant to the provisions of any present or future retirement plan of the Company or any Affiliate, or beyond the time at which he would otherwise be retired pursuant to the provisions of any contract of employment with the Company or any Affiliate.
8.3 Governing Law
This Plan, all option agreements, the grant and exercise of Options hereunder, and the sale, issue and delivery of Common Shares hereunder upon exercise of Options shall be, as applicable, governed by and construed in accordance with the laws of the Province of British Columbia and the federal laws of Canada applicable therein. The Courts of the Province of British Columbia shall have the exclusive jurisdiction to hear and decide any disputes or other matters arising therefrom.
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EXECUTION
ARRANGEMENT AGREEMENT
THIS ARRANGEMENT AGREEMENT is dated as of the 25th day of August, 2020,
BETWEEN:
NEW PACIFIC METALS CORP., a company existing under the Business Corporations Act (British Columbia)
("New Pacific")
AND:
WHITEHORSE GOLD CORP., a company existing under the Business Corporations Act (British Columbia)
("Whitehorse")
WHEREAS:
A. Whitehorse is a wholly-owned subsidiary of New Pacific which has been incorporated to facilitate and participate in the Arrangement (as defined herein) and which, indirectly through its wholly-owned subsidiary, Tagish Lake (as defined herein), is the owner of the Tagish Lake Gold Project;
B. New Pacific and Whitehorse wish to proceed with a corporate restructuring by way of a statutory arrangement under the BCBCA (as defined herein), pursuant to which New Pacific and Whitehorse will participate in a series of transactions whereby, among other things, New Pacific will distribute Spin-Out Shares (as defined herein) to the holders of New Pacific Existing Shares (as defined herein) such that the holders of New Pacific Existing Shares (other than New Pacific Dissenting Shareholders) will become holders of Spin-Out Shares and Whitehorse will cease to be a subsidiary of New Pacific;
C. New Pacific proposes to convene a meeting of the New Pacific Shareholders to consider an Arrangement pursuant to Part 9, Division 5 of the BCBCA, on the terms and conditions set forth in the Plan of Arrangement attached as Exhibit A hereto; and
D. Each of the parties to this Agreement has agreed to participate in and support the Arrangement.
NOW THEREFORE, in consideration of the premises and the respective covenants and agreements herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by each of the parties hereto, the parties hereto hereby covenant and agree as follows:
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ARTICLE 1
DEFINITIONS, INTERPRETATION AND EXHIBIT
1.1 Definitions. In this Agreement including the Recitals, unless there is something in the subject matter or context inconsistent therewith, the following capitalized words and terms will have the following meanings:
(a) "Agreement" means this arrangement agreement, including the exhibits attached hereto as the same may be supplemented or amended from time to time;
(b) "Arrangement" means the arrangement pursuant to the Arrangement Provisions as contemplated by the provisions of this Agreement and the Plan of Arrangement;
(c) "Arrangement Provisions" means Part 9, Division 5 of the BCBCA;
(d) "Arrangement Resolution" means the special resolution of the New Pacific Shareholders to approve the Arrangement, as required by the Interim Order and the BCBCA;
(e) "BCBCA" means the Business Corporations Act, S.B.C. 2002, c. 57, as amended;
(f) "Board of Directors" means the current board of directors of New Pacific;
(g) "Business Day" means a day which is not a Saturday, Sunday or statutory holiday in Vancouver, British Columbia;
(h) "Constating Documents" means the Articles and related Notice of Articles under the BCBCA of New Pacific or Whitehorse, as applicable;
(i) "Court" means the Supreme Court of British Columbia;
(j) "Disinterested New Pacific Shareholders" means the New Pacific Shareholders which are not directly or indirectly (including through an associate or affiliate) participating in the Whitehorse Financing;
(k) "Dissent Procedures" means the rules pertaining to the exercise of Dissent Rights as set forth in Division 2 of Part 8 of the BCBCA and Article 5 of the Plan of Arrangement;
(l) "Dissent Rights" means the rights of a registered New Pacific Shareholder to dissent from the Arrangement Resolution in accordance with the provisions of the BCBCA, as modified by the Interim Order, and to be paid the fair value of the New Pacific Existing Shares in respect of which the holder dissents;
(m) "Effective Date" means the date that the Arrangement becomes effective as agreed to by New Pacific and Whitehorse in accordance with the Final Order;
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(n) "Effective Time" means such time on the Effective Date as agreed to by New Pacific and Whitehorse;
(o) "Final Order" means the final order of the Court approving the Arrangement;
(p) "Information Circular" means the management information circular of New Pacific, including all schedules thereto, to be sent to the New Pacific Shareholders in connection with the Meeting, together with any amendments or supplements thereto;
(q) "Interim Order" means the interim order of the Court providing advice and directions in connection with the Meeting and the Arrangement;
(r) "Meeting" means the annual general and special meeting of the New Pacific Shareholders and any adjournment(s) or postponement(s) thereof to be held to, among other things, consider and, if deemed advisable, approve the Arrangement and the Whitehorse Financing;
(s) "New Pacific Class A Shares" means the New Pacific Existing Shares after they have been re-named and re-designated as "Class A common shares without par value" pursuant to Section 3.1(b) of the Plan of Arrangement;
(a) "New Pacific Dissenting Shareholder" means a registered holder of New Pacific Existing Shares who is entitled to and does validly dissent in respect of the Arrangement in strict compliance with the Dissent Procedures, and who has not withdrawn or been deemed to have withdrawn such exercise of Dissent Rights at the Effective Time, but only with respect to the New Pacific Existing Shares in respect of which Dissent Rights are validly exercised by such registered holder;
(t) "New Pacific Existing Shares" means the common shares without par value in the capital of New Pacific, as they exist immediately prior to the Effective Time;
(u) "New Pacific Shareholder" means a registered or beneficial holder of New Pacific Existing Shares or New Pacific Class A Shares, as the context requires;
(v) "New Pacific Shares" means the common shares without par value in the capital of New Pacific, to be created pursuant to Section 3.1(c) of the Plan of Arrangement, and to be issued to the New Pacific Shareholders pursuant to Section 3.1(d)(i) of the Plan of Arrangement;
(w) "New Pacific–Whitehorse Debt" means the interest-bearing indebtedness of Whitehorse owing to New Pacific having a principal amount of $3,000,000, as issued by Whitehorse to New Pacific under the Share Exchange Agreement, plus the interest-bearing debt in the principal amount of $500,000 owing by Whitehorse to New Pacific, and which will be fully repaid and extinguished prior to the Effective Time;
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(x) "party" means either New Pacific or Whitehorse and "parties" means, collectively, New Pacific and Whitehorse;
(y) "Person" means and includes an individual, sole proprietorship, partnership, unincorporated association, unincorporated syndicate, unincorporated organization, trust, body corporate, a trustee, executor, administrator or other legal representative and the Crown or any agency or instrumentality thereof;
(z) "Plan of Arrangement" means the plan of arrangement attached to this Agreement as Exhibit A, as the same may be amended from time to time;
(aa) "Registrar" means the Registrar of Companies under the BCBCA;
(bb) "Share Exchange Agreement" means the share exchange agreement dated effective as of February 12, 2020 between New Pacific and Whitehorse, as amended from time to time, providing for, among other things, the acquisition by Whitehorse of all of the issued and outstanding shares of Tagish Lake from New Pacific;
(cc) "Spin-Out Shares" means that number of Whitehorse Shares held by New Pacific immediately prior to Section 3.1(d) of the Plan of Arrangement, to be distributed to the New Pacific Shareholders pursuant to Section 3.1(d)(ii) of the Plan of Arrangement;
(dd) "Tagish Lake" means Tagish Lake Gold Corp., a company existing under the BCBCA which is a wholly-owned subsidiary of Whitehorse;
(ee) "Tagish Lake Gold Project" means the Tagish Lake gold project in the Yukon, Canada, indirectly owned by Whitehorse through Tagish Lake;
(ff) "Tax Act" means the Income Tax Act (Canada), as amended from time to time;
(gg) "TSX" means the Toronto Stock Exchange;
(hh) "TSXV" means the TSX Venture Exchange;
(ii) "U.S. Securities Act" means the United States Securities Act of 1933, as amended;
(jj) "Whitehorse Financing" means the private placement by Whitehorse of Whitehorse Shares to raise net proceeds of at least $6,000,000, or such other amount as the board of directors of Whitehorse may determine, on terms acceptable to Whitehorse, such private placement to be completed prior to the Effective Time;
(kk) "Whitehorse Financing Resolution" means the ordinary resolution of the Disinterested New Pacific Shareholders to approve the Whitehorse Financing; and
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(ll) "Whitehorse Shares" means the common shares without par value in the capital of Whitehorse.
1.2 Currency. All amounts of money which are referred to in this Agreement are expressed in lawful money of Canada unless otherwise specified.
1.3 Interpretation Not Affected by Headings. The division of this Agreement into articles, sections, subsections, paragraphs and subparagraphs and the insertion of headings are for convenience of reference only and will not affect the construction or interpretation of the provisions of this Agreement. The terms "this Agreement", "hereof", "herein", "hereunder" and similar expressions refer to this Agreement and the exhibits hereto as a whole and not to any particular article, section, subsection, paragraph or subparagraph hereof and include any agreement or instrument supplementary or ancillary hereto.
1.4 Number and Gender. In this Agreement, unless the context otherwise requires, words importing the singular will include the plural and vice versa and words importing the use of either gender will include both genders and neuter and words importing persons will include firms and corporations.
1.5 Date for any Action. In the event that any date on which any action is required to be taken hereunder by New Pacific or Whitehorse is not a Business Day in the place where the action is required to be taken, such action will be required to be taken on the next succeeding day which is a Business Day in such place.
1.6 Meaning. Words and phrases used herein and defined in the BCBCA will have the same meaning herein as in the BCBCA unless otherwise specified or the context otherwise requires.
1.7 Exhibits. Attached hereto and deemed to be incorporated into and form part of this Agreement as Exhibit A is the Plan of Arrangement.
ARTICLE 2
ARRANGEMENT
2.1 Arrangement. The parties agree to effect the Arrangement pursuant to the Arrangement Provisions on the terms and subject to the conditions contained in this Agreement and the Plan of Arrangement.
2.2 Effective Date of Arrangement. The Arrangement will become effective on the Effective Date, commencing at the Effective Time, as set out in the Plan of Arrangement.
2.3 Commitment to Effect. Subject to termination of this Agreement pursuant to Article 6, the parties will each use all reasonable efforts and do all things reasonably required to cause the conditions described in Section 5.1 to be complied with prior to the Effective Date. Without limiting the generality of the foregoing, the parties will proceed forthwith to apply for the Interim Order and New Pacific will call the Meeting and mail the Information Circular to the New Pacific Shareholders.
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2.4 Filing of Final Order. Subject to the rights of termination contained in Article 6 upon the New Pacific Shareholders approving the Arrangement by special resolution in accordance with the provisions of the Interim Order and the BCBCA, New Pacific obtaining the Final Order and the other conditions contained in Article 5 being complied with or waived, New Pacific on its behalf and on behalf of Whitehorse will file with the Registrar:
(a) the records and information required by the Registrar pursuant to the Arrangement Provisions; and
(b) a copy of the Final Order.
2.5 U.S. Securities Law Matters. The parties agree that the Arrangement will be carried out with the intention that the New Pacific Shares and Spin-Out Shares delivered or deemed to be delivered upon completion of the Arrangement to New Pacific Shareholders will be issued and distributed, respectively, by New Pacific in reliance on the exemption from the registration requirements of the U.S. Securities Act provided by Section 3(a)(10) thereof. In order to ensure the availability of the exemption under Section 3(a)(10) of the U.S. Securities Act, the parties agree that the Arrangement will be carried out on the following basis:
(a) the Arrangement will be subject to the approval of the Court and the Court will hold a hearing approving the fairness of the terms and conditions of the Arrangement;
(b) prior to the hearing required to approve the Arrangement, the Court will be advised as to the intention of the parties to rely on the exemption under Section 3(a)(10) of the U.S. Securities Act;
(c) the Court will be required to satisfy itself as to the substantive and procedural fairness of the terms and conditions of the Arrangement to the New Pacific Shareholders subject to the Arrangement;
(d) New Pacific will ensure that each New Pacific Shareholder entitled to receive New Pacific Shares and Spin-Out Shares on completion of the Arrangement will be given adequate notice advising them of their right to attend the hearing of the Court to give approval of the Arrangement and providing them with sufficient information necessary for them to exercise that right;
(e) the New Pacific Shareholders entitled to receive New Pacific Shares and Spin-Out Shares on completion of the Arrangement will be advised that such New Pacific Shares and Spin-Out Shares issued in the Arrangement have not been registered under the U.S. Securities Act and will be issued in reliance on the exemption under Section 3(a)(10) of the U.S. Securities Act;
(f) the Final Order approving the Arrangement that is obtained from the Court will expressly state that the terms and conditions of the Arrangement is approved by the Court as being fair, substantively and procedurally, to the New Pacific Shareholders;
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(g) the Interim Order approving the Meeting will specify that each New Pacific Shareholder will have the right to appear before the Court at the hearing of the Court to give approval of the Arrangement so long as the New Pacific Shareholder enters an appearance within a reasonable time and in accordance with the requirements of Section 3(a)(10) under the U.S. Securities Act; and
(h) the Final Order shall include a statement substantially to the following effect:
"This Order will serve as a basis of a claim to an exemption, pursuant to Section 3(a)(10) of the United States Securities Act of 1933, as amended, from the registration requirements otherwise imposed by that Act, regarding the issuance or deemed issuance of New Pacific Shares and Spin-Out Shares pursuant to the Plan of Arrangement."
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties. Each of the parties hereby represents and warrants to the other party that:
(a) it is a corporation duly incorporated and validly subsisting under the laws of its jurisdiction of incorporation, and has full capacity and authority to enter into this Agreement and to perform its covenants and obligations hereunder;
(b) it has taken all corporate actions necessary to authorize the execution and delivery of this Agreement and to consummate the transactions contemplated herein and this Agreement has been duly executed and delivered by it;
(c) neither the execution and delivery of this Agreement nor the performance of any of its covenants and obligations hereunder will constitute a material default under, or be in any material contravention or breach of (i) any provision of its Constating Documents or other governing corporate documents, (ii) any judgment, decree, order, law, statute, rule or regulation applicable to it, or (iii) any agreement or instrument to which it is a party or by which it is bound; and
(d) no dissolution, winding up, bankruptcy, liquidation or similar proceedings has been commenced or are pending or proposed in respect of it.
ARTICLE 4
COVENANTS
4.1 Covenants. Each of the parties covenants with the other that it will do and perform all such acts and things, and execute and deliver all such agreements, assurances, notices and other documents and instruments, as may reasonably be required to facilitate the carrying out of the intent and purpose of this Agreement.
4.2 Interim Order and Final Order. The parties acknowledge that New Pacific will apply to and obtain from the Court, pursuant to the Arrangement Provisions, the Interim Order providing for, among other things, the calling and holding of the Meeting for the purpose of considering and, if deemed advisable, approving and adopting the Arrangement Resolution. The parties each covenant and agree that if the approval of the Arrangement by the New Pacific Shareholders as set out in Section 5.1(b) is obtained, New Pacific will thereafter (subject to the exercise of any discretionary authority granted to New Pacific's directors) take the necessary actions to submit the Arrangement to the Court for approval and apply for the Final Order and, subject to compliance with any of the other conditions provided for in Article 5 and to the rights of termination contained in Article 6, file the material described in Section 2.4 with the Registrar.
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4.3 Tax-Related Post-Closing Covenants.
(a) Each of the parties covenants and agrees with and in favour of the other that it will cooperate in the preparation and filing, in the form and within the time limits prescribed or otherwise contemplated in the Tax Act or other applicable tax law, of all tax returns, filings, notifications, designations and elections under the Tax Act in respect of the transactions contemplated in the Plan of Arrangement and this Agreement (and any similar tax returns, filings, elections, notifications or designations that may be required under applicable provincial or foreign legislation).
(b) Whitehorse will elect, in its return of income filed under the Tax Act for its first taxation year, to be deemed to be a "public corporation", within the meaning of the Tax Act, from the date of its incorporation until the time it becomes a public corporation by virtue of the listing of the Whitehorse Shares on the TSXV as contemplated in Section 5.1(f), such election to be made pursuant to the post- amble of the definition of "public corporation" in subsection 89(1) of the Tax Act.
ARTICLE 5
CONDITIONS
5.1 Conditions Precedent. The respective obligations of the parties to complete the transactions contemplated by this Agreement will be subject to the satisfaction of the following conditions:
(a) the Interim Order will have been granted in form and substance satisfactory to New Pacific;
(b) the Arrangement Resolution, with or without amendment, will have been approved and adopted at the Meeting by the New Pacific Shareholders in accordance with the Arrangement Provisions, the Constating Documents of New Pacific, the Interim Order and the requirements of any applicable regulatory authorities;
(c) the Whitehorse Financing Resolution, with or without amendment, will have been approved and adopted at the Meeting by the Disinterested New Pacific Shareholders in accordance with the Constating Documents of New Pacific and subject to the requirements of the TSX;
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(d) the Final Order will have been obtained in form and substance satisfactory to each of New Pacific and Whitehorse;
(e) the TSX will have approved (i) the Arrangement, including the substitutional listing of the New Pacific Shares as of the effective time of Section 3.1(e)(i) of the Plan of Arrangement, and (ii) the Whitehorse Financing (subject to standard post- closing conditions imposed by the TSX in similar circumstances);
(f) the TSXV will have approved the listing of the Whitehorse Shares as of the effective time of Section 3.1(e)(ii) of the Plan of Arrangement (subject to standard post-closing listing conditions imposed by the TSXV in similar circumstances);
(g) the Whitehorse Financing will have been completed prior to the Effective Time;
(h) Whitehorse will have fully repaid the principal amount and any accrued interest under the New Pacific–Whitehorse Debt and such debt will have been extinguished and the parties will have confirmed that there is no inter-company debt existing between New Pacific and each of Whitehorse and Tagish Lake as of the Effective Time;
(i) if requested by New Pacific pursuant to the Share Exchange Agreement, New Pacific and Whitehorse will have jointly made and filed the election in the prescribed form and manner pursuant to Section 85(1) of the Tax Act as contemplated in the Share Exchange Agreement prior to the Effective Time;
(j) all other consents, orders, regulations and approvals, including regulatory and judicial approvals and orders required or necessary or desirable for the completion of the transactions provided for in this Agreement and the Plan of Arrangement will have been obtained or received from the Persons, authorities or bodies having jurisdiction in the circumstances each in form acceptable to New Pacific and Whitehorse;
(k) there will not be in force any order or decree restraining or enjoining the consummation of the transactions contemplated by this Agreement and the Plan of Arrangement;
(l) no law, regulation or policy will have been proposed, enacted, promulgated or applied which interferes or is inconsistent with the completion of the Arrangement and Plan of Arrangement, including any material change to the Tax Act or other income tax laws of Canada, which would reasonably be expected to have a material adverse effect on any of New Pacific, the New Pacific Shareholders, Whitehorse or holders of Whitehorse Shares if the Arrangement is completed;
(m) notices of dissent pursuant to Article 5 of the Plan of Arrangement will not have been delivered by New Pacific Shareholders holding greater than 5% of the outstanding New Pacific Existing Shares; and
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(n) this Agreement will not have been terminated under Article 6.
Except for the conditions set forth in Sections 5.1(a), (b), (d), (e)(i), (f) and (m), which may not be waived, any of the other conditions in this Section 5.1 may be waived by either New Pacific or Whitehorse at its discretion.
5.2 Pre-Closing. Unless this Agreement is terminated earlier pursuant to the provisions hereof, pre-closing will occur electronically on the Business Day immediately preceding the Effective Date at such time or on such other date as the parties may mutually agree, and each of them will deliver to the other:
(a) the documents required to be delivered by it hereunder to complete the transactions contemplated hereby, provided that each such document required to be dated the Effective Date will be dated as of, or become effective on, the Effective Date at the time specified in the Plan of Arrangement and will be held in escrow to be released upon the occurrence of the Effective Date; and
(b) written confirmation as to the satisfaction or waiver by it of the conditions in its favour contained in this Agreement.
5.3 Merger of Conditions. The conditions set out in Section 5.1 will be conclusively deemed to have been satisfied, waived or released upon the occurrence of the Effective Date.
5.4 Merger of Representations, Warranties and Certain Covenants. The representations and warranties in Section 3.1 will be conclusively deemed to be correct as of the Effective Date and the covenants in Section 4.1 will be conclusively deemed to have been complied with in all respects as of the Effective Date, and each will accordingly merge in and not survive the effectiveness of the Arrangement.
ARTICLE 6
AMENDMENT AND TERMINATION
6.1 Amendment. Subject to any mandatory applicable restrictions under the Arrangement Provisions or the Final Order, this Agreement, including the Plan of Arrangement, may at any time and from time to time before or after the holding of the Meeting, but prior to the Effective Date, be amended by the written agreement of the parties hereto without, subject to applicable law, further notice to or authorization on the part of the New Pacific Shareholders.
6.2 Termination. Subject to Section 6.3, this Agreement may at any time before or after the holding of the Meeting, and before or after the granting of the Final Order, but in each case prior to the Effective Date, be terminated by direction of the Board of Directors of New Pacific without further action on the part of the New Pacific Shareholders and nothing expressed or implied herein or in the Plan of Arrangement will be construed as fettering the absolute discretion by the Board of Directors of New Pacific to elect to terminate this Agreement and discontinue efforts to effect the Arrangement for whatever reasons it may consider appropriate.
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6.3 Cessation of Right. The right of New Pacific or Whitehorse or any other party to amend or terminate the Plan of Arrangement pursuant to Section 6.1 and Section 6.2 will be extinguished upon the occurrence of the Effective Date.
ARTICLE 7
GENERAL
7.1 Notices. All notices which may or are required to be given pursuant to any provision of this Agreement will be given or made in writing and will be delivered or sent by electronic mail, addressed as follows:
in the case of New Pacific:
1750 - 1066 West Hastings Street
Vancouver, British Columbia
V6E 3X1
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Attention:
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Mark Cruise
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Email:
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Redacted: Personal Information
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in the case of Whitehorse:
1750 - 1066 West Hastings Street
Vancouver, British Columbia
V6E 3X1
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Attention:
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Kevin Weston
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Email:
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Redacted: Personal Information
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in each case with a copy to:
Bennett Jones LLP
Suite 2400 - 666 Burrard Street
Vancouver, British Columbia
V6C 2X8
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Attention:
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Kwang Lim
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Email:
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Redacted: Personal Information
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7.2 Assignment. Neither of the parties may assign its rights or obligations under this Agreement or the Arrangement without the prior written consent of the other.
