Exhibit 99.1
ANNUAL INFORMATION FORM
FOR THE YEAR ENDED DECEMBER 31, 2018
of
POLYMET MINING CORP.
(the “Company” or “PolyMet”)
March 28, 2019
Suite 5700 – 100 King Street West,
Toronto, Ontario
M5X 1C7
Tel: 416-915-4149
Fax: 416-915-4189
Website:
www.polymetmining.com
1.
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INTRODUCTORY NOTES
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1
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2.
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CORPORATE STRUCTURE
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3
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3.
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GENERAL DEVELOPMENT OF THE BUSINESS
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3
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4.
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DESCRIPTION OF THE BUSINESS
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6
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5.
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RISK FACTORS
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38
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6.
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DIVIDENDS
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45
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7.
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CAPITAL STRUCTURE
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45
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8.
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MARKET FOR SECURITIES
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46
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9.
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SECURITIES NOT LISTED OR QUOTED
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46
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10.
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DIRECTORS AND OFFICERS
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47
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11.
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LEGAL PROCEEDINGS AND REGULATORY ACTIONS
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48
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12.
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INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS
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49
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13.
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TRANSFER AGENT AND REGISTRAR
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49
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14.
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MATERIAL CONTRACTS
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49
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15.
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INTEREST OF EXPERTS
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49
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16.
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AUDIT COMMITTEE
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50
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17.
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ADDITIONAL INFORMATION
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52
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SCHEDULE A. AUDIT COMMITTEE CHARTER
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53
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In this Annual Information Form (“AIF”) “PolyMet” or the “Company” refers to PolyMet Mining Corp. and its subsidiaries (unless the
context otherwise dictates). All information contained herein is as at March 28, 2019 unless otherwise indicated, other than certain financial information which is as at December 31, 2018, being the date of the Company’s most recently audited
financial year end. All dollar amounts in this AIF are expressed in United States (“U.S.”) dollars, the functional and reporting currency of the Company, unless otherwise indicated.
On December 7, 2017, the Board of Directors approved a resolution to change the year end from January 31 to December 31.
Additional information related to the Company is
available for view on the
System for Electronic Document Analysis and Retrieval (“SEDAR”) and
EDGAR at
www.sedar.com and at www.sec.gov,
respectively,
and on the Company’s website www.polymetmining.com.
Cautionary Statement Regarding Forward-Looking Statements
This AIF contains “forward-looking statements”. Within the meaning of applicable Canadian securities legislation and Section 27A of the
United States Securities Act of 1933 and Section 21E of the United States Securities Exchange Act of 1934, forward-looking statements are not, and cannot be, a guarantee of future results or events. Forward looking statements are based on, among
other things, opinions, assumptions, estimates and analyses that are subject to significant risks, uncertainties, contingencies and other factors that may cause actual results and events to be materially different from those expressed or implied by
the forward-looking statement. All statements in this AIF that address events or developments that PolyMet expects to occur in the future are forward-looking statements and are generally, although not always, identified by words such as “expect”,
“plan”, “anticipate”, “project”, “target”, “potential”, “schedule”, “forecast”, “budget”, “estimate”, “intend” or “believe” and similar expressions or their negative connotations, or that events or conditions “will”, “would”, “may”, “could”,
“should” or “might” occur. These forward-looking statements include, but are not limited to, PolyMet’s objectives, strategies, intentions, expectations, production, costs, capital and exploration expenditures, including an estimated economics of
future financial and operating performance and prospects for the possible expansion of the operation based on a PEA-level study and a ramp-up evaluation representing production growth and improved margins mine, life projections, recovery rate and
concentrate grade projections, ability to obtain all necessary environmental and government approvals to completion and if undertaking an expansion case, ability to obtain at all, the viability and all information with respect to the ability to
develop the Project to additional potential by mining additional resources beyond the permit design at a higher production rate. Prior to any decision to apply for permits to develop the project further, PolyMet would need to complete preliminary
and definitive feasibility studies, as well as an analysis of the environmental impact and alternatives of any proposal. In addition, any future proposal would be subject to environmental review and permits, public notice and comment, and approval
by appropriate federal and state agencies. All forward-looking statements in this AIF are qualified by this cautionary note.
The material factors or assumptions that PolyMet has identified and were applied by PolyMet in drawing the conclusions or making
forecasts or projections set in the forward-looking statements include, but are not limited to:
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various economic assumptions, in particular, metal price estimates, set out in this AIF and elsewhere;
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certain operational assumptions set out in the AIF, including mill recovery, operating scenarios;
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construction schedules and timing issues; and
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assumptions concerning timing and certainty regarding the environmental review and permitting process.