7.3 Binding Effect. This Agreement and the Arrangement will be binding upon and will enure to the benefit of the parties and their respective successors and permitted assigns.
7.4 Waiver. Any waiver or release of the provisions of this Agreement, to be effective, must be in writing and executed by the party granting such waiver or release.
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7.5 Governing Law. This Agreement will be governed by and be construed in accordance with the laws of the Province of British Columbia and the laws of Canada applicable therein.
7.6 Counterparts. This Agreement may be executed in one or more counterparts, each of which will be deemed to be an original but all of which together will constitute one and the same instrument.
7.7 Expenses. All expenses incurred by a party in connection with this Agreement, the Arrangement and the transactions contemplated hereby and thereby will be borne by the party that incurred the expense or as otherwise mutually agreed by the parties.
7.8 Entire Agreement. This Agreement constitutes the entire agreement between the parties with respect to the subject matter of this Agreement and supersedes all prior and contemporaneous agreements, understandings, negotiations and discussions, whether oral or written, of the parties.
7.9 Time of Essence. Time is of the essence of this Agreement.
(Remainder of page left intentionally blank. Signature page follows.)
IN WITNESS WHEREOF the parties have executed this Agreement as of the date first above written.
NEW PACIFIC METALS CORP.
By: (signed) "Mark Cruise"
Authorized Signatory
WHITEHORSE GOLD CORP.
By: (signed) "Kevin Weston"
Authorized Signatory
EXHIBIT A
TO THE ARRANGEMENT AGREEMENT
DATED AS OF THE 25th DAY OF AUGUST, 2020 BETWEEN
NEW PACIFIC METALS CORP. AND WHITEHORSE GOLD
CORP.
PLAN OF ARRANGEMENT UNDER PART 9, DIVISION 5 OF
THE BUSINESS CORPORATIONS ACT (BRITISH
COLUMBIA)
ARTICLE 1
DEFINITIONS AND INTERPRETATION
1.1 Definitions. In this plan of arrangement, unless there is something in the subject matter or context inconsistent therewith, the following capitalized words and terms will have the following meanings:
(a) "Arrangement" means the arrangement pursuant to the Arrangement Provisions on the terms and conditions set out herein;
(b) "Arrangement Agreement" means the arrangement agreement dated as of August 25, 2020 between New Pacific and Whitehorse, as may be supplemented or amended from time to time;
(c) "Arrangement Provisions" means Part 9, Division 5 of the BCBCA;
(d) "BCBCA" means the Business Corporations Act, S.B.C. 2002, c. 57, as amended;
(e) "Board of Directors" means the current board of directors of New Pacific;
(f) "Business Day" means a day which is not a Saturday, Sunday or statutory holiday in Vancouver, British Columbia;
(g) "Court" means the Supreme Court of British Columbia;
(h) "Depositary" means Computershare Investor Services Inc., or such other depositary as New Pacific may determine;
(i) "Dissent Procedures" means the rules pertaining to the exercise of Dissent Rights as set forth in Division 2 of Part 8 of the BCBCA and Article 5 of this Plan of Arrangement;
(j) "Dissent Rights" means the rights of a registered New Pacific Shareholder to dissent from the Arrangement Resolution in accordance with the provisions of the BCBCA, as modified by the Interim Order, and to be paid the fair value of the New Pacific Existing Shares in respect of which the holder dissents;
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(k) "Dissent Shares" means all New Pacific Existing Shares held by New Pacific Dissenting Shareholders at the Effective Time and in respect of which Dissent Rights were validly exercised;
(l) "Effective Date" means the date that the Arrangement becomes effective as agreed to by New Pacific and Whitehorse in accordance with the Final Order;
(m) "Effective Time" means such time on the Effective Date as agreed to by New Pacific and Whitehorse;
(n) "Encumbrance" means any lien, charge, claim, adverse interest, security interest, third party right or encumbrance of any kind or nature;
(o) "Final Order" means the final order of the Court approving the Arrangement;
(p) "FMV Reduction of a New Pacific Share" means the reduction in the fair market value of a New Pacific Existing Share, immediately prior to the Effective Time, as compared to a New Pacific Share, that arises solely as a result of the distribution by New Pacific of the Spin-Out Shares pursuant to Section 3.1(d)(ii) of this Plan of Arrangement, and which will be calculated by subtracting (i) the volume weighted average trading price of a New Pacific Share on the TSX for a five-day trading period commencing on the first trading day upon which the New Pacific Shares commence trading on the TSX after the Effective Date from (ii) the volume weighted average trading price of a New Pacific Existing Share on the TSX for a five-day trading period ending immediately before the Effective Date, subject to any requirements of the TSX;
(q) "Information Circular" means the management information circular of New Pacific, including all schedules thereto, to be sent to the New Pacific Shareholders in connection with the Meeting, together with any amendments or supplements thereto;
(r) "Interim Order" means the interim order of the Court providing advice and directions in connection with the Meeting and the Arrangement;
(s) "Letter of Transmittal" means the letter of transmittal in respect of the Arrangement to be sent to New Pacific Shareholders together with the Information Circular;
(t) "Meeting" means the annual general and special meeting of the New Pacific Shareholders and any adjournments thereof to be held to, among other things, consider and, if deemed advisable, approve the Arrangement;
(u) "New Pacific" means New Pacific Metals Corp., a company existing under the BCBCA;
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(v) "New Pacific Class A Shares" means the New Pacific Existing Shares after they have been re-named and re-designated as "Class A common shares without par value" pursuant to Section 3.1(b) of this Plan of Arrangement;
(w) "New Pacific Dissenting Shareholder" means a registered holder of New Pacific Existing Shares who is entitled to and does validly dissent in respect of the Arrangement in strict compliance with the Dissent Procedures, and who has not withdrawn or been deemed to have withdrawn such exercise of Dissent Rights at the Effective Time, but only with respect to the New Pacific Existing Shares in respect of which Dissent Rights are validly exercised by such registered holder;
(x) "New Pacific Existing Shares" means the common shares without par value in the capital of New Pacific, as they exist immediately prior to the Effective Time;
(y) "New Pacific Shareholder" means a registered or beneficial holder of New Pacific Existing Shares or New Pacific Class A Shares, as the context requires;
(z) "New Pacific Shares" means the common shares without par value in the capital of New Pacific, to be created pursuant to Section 3.1(c) of this Plan of Arrangement, and to be issued to the New Pacific Shareholders pursuant to Section 3.1(d)(i) of this Plan of Arrangement;
(aa) "Omnibus Plan" means the existing share based compensation plan of New Pacific as updated and amended from time to time;
(bb) "Option" means an option to purchase New Pacific Existing Shares granted pursuant to the Omnibus Plan which is outstanding as of the Effective Time;
(cc) "Plan of Arrangement" means this plan of arrangement, as the same may be amended from time to time;
(dd) "Registrar" means the Registrar of Companies under the BCBCA;
(ee) "Replacement Option" means an option to purchase a New Pacific Share granted by New Pacific to a holder of an Option in accordance with Section 3.1(f) of this Plan of Arrangement, with the exercise price of each such Replacement Option determined in accordance with this Plan of Arrangement and the other terms and conditions of each such Replacement Option determined in accordance with the Omnibus Plan and any agreements thereunder including, where necessary, appropriate adjustments to any performance-based or other vesting conditions, as such plan and agreements may be amended by the board of directors of New Pacific or a committee thereof;
(ff) "RSU" means a restricted share unit of New Pacific granted pursuant to the Omnibus Plan which is outstanding as of the Effective Time;
(gg) "Spin-Out Shares" means that number of Whitehorse Shares held by New Pacific immediately prior to Section 3.1(d) of this Plan of Arrangement, to be distributed to the New Pacific Shareholders pursuant to Section 3.1(d)(ii) of this Plan of Arrangement;
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(hh) "Tax Act" means the Income Tax Act (Canada), R.S.C. 1985 (5th Supp.) c.1, as amended;
(ii) "TSX" means the Toronto Stock Exchange;
(jj) "TSXV" means the TSX Venture Exchange;
(kk) "U.S. Securities Act" means the United States Securities Act of 1933, as amended;
(ll) "Whitehorse" means Whitehorse Gold Corp., a company incorporated under the BCBCA; and
(mm) "Whitehorse Shares" means the common shares without par value in the capital of Whitehorse.
1.2 Interpretation Not Affected by Headings. The division of this Plan of Arrangement into articles, sections, subsections, paragraphs and subparagraphs and the insertion of headings are for convenience of reference only and will not affect the construction or interpretation of this Plan of Arrangement. Unless otherwise specifically indicated, the terms "this Plan of Arrangement", "hereof", "hereunder" and similar expressions refer to this Plan of Arrangement as a whole and not to any particular article, section, subsection, paragraph or subparagraph and include any agreement or instrument supplementary or ancillary hereto.
1.3 Number and Gender. Unless the context otherwise requires, words importing the singular number only will include the plural and vice versa, words importing the use of either gender will include both genders and neuter and words importing persons will include firms and corporations.
1.4 Meaning. Words and phrases used herein and defined in the BCBCA will have the same meaning herein as in the BCBCA, except as otherwise provided or unless the context otherwise requires.
1.5 Date for any Action. If any date on which any action is required to be taken under this Plan of Arrangement is not a Business Day, such action will be required to be taken on the next succeeding Business Day.
1.6 Governing Law. This Plan of Arrangement will be governed by and construed in accordance with the laws of the Province of British Columbia and the federal laws of Canada applicable therein.
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ARTICLE 2
ARRANGEMENT AGREEMENT
2.1 Arrangement Agreement. This Plan of Arrangement is made pursuant and subject to the provisions of the Arrangement Agreement.
2.2 Arrangement Effectiveness. The Arrangement and this Plan of Arrangement will become final and conclusively binding on New Pacific, the New Pacific Shareholders (including New Pacific Dissenting Shareholders), the holders of Options, the holders of RSUs and holders of Whitehorse Shares commencing at the Effective Time without any further act or formality as required on the part of any person, except as expressly provided herein. New Pacific and Whitehorse shall execute a certificate confirming the Effective Date and the Effective Time.
ARTICLE 3
THE ARRANGEMENT
3.1 The Arrangement. Commencing at the Effective Time, each of the steps, events or transactions set out below shall, except for steps, events or transactions deemed to occur concurrently with other steps, events or transactions as set out below, occur and shall be deemed to occur consecutively in ten minute intervals in the following order (or in such other manner, order or times as the parties to the Arrangement Agreement may agree in writing) without any further act or formality, except as otherwise provided herein:
(a) Each New Pacific Existing Share held by a New Pacific Dissenting Shareholder shall be, and shall be deemed to have been, transferred by the holder thereof to, and acquired for cancellation, by New Pacific (free and clear of any Encumbrances), and:
(i) such New Pacific Dissenting Shareholders shall cease to be holders of such New Pacific Existing Shares and to have any rights as New Pacific Shareholders other than the right to be paid fair value for such New Pacific Existing Shares by New Pacific in accordance with Article 5 of this Plan of Arrangement;
(ii) all such New Pacific Existing Shares so transferred to New Pacific pursuant to this Section 3.1(a) shall be cancelled;
(iii) the balance of the capital account maintained by New Pacific in respect of the New Pacific Existing Shares shall be reduced by an amount equal to the product obtained when (A) the balance of the capital account maintained by New Pacific in respect of the New Pacific Existing Shares immediately prior to the effective time of this Section 3.1(a) is multiplied by (B) a fraction, the numerator of which is the number of New Pacific Existing Shares surrendered and cancelled pursuant to this Section 3.1(a), and the denominator of which is the number of New Pacific Existing Shares outstanding immediately prior to the effective time of this Section 3.1(a); and
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(iv) such New Pacific Dissenting Shareholders' names shall be removed from the register of holders of New Pacific Existing Shares maintained by or on behalf of New Pacific as it relates to the New Pacific Existing Shares so transferred.
(b) The authorized share structure, Notice of Articles and Articles of New Pacific shall be amended to re-name and re-designate the New Pacific Existing Shares as "Class A common shares without par value", being the New Pacific Class A Shares, and to create special rights and restrictions attached thereto to provide the holders thereof with two votes in respect of each New Pacific Class A Share held, and, concurrently therewith, outside of and not as part of this Plan of Arrangement, the New Pacific Class A Shares will be represented for listing purposes on the TSX by the continued listing of the New Pacific Existing Shares.
(c) In conjunction with the reorganization of the capital of New Pacific contemplated in this Section 3.1, the authorized share structure, Notice of Articles and Articles of New Pacific shall be amended to create and authorize the issuance of (in addition to the shares it is authorized to issue immediately before such amendment) an additional class of shares to be designated as "Common Shares without par value", being the New Pacific Shares, which shares shall be unlimited in number and have terms and special rights and restrictions identical to those of the New Pacific Existing Shares immediately prior to giving effect to Section 3.1(b) of this Plan of Arrangement.
(d) Pursuant to a reorganization of the capital of New Pacific contemplated in this Section 3.1, all New Pacific Class A Shares outstanding immediately after giving effect to Section 3.1(b) of this Plan of Arrangement shall be, and shall be deemed to be, simultaneously surrendered and transferred by the holder thereof to New Pacific (free and clear of any Encumbrances), and in sole exchange therefor New Pacific shall:
(i) issue to the New Pacific Shareholders one New Pacific Share for each New Pacific Class A Share so exchanged; and
(ii) subject to Section 3.2 of this Plan of Arrangement, distribute to the New Pacific Shareholders the Spin-Out Shares held by New Pacific (other than any Spin-Out Shares set aside pursuant to Section 5.3), pro rata to the number of New Pacific Class A Shares held by them and surrendered to New Pacific pursuant to this Section 3.1(d);
and:
(iii) such New Pacific Shareholders shall cease to be holders of such New Pacific Class A Shares or have any rights as holders of New Pacific Class A Shares and shall be removed from the register of holders of New Pacific Class A Shares maintained by or on behalf of New Pacific;
- 20 -
(iv) all such New Pacific Class A Shares so transferred to New Pacific pursuant to this Section 3.1(d) shall be cancelled;
(v) such New Pacific Shareholders' names shall be added to the register of holders of New Pacific Shares maintained by or on behalf of New Pacific;
(vi) New Pacific shall cease to be a holder of the Spin-Out Shares distributed pursuant to Section 3.1(d)(ii) of this Plan of Arrangement and shall be removed from the register of holders of Whitehorse Shares maintained by or on behalf of Whitehorse; and
(vii) such New Pacific Shareholders' names shall be added as holders to the register of holders of Whitehorse Shares, to the extent of the Spin-Out Shares, maintained by or on behalf of Whitehorse, and
in connection therewith, the balance in the capital account maintained by New Pacific in respect of the New Pacific Class A Shares shall be reduced to nil and the balance of the capital account maintained by New Pacific in respect of the New Pacific Shares shall be increased by an amount equal to the "paid-up capital" (as determined for purposes of the Tax Act) of the New Pacific Class A Shares immediately prior to this Section 3.1(d) minus the fair market value of the Spin- Out Shares distributed pursuant to this Section 3.1(d). For greater certainty, the exchange of New Pacific Class A Shares for New Pacific Shares and the Spin-Out Shares pursuant to this Section 3.1(d) is intended to be governed by section 86 of the Tax Act.
(e) Concurrently with Section 3.1(d) of this Plan of Arrangement, outside of and not as part of this Plan of Arrangement:
(i) the New Pacific Existing Shares (representing for listing purposes the New Pacific Class A Shares) will be delisted from the TSX and the New Pacific Shares will be, simultaneously and without interruption, listed for trading on the TSX (subject to standard post-closing listing conditions imposed by the TSX in similar circumstances); and
(ii) the Whitehorse Shares will be listed for trading on the TSXV (subject to standard post-closing listing conditions imposed by the TSXV in similar circumstances).
(f) Concurrently with Section 3.1(d) of this Plan of Arrangement, pursuant to and in accordance with the Omnibus Plan, and in order to reflect the FMV Reduction of a New Pacific Share, each Option outstanding immediately prior to this Section 3.1(f) shall be, and shall be deemed to be, simultaneously surrendered and transferred by the holder thereof to New Pacific (free and clear of any Encumbrances), and as the sole consideration therefor, New Pacific shall grant to such holders thereof a number of Replacement Options (with the aggregate number of Replacement Options being rounded down to the nearest whole number), such that, for each New Pacific Existing Share the holder would have been entitled to acquire under the Option, the holder will instead be entitled to acquire one New Pacific Share pursuant to the corresponding Replacement Option for an exercise price (within the meaning of the Omnibus Plan) (rounded up to the nearest cent) that has been reduced to reflect the FMV Reduction of a New Pacific Share, provided that, for greater certainty:
- 21 -
(i) the exercise price of the Replacement Option shall be further adjusted to the extent, if any, required to ensure that (A) the amount by which the total value of the New Pacific Shares which may be acquired under the Replacement Option exceeds the aggregate exercise price payable thereunder, determined immediately after this Section 3.1(f), does not exceed (B) the amount by which the total value of the New Pacific Existing Shares which could be acquired under the Option exceeds the aggregate exercise price payable thereunder, determined immediately prior to this Section 3.1(f);
(ii) the holder of an Option will receive no consideration other than the Replacement Option in respect of the transfer of the Option pursuant to this Section 3.1(f);
(iii) no Replacement Options will be exercisable until after the date that is after five trading days following the date the New Pacific Shares appear on the TSX's publicly disseminated trading list;
(iv) the other terms and conditions of the Replacement Option will be identical to the Option so exchanged; and
(v) the Options so transferred to New Pacific pursuant to this Section 3.1(f) shall be cancelled.
For greater certainty, the exchange of the Options for Replacement Options pursuant to this Section 3.1(f) is intended to be governed by subsection 7(1.4) of the Tax Act.
(g) Concurrently with Section 3.1(d), pursuant to and in accordance with the Omnibus Plan, the notional account maintained by New Pacific for each Participant (within the meaning of the Omnibus Plan) pursuant to the Omnibus Plan shall be adjusted such that the aggregate number of RSUs credited to each such Participant as of immediately prior to this Section 3.1(g) shall be proportionately increased (and rounded down to the nearest whole number) by crediting the Participant with additional RSUs to reflect the FMV Reduction of a New Pacific Share, and the "Share" as defined in the Omnibus Plan applicable to each RSU shall refer to a New Pacific Share in place of a New Pacific Existing Share; and further provided that all other terms and conditions of the RSUs as adjusted pursuant to this Section 3.1(g) shall be identical to the non-adjusted RSUs.
- 22 -
(h) The authorized share structure, Notice of Articles and Articles of New Pacific will be amended by eliminating the New Pacific Class A Shares and deleting the special rights and restrictions attached thereto, such that, following such amendment, New Pacific will be authorized to issue an unlimited number of New Pacific Shares.
(i) Any remaining Spin-Out Shares (including any portion or fraction of a Spin-Out Share) registered in the name of New Pacific (excluding, for the avoidance of doubt, any Spin-Out Shares distributed by New Pacific pursuant to Section 3.1(d)(ii) of this Plan of Arrangement or set aside pursuant to Section 5.3 of this Plan of Arrangement) shall be surrendered by New Pacific to Whitehorse (free and clear of all Encumbrances) for cancellation without any payment or repayment of capital in respect thereof, and upon such surrender, New Pacific shall be removed from the register of holders of Whitehorse Shares maintained by or on behalf of Whitehorse in respect of such Spin-Out Shares.
3.2 No Fractional Shares. Notwithstanding any other provision of this Plan of Arrangement, no fractional Spin-Out Shares will be distributed by New Pacific pursuant to Section 3.1(d)(ii) of the Plan of Arrangement. If a New Pacific Shareholder would, but for this Section 3.2, otherwise be entitled under this Plan of Arrangement to receive a fractional Spin- Out Share, the number of Spin-Out Shares actually distributable to such New Pacific Shareholder shall, notwithstanding any other provision of this Plan of Arrangement, be rounded down to the next lower whole number, and the fractional entitlement shall be cancelled without any compensation or other consideration therefor. For greater certainty, in calculating such fractional interests, all fractional entitlements of any particular New Pacific Shareholder shall be aggregated prior to rounding.
3.3 Deemed Fully Paid and Non-Assessable Shares. All New Pacific Shares and New Pacific Class A Shares issued pursuant hereto will be deemed to be validly issued and outstanding as fully paid and non-assessable shares for all purposes of the BCBCA.
3.4 Supplementary Actions. Notwithstanding that the transactions and events set out in Section 3.1 of this Plan of Arrangement will occur and will be deemed to occur in the chronological or concurrent order therein set out without any act or formality, each of New Pacific and Whitehorse will be required to make, do and execute or cause and procure to be made, done and executed all such further acts, deeds, agreements, transfers, assurances, instruments or documents as may be required to give effect to, or further document or evidence, any of the transactions or events set out in Section 3.1 of this Plan of Arrangement, including, without limitation, any resolutions of directors authorizing the issue, transfer or redemption of shares, any share transfer powers evidencing the transfer of shares and any receipt therefor, any necessary additions to or deletions from share registers, and agreements for stock options.
3.5 Withholding. Each of New Pacific, Whitehorse and the Depositary will be entitled to deduct and withhold from any cash payment or any issue, transfer or distribution of New Pacific Shares or Spin-Out Shares made pursuant to this Plan of Arrangement such amounts as may be required to be deducted and withheld pursuant to the Tax Act or any other applicable law, and any amount so deducted and withheld will be deemed for all purposes of this Plan of Arrangement to be paid, issued, transferred or distributed to the person entitled thereto under the Plan of Arrangement, provided such amount is remitted to the appropriate governmental authority. Without limiting the generality of the foregoing, any New Pacific Shares or Spin-Out Shares so deducted and withheld may be sold on behalf of the person entitled to receive them for the purpose of generating cash proceeds, net of brokerage fees and other reasonable expenses, sufficient to satisfy all remittance obligations relating to the required deduction and withholding, and any cash remaining after such remittance will be paid to the person forthwith.
- 23 -
3.6 U.S. Securities Law Matters. The Court is advised that the Arrangement will be carried out with the intention that the New Pacific Shares issued and Spin-Out Shares distributed by New Pacific on completion of the Arrangement will be issued and distributed, respectively, in reliance on the exemption from the registration requirements of the U.S. Securities Act provided by Section 3(a)(10) of the U.S. Securities Act.