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The risks, uncertainties, contingencies and other factors that may cause actual results and events to differ materially from those
expressed or implied by the forward-looking statement may include, but are not limited to, risks generally associated with the mining industry, such as: economic factors (including future commodity prices, currency fluctuations, inflation rates,
energy prices and general cost escalation); uncertainties related to the development of the NorthMet Project; dependence on key personnel and employee relations; risks relating to political and social unrest or change, operational risk and hazards,
including unanticipated environmental, industrial and geological events and developments and the inability to insure against all risks; failure of plant, equipment, processes, transposition and other infrastructure to operate as anticipated;
compliance with governmental and environmental regulations, including permitting requirements; etc., as well as other factors identified and as described in more detail under the heading “Risk Factors” in Item 5. The list is not exhaustive of the
factors that may affect the forward-looking statements. There can be no assurance that such statements will prove to be accurate, and actual results, performance or achievements could differ materially from those expressed in, or implied by, these
forward-looking statements. Accordingly, no assurance can be given that any events anticipated by the forward-looking statements will transpire or occur, or if any of them do, what benefits or liabilities PolyMet will derive therefrom. The
forward-looking statements reflect the current expectations regarding future events and operating performance and speak only as of the date hereof and PolyMet does not assume any obligation to update the forward-looking statements if circumstances
or management’s beliefs, expectations or opinions should change other than as required by applicable law. For the reasons set forth above, undue reliance should not be placed on forward-looking statements
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Cautionary Note to U.S. Investors – Information Concerning Preparation of Resource Estimates
This AIF has been prepared in accordance with the requirements of the securities laws in effect in Canada, which differ from the
requirements of United States securities laws. The terms “mineral reserve”, “proven mineral reserve” and “probable mineral reserve” are Canadian mining terms as defined in accordance with Canadian National Instrument 43-101 – Standards of
Disclosure for Mineral Projects (“NI 43-101”) and the Canadian Institute of Mining, Metallurgy and Petroleum (“CIM”) – CIM Definition Standards on Mineral Resources and Mineral Reserves, adopted by the CIM Council, as amended. These definitions
differ materially from the definitions in the United States Securities and Exchange Commission’s (“SEC”) Industry Guide 7 under the United States Securities Act of 1933, as amended. Under SEC Industry Guide 7 standards, mineralization cannot be
classified as a “reserve” unless the determination has been made that the mineralization could be economically and legally extracted at the time the reserve determination is made. As applied under SEC Industry Guide 7, a “final” or “bankable”
feasibility study is required to report reserves, the three-year historical average price is used in any reserve or cash flow analysis to designate reserves, and the primary environmental analysis or report must be filed with the appropriate
governmental authority.
In addition, the terms “mineral resource”, “measured mineral resource”, “indicated mineral resource” and “inferred mineral resource” are
defined in and required to be disclosed by NI 43-101; however, these terms are not defined terms under SEC Industry Guide 7 and are normally not permitted to be used in reports and registration statements filed with the SEC. Investors are cautioned
not to assume that all or any part of a mineral deposit in these categories will ever be converted into SEC Industry Guide 7 reserves. “Inferred mineral resources” have a great amount of uncertainty as to their existence, and great uncertainty as
to their economic and legal feasibility. It cannot be assumed that all or any part of an inferred mineral resource will ever be upgraded to a higher category. Under Canadian rules, estimates of inferred mineral resources may not form the basis of
feasibility or pre-feasibility studies, except in rare cases. Investors are cautioned not to assume that all or any part of an inferred mineral resource exists or is economically or legally mineable. Disclosure of “contained metal” in a resource is
permitted disclosure under Canadian regulations; however, the SEC normally only permits issuers to report mineralization that does not constitute “reserves” by SEC Industry Guide 7 standards as in place tonnage and grade without reference to unit
measures.
Accordingly, information concerning mineral deposits contained in this AIF may not be comparable to similar information made by public
U.S. companies subject to the reporting and disclosure requirements under the United States federal securities laws and the rules and regulations thereunder.
Qualified Persons Under NI 43-101
Except where specifically indicated otherwise, the disclosure in this AIF of scientific and technical information regarding PolyMet’s
mineral properties has been reviewed and approved by the following persons who are Qualified Persons as defined by NI 43-101:
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Zachary J. Black, SME-RM, of Hard Rock Consulting, of Lakewood, CO;
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Jennifer J. Brown, P.G., of Hard Rock Consulting, of Lakewood, CO;
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Nicholas Dempers, Pr. Eng., SAIMM, of Senet, of South Africa;
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Thomas L. Drielick, P.E., of M3 Engineering, of Tucson, AZ;
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Art S. Ibrado, P.E., of M3 Engineering., of Tucson, AZ;
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Erin L. Patterson, P.E., of M3 Engineering., of Tucson, AZ;
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Thomas J. Radue, P.E., of Barr Engineering, of Minneapolis, MN;
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Jeff S. Ubl, P.E., of Barr Engineering, of Minneapolis, MN; and
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Herbert E. Welhener, SME-RM, Independent Mining Consultants, of Tucson, AZ.
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PolyMet Mining Corp. was incorporated under the
Business
Corporations Act
(British Columbia) on March 4, 1981 under the name Fleck Resources Ltd. and changed its name to PolyMet Mining Corp. on June 10, 1998. Through its 100%-owned subsidiary, Poly Met Mining, Inc. (“PolyMet US” and, together
with PolyMet Mining Corp., “PolyMet” or the “Company”) the Company is engaged in the exploration and development of natural resource properties. PolyMet US was incorporated in Minnesota, United States on February 16, 1989.
The Company’s corporate office is located at 100 King Street West, Suite 5700, Toronto, ON M5X 1C7, Canada. The principal executive
office is located at 444 Cedar Street, Suite 2060, St. Paul, MN 55101, USA. The registered and records office is located at 2500 – 700 West Georgia Street, Vancouver, B.C. V7Y 1B3, Canada. The operational headquarters are located at 6500 County
Road 666, Hoyt Lakes, MN 55750-0475, USA.
3.
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General Development of the Business
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Significant History of the Company
PolyMet’s primary mineral property and principal focus is the commercial development of its NorthMet Project (“NorthMet” or “Project”),
a polymetallic project in northeastern Minnesota, United States of America, which hosts copper, nickel, cobalt, gold, silver, and platinum group metal mineralization.
The NorthMet ore body is at the western end of a series of known copper-nickel-precious metals deposits in the Duluth Complex. An
updated technical report and feasibility study published in March 2018 confirmed the technical and economic viability, positioning NorthMet as the most advanced of the four main deposits in the Duluth Complex: namely, from west to east, NorthMet,
Mesaba, Serpentine and Maturi.
Asset Acquisition
PolyMet acquired the Erie Plant, associated infrastructure, and approximately 12,400 acres (19 square miles) of surface rights from
Cliffs Erie LLC, a subsidiary of Cleveland-Cliffs Inc. (together “Cliffs”). The plant is located about six miles west of the NorthMet ore body and comprises a 100,000 ton-per-day crushing and milling facility, a railroad and railroad access rights
connecting the Erie Plant to the NorthMet ore body, tailings storage facilities, 120 railcars, locomotive fueling and maintenance facilities, water rights and pipelines, administrative offices on site, and approximately 6,000 acres of land to the
east and west of the existing tailings storage facilities.
Upon completion of the land exchange on June 28, 2018, PolyMet now controls surface rights to approximately 19,050 acres or 30 square
miles of contiguous surface rights stretching from west of the Erie Plant to east of the proposed East Pit at NorthMet.
Permitting
In November 2015, the Minnesota Department of Natural Resources (“MDNR”), the U.S. Army Corps of Engineers (“USACE”), and the United
States Forest Service (“USFS”) published the NorthMet Final Environmental Impact Statement (“EIS”) as required under the Minnesota Environmental Policy Act (“MEPA”) and the National Environmental Policy Act (“NEPA”). The U.S. Environmental
Protection Agency (“EPA”) was a Cooperating Agency in preparation of the EIS. As part of the decade-long MEPA and NEPA processes there were several extensive periods for public review and comment prior to publication of the Final EIS. The EIS
included a proposed land exchange between the USFS and the Company.
In November 2018, the Company received all final MDNR permits for NorthMet for which the Company had applied, including the Permit to
Mine, dam safety, water appropriations, endangered and threatened species takings, and public waters work permits, along with Wetland Conservation Act approval.
In December 2018, the Company received all final MPCA permits for NorthMet for which the Company had applied, including the water
quality permit, air emission quality permit, and Section 401 Certification.
Legal challenges were filed in the Minnesota Court of Appeals during 2018 and through the date of this report contesting various aspects
of the MDNR and MPCA decisions. PolyMet is a co-respondent in all suits.
In March 2019, the Company received the federal Record of Decision and wetlands permit from the USACE, which is the last key permit or
approval needed to construct and operate the NorthMet Project.
Land Exchange
In January 2017, the USFS issued its Final ROD authorizing the land exchange which stated the land exchange eliminates a fundamental
conflict between the rights that PolyMet has as a result of control of the mineral rights and the USFS position on those rights which otherwise could result in litigation that has no certain outcome and could set a judicial precedent regarding
other lands acquired in the same deed under the Weeks Act.
Four legal challenges, which have since been consolidated into one proceeding, were filed during 2017 contesting various aspects of the land exchange Final ROD. PolyMet is a co-defendant with the USFS in this proceeding. Motions were filed
by PolyMet to dismiss each of these suits for lack of standing. In August 2017, the U.S. District Court for the District of Minnesota denied WaterLegacy’s motion for a preliminary injunction to stop the land exchange from proceeding while the
WaterLegacy suit was pending.
In June 2018, the Company and the USFS exchanged titles to federal and private lands, completing the land exchange giving the Company
control over both surface and mineral rights in and around the NorthMet ore body and consolidating the Superior National Forest’s land holdings in northeast Minnesota.
Financing
In 2008, PolyMet and Glencore AG, a wholly owned subsidiary of Glencore plc (together “Glencore”), entered into a strategic alliance in
which Glencore will market PolyMet’s products, provides technical and commercial support, and owns 28.9% of PolyMet’s issued shares, holds $25 million initial principal senior secured convertible debentures and holds $140 million initial principal
senior secured non-convertible debentures as at December 31, 2018. In March 2019, the Company entered into an agreement with Glencore to fully backstop a rights offering to raise sufficient funds to repay all outstanding debt.
Three Year History
The Company’s focus over the last three years has been on completion of the environmental review process by state and federal agencies,
preparation and submission of permit applications, support of the agencies during review of permit application, issuance of draft permits and approvals, and issuance of final permits and approvals.