ARTICLE 4
CERTIFICATES
4.1 New Pacific Class A Shares. Recognizing that the New Pacific Existing Shares will be re-named and re-designated as New Pacific Class A Shares pursuant to Section 3.1(b) of this Plan of Arrangement and that the New Pacific Class A Shares will be exchanged for New Pacific Shares pursuant to Section 3.1(d) of this Plan of Arrangement, New Pacific will not issue replacement share certificates representing the New Pacific Class A Shares.
4.2 Spin-Out Share Certificates. As soon as practicable following the Effective Date, Whitehorse will deliver or cause to be delivered to the Depositary certificates representing the Spin-Out Shares of which each former registered holder of New Pacific Existing Shares will be the registered holder of in accordance with the provisions of Section 3.1(d) of this Plan of Arrangement, which certificates will be held by the Depositary as agent and nominee for such holders for distribution thereto in accordance with the provisions of Section 6.1 of this Plan of Arrangement.
4.3 New Pacific Share Certificates. As soon as practicable following the Effective Date, New Pacific will deliver or cause to be delivered to the Depositary certificates representing the New Pacific Shares issued to former registered holders of New Pacific Existing Shares in accordance with the provisions of Section 3.1(d) of this Plan of Arrangement, which certificates will be held by the Depositary as agent and nominee for such holders for distribution thereto in accordance with the provisions of Section 6.1 of this Plan of Arrangement.
4.4 Option Grant Agreements. Any grant agreement, certificate or other documentation previously evidencing an Option shall, following the effective time of Section 3.1(f) of this Plan of Arrangement, evidence and be deemed to evidence a Replacement Option without any further action required of New Pacific or the holder thereof.
ARTICLE 5
RIGHTS OF DISSENT
5.1 Dissent Right. Registered holders of New Pacific Existing Shares may exercise Dissent Rights with respect to their New Pacific Existing Shares in connection with the Arrangement pursuant to the Interim Order and in the manner set forth in the Dissent Procedures, as they may be amended by the Interim Order, Final Order or any other order of the Court, and provided that such dissenting New Pacific Shareholder delivers a written notice of dissent to New Pacific at least two Business Days before the day of the Meeting or any adjournment or postponement thereof.
- 24 -
5.2 Dealing with Dissent Shares. New Pacific Shareholders who duly exercise Dissent Rights with respect to their Dissent Shares and who:
(a) are ultimately entitled to be paid fair value for their Dissent Shares will be deemed to have transferred their Dissent Shares to New Pacific for cancellation as of the effective time of Section 3.1(a) of this Plan of Arrangement; or
(b) for any reason are ultimately not entitled to be paid for their Dissent Shares, will be deemed to have participated in the Arrangement on the same basis as a non- dissenting New Pacific Shareholder and will be entitled to receive only the securities contemplated in Section 3.1 hereof that such New Pacific Shareholder would have received pursuant to the Arrangement if such New Pacific Shareholder had not exercised Dissent Rights,
but in no case will New Pacific be required to recognize such persons as holding New Pacific Existing Shares on or after the Effective Date.
5.3 Reservation of Spin-Out Shares. If a New Pacific Shareholder exercises Dissent Rights, New Pacific will, on the Effective Date, set aside and not distribute that number of whole Spin-Out Shares which are attributable to the New Pacific Existing Shares for which Dissent Rights have been exercised. If such dissenting New Pacific Shareholder is ultimately not entitled to be paid for their Dissent Shares, New Pacific will distribute to such dissenting New Pacific Shareholder his, her or its pro rata portion of the Spin-Out Shares. If such dissenting New Pacific Shareholder duly complies with the Dissent Procedures and is ultimately entitled to be paid for their Dissent Shares, then New Pacific will retain the portion of the Spin-Out Shares attributable to such dissenting New Pacific Shareholder and such Spin- Out Shares shall be surrendered by New Pacific to Whitehorse (free and clear of all Encumbrances) for cancellation without any payment or repayment of capital in respect thereof, and upon such surrender, New Pacific shall be removed from the register of holders of Whitehorse Shares maintained by or on behalf of Whitehorse.
ARTICLE 6
DELIVERY OF SHARES
6.1 Delivery of Shares.
(a) Upon surrender to the Depositary for cancellation of a certificate that immediately before the Effective Time represented one or more outstanding New Pacific Existing Shares, together with a duly completed and executed Letter of Transmittal and such additional documents and instruments as the Depositary may reasonably require, the holder of such surrendered certificate will be entitled to receive in exchange therefor, and the Depositary will deliver to such holder following the Effective Time, a certificate representing the New Pacific Shares and a certificate representing the Spin-Out Shares that such holder is entitled to receive in accordance with Section 3.1(d) of this Plan of Arrangement.
- 25 -
(b) After the Effective Time and until surrendered for cancellation as contemplated by Section 6.1(a) of this Plan of Arrangement, each certificate that immediately prior to the Effective Time represented one or more New Pacific Existing Shares will be deemed at all times to represent only the right to receive in exchange therefor a certificate representing the New Pacific Shares and a certificate representing the Spin-Out Shares that such holder is entitled to receive in accordance with Section 3.1(d) of this Plan of Arrangement.
6.2 Lost Certificates. If any certificate that immediately prior to the Effective Time represented one or more outstanding New Pacific Existing Shares that were exchanged for New Pacific Shares and Spin-Out Shares in accordance with Section 3.1(d) of this Plan of Arrangement, will have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the holder claiming such certificate to be lost, stolen or destroyed, the Depositary will deliver in exchange for such lost, stolen or destroyed certificate, the New Pacific Shares and Spin-Out Shares that such holder is entitled to receive in accordance with Section 3.1(d) of this Plan of Arrangement. When authorizing such delivery of New Pacific Shares and Spin-Out Shares that such holder is entitled to receive in exchange for such lost, stolen or destroyed certificate, the holder to whom such securities are to be delivered will, as a condition precedent to the delivery of such New Pacific Shares and Spin-Out Shares give a bond satisfactory to New Pacific, Whitehorse and the Depositary in such amount as New Pacific, Whitehorse and the Depositary may direct, or otherwise indemnify New Pacific, Whitehorse and the Depositary in a manner satisfactory to New Pacific, Whitehorse and the Depositary, against any claim that may be made against New Pacific, Whitehorse or the Depositary with respect to the certificate alleged to have been lost, stolen or destroyed and will otherwise take such actions as may be required by the Articles of New Pacific.
6.3 Distributions with Respect to Unsurrendered Certificates. No dividend or other distribution declared or made after the Effective Time with respect to New Pacific Shares or Spin-Out Shares with a record date after the Effective Time will be delivered to the holder of any unsurrendered certificate that, immediately prior to the Effective Time, represented outstanding New Pacific Existing Shares unless and until the holder of such certificate will have complied with the provisions of Section 6.1 or Section 6.2 of this Plan of Arrangement, as applicable. Subject to applicable law and to Section 3.5 of this Plan of Arrangement, at the time of such compliance, there will, in addition to the delivery of the New Pacific Shares and Spin- Out Shares to which such holder is thereby entitled, be delivered to such holder, without interest, the amount of the dividend or other distribution with a record date after the Effective Time theretofore paid with respect to such New Pacific Shares and/or Spin-Out Shares, as applicable.
6.4 Limitation and Proscription. To the extent that a former holder of New Pacific Existing Shares will not have complied with the provisions of Section 6.1 or Section 6.2 of this Plan of Arrangement, as applicable, on or before the date that is six years after the Effective Date (the "Final Proscription Date"), then the New Pacific Shares and Spin-Out Shares that such former holder was entitled to receive will be automatically cancelled without any repayment of capital in respect thereof and the New Pacific Shares and Spin-Out Shares to which such former holder of New Pacific Existing Shares was entitled, will be delivered to Whitehorse (in the case of the Whitehorse Shares) or New Pacific (in the case of the New Pacific Shares) by the Depositary and certificates representing such New Pacific Shares and Spin-Out Shares will be cancelled by New Pacific and Whitehorse, as applicable, and the interest of the former holder of New Pacific Existing Shares in such New Pacific Shares and Spin-Out Shares or to which it was entitled will be terminated as of such Final Proscription Date.
- 26 -
6.5 Paramountcy. From and after the Effective Time: (i) this Plan of Arrangement will take precedence and priority over any and all New Pacific Existing Shares, Options and RSUs issued or granted prior to the Effective Time; and (ii) the rights and obligations of the registered holders of New Pacific Existing Shares and of New Pacific, Whitehorse, the Depositary and any transfer agent or other depositary therefor, will be solely as provided for in this Plan of Arrangement.
ARTICLE 7
AMENDMENTS & WITHDRAWAL
7.1 Amendments. New Pacific, in its sole discretion, reserves the right to amend, modify and/or supplement this Plan of Arrangement from time to time at any time prior to the Effective Time provided that any such amendment, modification or supplement must be contained in a written document that is filed with the Court and, if made following the Meeting, approved by the Court.
7.2 Amendments Made Prior to or at the Meeting. Any amendment, modification or supplement to this Plan of Arrangement may be proposed by New Pacific at any time prior to or at the Meeting with or without any prior notice or communication, and if so proposed and accepted by the New Pacific Shareholders voting at the Meeting, will become part of this Plan of Arrangement for all purposes.
7.3 Amendments Made After the Meeting. Any amendment, modification or supplement to this Plan of Arrangement may be proposed by New Pacific after the Meeting but prior to the Effective Time and any such amendment, modification or supplement which is approved by the Court following the Meeting will be effective and will become part of the Plan of Arrangement for all purposes. Notwithstanding the foregoing, any amendment, modification or supplement to this Plan of Arrangement may be made following the granting of the Final Order unilaterally by New Pacific, provided that it concerns a matter which, in the reasonable opinion of New Pacific, is of an administrative nature required to better give effect to the implementation of this Plan of Arrangement and is not adverse to the financial or economic interests of any holder of New Pacific Existing Shares.
7.4 Withdrawal. Notwithstanding any prior approvals by the Court or by New Pacific Shareholders, the Board of Directors may decide not to proceed with the Arrangement and to revoke the Arrangement Resolution at any time prior to the Effective Time, without further approval of the Court or the New Pacific Shareholders.
UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the three and six months ended December 31, 2020 and 2019
(Expressed in Canadian Dollars)
Notice to Readers of the Unaudited Condensed Consolidated Interim Financial Statements
for the three and six months ended December 31, 2020
The unaudited condensed consolidated interim financial statements of New Pacific Metals Corp. (the “Company”) for the three and six months ended December 31, 2020 (the “Financial Statements”) have been prepared by management and have not been reviewed by the Company’s independent auditors. The Financial Statements should be read in conjunction with the Company’s audited financial statements for the year ended June 30, 2020 which are available under the Company’s profile on SEDAR at www.sedar.com. The Financial Statements are stated in terms of Canadian dollars and are prepared in accordance with International Financial Reporting Standards.
New Pacific Metals Corp.
Unaudited Condensed Consolidated Interim Statements of Financial Position
(Expressed in Canadian dollars)
|
|
Notes
|
|
December 31, 2020
|
|
|
June 30, 2020
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
57,285,508
|
|
$
|
40,644,346
|
|
|
Short-term investments
|
4
|
|
6,197,708
|
|
|
20,633,772
|
|
|
Receivables
|
|
|
321,864
|
|
|
413,594
|
|
|
Deposits and prepayments
|
|
|
488,454
|
|
|
222,817
|
|
|
Assets held for distribution
|
3
|
|
-
|
|
|
11,849,971
|
|
|
|
|
|
64,293,534
|
|
|
73,764,500
|
|
|
Non-current Assets
|
|
|
|
|
|
|
|
|
Other tax receivable
|
5
|
|
2,757,383
|
|
|
2,862,468
|
|
|
Equity investments
|
6
|
|
929,327
|
|
|
5,603,591
|
|
|
Plant and equipment
|
8
|
|
1,402,803
|
|
|
1,535,923
|
|
|
Mineral property interests
|
9
|
|
92,589,287
|
|
|
95,049,576
|
|
|
TOTAL ASSETS
|
|
$
|
161,972,334
|
|
$
|
178,816,058
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
1,389,468
|
|
$
|
1,573,474
|
|
|
Payable for mineral property acquisition
|
|
|
-
|
|
|
263,120
|
|
|
Due to a related party
|
10
|
|
113,309
|
|
|
84,742
|
|
|
Liabilities held for distribution
|
3
|
|
-
|
|
|
122,178
|
|
|
|
|
|
1,502,777
|
|
|
2,043,514
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
Share capital
|
11
|
|
194,121,601
|
|
|
191,563,628
|
|
|
Share-based payment reserve
|
|
|
21,691,350
|
|
|
22,057,385
|
|
|
Accumulated other comprehensive income
|
|
|
785,762
|
|
|
6,599,738
|
|
|
Deficit
|
|
|
(56,082,172
|
)
|
|
(43,398,714
|
)
|
|
Total equity attributable to the equity holders of the Company
|
|
|
160,516,541
|
|
|
176,822,037
|
|
|
|
|
|
|
|
|
|
|
|
Non-controlling interests
|
12
|
|
(46,984
|
)
|
|
(49,493
|
)
|
|
Total Equity
|
|
|
160,469,557
|
|
|
176,772,544
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND EQUITY
|
|
$
|
161,972,334
|
|
$
|
178,816,058
|
|
Approved on behalf of the Board:
(Signed) David Kong
Director
(Signed) Mark Cruise
Director
See accompanying notes to the unaudited condensed consolidated interim financial statements
Page | 1
New Pacific Metals Corp.
Unaudited Condensed Consolidated Interim Statements of Income (Loss)
(Expressed in Canadian dollars)
|
|
|
|
Three Months Ended December 31,
|
|
|
Six Months Ended December 31,
|
|
|
|
Notes
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
Operating expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Project evaluation and corporate development
|
|
$
|
302,758
|
|
$
|
-
|
|
$
|
482,168
|
|
$
|
-
|
|
|
Depreciation
|
|
|
14,455
|
|
|
3,525
|
|
|
28,565
|
|
|
5,714
|
|
|
Filing and listing
|
|
|
147,891
|
|
|
144,853
|
|
|
259,557
|
|
|
207,866
|
|
|
Investor relations
|
|
|
75,156
|
|
|
162,263
|
|
|
213,826
|
|
|
440,573
|
|
|
Professional fees
|
|
|
174,511
|
|
|
169,895
|
|
|
446,404
|
|
|
212,796
|
|
|
Salaries and benefits
|
|
|
358,710
|
|
|
625,559
|
|
|
863,646
|
|
|
828,557
|
|
|
Office and administration
|
|
|
164,477
|
|
|
225,882
|
|
|
446,070
|
|
|
349,486
|
|
|
Share-based compensation
|
11(b)
|
|
389,283
|
|
|
293,156
|
|
|
914,406
|
|
|
589,081
|
|
|
|
|
|
1,627,241
|
|
|
1,625,133
|
|
|
3,654,642
|
|
|
2,634,073
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from investments
|
7
|
|
(139,364
|
)
|
|
339,654
|
|
|
704,464
|
|
|
2,455,102
|
|
|
Loss on disposal of plant and equipment
|
8
|
|
-
|
|
|
-
|
|
|
(2,479
|
)
|
|
-
|
|
|
Foreign exchange loss
|
|
|
(557,051
|
)
|
|
(322,879
|
)
|
|
(878,779
|
)
|
|
(146,537
|
)
|
|
Other expense
|
|
|
(5
|
)
|
|
-
|
|
|
(465
|
)
|
|
-
|
|
|
|
|
|
(696,420
|
)
|
|
16,775
|
|
|
(177,259
|
)
|
|
2,308,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,323,661
|
)
|
$
|
(1,608,358
|
)
|
$
|
(3,831,901
|
)
|
$
|
(325,508
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity holders of the Company
|
|
$
|
(2,321,588
|
)
|
$
|
(1,599,824
|
)
|
$
|
(3,827,191
|
)
|
$
|
(313,886
|
)
|
|
Non-controlling interests
|
12
|
|
(2,073
|
)
|
|
(8,534
|
)
|
|
(4,710
|
)
|
|
(11,622
|
)
|
|
Net loss
|
|
$
|
(2,323,661
|
)
|
$
|
(1,608,358
|
)
|
$
|
(3,831,901
|
)
|
$
|
(325,508
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share attributable to the equity holders of the Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share
|
|
$
|
(0.02
|
)
|
$
|
(0.01
|
)
|
$
|
(0.03
|
)
|
$
|
(0.00
|
)
|
|
Weighted average number of common shares - basic and diluted
|
|
|
153,054,120
|
|
|
146,089,210
|
|
|
152,750,866
|
|
|
144,349,881
|
|
See accompanying notes to the unaudited condensed consolidated interim financial statements
Page | 2
New Pacific Metals Corp.
Unaudited Condensed Consolidated Interim Statements of Comprehensive Income (Loss)
(Expressed in Canadian dollars)
|
|
|
|
Three Months Ended December 31,
|
|
|
Six Months Ended December 31,
|
|
|
|
Notes
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,323,661
|
)
|
$
|
(1,608,358
|
)
|
$
|
(3,831,901
|
)
|
$
|
(325,508
|
)
|
|
Other comprehensive loss, net of taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Items that may subsequently be reclassified to net income or loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustment, net of tax of $nil
|
|
|
(4,017,389
|
)
|
|
(1,592,934
|
)
|
|
(5,806,757
|
)
|
|
(820,958
|
)
|
|
Other comprehensive loss, net of taxes
|
|
$
|
(4,017,389
|
)
|
$
|
(1,592,934
|
)
|
$
|
(5,806,757
|
)
|
$
|
(820,958
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity holders of the Company
|
|
$
|
(4,012,611
|
)
|
$
|
(1,597,219
|
)
|
$
|
(5,813,976
|
)
|
$
|
(806,508
|
)
|
|
Non-controlling interests
|
12
|
|
(4,778
|
)
|
|
4,285
|
|
|
7,219
|
|
|
(14,450
|
)
|
|
|
|
$
|
(4,017,389
|
)
|
$
|
(1,592,934
|
)
|
$
|
(5,806,757
|
)
|
$
|
(820,958
|
)
|
|
Total comprehensive loss, net of taxes
|
|
$
|
(6,341,050
|
)
|
$
|
(3,201,292
|
)
|
$
|
(9,638,658
|
)
|
$
|
(1,146,466
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity holders of the Company
|
|
$
|
(6,334,199
|
)
|
$
|
(3,197,043
|
)
|
$
|
(9,641,167
|
)
|
$
|
(1,120,394
|
)
|
|
Non-controlling interests
|
|
|
(6,851
|
)
|
|
(4,249
|
)
|
|
2,509
|
|
|
(26,072
|
)
|
|
Total comprehensive loss, net of taxes
|
|
$
|
(6,341,050
|
)
|
$
|
(3,201,292
|
)
|
$
|
(9,638,658
|
)
|
$
|
(1,146,466
|
)
|
See accompanying notes to the unaudited condensed consolidated interim financial statements
Page | 3
New Pacific Metals Corp.
Unaudited Condensed Consolidated Interim Statements of Cash Flows
(Expressed in Canadian dollars)
|
|
|
|
Three Months Ended December 31,
|
|
|
Six Months Ended December 31,
|
|
|
|
Notes
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,323,661
|
)
|
$
|
(1,608,358
|
)
|
$
|
(3,831,901
|
)
|
$
|
(325,508
|
)
|
|
Add (deduct) items not affecting cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss (income) from investments
|
|
|
139,364
|
|
|
(339,654
|
)
|
|
(704,464
|
)
|
|
(2,455,102
|
)
|
|
Dividends and interests received
|
|
|
127,717
|
|
|
117,629
|
|
|
215,713
|
|
|
350,985
|
|
|
Depreciation
|
|
|
14,455
|
|
|
3,525
|
|
|
28,565
|
|
|
5,714
|
|
|
Loss on disposal of plant and equipment
|
|
|
-
|
|
|
-
|
|
|
2,479
|
|
|
-
|
|
|
Share-based compensation
|
11(b)
|
|
414,077
|
|
|
293,156
|
|
|
959,692
|
|
|
589,081
|
|
|
Unrealized foreign exchange loss
|
|
|
557,051
|
|
|
322,879
|
|
|
878,779
|
|
|
146,537
|
|
|
Changes in non-cash operating working capital
|
16
|
|
92,139
|
|
|
(640,745
|
)
|
|
(883,863
|
)
|
|
(295,908
|
)
|
|
Net cash used in operating activities
|
|
|
(978,858
|
)
|
|
(1,851,568
|
)
|
|
(3,335,000
|
)
|
|
(1,984,201
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mineral property interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(1,122,934
|
)
|
|
(3,315,584
|
)
|
|
(2,876,227
|
)
|
|
(8,098,393
|
)
|
|
Acquisition of mineral concession
|
|
|
-
|
|
|
(2,041,480
|
)
|
|
-
|
|
|
(2,436,160
|
)
|
|
Plant and equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
(24,717
|
)
|
|
(21,042
|
)
|
|
(43,178
|
)
|
|
(64,376
|
)
|
|
Proceeds on disposals
|
|
|
-
|
|
|
-
|
|
|
1,808
|
|
|
-
|
|
|
Short-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds on disposals
|
|
|
6,000,000
|
|
|
-
|
|
|
14,000,000
|
|
|
1,978,450
|
|
|
Equity investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition
|
6
|
|
-
|
|
|
(4,771,338
|
)
|
|
-
|
|
|
(4,771,338
|
)
|
|
Proceeds on disposals
|
6
|
|
5,572,409
|
|
|
787,780
|
|
|
5,572,409
|
|
|
6,020,914
|
|
|
Changes in other tax receivable
|
|
|
(34,190
|
)
|
|
(284,777
|
)
|
|
(86,009
|
)
|
|
(816,157
|
)
|
|
Net cash provided by (used in) investing activities
|
|
|
10,390,568
|
|
|
(9,646,441
|
)
|
|
16,568,803
|
|
|
(8,187,060
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common shares
|
|
|
418,525
|
|
|
15,887,034
|
|
|
702,154
|
|
|
16,071,434
|
|
|
Net cash provided by financing activities
|
|
|
418,525
|
|
|
15,887,034
|
|
|
702,154
|
|
|
16,071,434
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
2,689,686
|
|
|
(165,319
|
)
|
|
2,705,205
|
|
|
(129,872
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents
|
|
|
12,519,921
|
|
|
4,223,706
|
|
|
16,641,162
|
|
|
5,770,301
|
|
|
Cash and cash equivalents, beginning of the period
|
|
|
44,765,587
|
|
|
29,396,556
|
|
|
40,644,346
|
|
|
27,849,961
|
|
|
Cash and cash equivalents, end of the period
|
|
$
|
57,285,508
|
|
$
|
33,620,262
|
|
$
|
57,285,508
|
|
$
|
33,620,262
|
|
|
Supplementary cash flow information
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the unaudited condensed consolidated interim financial statements
Page | 4
New Pacific Metals Corp.