Major highlights and recent events include:
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March 2016 – MDNR determined that the Final EIS addresses the objectives defined in the EIS scoping review, meets procedural requirements and
responds appropriately to public comments demonstrating the NorthMet Project can be constructed and operated in compliance with state and federal standards. The 30-day period allowed by law to challenge the state’s decision passed
without any legal challenge being filed;
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July 2016 – the Company submitted applications for water-related permits required to construct and operate NorthMet. The Eastern Region Regional
Office of the USFS issued its response to comments on the Draft ROD for the land exchange and instructed the Superior National Forest to proceed with completing the Final ROD;
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October 2016 – the Company closed the initial tranche of a private placement of 25,963,167 units for gross proceeds of $19.5 million and a second
tranche of a private placement of 14,111,251 units for gross proceeds of $10.6 million pursuant to Glencore’s right to maintain its pro rata ownership;
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January 2017 – the USFS issued its Final ROD authorizing a land exchange to transfer title to the surface rights over and around the NorthMet
mineral rights to PolyMet in exchange for certain other lands owned by PolyMet;
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August and September 2017 - the MDNR released six draft water appropriation permits and two draft dam safety permits;
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January 2018 - the MDNR released its draft Permit to Mine and the MPCA released its draft water quality permit, draft section 401 certification,
and draft air emissions permit;
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March 2018 - the Company and Glencore agreed to extend the term of outstanding debentures until March 31, 2019, reduce the interest rate on the
outstanding debentures, and make available $80 million in additional debentures;
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March 2018 - the Company issued an updated Technical Report under NI 43-101 incorporating process improvements, project improvements, and
environmental controls described in the Final EIS and draft permits. The update also included detailed capital costs, operating costs, and economic valuation for the mine plan being permitted as well as an assessment of potential future
opportunities;
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June 2018 - the Company and USFS
completed the land exchange for
approximately 6700 acres giving the Company control over both surface and mineral rights in and around the NorthMet ore body and consolidating the Superior National Forest’s land holdings in northeast Minnesota;
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November 2018 - the Company received all MDNR permits for NorthMet for which the Company had applied, including the Permit to Mine, dam safety,
water appropriations, endangered and threatened species takings, and public waters work permits, along with Wetland Conservation Act approval;
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December 2018 - the Company received all MCPA permits for NorthMet for which the Company had applied, including the MPCA water quality
(NPDES/SDS) and air quality permits and the Clean Water Act Section 401 quality certification;
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March 2019 - the Company received the federal Record of Decision and wetlands permit from the USACE. This was the last key permit or approval
needed to construct and operate the NorthMet Project; and
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March 2019 - the Company and Glencore agreed to extend the term of outstanding debentures to provide the Company time to prepare for and complete
a rights offering by June 30, 2019, fully backstopped by Glencore, to raise sufficient funds to repay all outstanding debt.
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Goals and Objectives for the Next Twelve Months
PolyMet’s objectives include:
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Maintain political, social and regulatory support for the Project;
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Finalize Project optimization plan;
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Finalize Project implementation plan;
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Strengthen balance sheet through restructuring or repaying outstanding debt; and
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Execution of construction finance, subject to typical conditions precedent.
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The Company is in discussions with commercial banks and other sources of debt and equity finance sufficient to fund construction of
the Project. Construction and ramp-up to commercial production is anticipated to take approximately twenty-four to thirty months from receipt of construction funding.
4.
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Description of the Business
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The following disclosure relating to the Company’s NorthMet Project is based, in part, on information derived from
the 2018 Technical Report prepared by the qualified persons set out in Section 1 of this AIF. Portions of the following information are based on assumptions, qualifications and procedures which are not fully described herein. Reference should be
made to the full text of the 2018 Technical Report which has been filed with certain Canadian securities regulatory authorities pursuant to NI 43-101 and is available on SEDAR at www.sedar.com and on EDGAR at www.sec.gov.
Property Description and Location
Project Location
The NorthMet Project comprises two key elements: the NorthMet deposit (or Mine Site) and the Erie Plant. The
NorthMet deposit is situated on mineral leases located in St. Louis County in northeastern Minnesota at Latitude 47° 36’ north, Longitude 91° 58’ west, about 70 miles north of the City of Duluth and 6.5 miles south of the town of Babbitt. The Erie
Plant is approximately six miles west of the NorthMet deposit.
The NorthMet deposit site totals approximately 4,300 acres and the Erie Plant site, including the existing tailings
basin, covers approximately 12,400 acres. In June 2018, the Company acquired surface rights over the NorthMet deposit through a land exchange with the USFS using land the Company previously owned. With the exchange, PolyMet has total surface
rights, including ownership and other use and occupancy rights, to approximately 19,050 contiguous acres (30 square miles) of land including the land at the mine and processing sites, the transportation corridor connecting those sites, and buffer
lands.
The NorthMet Project is located immediately south of the eastern end of the historic Mesabi Iron Range and is in
proximity to a number of existing iron ore mines including the Peter Mitchell open pit mine located approximately two miles to the north of the NorthMet deposit. NorthMet is one of several known mineral deposits that have been identified within the
30-mile length of the Duluth Complex, a well-known geological formation containing copper, nickel, cobalt, platinum group metals, silver, gold and titanium.
The NorthMet deposit is connected to the Erie Plant by a transportation and utility corridor that is comprised of
an existing private railroad that will primarily be used to transport ore, a segment of the existing private Dunka Road that will be upgraded to provide vehicle access, and new water pipelines and electrical power network for the NorthMet Mine
Site.
Project Ownership
The Company owns 100% of PolyMet US. For the sake of simplicity this summary will for the most part refer to both
entities as PolyMet, except when specific differentiation is required for legal clarity.
Mineral rights in and around the NorthMet orebody are held through two mineral leases with RGGS Land & Minerals
Ltd., L.P. (“RGGS”) and LMC Minerals ("LMC"). The RGGS lease covers 5,123 acres. Provided the Company continues to make annual lease payments, the lease period continues until June 12, 2048 with an option to extend the lease for up to five
additional ten-year periods on the same terms and further extend as long as there are commercial mining operations. The LMC lease covers 120 acres that are encircled by the RGGS property. Provided the Company continues to make annual lease
payments, the lease period continues until December 1, 2028 with an option to extend the lease for up to four additional five-year periods on the same terms. Lease payments to both lessors are considered advance royalty payments and will be
deducted from future production royalties payable to the lessor, which range from 3% to 5% based on the net smelter return per ton received by the Company.
PolyMet US
owns or
holds various rights of ownership and use, and other property rights that currently give
it control of 100% of the Erie Plant,
associated infrastructure, and surface rights
which covers approximately
19,050
acres, or
30
square miles
.
Surface Rights
Surface rights of the NorthMet deposit were held by the USFS until June 2018. The United States acquired the surface rights from U.S. Steel in 1938 under provisions of the Weeks Act of 1922. U.S. Steel retained
certain mining rights, which PolyMet secured under the U.S. Steel Lease, along with the mineral rights.
PolyMet and the USFS proposed and completed a land exchange in June 2018 to consolidate their respective land
ownerships and giving the Company control over both surface and mineral rights in and around the NorthMet ore body and consolidating the Superior National Forest’s land holdings in northeast Minnesota. In this land exchange, the USFS acquired 6,690
acres of private land in four separate tracts currently held by PolyMet, to become part of the Superior National Forest and managed under the laws relating to the National Forest System. Already located within the Superior National Forest
boundaries, these lands have multiple uses including recreation, research and conservation. The USFS conveyed 6,650 acres of federally-owned surface land to PolyMet, which included the surface rights overlying and surrounding the NorthMet deposit.
These lands are located near an area heavily used for mining and mine infrastructure, are consistent with regional land uses, and will generate economic benefits to the region through employment and tax revenues.
Royalties and Encumbrances
The NorthMet deposit mineral rights carry variable royalties of 3% to 5% based on the NSR per ton of ore mined. For
an NMV of under $30 per ton, the royalty is 3%, for $30-35 per ton it is 4%, and above $35 per ton it is 5%. Both the U.S. Steel Lease (RGGS) and the LMC Lease carry advance royalties, which can be recouped from future royalty payments, subject to
minimum payments in any year. The US Steel leases were transferred through sale to RGGS although the underlying agreement terms remain the same.
Environmental Liabilities
Federal, state and local laws and regulations concerning environmental protection affect the PolyMet operation. As
part of the consideration for the purchase of the Erie Plant and associated infrastructure, the Company indemnified Cleveland-Cliffs Inc. (Cliffs) for reclamation and remediation obligations of the acquired property.
The Company’s estimate of the environmental rehabilitation provision under International Financial Reporting
Standards (IFRS) on December 31, 2018 was $61.107 million based on estimated cash flows required to settle this obligation in present day costs of $71.146 million, a projected inflation rate of 2.00%, a market risk-free interest rate of 3.13% and
expenditures expected to occur over a period of approximately 30 years. This estimate includes but is not limited to water treatment and infrastructure closure and removals, with costs estimated by PolyMet and its consultants and construction
contractors. This estimate has been reviewed and accepted by auditors for PolyMet’s financial statements.
Permits
PolyMet has received all key permits and approvals from the state and federal agencies required to construct and
operate the NorthMet Project. These are discussed in greater detail above and below.
Accessibility, Climate, Local Resources, Infrastructure and Physiography
Accessibility and Climate
Access to the NorthMet Project is by a combination of good quality asphalt and gravel roads via the Erie Plant
site. The nearest center of population is the town of Hoyt Lakes, which has a population of about 2,500 people. There are a number of similarly sized communities in the vicinity, all of which are well serviced, provide ready accommodations, and
have been, or still are, directly associated with the region’s extensive taconite mining industry. The road network in the area is well developed, though not heavily trafficked, and there is an extensive railroad network, which serves the taconite
mining industry across the entire Range. There is access to ocean shipping via the ports at Taconite Harbor and Duluth/Superior (on the western end of Lake Superior) and the St. Lawrence Seaway.
Climate is continental and characterized by wide temperature variations and significant precipitation.
Local Resources and Infrastructure
The area has been economically dependent on the mining industry for many years and while there is an abundance of
skilled labor and local mining expertise, the closure in 2001 of the LTVSMC open pit mines and taconite processing facility has had a significant negative impact on the local economy and population growth. There are, however, several other
operating mines in other parts of the Iron Range. Because of this, the mining support industries and industrial infrastructure remains well developed and of a high standard.
The Erie Plant site is connected to the electrical power supply grid and a main HV electrical power line (138 kV)
runs parallel to the road and railroad that traverse the southern part of the mining lease area. PolyMet has a long-term power contract with Minnesota Power.
There are plentiful local sources of fresh water, and electrical power and water are available nearby. Previous
operations at the site processed 100,000 STPD with adequate water supply, which is more than three times the plan for PolyMet.
Physiography
The Mesabi Iron Range forms an extensive and prominent regional topographic feature. The NorthMet Project site is
located on the southern flank of the eastern Range where the surrounding countryside is characterized as being gently undulating. Elevation at the NorthMet Project site is about 1,600 ft asl (1,000 ft above Lake Superior). Much of the region is
poorly drained and the predominant vegetation comprises wetlands and boreal forest.
History
The NorthMet deposit was formally discovered in 1969 during exploration carried out by U.S. Steel. Between 1969 and
1974, U.S. Steel drilled 112 holes for a total of 113,716 ft, producing 9,475 assay intervals, which are included in the modern-day NorthMet Project database. Assay data from U.S. Steel core samples was not necessarily collected at the time of the
original drilling.
A number of historic mineral resource estimates were completed (U.S. Steel, Fleck Resources, NERCO) prior to
PolyMet’s acquisition of the NorthMet Project. These resource estimates predate current NI 43-101 reporting standards and the associated resource models, electronic or otherwise, are not available for verification.
There is no historical production data to report for the NorthMet Project.
Geological Setting and Mineralization
Regional Geology
The NorthMet deposit is situated on the western edge of the Duluth Complex in northeastern Minnesota. The Duluth
Complex is a series of distinct intrusions of mafic to felsic tholeiitic magmas that intermittently intruded at the base of a comagmatic volcanic edifice during the formation of the Midcontinental rift system between 1108 and 1098 Ma. The
intrusives of the Duluth Complex represent a relatively continuous mass that extends in an arcuate fashion from Duluth to the northeastern border between Minnesota and Canada near the town of Grand Portage. Footwall rocks are predominantly
comprised of Paleoproterozoic and Archean rocks, the hanging wall rocks are made up of mafic volcanic rocks and hypabyssal intrusions, and internally scattered bodies of strongly granoblastic mafic volcanic and sedimentary hornfels can be found.