Unaudited Condensed Consolidated Interim Statements of Change in Equity
(Expressed in Canadian dollars, except for share figures)
|
|
|
|
Share capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
Total equity
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Share-based
|
|
|
other
|
|
|
|
|
|
attributable to the
|
|
|
Non-
|
|
|
|
|
|
|
|
|
common
|
|
|
|
|
|
payment
|
|
|
comprehensive
|
|
|
|
|
|
equity holders of
|
|
|
controlling
|
|
|
|
|
|
|
Notes
|
|
shares issued
|
|
|
Amount
|
|
|
reserve
|
|
|
income
|
|
|
Deficit
|
|
|
the Company
|
|
|
interests
|
|
|
Total equity
|
|
|
Balance, July 1, 2019
|
|
|
142,432,812
|
|
$
|
150,005,738
|
|
$
|
19,978,062
|
|
$
|
3,264,901
|
|
$
|
(51,331,013
|
)
|
$
|
121,917,688
|
|
$
|
(37,685
|
)
|
$
|
121,880,003
|
|
|
Options exercised
|
|
|
270,806
|
|
|
365,798
|
|
|
(127,898
|
)
|
|
-
|
|
|
-
|
|
|
237,900
|
|
|
-
|
|
|
237,900
|
|
|
Common shares issued through bought deal
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
financing
|
|
|
4,312,500
|
|
|
15,833,533
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
15,833,533
|
|
|
-
|
|
|
15,833,533
|
|
|
Share-based compensation
|
|
|
-
|
|
|
-
|
|
|
982,531
|
|
|
-
|
|
|
-
|
|
|
982,531
|
|
|
-
|
|
|
982,531
|
|
|
Common shares issued to acquire mineral property interest
|
|
|
291,000
|
|
|
460,144
|
|
|
(460,144
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Net loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(313,886
|
)
|
|
(313,886
|
)
|
|
(11,622
|
)
|
|
(325,508
|
)
|
|
Currency translation adjustment
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(806,508
|
)
|
|
-
|
|
|
(806,508
|
)
|
|
(14,450
|
)
|
|
(820,958
|
)
|
|
Balance, December 31, 2019
|
|
|
147,307,118
|
|
$
|
166,665,213
|
|
$
|
20,372,551
|
|
$
|
2,458,393
|
|
$
|
(51,644,899
|
)
|
$
|
137,851,258
|
|
$
|
(63,757
|
)
|
$
|
137,787,501
|
|
|
Options exercised
|
|
|
617,260
|
|
|
1,192,279
|
|
|
(397,277
|
)
|
|
-
|
|
|
-
|
|
|
795,002
|
|
|
-
|
|
|
795,002
|
|
|
Restricted share units vested
|
|
|
136,400
|
|
|
641,080
|
|
|
(641,080
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Common shares issued through bought deal financing
|
|
|
4,238,000
|
|
|
23,065,056
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
23,065,056
|
|
|
-
|
|
|
23,065,056
|
|
|
Share-based compensation
|
|
|
-
|
|
|
-
|
|
|
2,723,191
|
|
|
-
|
|
|
-
|
|
|
2,723,191
|
|
|
-
|
|
|
2,723,191
|
|
|
Net income (loss)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
8,246,185
|
|
|
8,246,185
|
|
|
(7,790
|
)
|
|
8,238,395
|
|
|
Currency translation adjustment
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4,141,345
|
|
|
-
|
|
|
4,141,345
|
|
|
22,054
|
|
|
4,163,399
|
|
|
Balance, June 30, 2020
|
|
|
152,298,778
|
|
$
|
191,563,628
|
|
$
|
22,057,385
|
|
$
|
6,599,738
|
|
$
|
(43,398,714
|
)
|
$
|
176,822,037
|
|
$
|
(49,493
|
)
|
$
|
176,772,544
|
|
|
Options exercised
|
11(b)
|
|
656,766
|
|
|
1,049,024
|
|
|
(346,870
|
)
|
|
-
|
|
|
-
|
|
|
702,154
|
|
|
-
|
|
|
702,154
|
|
|
Restricted share units vested
|
|
|
223,150
|
|
|
1,048,805
|
|
|
(1,048,805
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Share-based compensation
|
11(b)
|
|
-
|
|
|
-
|
|
|
1,489,784
|
|
|
-
|
|
|
-
|
|
|
1,489,784
|
|
|
-
|
|
|
1,489,784
|
|
|
Common shares issued to acquire mineral property interest
|
11(c)
|
|
291,000
|
|
|
460,144
|
|
|
(460,144
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Spin-out distribution
|
3
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(8,856,267
|
)
|
|
(8,856,267
|
)
|
|
-
|
|
|
(8,856,267
|
)
|
|
Net income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(3,827,191
|
)
|
|
(3,827,191
|
)
|
|
(4,710
|
)
|
|
(3,831,901
|
)
|
|
Currency translation adjustment
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(5,813,976
|
)
|
|
-
|
|
|
(5,813,976
|
)
|
|
7,219
|
|
|
(5,806,757
|
)
|
|
Balance, December 31, 2020
|
|
|
153,469,694
|
|
$
|
194,121,601
|
|
$
|
21,691,350
|
|
$
|
785,762
|
|
$
|
(56,082,172
|
)
|
$
|
160,516,541
|
|
$
|
(46,984
|
)
|
$
|
160,469,557
|
|
See accompanying notes to the unaudited condensed consolidated interim financial statements
Page | 5
1. CORPORATE INFORMATION
New Pacific Metals Corp. along with its subsidiaries (collectively, the “Company” or “New Pacific”) is a Canadian mining issuer engaged in exploring and developing mineral properties in Bolivia. The Company is currently exploring and advancing development of its mineral properties and has not yet determined if they contain potentially recoverable mineral reserves. The underlying value and the recoverability of the amounts shown for mineral properties are entirely dependent upon the existence of recoverable mineral reserves, the ability of the Company to obtain the necessary financing to complete the exploration and development of the mineral properties, and future profitable production or proceeds from the disposition of the mineral property interests.
The Company is publicly listed on the Toronto Stock Exchange (“TSX”) under the symbol “NUAG” and on the OTCQX Best Market in the United States under the symbol “NUPMF”. The head office and the registered and records offices of the Company are located at 1066 West Hastings Street, Suite 1750, Vancouver, British Columbia, Canada, V6E 3X1.
2. SIGNIFICANT ACCOUNTING POLICIES
(a) Statement of Compliance and Basis of Preparation
These unaudited condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standard 34 – Interim Financial Reporting (“IAS 34”) of the International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). These unaudited condensed consolidated interim financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended June 30, 2020. These unaudited condensed consolidated interim financial statements follow the same significant accounting policies set out in Note 2 to the audited consolidated financial statements for the year ended June 30, 2020.
These unaudited condensed consolidated interim financial statements have been prepared on a going concern basis.
The unaudited condensed consolidated interim financial statements of the Company as at and for the three and six months ended December 31, 2020 was authorized for issue in accordance with a resolution of the Company’s board of directors (the “Board”) dated on February 11, 2021.
(b) Basis of Consolidation
These consolidated financial statements include the accounts of the Company and its wholly or partially owned subsidiaries.
Subsidiaries are consolidated from the date on which the Company obtains control up to the date of the disposition of control. Control is achieved when the Company has power over the subsidiary, is exposed or has rights to variable returns from its involvement with the subsidiary, and has the ability to use its power to affect its returns. For non-wholly-owned subsidiaries over which the Company has control, the net assets attributable to outside equity shareholders are presented as “non-controlling interests” in the equity section of the consolidated statements of financial position. Net income for the period that is attributable to the non-controlling interests is calculated based on the ownership of the non-controlling interest shareholders in the subsidiary.
Page | 6
Balances, transactions, income and expenses between the Company and its subsidiaries are eliminated on consolidation.
Details of the Company’s significant subsidiaries which are consolidated are as follows:
|
|
|
|
Proportion of ownership interest held
|
|
|
|
|
Country of
|
December 31,
|
June 30,
|
Mineral
|
|
Name of subsidiaries
|
Principal activity
|
incorporation
|
2020
|
2020
|
properties
|
|
New Pacific Offshore Inc.
|
Holding company
|
BVI (i)
|
100%
|
100%
|
|
|
SKN Nickel & Platinum Ltd.
|
Holding company
|
BVI
|
100%
|
100%
|
|
|
Glory Metals Investment Corp. Limited
|
Holding company
|
Hong Kong
|
100%
|
100%
|
|
|
New Pacific Investment Corp. Limited
|
Holding company
|
Hong Kong
|
100%
|
100%
|
|
|
New Pacific Andes Corp. Limited
|
Holding company
|
Hong Kong
|
100%
|
100%
|
|
|
Fortress Mining Inc.
|
Holding company
|
BVI
|
100%
|
100%
|
|
|
Minera Alcira S.A.
|
Mining company
|
Bolivia
|
100%
|
100%
|
Silver Sand
|
|
NPM Minerales S.A.
|
Mining company
|
Bolivia
|
100%
|
100%
|
|
|
Colquehuasi S.R.L.
|
Mining company
|
Bolivia
|
100%
|
100%
|
Silverstrike
|
|
Qinghai Found Mining Co., Ltd.
|
Mining company
|
China
|
82%
|
82%
|
RZY
|
|
Whitehorse Gold Corp.
|
Mining company
|
Canada
|
0%
|
100%
|
|
|
Tagish Lake Gold Corp.
|
Mining company
|
Canada
|
0%
|
100%
|
TLG
|
|
(i) British Virgin Islands ("BVI")
|
|
|
|
|
|
3. WHITEHORSE GOLD CORP. SPIN-OUT TRANSACTION
During Fiscal 2020, the Company performed a strategic review on the Tagish Lake Gold Project (“TLG Project”) located in the Yukon Territory, Canada and established Whitehorse Gold Corp. (“Whitehorse Gold”) to acquire the TLG Project from the Company for a cash consideration of $3,000,000 plus 20,000,000 Whitehorse Gold common shares (“spin-out shares”).
On November 18, 2020, the Company distributed all of the spin-out shares held by it to the Company’s shareholders on a pro rata basis by way of a plan of arrangement under the Business Corporations Act (British Columbia). The spin-out shares were valued at $8,856,267 upon distribution. Assets and liabilities of Whitehorse Gold and TLG Project which were classified as held for distribution as at June 30, 2020 in the amount of $11,849,971 and $122,178, respectively, were disposed upon completion of the spin-out. On November 25, 2020, Whitehorse Gold’s common shares became listed for trading on the TSX Venture Exchange (“TSXV”) under the symbol “WHG”.
4. SHORT-TERM INVESTMENTS
Short-term investments consist of the following:
|
|
|
December 31, 2020
|
|
|
June 30, 2020
|
|
|
Guaranteed Investment Certificates
|
$
|
6,032,885
|
|
$
|
20,003,028
|
|
|
Bonds
|
|
164,823
|
|
|
630,744
|
|
|
|
$
|
6,197,708
|
|
$
|
20,633,772
|
|
5. OTHER TAX RECEIVABLE
Other tax receivable is comprised of value-added tax (“VAT”) imposed by the Bolivian government. The Company had VAT outputs through its exploration costs and general expenses incurred in Bolivia. These VAT outputs are deductible against potential future VAT inputs that will be generated through mining production sales.
Page | 7
6. EQUITY INVESTMENTS
Equity investments represent equity interests of other publicly traded or privately-held companies that the Company has acquired on the open market or through private placements. These equity interests consist of common shares, preferred shares, and warrants. Equity investments are classified as FVTPL and are measured at fair value on initial recognition and subsequent measurement. The fair value of warrants was determined using the Black-Scholes pricing model as at the acquisition date as well as at each period end.
The equity investments are summarized as follows:
|
|
|
December 31, 2020
|
|
|
June 30, 2020
|
|
|
Common or preferred shares
|
|
|
|
|
|
|
|
Public companies
|
$
|
393,900
|
|
$
|
4,795,960
|
|
|
Warrants
|
|
|
|
|
|
|
|
Public companies
|
|
535,427
|
|
|
807,631
|
|
|
|
$
|
929,327
|
|
$
|
5,603,591
|
|
The fair value of the warrants was estimated using the Black Scholes options pricing model with the following assumptions:
|
|
|
December 31, 2020
|
|
|
June 30, 2020
|
|
|
Risk free interest rate
|
|
0.39%
|
|
|
0.36%
|
|
|
Expected volatility
|
|
119%
|
|
|
122%
|
|
|
Expected life of warrants in years
|
|
0.69
|
|
|
1.20
|
|
The continuity of equity investments is summarized as follows:
|
|
|
|
|
|
Accumulated mark-to-
|
|
|
|
|
|
|
|
market gain included
|
|
|
|
|
Fair value
|
|
|
in net income
|
|
|
Balance, July 1, 2019
|
$
|
5,110,893
|
|
$
|
3,035,483
|
|
|
Acquisition
|
|
5,018,338
|
|
|
-
|
|
|
Proceeds on disposal
|
|
(6,131,622
|
)
|
|
-
|
|
|
Change in fair value
|
|
1,605,982
|
|
|
1,605,982
|
|
|
Balance, June 30, 2020
|
$
|
5,603,591
|
|
$
|
4,641,465
|
|
|
Proceeds on disposal
|
|
(5,572,409
|
)
|
|
|
|
|
Change in fair value
|
|
898,145
|
|
|
898,145
|
|
|
Balance, December 31, 2020
|
$
|
929,327
|
|
$
|
5,539,610
|
|
Page | 8
7. INCOME (LOSS) FROM INVESTMENTS
Income (loss) from investments consist of:
|
|
|
Three Months Ended December 31,
|
|
|
Six Months Ended December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
Fair value change on equity investments
|
$
|
136,658
|
|
$
|
142,178
|
|
$
|
898,145
|
|
$
|
2,325,805
|
|
|
Fair value change on bonds
|
|
(402,859
|
)
|
|
189,594
|
|
|
(438,618
|
)
|
|
111,520
|
|
|
Dividend income
|
|
70,412
|
|
|
-
|
|
|
141,429
|
|
|
-
|
|
|
Interest income
|
|
56,425
|
|
|
7,882
|
|
|
103,508
|
|
|
17,777
|
|
|
Income (loss) from investments
|
$
|
(139,364
|
)
|
$
|
339,654
|
|
$
|
704,464
|
|
$
|
2,455,102
|
|
8. PLANT AND EQUIPMENT
|
|
|
|
|
|
|
|
|
|
|
|
Office
|
|
|
|
|
|
|
|
|
|
|
Land and
|
|
|
|
|
|
Motor
|
|
|
equipment and
|
|
|
Computer
|
|
|
|
|
|
Cost
|
|
building
|
|
|
Machinery
|
|
|
vehicles
|
|
|
furniture
|
|
|
software
|
|
|
Total
|
|
|
Balance, July 1, 2019
|
$
|
1,715,235
|
|
$
|
1,381,268
|
|
$
|
350,934
|
|
$
|
229,366
|
|
$
|
126,257
|
|
$
|
3,803,060
|
|
|
Additions
|
|
-
|
|
|
52,734
|
|
|
40,296
|
|
|
77,566
|
|
|
137,696
|
|
|
308,292
|
|
|
Reclassified to assets held for distribution
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(13,883
|
)
|
|
(13,883
|
)
|
|
Foreign currency translation impact
|
|
34,083
|
|
|
9,253
|
|
|
11,566
|
|
|
4,296
|
|
|
4
|
|
|
59,202
|
|
|
Balance, June 30, 2020
|
$
|
1,749,318
|
|
$
|
1,443,255
|
|
$
|
402,796
|
|
$
|
311,228
|
|
$
|
250,074
|
|
$
|
4,156,671
|
|
|
Additions
|
|
-
|
|
|
2,941
|
|
|
-
|
|
|
40,237
|
|
|
-
|
|
|
43,178
|
|
|
Disposals
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(38,646
|
)
|
|
-
|
|
|
(38,646
|
)
|
|
Foreign currency translation impact
|
|
(56,448
|
)
|
|
(17,426
|
)
|
|
(20,345
|
)
|
|
(8,126
|
)
|
|
4
|
|
|
(102,341
|
)
|
|
Balance, December 31, 2020
|
$
|
1,692,870
|
|
$
|
1,428,770
|
|
$
|
382,451
|
|
$
|
304,693
|
|
$
|
250,078
|
|
$
|
4,058,862
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation and amortization
|
|
|
Balance, July 1, 2019
|
$
|
(890,754
|
)
|
$
|
(1,149,255
|
)
|
$
|
(141,238
|
)
|
$
|
(184,800
|
)
|
$
|
(126,210
|
)
|
$
|
(2,492,257
|
)
|
|
Depreciation and amortization
|
|
-
|
|
$
|
(30,607
|
)
|
$
|
(54,118
|
)
|
$
|
(35,093
|
)
|
$
|
(1,941
|
)
|
$
|
(121,759
|
)
|
|
Reclassified to assets held for distribution
|
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
46
|
|
$
|
46
|
|
|
Foreign currency translation impact
|
|
-
|
|
$
|
(1,693
|
)
|
$
|
(3,360
|
)
|
$
|
(1,722
|
)
|
$
|
(3
|
)
|
$
|
(6,778
|
)
|
|
Balance, June 30, 2020
|
$
|
(890,754
|
)
|
$
|
(1,181,555
|
)
|
$
|
(198,716
|
)
|
$
|
(221,615
|
)
|
$
|
(128,108
|
)
|
$
|
(2,620,748
|
)
|
|
Depreciation and amortization
|
|
-
|
|
|
(16,283
|
)
|
|
(30,435
|
)
|
|
(23,907
|
)
|
|
(15,240
|
)
|
|
(85,865
|
)
|
|
Disposals
|
|
-
|
|
|
|
|
|
-
|
|
|
34,359
|
|
|
-
|
|
|
34,359
|
|
|
Foreign currency translation impact
|
|
-
|
|
|
4,539
|
|
|
8,642
|
|
|
3,017
|
|
|
(3
|
)
|
|
16,195
|
|
|
Balance, December 31, 2020
|
$
|
(890,754
|
)
|
$
|
(1,193,299
|
)
|
$
|
(220,509
|
)
|
$
|
(208,146
|
)
|
$
|
(143,351
|
)
|
$
|
(2,656,059
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2020
|
$
|
858,564
|
|
$
|
261,700
|
|
$
|
204,080
|
|
$
|
89,613
|
|
$
|
121,966
|
|
$
|
1,535,923
|
|
|
Balance, December 31, 2020
|
$
|
802,116
|
|
$
|
235,471
|
|
$
|
161,942
|
|
$
|
96,547
|
|
$
|
106,727
|
|
$
|
1,402,803
|
|
During the three and six months ended December 31, 2020, certain plant and equipment were disposed for proceeds of $nil and $1,808, respectively (three and six months ended December 31, 2019 - $nil and $nil, respectively) and loss of $nil and $2,479, respectively (three and six months ended December 31, 2019 - $nil and $nil, respectively).
Page | 9
9. MINERAL PROPERTY INTERESTS
(a) Silver Sand Project
On July 20, 2017, the Company acquired the Silver Sand Project. The Silver Sand Project is located in the Colavi District of the Potosí Department, in Southwestern Bolivia, 25 kilometres (“km”) northwest of Potosí City, the department capital. The Silver Sand Project covers an area of approximately 5.42 km2 at an elevation of 4,072 metres (“m”) above sea level.
The Company has carried out extensive exploration and resource definition drill programs on the Project since its acquisition in 2017. From 2017 to 2019, the Company completed a total of 97,619 m of drilling in 386 diamond core drillholes – one of the largest greenfield discovery drill programs in South America during this period.
Advanced studies have commenced on the Project, and the Company selected CSA Global Consultants Canada Ltd. (an ERM Group company), Knight Piésold Consultores S.A., and Wood plc to lead the Preliminary Economic Assessment, Environmental baseline study, and Social baseline studies, respectively.
For the three and six months ended December 31, 2020, total expenditures of $872,520 and $1,781,938, respectively (three and six months ended December 31, 2019 - $3,697,610 and $8,537,035, respectively) were capitalized under the Silver Sand Project.
In July 2018, the Company entered into an agreement with third party private vendors to acquire their 100% interest in ATEs located north to the Silver Sand Project by cash payments of $1,315,600 (US$1,000,000) and issuance of 832,000 common shares to the vendors (see note 11(c)). During Fiscal 2019 and Fiscal 2020, cash payments of $1,052,480 (US$800,000) were paid and 541,000 common shares were issued to the vendors. During the six months ended December 31, 2020, the final payment of $263,120 (US$200,000) cash and 291,000 common shares were paid and issued to the vendors.
(b) Silverstrike Project
In December 2019, the Company acquired a 98% interest in the Silverstrike Project from an arm’s length private Bolivian corporation by making a one-time cash payment of $1,782,270 (US$1,350,000).
The Silverstrike Project covers an area of approximately 13 km2 and is located approximately 140 km southwest of La Paz, Bolivia. The Silverstrike Project shares many similarities with the Silver Sand Project pre-discovery drilling, namely: sandstone hosted structurally controlled silver-polymetallic mineralization centered on a historic mining district – the Berenguela District, presence of felsic Tertiary intrusive rocks with corresponding multiple silver rich occurrences associated with sercitic alteration and the area is largely underexplored with limited modern exploration applied.
For the three and six months ended December 31, 2020, total expenditures of $731,181 and $1,281,677, respectively (three and six months ended December 31, 2019 - $nil and $nil, respectively) were capitalized under the Silverstrike Project.
Page | 10
(c) Tagish Lake Gold Project
The TLG Project, covering an area of approximately 170 km2, is located in Yukon Territory, Canada, and consists of 1,051 mining claims hosting three identified gold and gold-silver mineral deposits: Skukum Creek, Goddell Gully and Mount Skukum. On November 18, 2020, the Whitehorse Gold spin-out transaction was completed and, as a result, the Company no longer holds an interest in the TLG Project (see note 3).
For the three and six months ended December 31, 2020, total expenditures of $nil and $400,838, respectively (three and six months ended December 31, 2019 - $nil and $nil, respectively) were capitalized under the TLG Project.
The project’s carrying value of $12,220,838 (including $11,820,000 classified as part of the assets held for distribution balance as at June 30, 2020) was disposed upon the completion of the Whitehorse Gold spin- out transaction.