Local and Property Geology
The NorthMet deposit is situated within the Partridge River Intrusion (“PRI”). The PRI has been mapped, drilled,
and studied in detail because of its importance as a host for copper-nickel (“Cu-Ni”) and iron-titanium (“Fe-Ti”) deposits. The PRI consists of varied troctolitic and (minor) gabbroic rock types that are exposed in an arcuate shape that extends
from the Water Hen (Fe-Ti) deposit in the south to the Babbitt (Cu-Ni) deposit in the North. The PRI is bound on the west by the Paleoproterozoic Virginia Formation (slate and graywacke), and to a lessor extent, the Biwabik Iron Formation (“BIF”).
The upper portion of the PRI forms a complex contact an assemblage of anorthositic, gabbroic, and hornfelsic rocks. This assemblage is also found as large inclusions within the interior of the PRI. The inclusions are thought to represent earlier
roof zone screens that were overplated by later emplacement of Partridge River intrusion magmas.
Mineralization
The metals of interest at NorthMet are copper, nickel, cobalt, platinum, palladium, silver, and gold. Minor
amounts of rhodium and ruthenium are present though these are considered to have no economic significance. In general, except for cobalt and gold, the metals are positively correlated with copper mineralization. Cobalt is well correlated with
nickel. Most of the metals are concentrated in, or associated with, four sulfide minerals: chalcopyrite, cubanite, pentlandite, and pyrrhotite, with platinum, palladium and gold also found as elements and in bismuthides, tellurides, and alloys.
Mineralization occurs in four broadly defined horizons or zones throughout the NorthMet property. Three of these
horizons are within basal Unit 1, though they likely will not be discriminated in mining. The upper horizon locally extends upward into the base of Unit 2. The thickness of each of the three Unit 1 enriched horizons varies from 5 ft to more than
200 ft. Unit 1 mineralization is found throughout the base of the NorthMet deposit. A less extensive mineralized zone (the copper-rich, sulfur-poor Magenta Zone) is found in Units 4, 5 and 6 in the western part of the NorthMet deposit.
Deposit Types
The NorthMet deposit is considered a magmatic Copper - Nickel ± platinum group element (PGE) deposit. These are a
broad group of deposits containing nickel, copper and PGEs occurring as sulfide concentrations associated with a variety of mafic and ultramafic magmatic rocks. Magmatic Cu-Ni sulfide deposits with or without PGEs account for approximately 60
percent of the world’s nickel production. Magmatic Ni-Cu±PGE sulfide deposits are spatially and genetically related to bodies of mafic and/or ultramafic rocks. The sulfide deposits form when the mantle-derived magmas become sulfide-saturated and
segregate immiscible sulfide liquid, commonly following interaction with continental crustal rocks.
The NorthMet deposit is a large-tonnage, disseminated accumulation of sulfide in mafic rocks, with rare massive
sulfides. Copper to nickel ratios generally range from 3:1 to 4:1. Primary mineralization is probably magmatic, though the possibility of structurally controlled re-mobilization of the mineralization (especially PGE) has not been excluded. The
sulfur source is both local and magmatic. Extensive detailed logging has shown no definitive relation between specific rock type and the quantity or grade quality of sulfide mineralization in the Unit 1 mineralized zone or in other units, though
local noritic to gabbronoritic rocks (related to footwall assimilation) tend to be of poorer PGE grade and higher in sulfur.
Exploration
U.S. Steel commenced mapping and ground surveys of the NorthMet Project in 1967 and initiated drilling exploration
in 1968. Drilling has been the primary method of exploration at the NorthMet Project; however, 240 geophysical soundings, numerous test pits, and down-hole geophysical testing have been completed to better understand the depth to bedrock and the
lithologic contacts.
Drilling
Prior to PolyMet’s involvement in the NorthMet Project, 116 core holes were drilled in the main project area by
U.S. Steel and NERCO (see Table 10-1 of the 2018 Technical Report).
PolyMet completed 290 drill holes on the NorthMet Project between 1998 and 2010 totaling 171,332 ft. Some drilling
was resumed in 2018 following the land exchange and final results are pending. Of the 290 holes drilled by PolyMet between 1998 and 2010, 52 were drilled using reverse circulation, and 238 are diamond core holes.
From 1998 to 2000, PolyMet drilled 52 vertical reverse circulation (RC) holes to supply material for a bulk
sample. A portion of these drill-holes twinned U.S. Steel holes, and others served as in-fill over the extent of the NorthMet deposit. The RC holes averaged 474 ft, with a minimum of 65 ft and a maximum depth of 745 ft.
The first PolyMet core drilling program was carried out during the later parts of the RC program, with three holes
drilled late in 1999 and the remainder in early 2000. There were seventeen BTW (1.65 inch) and fifteen NTW (2.2 inch) diameter holes all of which were vertical. Three RC holes were re-entered and deepened with AQ core. Core holes averaged 692 ft
in depth, with a minimum of 229 ft and a maximum depth of 1,192 ft. (not including RC holes extended with AQ core). These holes were assayed from top to bottom (with minimal exception) on 5-foot intervals. Samples were split into half core at the
PolyMet field office in Aurora, Minnesota.
PolyMet’s 2005 drilling program had four distinct goals: collection of metallurgical samples, continued in-fill
drilling for resource estimation, resource expansion, and collection of oriented core for geotechnical data. The program included 109 holes totaling 77,165 ft, including:
●
|
15 one-inch diameter holes for metallurgical samples (6,974 ft) drilled by Boart-Longyear of Salt Lake City (February - March 2005).
|
●
|
PQ sized holes (core diameter 3.3 inches) totaling 6,897 ft, to collect bulk sample material, and to improve the confidence in the known resource
area (February - March 2005).
|
●
|
52 NTW sized holes (2.2 inches) totaling 41,403 ft for resource definition.
|
●
|
30 NQ2 sized holes (2.0 inches) totaling 21,892 ft for resource definition and geotechnical purposes. The NTW and NQ2 size core was drilled in
the spring (February-March) and fall (September-December) of 2005.
|
Roughly 11,650 multi-element assays were collected from the 2005 drilling program. Another 1,790 assays were
performed on previously drilled U.S. Steel and PolyMet core during, as well. Of the 109 holes drilled in 2005, 93 were drilled at an angle. The angled holes were aligned on a grid oriented N34W with dips ranging from -60° to -75°. Sixteen NQ2
sized holes were drilled and marked for oriented core at varying dips, for geotechnical assessment across the NorthMet Project.
In 2007, PolyMet conducted two drilling programs, a winter program of 47 holes totaling 19,102 ft and a summer
program of 14 holes totaling 5,437 ft. The initial 16 winter holes were NTW sized, the remaining drill holes from both programs were NQ2 core. Most of these holes were angled to north-northwest (azimuth 326°). The 2007 holes averaged 402 ft in
depth, with a minimum of 148 ft and maximum of 768.5 ft.
In 2010, PolyMet conducted a winter drilling program with two objectives:
●
|
Collect detailed geostatistical data across a grid in the initial mining area, and
|
●
|
Develop a geologic and assay framework around the west margin of the deposit.
|
Secondary to these purposes was the gathering of approximately ten tons of potential bulk sample material.
The grid area in the planned east pit encompassed 8,720 ft of drilling with 1,664 multi-element assays and the
western drilling totaled 11,401 ft with 1,345 samples taken. Grid drilling was sampled by elevations representing bench levels. Data from this was used to establish appropriate sampling protocols during mining.
Assay results in the grid area were consistent with expectations from previous block models. In the west, Unit 1
and Magenta Zone ore grade mineralization continue well outside the planned pit boundaries with the furthest hole in this program 2,600 feet to the west of the planned pit edge.
The drilling exploration conducted by PolyMet is summarized in Table 10-1 of the 2018 Technical Report, and drill
hole distribution is shown on Figure 10-1 of the 2018 Technical Report.
Core recovery is reported by PolyMet to be upwards of 99% (see table below) with rare zones of poor recovery. Rock
quality designation (RQD) is also very high, averaging 85% for all units, excluding the Iron formation. Experience in the Duluth Complex indicates that core drilling has no difficulty in producing samples that are representative of the rock mass.
Rock is fresh and competent and the types of alteration (when observed: sausserization, uralization, serpentinization and chloritization) do not affect recovery.
Summary of Core
Recoveries and RQD Measurements (includes all drilling through 2010
)
Unit
|
Recovery
Count
|
Recovery Percentage
(%)
|
RQD
Count
|
RQD
Percent
|
1
|
8,906
|
99.9
|
4,194
|
91.8
|
2
|
1,879
|
99.5
|
968
|
90.3
|
3
|
4,374
|
100
|
2,632
|
93.5
|
4
|
2,160
|
100
|
1,063
|
96.4
|
5
|
1,901
|
100
|
838
|
94.3
|
6
|
2,262
|
100
|
1,041
|
94.7
|
7
|
951
|
99.3
|
396
|
87.4
|
Virginia Formation
|
2,095
|
99.7
|
1,069
|
87.6
|
Inclusions
|
62
|
98.1
|
57
|
86.6
|
Biwabik Iron Formation
|
381
|
100
|
60
|
79.8
|
Duluth Complex Average
|
|
99.96
|
|
92.82
|
Sample Preparation, Analyses and Security
There are multiple generations of sample analyses that contribute to the overall NorthMet Project assay database:
●
|
Original U.S. Steel core sampling, by U.S. Steel, 1969-1974
|
●
|
Re-analysis of U.S. Steel pulps and rejects, selection by Fleck and NRRI, 1989-1991
|
●
|
Analysis of previously un-sampled U.S. Steel core, sample selection by Fleck and NRRI in 1989-1991, and 1999-2001
|
●
|
Analysis of 2 of the 4 NERCO drill-holes, 1991
|
●
|
PolyMet RC cuttings, 1998-2000
|
●
|
PolyMet core, 2000, 2005, 2007, and 2010
|
The laboratories utilized by U.S. Steel were not independent of the Company, and no information regarding
accreditation is available. All the labs that have provided analytical testing for PolyMet were or currently are fully accredited, independent, commercial labs that are not related to any of the exploration companies or any of its directors or
management.
PolyMet's drill hole and assay database is administered by the Company’s geologic staff from the operational
headquarters in Hoyt Lakes. PolyMet uses Excel and Gemcom GEMS to manage the geologic data. Paper logs are available at the operational headquarters.
There is no documentation indicating sample handling protocols at drill sites, and only limited documentation of
sample handling between the drill site and assay laboratory for programs conducted by U.S. Steel and NERCO.
Employees of PolyMet (or its predecessor, Fleck Resources) have been either directly or indirectly involved in all
sample selection since the original U.S. Steel sampling. Sample cutting and preparation of core for shipping has been done by PolyMet employees or contract employees. Reverse circulation sampling at the rig was done by, or in cooperation with,
PolyMet employees and the drilling contractor.