(d) RZY Project
The RZY Project, located in Qinghai, China is an early stage silver-lead-zinc exploration project. The RZY Project is located approximately 237 km from the city of Yushu Tibetan Autonomous Prefecture, or 820 km from Qinghai Province’s capital city of Xining. In 2016, the Qinghai Government issued a moratorium which suspended exploration for 26 mining projects in the region, including the RZY Project, and classified the region as a National Nature Reserve Area.
During Fiscal 2020, the Company’s subsidiary, Qinghai Found Mining Co., Ltd. (“Qinghai Found”), reached a compensation agreement with the Qinghai Government for the RZY Project. Pursuant to the agreement, Qinghai Found will surrender its title to the RZY Project to the Qinghai Government after completing certain reclamation works for one-time cash compensation of $3.8 million (RMB ¥20 million). As of December 31, 2020, the process was under review and subject to approval by the Qinghai Government.
Page | 11
The continuity schedule of mineral property acquisition costs and deferred exploration and development costs are summarized as follows:
|
Cost
|
|
Silver Sand
|
|
|
Silverstrike
|
|
|
Tagish Lake
|
|
|
RZY Project
|
|
|
Total
|
|
|
Balance, July 1, 2019
|
$
|
73,281,418
|
|
$
|
-
|
|
$
|
-
|
|
$
|
3,534,664
|
|
$
|
76,816,082
|
|
|
Capitalized exploration expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reporting and assessment
|
|
601,466
|
|
|
976
|
|
|
-
|
|
|
-
|
|
|
602,442
|
|
|
Drilling and assaying
|
|
6,521,210
|
|
|
2,237
|
|
|
-
|
|
|
-
|
|
|
6,523,447
|
|
|
Project management and support
|
|
4,546,717
|
|
|
586,052
|
|
|
-
|
|
|
-
|
|
|
5,132,769
|
|
|
Camp service
|
|
661,514
|
|
|
50,837
|
|
|
-
|
|
|
-
|
|
|
712,351
|
|
|
Camp construction
|
|
32,406
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
32,406
|
|
|
Permitting
|
|
51,358
|
|
|
-
|
|
|
105,056
|
|
|
-
|
|
|
156,414
|
|
|
Acquisition of Silverstrike Project
|
|
-
|
|
|
1,782,270
|
|
|
-
|
|
|
-
|
|
|
1,782,270
|
|
|
Acquisition of mineral concessions
|
|
290,220
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
290,220
|
|
|
Other
|
|
26,854
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
26,854
|
|
|
Impairment recovery
|
|
-
|
|
|
-
|
|
|
11,714,944
|
|
|
-
|
|
|
11,714,944
|
|
|
Reclassified to assets held for distribution
|
|
-
|
|
|
-
|
|
|
(11,820,000
|
)
|
|
-
|
|
|
(11,820,000
|
)
|
|
Foreign currency impact
|
|
2,979,031
|
|
|
59,546
|
|
|
-
|
|
|
40,800
|
|
|
3,079,377
|
|
|
Balance, June 30, 2020
|
$
|
88,992,194
|
|
$
|
2,481,918
|
|
$
|
-
|
|
$
|
3,575,464
|
|
$
|
95,049,576
|
|
|
Capitalized exploration expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reporting and assessment
|
|
286,693
|
|
|
306
|
|
|
60,959
|
|
|
-
|
|
|
347,958
|
|
|
Drilling and assaying
|
|
56,121
|
|
|
221,576
|
|
|
-
|
|
|
-
|
|
|
277,697
|
|
|
Project management and support
|
|
1,265,463
|
|
|
948,374
|
|
|
-
|
|
|
-
|
|
|
2,213,837
|
|
|
Camp service
|
|
145,664
|
|
|
108,752
|
|
|
-
|
|
|
-
|
|
|
254,416
|
|
|
Camp construction
|
|
21,427
|
|
|
-
|
|
|
275,999
|
|
|
-
|
|
|
297,426
|
|
|
Permitting
|
|
6,570
|
|
|
2,669
|
|
|
63,880
|
|
|
-
|
|
|
73,119
|
|
|
Disposal upon spin-out distribution
|
|
-
|
|
|
-
|
|
|
(400,838
|
)
|
|
|
|
|
(400,838
|
)
|
|
Foreign currency impact
|
|
(5,418,061
|
)
|
|
(144,787
|
)
|
|
-
|
|
|
38,944
|
|
|
(5,523,904
|
)
|
|
Balance, December 31, 2020
|
$
|
85,356,071
|
|
$
|
3,618,808
|
|
$
|
-
|
|
$
|
3,614,408
|
|
$
|
92,589,287
|
|
10. RELATED PARTY TRANSACTIONS
Related party transactions are made on terms agreed upon with the related parties. The balances with related parties are unsecured, non-interest bearing, and due on demand. Related party transactions not disclosed elsewhere in the condensed consolidated interim financial statements are as follows:
|
Due to a related party
|
|
December 31, 2020
|
|
|
June 30, 2020
|
|
|
Silvercorp Metals Inc.
|
$
|
113,309
|
|
$
|
84,742
|
|
Silvercorp Metals Inc. (“Silvercorp”) has two directors and one officer in common with the Company. Silvercorp and the Company share office space and Silvercorp provides various general and administrative services to the Company. Expenses in services rendered and incurred by Silvercorp on behalf of the Company for the three and six months ended December 31, 2020 were $175,853 and $396,415, respectively (three and six months ended December 31, 2019 - $235,710 and $424,347, respectively).
11. SHARE CAPITAL
(a) Share Capital - authorized share capital
The Company’s authorized share capital consists of an unlimited number of common shares without par value.
Page | 12
(b) Share-based compensation
The Company has a share-based compensation plan (the “Plan”) which consists of stock options and restricted share units (“RSUs”). The maximum number of common shares to be reserved for issuance on any share-based compensation under the Plan is a rolling 10% of the issued and outstanding common shares from time to time.
For the three and six months ended December 31, 2020, a total of $389,283 and $914,406, respectively (three and six months ended December 31, 2019 - $293,156 and $589,081, respectively) were recorded as share-based compensation expense.
For the three and six months ended December 31, 2020, a total of $24,794 and $45,286, respectively (three and six months ended December 31, 2019 - $nil and $nil, respectively) were included in the project evaluation and corporate development expense.
For the three and six months ended December 31, 2020, a total of $260,870 and $530,092, respectively (three and six months ended December 31, 2019 - $nil and $nil, respectively) were capitalized under mineral property interests.
(i) Stock Options
The continuity schedule of stock options, as at December 31, 2020, is as follows:
|
|
|
|
|
|
Weighted average
|
|
|
|
|
Number of options
|
|
|
exercise price
|
|
|
Balance, July 1, 2019
|
|
5,905,000
|
|
|
1.36
|
|
|
Options exercised
|
|
(888,066
|
)
|
|
1.16
|
|
|
Options cancelled
|
|
(354,167
|
)
|
|
1.91
|
|
|
Balance, June 30, 2020
|
|
4,662,767
|
|
|
1.36
|
|
|
Options exercised
|
|
(656,766
|
)
|
|
1.07
|
|
|
Options cancelled
|
|
(25,000
|
)
|
|
2.15
|
|
|
Balance, December 31, 2020
|
|
3,981,001
|
|
|
1.40
|
|
Option pricing model requires the input of subjective assumptions including the expected volatility. Changes in the assumptions can materially affect the fair value estimate and therefore, the existing models do not necessarily provide a reliable estimate of the fair value of the Company’s stock options. The Company’s expected volatility is based on the historical volatility of the Company’s share price on the TSX.
Page | 13
The following table summarizes information about stock options outstanding as at December 31, 2020:
|
|
|
Number of options
|
Weighted average
|
Number of options
|
Weighted
|
|
|
Exercise
|
outstanding as at
|
remaining life
|
exercisable as at
|
average
|
|
|
prices
|
12/31/2020
|
(years)
|
12/31/2020
|
exercise price
|
|
$
|
0.55
|
1,065,000
|
0.83
|
1,065,000
|
$0.55
|
|
|
1.15
|
1,147,500
|
1.58
|
1,147,500
|
$1.15
|
|
|
1.57
|
200,000
|
1.93
|
200,000
|
$1.57
|
|
|
2.15
|
1,568,501
|
3.14
|
666,001
|
$2.15
|
|
|
0.55 - 2.15
|
3,981,001
|
2.01
|
3,078,501
|
$1.19
|
Subsequent to December 31, 2020, a total of 68,000 stock options with exercising price between $1.15 and $2.15 were exercised for proceeds of $103,700.
(ii) RSUs
The continuity schedule of RSUs, as at December 31, 2020, is as follows:
|
|
|
|
|
|
Weighted average
|
|
|
|
|
|
|
|
grant date closing
|
|
|
|
|
Number of shares
|
|
|
price per share $CAD
|
|
|
Balance, July 1, 2019
|
|
-
|
|
$
|
-
|
|
|
Granted
|
|
1,064,600
|
|
|
4.70
|
|
|
Cancelled
|
|
(3,000
|
)
|
|
-
|
|
|
Distributed
|
|
(136,400
|
)
|
|
-
|
|
|
Balance, June 30, 2020
|
|
925,200
|
|
$
|
4.70
|
|
|
Granted
|
|
35,000
|
|
|
5.94
|
|
|
Cancelled
|
|
(9,750
|
)
|
|
-
|
|
|
Distributed
|
|
(223,150
|
)
|
|
-
|
|
|
Balance, December 31, 2020
|
|
727,300
|
|
$
|
4.74
|
|
Subsequent to December 31, 2020, a total of 15,000 RSUs with grant price of $4.70 were vested and issued.
(c) Common Shares Issued for Mineral Property Interest
As partial consideration for the acquisition of ATEs located north to the Silver Sand Property (see note 9(a)), the Company agreed to issue a total of 832,000 common shares to the vendors valued at $1,315,600 (US$1,000,000) in the year ended June 30, 2019. During the six months ended December 31, 2020, 291,000 common shares valued at $460,144 (six months ended December 31, 2019 – 291,000 common shares valued at $460,144) were issued and recorded under share capital.
Page | 14
12. NON-CONTROLLING INTEREST
|
|
|
Qinghai Found
|
|
|
Balance, July 1, 2019
|
$
|
(37,685
|
)
|
|
Share of net loss
|
|
(19,412
|
)
|
|
Share of other comprehensive income
|
|
7,604
|
|
|
Balance, June 30, 2020
|
$
|
(49,493
|
)
|
|
Share of net loss
|
|
(4,710
|
)
|
|
Share of other comprehensive income
|
|
7,219
|
|
|
Balance, December 31, 2020
|
$
|
(46,984
|
)
|
As at December 31, 2020 and June 30, 2020, the non-controlling interest in the Company’s subsidiary Qinghai Found was 18%.
13. FINANCIAL INSTRUMENTS
The Company manages its exposure to financial risks, including liquidity risk, foreign exchange rate risk, interest rate risk, credit risk, and equity price risk in accordance with its risk management framework. The Board has overall responsibility for the establishment and oversight of the Company’s risk management framework and reviews the Company’s policies on an ongoing basis.
(a) Fair Value
The Company classifies its fair value measurements within a fair value hierarchy, which reflects the significance of inputs used in making the measurements as defined in IFRS 13 – Fair Value Measurement (“IFRS 13”).
Level 1 – Unadjusted quoted prices at the measurement date for identical assets or liabilities in active markets.
Level 2 – Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3 – Unobservable inputs which are supported by little or no market activity.
Page | 15
The following table sets forth the Company’s financial assets that are measured at fair value on a recurring basis by level within the fair value hierarchy as at December 31, 2020 and June 30, 2020 that are not otherwise disclosed. As required by IFRS 13, financial assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
|
|
|
Fair value as at December 31, 2020
|
|
|
Recurring measurements
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
57,285,508
|
|
$
|
-
|
|
$
|
-
|
|
$
|
57,285,508
|
|
|
Short-term investments - bonds
|
|
164,823
|
|
|
-
|
|
|
-
|
|
|
164,823
|
|
|
Common or preferred shares
|
|
393,900
|
|
|
-
|
|
|
-
|
|
|
393,900
|
|
|
Warrants
|
|
-
|
|
|
535,427
|
|
|
-
|
|
|
535,427
|
|
|
|
|
|
|
|
|
|
Fair value as at June 30, 2020
|
|
|
Recurring measurements
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
40,644,346
|
|
$
|
-
|
|
$
|
-
|
|
$
|
40,644,346
|
|
|
Short-term investments - bonds
|
|
630,744
|
|
|
-
|
|
|
-
|
|
|
630,744
|
|
|
Common or preferred shares
|
|
4,795,960
|
|
|
-
|
|
|
-
|
|
|
4,795,960
|
|
|
Warrants
|
|
-
|
|
|
807,631
|
|
|
-
|
|
|
807,631
|
|
Fair value of other financial instruments excluded from the table above approximates their carrying amount as of December 31, 2020 and June 30, 2020, respectively.
There were no transfers into or out of Level 3 during the three and six months ended December 31, 2020.
(b) Liquidity Risk
The Company has a history of losses and no operating revenues from its operations. Liquidity risk is the risk that the Company will not be able to meet its short term business requirements. As at December 31, 2020, the Company had a working capital position of $62,790,757 and sufficient cash resources to meet the Company’s short-term financial liabilities and its planned exploration expenditures on the Silver Sand and Silverstrike Projects for, but not limited to, the next 12 months.
In the normal course of business, the Company enters into contracts that give rise to commitments for future minimum payments. The following summarizes the remaining contractual maturities of the Company’s financial liabilities:
|
|
|
December 31, 2020
|
|
|
June 30, 2020
|
|
|
|
|
Due within a year
|
|
|
Total
|
|
|
Total
|
|
|
Trade and other payables
|
$
|
1,389,468
|
|
$
|
1,389,468
|
|
$
|
1,573,474
|
|
|
Due to a related party
|
|
113,309
|
|
|
113,309
|
|
|
84,742
|
|
|
Payable for mineral property acquisition
|
|
-
|
|
|
-
|
|
|
263,120
|
|
|
|
$
|
1,502,777
|
|
$
|
1,502,777
|
|
$
|
1,921,336
|
|
(c) Foreign Exchange Risk
The Company is exposed to foreign exchange risk when it undertakes transactions and holds assets and liabilities denominated in foreign currencies other than its functional currencies. The Company’s functional currency is the Canadian dollar. The Company currently does not engage in foreign exchange currency hedging. The Company’s exposure to foreign exchange risk is summarized as follows:
Page | 16
|
The amounts are expressed in CAD equivalents
|
|
December 31, 2020
|
|
|
June 30, 2020
|
|
|
United States dollars
|
$
|
16,687,988
|
|
$
|
15,206,715
|
|
|
Bolivianos
|
|
583,033
|
|
|
404,952
|
|
|
Chinese RMB
|
|
296,171
|
|
|
218,216
|
|
|
Financial assets in foreign currency
|
$
|
17,567,192
|
|
$
|
15,829,883
|
|
|
|
|
|
|
|
|
|
|
United States dollars
|
$
|
513,268
|
|
$
|
589,986
|
|
|
Chinese RMB
|
|
236,648
|
|
|
137,725
|
|
|
Financial liabilities in foreign currency
|
$
|
749,916
|
|
$
|
727,711
|
|
As at December 31, 2020, with other variables unchanged, a 1% strengthening (weakening) of the US dollar against the CAD would have increased (decreased) net income by approximately $162,000.
As at December 31, 2020, with other variables unchanged, a 1% strengthening (weakening) of the Bolivianos against the CAD would have increased (decreased) net income by approximately $6,000.
As at December 31, 2020, with other variables unchanged, a 1% strengthening (weakening) of the Chinese RMB against the CAD would have increased (decreased) net income by approximately $1,000.
(d) Interest Rate Risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market interest rates. The Company’s cash and cash equivalents primarily include highly liquid investments that earn interest at market rates that are fixed to maturity. The Company also holds a portion of cash and cash equivalents in bank accounts that earn variable interest rates. Due to the short-term nature of these financial instruments, fluctuations in market rates do not have significant impact on the fair values of the financial instruments as of December 31, 2020. The Company also owns GICs and bonds that earn interest payments at fixed rates to maturity. Fluctuation in market interest rates usually will have an impact on bond’s fair value. An increase in market interest rates will generally reduce bond’s fair value while a decrease in market interest rates will generally increase it. The Company monitors market interest rate fluctuations closely and adjusts the investment portfolio accordingly.
(e) Credit Risk
Credit risk is the risk of financial loss to the Company if the counterparty to a financial instrument fails to meet its contractual obligations. The Company’s exposure to credit risk is primarily associated with cash and cash equivalents, bonds, and receivables. The carrying amount of financial assets included on the statement of financial position represents the maximum credit exposure.
The Company has deposits of cash equivalents that meet minimum requirements for quality and liquidity as stipulated by the Board. Management believes the risk of loss to be remote, as majority of its cash and cash equivalents are held with major financial institutions. Bonds by nature are exposed to more credit risk than cash. The Company manages its risk associated with bonds by only investing in large globally recognized corporations from diversified industries. As at December 31, 2020, the Company had a receivables balance of $321,864 (June 30, 2020 - $413,594).
Page | 17
(f) Equity Price Risk
The Company holds certain marketable securities that will fluctuate in value as a result of trading on global financial markets. Based upon the Company’s portfolio at December 31, 2020, a 10% increase (decrease) in the market price of the securities held, ignoring any foreign exchange effects would have resulted in an increase (decrease) to net income of approximately $93,000.
14. CAPITAL MANAGEMENT
The objectives of the capital management policy are to safeguard the Company’s ability to support exploration and operating requirements on an ongoing basis, continue the investment in high quality assets along with safeguarding the value of its mineral properties, and support any expansionary plans.
The capital of the Company consists of the items included in equity less cash and cash equivalents and bonds. Risk and capital management are primarily the responsibility of the Company’s corporate finance function and is monitored by the Board. The Company manages the capital structure and makes adjustments depending on economic conditions. Significant risks are monitored and actions are taken, when necessary, according to the Company’s approved policies.
In addition, the current outbreak of COVID-19 has caused significant disruption to global economic conditions which may adversely impact the Company’s results.
15. SEGMENTED INFORMATION
The Company operates in four reportable operating segments, one being the corporate segment; the others being the exploration and development segments focused on safeguarding the value of its mineral properties in relevant geographical jurisdictions. These reporting segments are components of the Company where separate financial information is available that is evaluated regularly by the Company’s Chief Executive Officer, the chief operating decision maker.
Page | 18
(a) Segment information for assets and liabilities are as follows:
|
|
|
|
December 31, 2020
|
|
|
|
|
|
Corporate
|
|
|
Exploration and Development
|
|
|
|
|
|
|
|
|
Canada and BVI
|
|
|
Bolivia
|
|
|
Canada
|
|
|
China
|
|
|
Total
|
|
|
Cash and cash equivalents
|
|
$
|
56,426,891
|
|
$
|
759,726
|
|
$
|
-
|
|
$
|
98,891
|
|
$
|
57,285,508
|
|
|
Short-term investments
|
|
|
6,197,708
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
6,197,708
|
|
|
Equity investments
|
|
|
929,327
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
929,327
|
|
|
Plant and equipment
|
|
|
168,699
|
|
|
1,215,478
|
|
|
-
|
|
|
18,626
|
|
|
1,402,803
|
|
|
Mineral property interests
|
|
|
-
|
|
|
88,974,879
|
|
|
-
|
|
|
3,614,408
|
|
|
92,589,287
|
|
|
Other assets
|
|
|
346,151
|
|
|
3,015,786
|
|
|
-
|
|
|
205,764
|
|
|
3,567,701
|
|
|
Total Assets
|
|
$
|
64,068,776
|
|
$
|
93,965,869
|
|
$
|
-
|
|
$
|
3,937,689
|
|
$
|
161,972,334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
$
|
(752,861
|
)
|
$
|
(513,268
|
)
|
$
|
-
|
|
$
|
(236,648
|
)
|
$
|
(1,502,777
|
)
|
|
|
|
|
June 30, 2020
|
|
|
|
|
|
Corporate
|
|
|
Exploration and Development
|
|
|
|
|
|
|
|
|
Canada and BVI
|
|
|
Bolivia
|
|
|
Canada
|
|
|
China
|
|
|
Total
|
|
|
Cash and cash equivalents
|
|
$
|
40,007,801
|
|
$
|
180,406
|
|
$
|
419,860
|
|
$
|
36,279
|
|
$
|
40,644,346
|
|
|
Short-term investments
|
|
|
20,633,772
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
20,633,772
|
|
|
Equity investments
|
|
|
5,603,591
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
5,603,591
|
|
|
Plant and equipment
|
|
|
187,979
|
|
|
1,325,228
|
|
|
-
|
|
|
22,716
|
|
|
1,535,923
|
|
|
Mineral property interests
|
|
|
-
|
|
|
91,474,112
|
|
|
-
|
|
|
3,575,464
|
|
|
95,049,576
|
|
|
Assets held for distribution
|
|
|
-
|
|
|
-
|
|
|
11,849,971
|
|
|
-
|
|
|
11,849,971
|
|
|
Other assets
|
|
|
161,893
|
|
|
3,146,646
|
|
|
-
|
|
|
190,340
|
|
|
3,498,879
|
|
|
Total Assets
|
|
$
|
66,595,036
|
|
$
|
96,126,392
|
|
$
|
12,269,831
|
|
$
|
3,824,799
|
|
$
|
178,816,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
$
|
(1,193,625
|
)
|
$
|
(589,987
|
)
|
$
|
(122,178
|
)
|
$
|
(137,724
|
)
|
$
|
(2,043,514
|
)
|
Page | 19
(b) Segment information for operating results are as follows:
|
|
|
|
Three months ended December 31, 2020
|
|
|
|
|
|
|
|
|
Exploration and Development
|
|
|
|
|
|
|
|
|
Canada and BVI
|
|
|
Bolivia
|
|
|
Canada
|
|
|
China
|
|
|
Total
|
|
|
Project evaluation and corporate development
|
|
$
|
35,846
|
|
$
|
266,912
|
|
$
|
-
|
|
$
|
-
|
|
$
|
302,758
|
|
|
Salaries and benefits
|
|
|
347,685
|
|
|
-
|
|
|
-
|
|
|
11,025
|
|
|
358,710
|
|
|
Share-based compensation
|
|
|
389,283
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
389,283
|
|
|
Other operating expenses
|
|
|
574,946
|
|
|
1,038
|
|
|
-
|
|
|
506
|
|
|
576,490
|
|
|
Total operating expense
|
|
|
1,347,760
|
|
|
267,950
|
|
|
-
|
|
|
11,531
|
|
|
1,627,241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from investments
|
|
|
(139,409
|
)
|
|
-
|
|
|
-
|
|
|
45
|
|
|
(139,364
|
)
|
|
Foreign exchange loss
|
|
|
(557,051
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(557,051
|
)
|
|
Other expense
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(5
|
)
|
|
(5
|
)
|
|
Net loss
|
|
$
|
(2,044,220
|
)
|
$
|
(267,950
|
)
|
$
|
-
|
|
$
|
(11,491
|
)
|
$
|
(2,323,661
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributed to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity holders of the Company
|
|
$
|
(2,044,220
|
)
|
$
|
(267,950
|
)
|
$
|
-
|
|
$
|
(9,418
|
)
|
$
|
(2,321,588
|
)
|
|
Non-controlling interests
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(2,073
|
)
|
|
(2,073
|
)
|
|
Net loss
|
|
$
|
(2,044,220
|
)
|
$
|
(267,950
|
)
|
$
|
-
|
|
$
|
(11,491
|
)
|
$
|
(2,323,661
|
)
|
|
|
|
|
Three months ended December 31, 2019
|
|
|
|
|
|
Corporate
|
|
|
Exploration and Development
|
|
|
|
|
|
|
|
|
Canada and BVI
|
|
|
Bolivia
|
|
|
Canada
|
|
|
China
|
|
|
Total
|
|
|
Salaries and benefits
|
|
$
|
608,990
|
|
$
|
-
|
|
$
|
-
|
|
$
|
16,569
|
|
$
|
625,559
|
|
|
Share-based compensation
|
|
|
293,156
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
293,156
|
|
|
Other operating expenses
|
|
|
567,336
|
|
|
-
|
|
|
108,045
|
|
|
31,037
|
|
|
706,418
|
|
|
Total operating expense
|
|
|
1,469,482
|
|
|
-
|
|
|
108,045
|
|
|
47,606
|
|
|
1,625,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from investments
|
|
|
339,589
|
|
|
-
|
|
|
-
|
|
|
65
|
|
|
339,654
|
|
|
Foreign exchange (loss) gain
|
|
|
(323,013
|
)
|
|
-
|
|
|
-
|
|
|
134
|
|
|
(322,879
|
)
|
|
Other income (expense)
|
|
|
15,000
|
|
|
-
|
|
|
(15,000
|
)
|
|
-
|
|
|
-
|
|
|
Net loss
|
|
$
|
(1,437,906
|
)
|
$
|
-
|
|
$
|
(123,045
|
)
|
$
|
(47,407
|
)
|
$
|
(1,608,358
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributed to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity holders of the Company
|
|
$
|
(1,437,906
|
)
|
$
|
-
|
|
$
|
(123,045
|
)
|
$
|
(38,873
|
)
|
$
|
(1,599,824
|
)
|
|
Non-controlling interests
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(8,534
|
)
|
|
(8,534
|
)
|
|
Net loss
|
|
$
|
(1,437,906
|
)
|
$
|
-
|
|
$
|
(123,045
|
)
|
$
|
(47,407
|
)
|
$
|
(1,608,358
|
)
|
Page | 20
|
|
|
Six months ended December 31, 2020
|
|
|
|
|
Corporate
|
|
|
Exploration and Development
|
|
|
|
|
|
|
|
Canada and BVI
|
|
|
Bolivia
|
|
|
Canada
|
|
|
China
|
|
|
Total
|
|
|
Project evaluation and corporate development
|
$
|
64,270
|
|
$
|
417,898
|
|
$
|
-
|
|
$
|
-
|
|
$
|
482,168
|
|
|
Salaries and benefits
|
|
926,542
|
|
|
-
|
|
|
(84,600
|
)
|
|
21,704
|
|
|
863,646
|
|
|
Share-based compensation
|
|
914,406
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
914,406
|
|
|
Other operating expenses
|
|
1,711,291
|
|
|
1,038
|
|
|
(319,461
|
)
|
|
1,554
|
|
|
1,394,422
|
|
|
Total operating expense
|
|
3,616,509
|
|
|
418,936
|
|
|
(404,061
|
)
|
|
23,258
|
|
|
3,654,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from investments
|
|
704,401
|
|
|
-
|
|
|
-
|
|
|
63
|
|
|
704,464
|
|
|
Loss on disposal of plant and equipment
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(2,479
|
)
|
|
(2,479
|
)
|
|
Foreign exchange loss
|
|
(878,388
|
)
|
|
-
|
|
|
(391
|
)
|
|
-
|
|
|
(878,779
|
)
|
|
Other expense
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(465
|
)
|
|
(465
|
)
|
|
Net loss
|
$
|
(3,790,496
|
)
|
$
|
(418,936
|
)
|
$
|
403,670
|
|
$
|
(26,139
|
)
|
$
|
(3,831,901
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributed to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity holders of the Company
|
$
|
(3,790,496
|
)
|
$
|
(418,936
|
)
|
$
|
403,670
|
|
$
|
(21,429
|
)
|
$
|
(3,827,191
|
)
|
|
Non-controlling interests
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(4,710
|
)
|
|
(4,710
|
)
|
|
Net loss
|
$
|
(3,790,496
|
)
|
$
|
(418,936
|
)
|
$
|
403,670
|
|
$
|
(26,139
|
)
|
$
|
(3,831,901
|
)
|
|
|
|
Six months ended December 31, 2019
|
|
|
|
|
Corporate
|
|
|
Exploration and Development
|
|
|
|
|
|
|
|
Canada
|
|
|
Bolivia
|
|
|
Canada
|
|
|
China
|
|
|
Total
|
|
|
Salaries and benefits
|
$
|
795,338
|
|
$
|
-
|
|
$
|
-
|
|
$
|
33,219
|
|
$
|
828,557
|
|
|
Share-based compensation
|
|
589,081
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
589,081
|
|
|
Other operating expenses
|
|
1,072,595
|
|
|
-
|
|
|
112,230
|
|
|
31,610
|
|
|
1,216,435
|
|
|
Total operating expense
|
|
2,457,014
|
|
|
-
|
|
|
112,230
|
|
|
64,829
|
|
|
2,634,073
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from investments
|
|
2,454,970
|
|
|
-
|
|
|
-
|
|
|
132
|
|
|
2,455,102
|
|
|
Foreign exchange gain (loss)
|
|
(146,669
|
)
|
|
-
|
|
|
-
|
|
|
132
|
|
|
(146,537
|
)
|
|
Other income (expense)
|
|
30,000
|
|
|
-
|
|
|
(30,000
|
)
|
|
-
|
|
|
-
|
|
|
Net loss
|
$
|
(118,713
|
)
|
$
|
-
|
|
$
|
(142,230
|
)
|
$
|
(64,565
|
)
|
$
|
(325,508
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributed to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity holders of the Company
|
$
|
(118,713
|
)
|
$
|
-
|
|
$
|
(142,230
|
)
|
$
|
(52,943
|
)
|
$
|
(313,886
|
)
|
|
Non-controlling interests
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(11,622
|
)
|
$
|
(11,622
|
)
|
|
Net loss
|
$
|
(118,713
|
)
|
$
|
-
|
|
$
|
(142,230
|
)
|
$
|
(64,565
|
)
|
$
|
(325,508
|
)
|
16. SUPPLEMENTARY CASH FLOW INFORMATION
|
Changes in non-cash operating working capital:
|
|
Three Months Ended December 31,
|
|
|
Six Months Ended December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
Receivables
|
$
|
75,396
|
|
$
|
(11,360
|
)
|
$
|
87,763
|
|
$
|
(124,855
|
)
|
|
Deposits and prepayments
|
|
376,690
|
|
|
159,408
|
|
|
(278,016
|
)
|
|
(57,359
|
)
|
|
Accounts payable and accrued liabilities
|
|
(400,573
|
)
|
|
(812,931
|
)
|
|
(722,177
|
)
|
|
(148,537
|
)
|
|
Due to a related party
|
|
40,626
|
|
|
24,138
|
|
|
28,567
|
|
|
34,843
|
|
|
|
$
|
92,139
|
|
$
|
(640,745
|
)
|
$
|
(883,863
|
)
|
$
|
(295,908
|
)
|
Page | 21
Schedule "A"
ARTICLES
OF
NEW PACIFIC METALS CORP.
TABLE OF CONTENTS
|
1. INTERPRETATION
|
|
|
|
|
|
1.1 Definitions
|
|
|
1.2 Construction of Words
|
|
|
1.3 Interpretation of Singular and Plural and Male and Female
|
|
|
1.4 Definitions same as Business Corporations Act
|
|
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1.5 Interpretation Act Rules of Construction apply
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2. SHARES
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2.1 Form of Share Certificate
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2.2 Shareholder entitled to Certificate
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2.3 Replacement-of-Lost or Defaced Certificate
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2.4 Execution of Certificates
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2.5 Recognition of Trusts
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3. ISSUE OF SHARES
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3.1 Directors Authorized
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3.2 Commissions and Brokerage
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3.3 Conditions of Issue
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3.4 Share Purchase Warrants
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4. SHARE REGISTERS
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4.1 Registers of Shareholders, Transfers and Allotments
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4.2 Branch Registers of Shareholders
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4.3 Closing of Register of Shareholders
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5. TRANSFER AND TRANSMISSION OF SHARES
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5.1 Restriction on Transfer of Shares
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5.2 Transfer of Shares
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5.3 Execution of Instrument of Transfer
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5.4 Enquiry as to Title not Required
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5.5 Submission of Instruments of Transfer
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5.6 Transfer Fee
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5.7 Transfer Agent
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5.8 Personal Representative Recognized on Death
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5.9 Death or Bankruptcy
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5.10 Persons in Representative Capacity
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6 ALTERATION OF CAPITAL
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6.1 Increase of Authorized Capital
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6.2 Alteration of Notice of Articles & Articles
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7 PURCHASE AND REDEMPTION OF SHARES
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7.1 Company Authorized to Purchase or Redeem its Shares
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7.2 Selection of Shares to be Redeemed
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8 BORROWING POWERS
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8.1 Powers of Directors
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8.2 Special Rights Attached to and Negotiability of Debt Obligations
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8.3 Execution of Debt Obligations
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8.4 Register of Indebtedness
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9 GENERAL MEETINGS
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9.1 First General Meeting
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9.2 Classification of General Meetings
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9.3 Calling of Meetings
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9.4 Notice of General Meeting
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9.5 Waiver or Reduction of Notice
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9.6 Notice of Special Business at General Meeting
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9.7 General Meetings Outside British Columbia
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10 PROCEEDINGS AT GENERAL MEETINGS
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10.1 Special Business
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10.2 Requirement of Quorum
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10.3 Proxy Solicitation Where Company is Non-Reporting
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10.4 Quorum
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10.5 Lack of Quorum
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10.6 Chairman
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10.7 Alternate Chairman
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10.8 Solicitor as Chairman
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10.9 Adjournments
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10.10 Resolutions Need Not Be Seconded
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10.11 Decisions by Show of Hands or Poll
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10.12 Casting Vote
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10.13 Manner of Taking Poll
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10.14 Casting of Votes
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10.15 Ordinary Resolution Sufficient
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11. VOTES OF SHAREHOLDERS
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11.1 Class Meetings of Shareholders
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11.2 Number of Votes Per Share or Shareholder
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11.3 Votes of Persons in Representative Capacity
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11.4 Votes by Joint Holders
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11.5 Votes by Committee for a Shareholder
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11.6 Appointment of Proxyholders
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11.7 Execution of Form of Proxy
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11.8 Deposit of Proxy
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11.9 Validity of Proxy Vote
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11.10 Revocation of Proxy
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12. DIRECTORS
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12.1 Number of Directors
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12.2 Remuneration and Expenses of Directors
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12.3 Qualification of Directors
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13. ELECTION OF DIRECTORS
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13.1 Election at Annual General Meetings
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13.2 Eligibility of Retiring Director
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13.3 Continuance of Directors
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13.4 Fixing the Number of Directors
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13.5 Filling a Casual Vacancy
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13.6 Additional Directors
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13.7 Alternate Directors
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13.8 Removal of Director
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14. POWERS AND DUTIES OF DIRECTORS
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14.1 Management of Affairs and Business
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14.2 Appointment of Attorney
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14.3 Change of Name
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15. DISCLOSURE OF INTEREST OF DIRECTORS
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15.1 Disclosure of Conflicting Interest
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15.2 Voting and Quorum re: Proposed Contract
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15.3 Director may Hold Office or Place of Profit with Company
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15.4 Director Acting in Professional Capacity
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15.5 Director Receiving Remuneration from Other Interests
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16. PROCEEDINGS OF DIRECTORS
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16.1 Chairman and Alternate
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16.2 Meetings - Procedure
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16.3 Meetings by Conference Telephone
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16.4 Notice of Meetings
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16.5 Waiver of Notice of Meetings
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16.6 Waiver of Notice of Meetings by Absent Director
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16.7 Quorum
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16.8 Continuing Directors may Act During Vacancy
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16.9 Validity of Acts of Directors
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16.10 Resolution in Writing Effective
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17. EXECUTIVE AND OTHER COMMITTEES
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17.1 Appointment of Executive Committee
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17.2 Appointment of Committees
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17.3 Procedure at Meetings
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18. OFFICERS
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18.1 President and Secretary Required
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18.2 Persons Holding More Than One Office and Remuneration
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18.3 Disclosure of Conflicting Interest
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19. INDEMNITY AND PROTECTION OF DIRECTORS, OFFICERS AND EMPLOYEES AND CERTAIN AGENTS
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19.1 Party to Legal Proceedings
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19.2 Indemnification of Officers-Employees-Agents
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19.3 Extent of Indemnification
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19.4 Persons Undertaking Liabilities
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19.5 Indemnity not Invalidated
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19.6 Limitation of Liability
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19.7 Directors May Rely
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19.8 Company May Purchase Insurance
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20. DIVIDENDS AND RESERVES
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20.1 Declaration of Dividends
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20.2 Declared Dividend Date
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20.3 Proportionate to Number of Shares Held
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20.4 Reserves
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20.5 Receipts from Joint Holders
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20.6 No Interest on Dividends
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20.7 Payment of Dividends
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20.8 Capitalization of Undistributed Surplus
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20.9 Registration Prior to Transfer
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21. DOCUMENTS, RECORDS AND REPORTS
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21.1 Accounts to be Kept
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21.2 Inspection of Accounts
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22. NOTICES
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22.1 Method of Giving Notice
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22.2 Notice to Joint Holder
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22.3 Notice to Personal Representative
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22.4 Persons to Receive Notice
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23. SEAL
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23.1
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23.1 Affixation of Seal to Documents
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23.2
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23.2 Reproduction of Seal
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23.3
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23.3 Official Seal for Other Jurisdictions
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24. MECHANICAL REPRODUCTION OF SIGNATURES
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24.1 Instruments may be Mechanically Signed
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24.2 Definition of Instruments
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PROVINCE OF BRITISH COLUMBIA
BUSINESS CORPORATIONS ACT
ARTICLES OF:
NEW PACIFIC METALS CORP.
(the "Company")
PART 1 -INTERPRETATION
1.1 In these Articles, unless there is something in the subject or context inconsistent therewith:
(a) "Board" and "the Directors" or "the directors" mean the Directors, sole Director or alternate Director of the Company for the time being;
(b) "Business Corporations Act" means the Business Corporations Act of the Province of British Columbia as from time to time enacted and all amendments thereto and includes the regulations made pursuant thereto;
(b) "shareholder" means those persons defined as such in the Business Corporations Act and includes any person who owns shares in the capital of the Company and whose name is entered in the register of shareholders or a branch register of shareholders.
(c) "month" means calendar month.
(d) "personal representative" shall include executors, administrators, trustees in bankruptcy and duly constituted committees.
(e) "registered owner" or "registered holder" when used with respect to a share in the authorized capital of the Company means the person registered in the register of shareholders in respect of such share.
(f) "seal" means the common seal of the Company if the Company has one.
(g) "solicitor of the company" means any partner, associate or articled student of the law firm retained by the Company in respect of the matter in connection with which the term is used.
1.2 Expressions in these Articles referring to writing shall be construed as including references to printing, lithography, typewriting, photography and other modes of representing or reproducing words in a visible form.
1.3 Words in these Articles importing the singular include the plural and vice versa; and words importing male persons include female persons and words importing persons shall include corporations.
1.4 The meaning of any words or phrases defined in the Business Corporations Act shall, if not inconsistent with the subject or context, bear the same meaning in these Articles.
1.5 The Rules of Construction contained in the Interpretation Act shall apply, mutatis mutandis, to the interpretation of these Articles.
PART 2 - SHARES AND SHARE CERTIFICATES
2.1 Every share certificate issued by the Company shall be in such form as the directors approve and shall comply with the Business Corporations Act.
2.2 In respect of a share or shares held jointly by several persons, the Company shall not be bound to issue more than one certificate, and delivery of a certificate for a share to the first named of several joint registered holders or to his duly authorized agent shall be sufficient delivery to all. The Company shall not be bound to issue certificates representing redeemable shares, if such shares are to be redeemed within one month of the date on which they were allotted. Any share certificate may be sent through the mail by registered prepaid mail to the shareholder entitled thereto, and neither the Company nor any transfer agent shall be liable for any loss occasioned to the shareholder owing to any such share certificate so sent being lost in the mail or stolen.
2.3 If a share certificate
(a) is worn out or defaced, the Directors shall, upon production to them of the said certificate and upon such terms, if any, as they may think fit, order the said certificate to be cancelled and shall issue a new certificate in lieu thereof;
(b) is lost, stolen or destroyed, then, upon proof thereof to the satisfaction of the Directors and upon such indemnity, if any, as the Directors deem adequate being given, a new share certificate in lieu thereof shall be issued to the person entitled to such lost, stolen or destroyed certificate; or
(c) represents more than one share and the registered owner thereof surrenders it to the Company with a written request that the Company issue in his name two or more certificates each representing a specified number of shares and in the aggregate representing the same number of shares as the certificate so surrendered and, upon payment of an amount determined from time to time by the Directors, the Company shall cancel the certificate so surrendered and issue in lieu thereof certificate in accordance with such request.
2.4 A share certificate which contains printed or otherwise mechanically reproduced signatures, as may be permitted by the Business Corporations Act, is as valid as if signed manually, notwithstanding that any person whose signature is so printed or mechanically reproduced shall have ceased to hold the office that he is stated on such certificate to hold at the date of the issue of such certificate.
2.5 Except as required by law, statute or these Articles, no person shall be recognized by the Company as holding any share upon any trust, and the Company shall not be bound by or compelled in any way to recognize (even when having notice thereof) any equitable, contingent, future or partial interest in any share or in any fractional part of a share or (except only as by law, statute or these Articles provided or as ordered by a court of competent jurisdiction) any other rights in respect of any share except an absolute right to the entirety thereof in its registered holder.
PART 3 -ISSUE OF SHARES
3.1 Subject to any direction to the contrary, save where the Directors determine not to proceed with said resolution, contained in a resolution passed at a general meeting authorizing any increase or alteration of capital, the shares shall be under the control of the Directors who may, subject to the rights of the registered holders of the shares of the Company for the time being issued, issue , allot, sell or otherwise dispose of, and/or grant options on or otherwise deal in shares authorized but not outstanding, at such times, to such persons (including Directors), in such manner , upon such terms and conditions, and at such prices or for such consideration , as they, in their absolute discretion, may determine .
3.2 Subject to the provisions of the Business Corporations Act, the Company, or the Directors on behalf of the Company, may pay a commission or allow a discount to any person in consideration of his subscribing or agreeing to subscribe, whether absolutely or conditionally, for any shares, debentures, share rights, warrants or debenture stock ("securities") in the Company, or procuring or agreeing to procure subscriptions, whether absolutely or conditionally, for any such securities. If the Company is not a specially limited company, the rate of the commission and discount shall not in the aggregate exceed 25 per centum of the amount of the subscription price of such securities. The Company may also pay such brokerage fees as may be lawful.
3.3 No share may be issued until it is fully paid and the Company shall have received the full consideration therefor in cash, property or past services actually performed for the Company. A document evidencing indebtedness of the person to whom the shares are allotted is not property for the purpose of this Article. The value of the property or services for the purposes of this Article shall be the value determined by the Directors by resolution to be, in all circumstances of the transaction, the fair market value thereof.
3.4 The Company may, subject to the Business Corporations Act, issue share purchase warrants upon such terms and conditions as the Directors shall determine, which share purchase warrants may be issued alone or in conjunction with debentures, debenture stock, bonds, shares or any other security issued or created by the Company from time to time.
PART 4 - SHARE REGISTERS
4.1 The Company shall keep or cause to be kept a register of shareholders, a register of transfers and a register of allotments within British Columbia, all as required by the Business Corporations Act, and may combine one or more of such registers. If the Company's capital shall consist of more than one class of shares, a separate register of shareholders, register of transfers and register of allotment may be kept in respect of each class of shares. The Directors on behalf of the Company may appoint a trust company to keep the register of shareholders, register of transfers and the register of allotments or, if there is more than one class of shares, the Directors may appoint a trust company, which need not be the same trust company, to keep the register of shareholders, the register of transfers and the register of allotments for each class of shares. The Directors on behalf of the Company may also appoint one or more trust companies, including the trust company which keeps the said registers of its shares or of a class thereof, as transfer agent for its shares or such class thereof, as the case may be, and the same or another trust company or companies as registrar for its shares or such class thereof, as the case may be. The Directors may terminate the appointment of any such trust company at any time and may appoint another trust company in its place.
4.2 Unless prohibited by the Business Corporations Act, the Company may keep or cause to be kept one or more branch registers of shareholders at such place or places as the Directors may from time to time determine.
4.3 The Company may, subject to the provisions of the Business Corporations Act, at any time close its register of shareholders upon resolution of the Directors.
PART 5 - TRANSFER AND TRANSMISSION OF SHARES
5.1 If the Company is, or becomes a company which is not a reporting company, or a reporting company which does not have any of its securities listed for trading on any stock exchange wheresoever situate, or a reporting company which has not with respect to any of its securities filed a prospectus with the Superintendent of Brokers or any similar securities regulatory body and obtained a receipt therefor, then no shares shall be transferred without the previous consent of the Directors expressed by a resolution of the Board and the Directors shall not be required to give any reason for refusing to consent to any such proposed transfer. The consent of the Board required by this Article may be in respect of a specific proposed trade or trades or trading generally, whether or not over a specified period of time, or by specific persons or with such other restrictions or requirements as the Directors may determine.
5.2 Subject to the provisions of the Notice of Articles and of these Articles that may be applicable, any shareholder may transfer any of his shares by instrument in writing executed by or on behalf of such shareholder and delivered to the Company or its transfer agent. The instrument of transfer of any share of the Company shall be in the form, if any, on the back of the Company's share certificates or in such other form as the Directors may from time to time approve. Except to the extent that the Business Corporations Act may otherwise provide, the transferor shall be deemed to remain the holder of the shares until the name of the transferee is entered in the register of shareholders or a branch register of shareholders thereof.
5.3 The signature of the registered holder of any shares, or of his duly authorized attorney, upon an authorized instrument of transfer shall constitute a complete and sufficient authority to the Company, its directors, officers and agents to register, in the name of the transferee as named in the instrument of transfer, the number of shares specified therein or, if no number is specified, all the shares of the registered holder represented by share certificates deposited with the instrument of transfer. If no transferee is named in the instrument of transfer, the instrument of transfer shall constitute a complete and sufficient authority to the Company, its directors, officers and agents to register, in the name of the person in whose behalf any certificate for the shares to be transferred is deposited with the Company for the purpose of having the transfer registered, the number of shares specified in the instrument of transfer or, if no number is specified, all the shares represented by all share certificates deposited with the instrument of transfer.
5.4 Neither the Company nor any Director, officer or agent thereof shall be bound to inquire into the title of the person named in the form of transfer as transferee, or, if no person is named therein as transferee, of the person on whose behalf the certificate is deposited with the Company for the purpose of having the transfer registered or be liable to any claim by such registered holder or by any intermediate holder of the certificate or of any of the shares represented thereby or any interest therein for registering the transfer, and the transfer, when registered, shall confer upon the person in whose name the shares have been registered a valid title to such shares.
5.5 Every instrument of transfer shall be executed by the transferor or his duly authorized attorney and left at the registered office of the Company or at the office of its transfer agent or registrar for registration together with the share certificate for the shares to be transferred and such other evidence, if any, as the Directors or the transfer agent or registrar may require to prove the title of the transferor or his duly authorized attorney or his right to transfer the shares, and the right of the transferee to have the transfer registered. All instruments of transfer where the transfer is registered shall be retained by the Company or its transfer agent or registrar and any instrument of transfer, where the transfer is not registered, shall be returned to the person depositing the same together with the share certificate which accompanied the same when tendered for registration.
5.6 There shall be paid to the Company in respect of the registration of any transfer such sum, if any, as the Directors may from time to time determine.
5.7 The Company may appoint one or more trust companies or agents as its transfer agent or registrar for the purpose of issuing, countersigning, registering, transferring and certifying the shares and share certificates of the Company and the Company may cause to be kept one or more branch registers of shareholders at such places within or without British Columbia. The directors may from time to time by resolutions, regulations or otherwise make such provisions as they think fit respecting the keeping of such registers or branch registers.
5.8 In the case of the death of a shareholder, the survivor or survivors where the deceased was a joint registered holder, and the legal personal representative of the deceased where he was the sole holder, shall be the only persons recognized by the Company as having any title to his interest in the shares. Before recognizing any legal personal representative the Directors may require him to obtain a grant of probate or letters of administration in British Columbia.
5.9 Upon the death or bankruptcy of a shareholder, his personal representative or trustee in bankruptcy, although not a shareholder, shall have the same rights, privileges and obligations that attach to the shares formerly held by the deceased or bankrupt shareholder if the documents required by the Business Corporations Act shall have been deposited at the Company's registered office. This Article does not apply on the death of a shareholder with respect to shares registered in his name and the name of another person in joint tenancy.
5.10 Any person becoming entitled to a share in consequence of the death or bankruptcy of a shareholder shall, upon such documents and evidence being produced to the Company as the Business Corporations Act requires, or who becomes entitled to share as a result of an order of a court of competent jurisdiction or a statute has the right either to be registered as a shareholder in his representative capacity in respect of such share, or, if he is a personal representative, instead of being registered himself, to make such transfer of the share as the deceased or bankrupt person could have made; but the Directors shall, as regards a transfer by a personal representative or trustee in bankruptcy, have the same right, if any, to decline or suspend registration of a transferee as they would have in the case of a transfer of a share by the deceased or bankrupt person before the death or bankruptcy.
PART 6 -ALTERATION OF CAPITAL
6.1 The Company may by ordinary resolution filed with the Registrar amend its Notice of Articles to increase the authorized capital of the Company by:
(a) creating shares with par value or shares without par value, or both;
(b) increasing the number of shares with par value or shares without par value, or both; or
(c) increasing the par value of a class of shares with par value, if no shares of that class are issued.
All new shares shall be subject to the same provisions with reference to transfers, transmissions and otherwise as the existing shares of the Company.
6.2 The Company may alter its Notice of Articles or these Articles:
(i) by special resolution, to create, define and attach special rights or restrictions to any shares, and
(ii) by special resolution and by otherwise complying with any applicable provision of its Articles, to vary or abrogate any special rights and restrictions attached to any shares and in each case by filing a certified copy of such resolution with the Registrar but no right or special right attached to any issued shares shall be prejudiced or interfered with unless all shareholders holding shares of each class whose right or special right is so prejudiced or interfered with consent thereto in writing, or unless a resolution consenting thereto is passed at a separate class meeting of the holders of the shares of each such class by a majority of two-thirds, or such greater majority as may be specified by the special rights attached to the class of shares, of the issued shares of such class.
PART 7 - PURCHASE AND REDEMPTION OF SHARES
7.1 Subject to the special rights and restrictions attached to any class or series of shares, the Company may, by a resolution of the Directors and in compliance with the Business Corporations Act, purchase any of its shares at the price and upon the terms specified in such resolution or redeem any class or series of its shares in accordance with the special rights and restrictions attaching thereto. No such purchase or redemption shall be made if the Company is insolvent at the time of the proposed purchase or redemption or if the proposed purchase or redemption would render the Company insolvent.
7.2 If the Company proposes as its option to redeem some but not all of the shares of any class, the Directors may, subject to the Special rights and restrictions attached to such class of shares, decide the manner in which the shares to be redeemed shall be selected.
PART 8 - BORROWING POWERS
8.1 The Directors may from time to time authorize the Company to
(a) borrow money in such manner and amount, on such security, from such sources and upon such terms and conditions as they think fit,
(b) issue bonds, debentures, and other debt obligations either outright or as security for any liability or obligation of the Company or any other person, and
(c) mortgage, charge, whether by way of specific or floating charge, or give other security on the undertaking, or on the whole or any part of the property and assets, of the Company (both present and future).
8.2 Any bonds, debentures or other debt obligations of the Company may be issued at a discount, premium or otherwise, and with any special privileges as to redemption, surrender, drawings, allotment of or conversion into or exchange for shares or other securities, attending and voting at general meetings of the Company, appointment of Directors or otherwise and may by their terms be assignable free from any equities between the Company and the person to whom they were issued or any subsequent holder thereof, all as the Directors may determine.
8.3 A bond, debenture or other debt obligation which contains printed or otherwise mechanically reproduced signatures, as may be permitted by the Business Corporations Act, is as valid as if signed manually notwithstanding that any person whose signature is so printed or mechanically reproduced shall have ceased to hold the office that he is stated on such bond, debenture or other debt obligation to hold at the date of the issue thereof.
8.4 Where the Company is a reporting Company it shall keep or cause to be kept a register of its indebtedness to every Director or officer of the Company or an associate of any of them in accordance with the provisions of the Business Corporations Act.
PART 9- GENERAL MEETINGS
9.1 Subject to any extensions of time permitted pursuant to the Business Corporations Act, the first annual general meeting of the Company shall be held within eighteen months from the date of recognition under the Business Corporations Act and thereafter an annual general meeting shall be held once in every calendar year at such time (not being more than fifteen months after the annual reference date for the preceding calendar year) and place as may be determined by the Directors.
9.2 All general meetings other than annual general meetings are herein referred to as and may be called special general meetings.
9.3 The Directors may, whenever they think fit, convene an special general meeting. An special general meeting if requisitioned in accordance with the Business Corporations Act, shall be convened by the Directors or, if not convened by the Directors, may be convened by the requisitionists as provided in the Business Corporations Act.
9.4 A notice convening a general meeting specifying the place, the day, and the hour of the meeting, and, in case of special business, the general nature of that business , shall be given as provided in the Business Corporations Act and in the manner hereinafter in these Articles mentioned, or in such other manner (if any) as may be prescribed by ordinary resolution, whether previous notice thereof has been given or not, to such persons as are entitled by law or under these Articles to receive such notice from the Company. Accidental omission to give notice of a meeting to, or the non-receipt of notice of a meeting, by any shareholder shall not invalidate the proceedings at that meeting.
9.5 All the shareholders of the Company entitled to attend and vote at a general meeting may, by unanimous consent in writing given before, during or after the meeting, or if they are present at the meeting by a unanimous vote, waive or reduce the period of notice of such meeting and an entity in the minute book of such waiver or reduction shall be sufficient evidence of the due convening of the meeting.
9.6 Except as otherwise provided by the Business Corporations Act, where any special business at a general meeting includes considering, approving, ratifying, adopting or authorizing any document or the execution thereof or the giving of effect thereto, the notice convening the meeting shall, with respect to such document, be sufficient if it states that a copy of the document or proposed document is or will be available for inspection by shareholders at the registered office or records office of the Company or at some other place in British Columbia designated in the notice during usual business hours up to the date of such general meeting.
9.7 A general meeting of the Company may be held at a location outside British Columbia if that location is:
(i) approved by resolution of the directors before the meeting is held; or
(ii) approved in writing by the Registrar of Companies before the meeting is held.
)
PART 10 - PROCEEDINGS AT GENERAL MEETINGS
10.1 All business shall be deemed special business which is transacted at:
(a) an special general meeting other than the conduct of and voting at, such meeting; and
(b) an annual general meeting, with the exception of the conduct of, and voting at, such meeting , the consideration of the financial statement and of the respective reports of the Directors and Auditor, fixing or changing the number of directors, approval of a motion to elect two or more directors by a single resolution, the election of Directors, the appointment of the Auditor, the fixing of the remuneration of the Auditor and such other business as by these Articles of the Business Corporations Act may be transacted at a general meeting without prior notice thereof being given to the shareholders or any business which is brought under consideration by the report of the Directors.
10.2 No business other than the adjournment of the meeting shall be transacted at any general meeting unless a quorum of shareholders, entitled to attend and vote, is present at the commencement of the meeting, but the quorum need not be present throughout the meeting.
10.3 Where the Company is a non-reporting Company, the Company's Directors may solicit proxies to be voted at general meetings of the shareholders.
10.4 Save as herein otherwise provided, a quorum shall be one shareholder present in person or by proxy. The Directors, the Secretary or, in his absence, an Assistant Secretary, and the solicitor of the Company shall be entitled to attend at any general meeting but no such person shall be counted in the quorum or be entitled to vote at any general meeting unless he shall be a shareholder or proxyholder entitled to vote thereat.
10.5 If within half an hour from the time appointed for a general meeting a quorum is not present, the meeting, if convened upon the requisition of shareholders, shall be dissolved. In any other case it shall stand adjourned to the same day in the next week, at the same time and place.
10.6 The Chairman of the Board, if any, or in his absence the President of the Company or in his absence a Vice-President of the Company, if any, shall be entitled to preside as chairman at every general meeting of the Company.
10.7 If at any general meeting neither the Chairman of the Board nor President nor a Vice-President is present within fifteen minutes after the time appointed for holding the meeting or is unwilling to act as chairman, the Directors present shall choose someone of their number or the solicitor of the Company to be chairman or if all the Directors present or the solicitor of the Company decline to take the chair or shall fail to so choose or if no director be present, the shareholders present shall choose some other person in attendance, who need not be a shareholder, to be chairman.
10.8 Notwithstanding Articles 10.6 and 10.7, with the consent of the meeting, which consent may be expressed by the failure of any person present and entitled to vote to object, the solicitor of the Company may act as chairman of the meeting.
10.9 The chairman may and shall, if so directed by the meeting, adjourn the meeting from time to time and from place to place, but no business shall be transacted at any adjourned meeting other than the business left unfinished at the meeting from which the adjournment took place. When a meeting is adjourned for thirty days or more, twenty-one days notice of the adjourned meeting shall be given. Save as aforesaid, it shall not be necessary to give any notice of an adjourned meeting or of the business to be transacted at an adjourned meeting.
10.10 No motion proposed at a general meeting need be seconded and the chairman may propose or second the motion.
10.11 Subject to the provisions of the Business Corporations Act, at any general meeting a resolution put to the vote of the meeting shall be decided on a show of hands, unless (before or on the declaration of the result of the show of hands) a poll is directed by the chairman or demanded by at least one shareholder entitled to vote who is present in person or by proxy. The chairman shall declare to the meeting the decision on every question in accordance with the result of the show of hands or the poll, and such decision shall be entered in the book of proceedings of the Company. A declaration by the chairman that a resolution has been carried, or carried unanimously, or by a particular majority, or lost or not carried by a particular majority and an entry to that effect in the book of the proceedings of the Company shall be conclusive evidence of the fact, without proof of the number of proportion of the votes recorded in favor of, or against, that resolution.
10.12 In the case of an equality of votes, whether on a show of hands or on a poll, the Chairman of the meeting at which the show of hands takes place or at which the poll is demanded shall be entitled to a second or casting vote.
10.13 No poll may be demanded on the election of a chairman. A poll demanded on a question of adjournment shall be taken forthwith. A poll demanded on any other question shall be taken as soon as, in the opinion of the chairman, is reasonably convenient, but in no event later than seven days after the meeting and at such time and place and in such manner as the chairman of the meeting directs. The result of the poll shall be deemed to be the resolution of and passed at the meeting upon which the poll was demanded. Any business other than that upon which the poll has been demanded may be preceded with pending the taking of the poll. A demand for a poll may be withdrawn. In any dispute as to the admission or rejection of a vote the decision of the chairman made in good faith shall be final and conclusive.
10.14 On a poll a person entitled to cast more than one vote need not, if he votes, use all his votes or cast all the votes he uses in the same way.
10.15 Unless the Business Corporations Act, the Notice of Articles or these Articles otherwise provide, any action to be taken by a resolution of the shareholders may be taken by an ordinary resolution.
PART 11- VOTES OF SHAREHOLDERS
11.1 Unless these Articles otherwise provide, the provisions of these Articles relating to general meetings shall apply, with the necessary changes and so far as they are applicable, to a class or series meeting of shareholders holding a particular class or series of shares but the quorum at a class or series meeting shall be one person holding or representing by proxy one third of the shares affected.
11.2 Subject to any special voting rights or restrictions attached to any class or series of shares and the restrictions on joint registered holders of shares, on a show of hands every shareholder who is present in person and entitled to vote thereat shall have one vote and on a poll every shareholder shall have one vote for each share of which he is the registered holder and may exercise such vote either in person or by proxy.
11.3 Any person who is not registered as a shareholder but is entitled to vote at any general meeting in respect of a share, may vote the share in the same manner as if he were a shareholder; but, unless the Directors have previously admitted his right to vote at that meeting in respect of the share, he shall satisfy the Directors of his right to vote the share before the time for holding the meeting, or adjourned meeting as the case may be, at which he proposes to vote.
11.4 Where there are joint shareholders registered in respect of any share, any one of the joint shareholders may vote at any meeting in person or by proxy in respect of the share as if he were solely entitled to it. If more than one of the joint shareholders is present at any meeting in person or by proxy the joint shareholder so present whose name stands first on the register of shareholders in respect of the share shall alone be entitled to vote in respect of that share. For the purpose of this Article, several executors or administrators of a deceased shareholder in whose sole name any share stands shall be deemed joint shareholders.
11.5 A shareholder of unsound mind otherwise entitled to attend and vote, in respect of whom an order has been made by any court having jurisdiction, may vote, whether on a show of hands or on a poll, by his committee, or other person in the nature of a committee appointed by that court, and any such committee, or other person may appoint a proxyholder.
11.6 A shareholder holding more than one share in respect which he is entitled to vote shall be entitled to appoint one or more (but not more than five) proxyholders to attend, act and vote for him on the same occasion. If such shareholder should appoint more than one proxyholder for the same occasion he shall specify the number of shares each proxyholder shall be entitled to vote. A shareholder may also appoint one or more alternate proxyholders to act in the place and stead of an absent proxyholder.
11.7 A form of proxy shall be in writing under the hand of the appointor or of his attorney duly authorized in writing, or, if the appointer is a corporation, either under the seal of the corporation or under the hand of a duly authorized officer or attorney. A proxyholder need not be a shareholder of the Company.
11.8 A form of proxy and the power of attorney or other authority, if any, under which it is signed or a notarially certified copy thereof shall be deposited at the registered office of the Company or at such other place as is specified for that purpose in the notice convening the meeting, not less than 48 hours (excluding Saturdays, Sundays and holidays) before the time for holding the meeting or such other time and place as is specified in the notice calling the meeting. In addition to any other method of depositing proxies provided for in these Articles and subject to the Business Corporations Act, the Directors may from time to time by resolution make regulations relating to the depositing of proxies at any place or places and fixing the time or times for depositing the proxies preceding the meeting or adjourned meeting specified in the notice calling a meeting of shareholders and providing for particulars of such proxies to be sent to the Company or any agent of the Company in writing or by letter, telegram, telex or any method of transmitting legibly recorded messages so as to arrive before the commencement of the meeting or adjourned meeting at the office of the Company or of any agent of the Company appointed for the purpose of receiving such particulars and providing that proxies so deposited as required by this Part and votes given in accordance with such regulations shall be valid and shall be counted.
11.9 A vote given in accordance with the terms of a proxy is valid notwithstanding the previous death or incapacity of the shareholder giving the proxy or the revocation of the proxy or of the authority under which the form of proxy was executed or the transfer of the share in respect of which the proxy is given, provided that no notification in writing of such death, incapacity, revocation or transfer shall have been received at the registered office of the Company or by the chairman of the meeting or adjourned meeting for which the proxy was given before the vote is taken.
11.10 Every proxy may be revoked by an instrument in writing
(a) executed by the shareholder giving the same or by his attorney authorized in writing or, where the shareholder is a corporation, by a duly authorized officer or attorney of the corporation; and
(b) delivered either at the registered office of the Company at any time up to and including the last business day preceding the day of the meeting, or any adjournment thereof at which the proxy is to be used, or to the chairman of the meeting on the day of the meeting or any adjournment thereof before any vote in respect of which the proxy is to be used shall have been taken;
or in any other manner provided by law.
PART 12 - DIRECTORS
12.1 The subscribers to the Notice of Articles of the Company are the first Directors. The Directors to succeed the first Directors may be appointed in writing by a majority of the subscribers to the Notice of Articles or at a meeting of the subscribers, or if not so appointed, they shall be elected by the shareholders entitled to vote on the election of Directors. The number of Directors, excluding additional Directors, may be fixed or changed from time to time by ordinary resolution, whether previous notice thereof has been given or not, but notwithstanding anything contained in these Articles the number of Directors shall never be less than one or, if the Company is or becomes a reporting company, less than three.
12.2 The remuneration of the Directors shall be as determined from time to time by the Directors or, if the Directors shall so decide, by the shareholders. Such remuneration may be in addition to any salary or other remuneration paid to any officer or employee of the Company as such who is also a Director. The Directors shall be repaid such reasonable travelling, hotel and other expenses as they incur in and about the business of the Company and if any Director shall perform any professional or other services for the Company that in the opinion of the Directors are outside the ordinary duties of a Director or shall otherwise be specially occupied in or about the Company's business, he may be paid a remuneration to be fixed by the Board or at the option of such Director, by the Company in general meeting, and such remuneration may be either in addition to, or in substitution for any other remuneration that he may be entitled to receive. The Directors, on behalf of the Company, unless otherwise determined by ordinary resolution, may pay a gratuity or pension or allowance on retirement to any Director who has held any salaried office or place of profit with the Company or to his spouse or dependents and may make contributions to any fund and pay premiums for the purchase or provision of any such gratuity, pension or allowance.
12.3 A Director shall not be required to hold a share in the capital of the Company as qualification for his office.
PART 13 - ELECTION AND REMOVAL OF DIRECTORS
13.1 At each annual general meeting of the Company all the Directors shall retire and the shareholders shall elect a Board of Directors.
13.2 A retiring Director shall be eligible for re-election.
13.3 Where the Company fails to hold an annual general meeting in accordance with the Business Corporations Act, the Directors then in office shall be deemed to have been elected or appointed as Directors on the last day on which the annual general meeting could have been held pursuant to these Articles and they may hold office until other Directors are appointed or elected or until the day on which the next annual general meeting is held.
13.4 Where the number of Directors of the Company has been fixed by ordinary resolution, the Board elected at any annual general meeting shall, if the number of nominees is sufficient, consist of that number. If the Board elected consists of fewer directors than the number so fixed, the vacancies remaining on the Board shall be deemed to be casual vacancies.
13.5 Any casual vacancy occurring in the Board of Directors may be filled by the remaining Directors or Director.
13.6 Between successive annual general meetings the Directors shall have power to appoint one or more additional Directors but not more than one-third of the number of Directors fixed pursuant to these Articles and in effect at the last general meeting at which Directors were elected. Any Director so appointed shall hold office only until the next following annual general meeting of the Company, but shall be eligible for election at such meeting and so long as he is an additional Director the number of Directors shall be increased accordingly.
13.7 Any Director may by instrument in writing delivered to the Company appoint any person to be his alternate to act in his place at meetings of the Directors at which he is not present unless the Directors shall have reasonably disapproved the appointment of such person as an alternate Director and shall have given notice to that effect to the Director appointing the alternate Director within a reasonable time after delivery of such instrument to the Company. Every such alternate shall be entitled to notice of meetings of the Directors and to attend and vote as a Director at a meeting at which the person appointed him is not personally present, and, if he is a Director, to have a separate vote on behalf of the Director he is representing in addition to his own vote. A Director may at any time by instrument, telegram, telex or any method of transmitting legibly recorded messages delivered to the Company revoke the appointment of an alternate appointed by him. The remuneration payable to such an alternate shall be payable out of the remuneration of the Director appointing him.
13.8 In addition to the applicable provisions of the Business Corporations Act, a Director ceases to hold office when he is convicted of an indictable offence and the other Directors have unanimously resolved to remove him.
PART 14 - POWERS AND DUTIES OF DIRECTORS
14.1 The Directors shall manage, or supervise the management of, the affairs and business of the Company and shall have the authority to exercise all such powers of the Company as are not, by the Business Corporations Act or by the Notice of Articles or these Articles, required to be exercised by the Company in general meetings.
14.2 The Directors may from time to time by power of attorney or other instrument under the seal, appoint any person to be the attorney of the Company for such purposes, and with such powers, authorities and discretions (not exceeding those vested in or exercisable by the Directors under these Articles and excepting the powers of the Directors relating to the constitution of the Board and of any of its committees and the appointment or removal of officers and the power to declare dividends) and for such period, with such remuneration and subject to such conditions as the Directors may think fit, and any such appointment may be made in favour of any of the Directors or any of the shareholders of the Company or in favour of any corporation, or of any of the shareholders, directors, nominees or managers of any corporation, firm or joint venture and any such power of attorney may contain such provisions for the protection or convenience of persons dealing with such attorney as the Directors think fit. Any such attorney may be authorized by the Directors to sub-delegate all or any of the powers, authorities and discretions for the time being vested in him.
14.3 The Directors shall have the power by resolution of the directors to approve a change of name of the Company.
PART 15 - DISCLOSURE OF INTEREST OF DIRECTORS
15.1 A Director who is, in any way, directly or indirectly interested in a proposed contract or transaction with the Company or who holds any office or possesses any property whereby, directly or indirectly, a duty or interest might be created in conflict with his duty or interest as a Director shall declare the nature and extent of his interest or of the conflict, as the case may be, in accordance with the provisions of the Business Corporations Act.
15.2 A Director shall not vote in respect of any proposed contract or transaction with the Company in which he is interested but he shall be counted in the quorum present at the meeting of the directors at which the proposed contract or transaction is approved.
15.3 A Director may hold any office or place of profit with the Company (other than the office of auditor of the Company) in conjunction with his office of Director for such period and on such terms (as to remuneration or otherwise) as the Directors may determine and no Director or intended Director shall be disqualified by his office from contracting with the Company either with regard to his tenure of any such other office or place of profit or as vendor, purchaser or otherwise, and, subject to compliance with the provisions of the Business Corporations Act, no contract or transaction entered into by or on behalf of the Company in which a Director is in any way interested shall be liable to be voided by reason thereof.
15.4 Subject to compliance with the provisions of the Business Corporations Act, a Director or his firm may act in a professional capacity for the Company (except as auditor of the Company) and he or his firm shall be entitled to remuneration for professional services as if he were not a Director.
15.5 A Director may be or become a director or other officer or employee of, or otherwise interested in, any corporation or firm in which the Company may be interested as a shareholder or otherwise, and, subject to compliance with the provisions of the Business Corporations Act, such Director shall not be accountable to the Company for any remuneration or other benefits received by him as director, officer or employee of, or from his interest in, such other corporation or firm.
PART 16 - PROCEEDINGS OF DIRECTORS
16.1 The Chairman of the Board, if any, or in his absence, the President shall preside as chairman at every meeting of the Directors, or if there is no Chairman of the Board or neither the Chairman of the Board nor the President is present within fifteen minutes of the time appointed for holding the meeting or is willing to act as chairman, or, if the Chairman of the Board, if any, and the President have advised the Secretary that they will not be present at the meeting, the Directors present shall choose one of their number to be chairman of the meeting. With the consent of the meeting, the solicitor of the Company, if present, may act as Chairman of a meeting of directors.
16.2 The Directors may meet together for the dispatch of business, adjourn and otherwise regulate their meetings, as they think fit. Questions arising at any meeting shall be decided by a majority of votes. In case of an equality of votes the chairman shall not have a second or casting vote and he shall declare the motion defeated. Meetings of the Board held at regular intervals may be held at such place, at such time and upon such notice (if any) as the Board may by resolution from time to time determine.
16.3 A Director may participate in a meeting of the Board or of any committee of the Directors by means of conference telephones or other communications facilities by means of which all Directors participating in the meeting can hear each other and provided that all such Directors agree to such participation. A Director participating in a meeting in accordance with this Article shall be deemed to be present at the meeting and to have so agreed and shall be counted in the quorum therefor and be entitled to speak and vote thereat.
16.4 A Director may, and the Secretary or an Assistant Secretary upon request of a Director shall, call a meeting of the Board at any time. Reasonable notice of such meeting specifying the place, day and hour of such meeting shall be given by mail, postage prepaid, addressed to each Director and alternate Director at his address as it appears on the books of the Company or by leaving it at his usual business or residential address or by telephone, telegram, telex, or any method of transmitting legibly recorded messages. Accidental omission to give notice of a meeting of Directors to, or the non-receipt of notice by any Director or alternate Director, shall not invalidate the proceeding at that meeting. It shall not be necessary to give notice of a meeting of Directors to any Director or alternate Director (a) who is at the time not in the Province of British Columbia or (b) if such meeting is to be held immediately following a general meeting at which such Director shall have been elected or is the meeting of Directors at which such Director is appointed.
16.5 Any Director of the Company may file with the Secretary a document executed by him waiving notice of any past, present or future meeting or meetings of the Directors being, or required to have been, sent to him and may at any time withdraw such waiver with respect to meetings held thereafter. After filing such waiver with respect to future meetings and until such waiver is withdrawn no notice need be given to such Director and, unless the Director otherwise requires in writing to the Secretary, or his alternate Director of any meeting of Directors and all meetings of the Directors so held shall be deemed not to be improperly called or constituted by reason of notice not having been given to such Director or alternate Director.
16.6 Any Director of the Company who may be absent either temporarily or permanently from the Province of British Columbia may file at the office of the Company a waiver of notice which may be by letter, telegram or cable, of any meeting of the Directors and may at any time withdraw such waiver, and until such waiver is withdrawn, no notice of meetings of Directors need be sent to such Director, and any and all meetings of the Directors of the Company, notice of which shall not have been given to such Director, shall, provided a quorum of the Directors is present, be valid and binding upon the Company.
16.7 The quorum necessary for the transaction of the business of the Directors may be fixed by the Directors and if not so fixed shall be a majority of the Directors holding office at the time or, if the Company shall have only one Director, shall be one Director.
16.8 The continuing Directors may act notwithstanding any vacancy in their body, but, if and so long as their number is reduced below the number fixed pursuant to these Articles as the necessary quorum of Directors, the continuing Directors may act for the purpose of increasing the number of Directors to that number, or of summoning a general meeting of the Company, but for no other purpose.
16.9 Subject to the provisions of the Business Corporations Act, all acts done by any meeting of the Directors or of a committee of Directors, or by any person acting as a Director, shall, notwithstanding that it be afterwards discovered that there was some defect in the qualification, election or appointment of any such Directors or of the shareholders of such committee or person acting as aforesaid, or that they or any of them were disqualified, be as valid as if every such person had been duly elected or appointed and was qualified to be a Director.
16.10 A resolution consented to in writing, whether by document, telegram, telex or any method of transmitting legibly recorded messages or other means, by all of the Directors or their alternates shall be as valid and effectual as if it had been passed at a meeting of the Directors duly called and held. Such resolution may be in two or more counterparts which together shall be deemed to constitute one resolution in writing. Such resolution shall be filed with the minutes of the proceedings of the Directors and shall be effective on the date stated thereon or on the latest date stated on any counterpart.
PART 17 - EXECUTIVE AND OTHER COMMITTEES
17.1 The Directors may by resolution appoint an Executive Committee to consist of such shareholder or shareholders of their body as they think fit, which Committee shall have, and may exercise during the intervals between the meetings of the Board, all the powers vested in the Board except the power to fill vacancies in the Board, the power to change the shareholdership of, or fill vacancies in, said Committee or any other committee of the Board and such other powers, if any, as may be specified in the resolution. The said Committee shall keep regular minutes of its business and shall cause them to be recorded in books kept for that purpose, and shall report the same to the Board of Directors at such times as the Board of Directors may from time to time require. The Board shall have the power at any time to revoke or override the authority given to or acts done by the Executive Committee except as to acts done before such revocation or overriding and to terminate the appointment or change the shareholdership of such Committee and to fill vacancies in it. The Executive Committee may make rules for the conduct of its business and may appoint such assistants as it may deem necessary. A majority of the shareholders of said Committee shall constitute a quorum thereof.
17.2 The Directors may by resolution appoint one or more committees consisting of such shareholder or shareholders of their body as they think fit and may delegate to any such committee between meetings of the Board powers of the Board (except the power to fill vacancies in the Board and the power to change the shareholdership of or fill vacancies in any committee of the Board and the power to appoint or remove officers appointed by the Board) subject to such conditions as may be prescribed in such resolution, and all committees so appointed shall keep regular minutes of their business and shall cause them to be recorded in books kept for that purpose, and shall report the same to the Board of Directors at such times as the Board of Directors may from time to time require. The Directors shall also have power at any time to revoke or override any authority given to or acts to be done, except as to acts done before such revocation or overriding and to terminate the appointment or change the shareholdership of a committee and to fill vacancies in it. Committees may make rules for the conduct of their business and may appoint such assistants as they may deem necessary. A majority of the shareholders of a committee shall constitute a quorum thereof.
17.3 The Executive Committee and any other committee may meet and adjourn as it thinks proper. Questions arising at any meeting shall be determined by a majority of votes of the shareholders of the committee present, and in case of an equality of votes the chairman shall not have a second or casting vote. A resolution approved in writing by all the shareholders of the Executive Committee or any other committee shall be as valid and effective as if it had been passed at a meeting of such Committee duly called and constituted. Such resolution may be in two or more counterparts which together shall be deemed to constitute one resolution in writing. Such resolution shall be filed with the minutes of the proceedings of the committee and shall be effective on the date stated thereon or on the latest date stated in any counterpart.
PART 18 - OFFICERS
18.1 The Directors shall, from time to time, appoint a President and a Secretary and such other officers, if any, as the Director shall determine and the Directors may, at any time, terminate any such appointment. No officer shall be appointed unless he is qualified in accordance with the provisions of the Business Corporations Act.
18.2 One person may hold more than one of such offices except that the offices of President and Secretary must be held by different persons unless the Company has only one shareholder. Any person appointed as the Chairman of the Board, the President or the Managing Director shall be a Director. The other officers need not be Directors. The remuneration of the officers of the Company as such and the terms and conditions of their tenure of office or employment shall from time to time be determined by the Directors; such remuneration may be by way of salary, fees, wages, commission or participation in profits or any other means or all of these modes and an officer may in addition to such remuneration be entitled to receive after he ceases to hold such office or leaves the employment of the Company a pension or gratuity. The Directors may decide what functions and duties each officer shall perform and may entrust to and confer upon him any of the powers exercisable by them upon such terms and conditions and with such restrictions as they think fit and may from time to time revoke, withdraw, alter or vary all or any of such functions, duties and powers. The Secretary shall, inter alia, perform the functions of the Secretary specified in the Business Corporations Act.
18.3 Every officer of the Company who holds any office or possesses any property whereby, whether directly or indirectly, duties or interests might be created in conflict with his duties or interests as an officer of the Company shall, in writing, disclose to the President the fact and the nature, character and extent of the conflict.
PART 19 - INDEMNITY AND PROTECTION OF DIRECTORS, OFFICERS AND EMPLOYERS AND CERTAIN AGENTS
19.1 The Company shall indemnify any person and his heirs, executors or personal representatives who were or are a party or who are threatened to be made a party to any threatened, pending or completed action or proceeding, whether or not brought by the Company or by a corporation or other legal entity or enterprise as hereinafter mentioned and whether civil, criminal or administrative, by reason of the fact that he is or was a Director of the Company or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, a partnership, joint venture, trust or other enterprise, against all costs, charges and expenses, including legal fees and any amount paid to settle such action or preceding or satisfy such judgement.
The determination of any action, suit or proceeding by judgement, order, settlement, conviction or otherwise shall not, by itself, create a presumption that the person did not act honestly and in good faith and in the best interests of the Company and did not exercise the care, diligence and skill of a reasonably prudent person and, with respect to any criminal action or proceeding, did not have reasonable grounds to believe that his conduct was lawful.
19.2 Subject to the provisions of the Business Corporations Act, the Directors shall cause the Company to indemnify any officer, and may cause the Company to indemnify any employee or agent of the Company or of a corporation of which the Company is or was a shareholder (notwithstanding that he is also a Director) and his heirs and personal representatives against all costs, charges and expenses whatsoever incurred by him or them and resulting from his acting as an officer, employee or agent of the Company or such corporation. Each officer of the Company shall on being appointed be deemed to have contracted with the Company on the terms of the foregoing indemnity.
19.3 The indemnification provided by this Part shall not be deemed exclusive of any other rights to which the party seeking indemnification may be entitled under any other part, or any valid and lawful agreement, vote of shareholders or disinterested Directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall enure to the benefit of the heirs, executors and administrators of such person. The indemnification provided by this Part shall not be exclusive of any powers, rights, agreements or undertakings which may be legally permissible or authorized by or under any applicable law. Notwithstanding any other provisions set forth in this Part, the indemnification authorized by this Part shall be applicable only to the extent that any such indemnifications shall not duplicate indemnity or reimbursement which that person has received or shall receive otherwise than under this Part.
19.4 Subject to the Business Corporations Act, the Directors are authorized from time to time to cause the Company to give indemnities to any director, officer, employee, agent or other person who has undertaken or is about to undertake any liability on behalf of the Company or any corporation controlled by it.
19.5 The failure of a director or officer of the Company to comply with the provisions of the Business Corporations Act, the Notice of Articles or these Articles shall not invalidate any indemnity to which he is entitled under this Part.
19.6 Subject to the Business Corporations Act, no director or officer or employee for the time being of the Company shall be liable for the acts, receipts, neglects or defaults of any other director of officer or employee, or for joining in any receipt or act for conformity, or for any loss, damage or expense happening to the Company through the insufficiency or deficiency of title to any property acquired by order of the Board for the Company, or for the insufficiency or deficiency of any security in or upon which any of the moneys belonging to the Company shall
· be invested or for any loss or damages arising from the bankruptcy, insolvency, or tortious act of any person, firm or corporation with whom or which any moneys, securities or effects shall be lodged or deposited or for any loss occasioned by any error of judgement or oversight on his part or for any other loss, damage or misfortune whatever which may happen in the execution of the duties of his respective office or trust or in relation thereto unless the same shall happen by or through his own willful act or default, gross negligence, breach of trust or breach of fiduciary duty.
19.7 Directors may rely upon the accuracy of any statement of fact represented by an officer of the Company to be correct or upon statements in a written report of the auditor of the Company and shall not be responsible or held liable for any loss or damage resulting from the paying of any dividends or otherwise acting in good faith upon any such statement.
19.8 The Directors may cause the Company to purchase and maintain insurance for the benefit of any person who is or was a director, officer, employee or agent of the Company or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise and his heirs and personal representatives against any liability incurred by him as a director, officer, employee or agent.
PART 20 - DIVIDENDS AND RESERVE
20.1 The Directors may from time to time declare and authorize payment of such dividends, if any, as they may deem advisable and fix the record date therefor and need not give notice of such declaration to any shareholder. No dividend shall be paid otherwise than out of funds and/or assets properly available for the payment of dividends and a declaration by the Directors as to the amount of such funds or assets available for dividends shall be conclusive. The Company may pay any such dividend wholly or in part by the distribution of specific assets and in particular by paid up shares, bonds, debentures or other securities of the Company or any other corporation or in any one or more such ways as may be authorized by the Company or the Directors. Where any difficulty arises with regard to such a distribution the Directors may settle the same as they think expedient, and in particular may fix the value for distribution of such specific assets or any part thereof, and may determine that cash payments in substitution for all or any part of the specific assets to which any shareholders may otherwise be entitled shall be made to any shareholders on the basis of the value so fixed in order to adjust the rights of all parties and may vest any such specific assets in trustees for the persons entitled to the dividend as may seem expedient to the Directors.
20.2 Any dividend declared on shares of any class by the Directors may be made payable on such date as is fixed by the Directors.
20.3 Subject to the rights of shareholders (if any) holding shares with special rights as to dividends, all dividends on shares of any class shall be declared and paid according to the number of such shares held.
20.4 The Directors may, before declaring any dividend, set aside out of the funds properly available for the payment of dividends such sums as they think proper as a reserve or reserves, which shall, at the discretion of the Directors, be applicable for meeting contingencies, or for equalizing dividends, or for any other purpose to which such funds of the Company may be properly applied, and pending such application may, either be employed in the business of the Company or be invested in such investments as the Directors may from time to time think fit. The Directors may also, without placing the same in reserve, carry forward such funds, which they think prudent not to divide.
20.5 If several persons are registered as joint holders of any share, any one of them may give an effective receipt for any dividend, bonuses or other moneys payable in respect of the share.
20.6 No dividend shall bear interest against the Company. Where the dividend to which a shareholder is entitled includes a fraction of a cent, such fraction shall be disregarded in making payment thereof and such payment shall be deemed to be payment in full.
20.7 Any dividends, bonuses or other moneys payable in cash in respect of shares may be paid by cheque or warrant sent through the post directed to the registered address of the holder, or in the case of joint holders, to the registered address of that one of the joint holders who is first named on the register, or to such person and to such address as the holder or joint holders may direct in writing. Every such cheque or warrant shall be made payable to the order of the person to whom it is sent. The mailing of such cheque or warrant shall, to the extent of the sum represented thereby (plus the amount of any tax required by law to be deducted) discharge all liability for the dividend, unless such cheque or warrant shall not be paid on presentation or the amount of tax so deducted shall not be paid to the appropriate taxing authority.
20.8 Notwithstanding anything contained in these Articles the Directors may from time to time capitalize any undistributed surplus on hand of the Company and may from time to time issue as fully paid and non-assessable any unissued shares, or any bonds, debentures or debt obligations of the Company as a dividend representing such undistributed surplus on hand or any part thereof.
20.9 A transfer of a share shall not pass the right to any dividend declared thereon before the registration of the transfer in the register.
PART 21 - DOCUMENTS, RECORDS AND REPORTS
21.1 The Company shall cause to be kept proper books of account and accounting records in respect of all financial and other transactions of the Company in order properly to record the financial affairs and conditions of the Company and to comply with the Business Corporations Act.
21.2 Unless the Directors determine otherwise, or unless otherwise determined by an ordinary resolution, no shareholder of the Company shall be entitled to inspect the accounting records of the Company.
PART 22 -NOTICES
22.1 A notice, statement or report may be given or delivered by the Company to any shareholder either by delivery to him personally or by sending it by mail to him to his address as recorded in the register of shareholders. Where a notice, statement or report is sent by mail, service or delivery of the notice, statement or report shall be deemed to be effected by properly addressing, prepaying and mailing the notice, statement or report and to have been given on the day, Saturdays, and holidays excepted, following the date of mailing. A certificate signed by the Secretary or other officer of the Company or of any other corporation acting in that behalf for the Company that the letter, envelope or wrapper containing the notice, statement or report was addressed prepaid and mailed shall be conclusive evidence thereof.
22.2 A notice, statement or report may be given or delivered by the Company to the joint holders of a share by giving the notice to the joint holder first named in the register of shareholders in respect of the share.
22.3 A notice, statement or report may be given or delivered by the Company to the persons entitled to a share in consequence of the death, bankruptcy and incapacity of a shareholder by sending it through the mail prepaid addressed to them by name or by the title of representatives of the deceased or incapacitated person or trustee of the bankrupt, or by any like description, at the address, if any, supplied to the Company for the purpose by the persons claiming to be so entitled, or (until such address has been so supplied) by giving the notice in manner in which the same might have been given if the death, bankruptcy or incapacity had not occurred.
22.4 Articles, to: Notice of every general meeting shall be given in the manner authorized by these
(a) every shareholder holding a share or shares giving the right to vote at such meetings on the record date;
(b) the personal representative of a deceased shareholder described m section (a);
(c) the trustee in bankruptcy of a bankrupt shareholder described in section (a);
(d) the auditor of the Company;
(e) any other person entitled to receive notice under the Business Corporations Act;
but to no other person.
PART 23 - SEAL
23.1 The Directors may provide a seal for the Company and, if they do so, shall provide for the safe custody of the seal which shall not be affixed to any instrument except in the presence of the following persons, namely,
(a) any two Directors, or;
(b) one of the Chairman of the Board, the President, the Managing Director, a Director and a Vice-President together with one of the Secretary, the Treasurer, the Secretary Treasurer, an Assistant Secretary, an Assistant Treasurer and an Assistant Secretary-Treasurer, or;
(c) if the Company shall have only one shareholder, the President or the Secretary, or;
(d) such person or persons as the Directors may from time to time by resolution appoint;
and the said Directors, officers, person or persons in whose presence the seal is so affixed to an instrument shall sign such instrument. For the purpose of certifying under seal true copies of any document or resolution the seal may be affixed in the presence of any one of the foregoing persons.
23.2 To enable the seal of the Company to be affixed to any bonds, debentures, share certificates, or other securities of the Company, whether in definitive or interim form, on which facsimiles of any of the signatures of the Directors or officers of the Company are, in accordance with the Business Corporations Act and/or these Articles, printed or otherwise mechanically reproduced there may be delivered to the firm or company employed to engrave, lithograph or print such definitive or interim bonds, debentures, share certificates or other securities one or more unmounted dies reproducing the Company's seal and the Chairman of the Board, the President, the Managing Director or a Vice-President and the Secretary, Treasurer, Secretary Treasurer, an Assistant Secretary, an Assistant Treasurer or an Assistant Secretary-Treasurer may by a document authorize such firm or company to cause the Company's seal to be affixed to such definitive or interim bonds, debentures, share certificate or other securities by the use of such dies. Bonds, debentures, share certificates or other securities to which the Company's seal has been so affixed shall for all purposes be deemed to be under and to bear the Company's seal lawfully affixed thereto.
23.3 The Company may have for use in any other province, state, territory or country an official seal and all of the powers conferred by the Business Corporations Act with respect thereto may be exercised by the Directors or by a duly authorized agent of the Company.
PART 24 - MECHANICAL REPRODUCTIONS OF SIGNATURES
24.1 The signature of any officer, Director, registrar, branch registrar, transfer agent or branch transfer agent of the Company, unless otherwise required by the Business Corporations Act or by these Articles, may, if authorized by the Directors, be printed, lithographed, engraved or otherwise mechanically reproduced upon all instruments executed or issued by the Company or any officer thereof; and any instrument on which the signature of any such person is so reproduced shall be deemed to have been manually signed by such person whose signature is so reproduced and shall be as valid to all intents and purposes as if such instrument had been signed manually, and notwithstanding that the person whose signature is so reproduced may have ceased to hold the office that he is stated on such instrument to hold at the date or issue of such instrument.
24.2 The term "instrument" as used in Articles 24.1 shall include deeds, mortgages, hypothecs, charges, conveyances, transfers and assignments of property, real or personal, agreements, releases, receipts and discharges for the payment of money or other obligations, shares and share warrants of the Company, bonds, debentures and other debt obligations of the Company, and all paper writings.