The diamond drillers remove the drill core samples from the rods and place them into covered core boxes. PolyMet
representatives collect the trays and transport them to the core storage facility located near the processing plant each day where the core is inventoried prior to processing. Once the geologist is ready to log the hole, the core trays are laid out
on core logging tables where all logging takes place prior to sampling.
Drill core samples are placed into plastic sample bags, sealed, and placed into a cardboard box. The cardboard box
is sealed shut with tape and couriered to the laboratory. Once the laboratory has accepted delivery of the samples they remain under the control of the laboratory.
The RC holes were assayed on 5-ft intervals. Six-inch RC drill-holes produced about 135 lb to 150 lb of sample for
every 5 feet of drilling. This material was split using a riffle splitter into two samples and placed in plastic bags and stored underwater in five-gallon plastic buckets. A 1/16th sample was taken by rotary splitter from each 5-ft interval of
chip sample for assay. The assay values were used to develop a composite pilot plant sample from bucket samples. Actual compositing was completed after samples had been shipped to Lakefield. A second 1/16th sample was sent to the Minnesota
Department of Natural Resources for their archive.
There are 5,216 analyses from the RC drilling in the current PolyMet database. RC sample collection involved a 1/16
sample representing each five-foot run. These were sent to Lerch for preparation, and then sent to ACME or Chemex for analysis.
Chip samples were collected and logged at the PolyMet office and are currently retained at the PolyMet warehouse.
While the chip sample logging is less precise than logging of core samples, the major silicate and sulfide minerals are identifiable, and the location of marker horizons can be derived based on the composition of the individual samples. The
underlying metasedimentary rocks (Virginia Formation) are readily recognized in chip sample, and the base of the NorthMet deposit is relatively easy to define. Where rock recognition is difficult, the higher zinc content of the footwall rocks is
used to help define the contact.
PolyMet geologists log all drill cores at the core storage facility located near the processing plant. The
geologists record information for each drillhole including the hole number, azimuth, total depth, coordinate datum, drilling company, hole logger, start and end of drilling dates, rock codes, and a written description of stratigraphy, alteration,
texture, mineralogy, structure, grain size, ground conditions, and any notable geologic features. The rock quality designation (RQD) and recovery percentage are also recorded.
Sample intervals are determined by the geologist with respect to stratigraphy, mineralization, and sulfide content,
otherwise a standard 10-ft interval is sampled. Zones of increased sulfide mineralization >2.5 ft are sampled down to 5-ft intervals. Core within Unit 1 is sampled on 5-ft intervals. Core samples are cut to ¼ or 1/8 of the total core with a
diamond bladed saw by trained personnel following written procedures. Each sample is placed in a numbered plastic sample bag with the corresponding sample number tag and placed in a cardboard box for transport to the laboratory. All QA/QC samples
are inserted into the sample stream prior to shipment.
Sample Preparation
Samples were prepared for analysis at Lerch, Acme, or Chemex facilities. In general, all the facilities followed a
similar preparation procedure. Samples were crushed to an approximate -10 mesh, prior to being reduced to a 250-gram split for pulverization (149 to 106 µm range). Pulps were split again to separate a sample for the following analyses:
●
|
Base metals (Cu, Co, Mo, Ni and Zn) - Four-acid digestion with ICP-AES finish;
|
●
|
Base metals (Ag, Cu, Co, Mo, Ni and Zn) – Aqua Regia digestion with ICP-AES finish;
|
●
|
PGEs (Au, Pt and Pd) – 30 gm fire assay with ICP-AES finish; and
|
●
|
Total Sulphur by LECO furnace.
|
Select core samples were crushed to -1/2 inch and placed in a poly bottle, purged with nitrogen, and capped and
sealed for special metallurgical and environmental analysis.
Quality Assurance/Quality Control Procedures
QA/QC samples used by PolyMet include blanks, standards and field duplicates. PolyMet inserts QA/QC samples into the
sample stream at the following frequencies:
●
|
Insertion of coarse blank every 40 samples;
|
●
|
Insertion of Standard Reference Material (SRM) every 40 samples; and
|
●
|
Submission of duplicate 1/4 or 1/8 of the drill core every 40 samples.
|
Core Storage and Sample Security
The U.S. Steel core has been stored, either at the original U.S. Steel warehouse in Virginia, Minnesota during
drilling, or more recently at the CMRL (now a part of the University of Minnesota). Core has been secured in locked buildings within a fenced area that is locked at night where a key must be checked out. The NERCO BQ size core is also stored at
this facility.
The PolyMet core and RC reference samples were stored in a PolyMet leased warehouse in Aurora, Minnesota during
drilling and pre-feasibility. Core and samples were then moved in 2002 to a warehouse in Mountain Iron, Minnesota where they remained until 2004. They were then moved to a warehouse at the Erie Plant site in Hoyt Lakes. Access to this warehouse
is limited to PolyMet employees.
Opinion on Adequacy
Hard Rock Consulting (“HRC”), an independent consulting firm retained by PolyMet, concluded that the sample
preparation, security and analytical procedures are correct and adequate for the purpose of the 2018 Technical Report. The sample methods and density were appropriate, and the samples were of sufficient quality to comprise a representative,
unbiased database.
Data Verification
The NorthMet mineral resource estimate is based on the exploration drill-hole database available as of April 17,
2014. Drill hole data including collar coordinates, down-hole surveys, sample assay intervals, and geologic logs were provided by PolyMet in Microsoft Excel spreadsheets. The database was reviewed and validated by HRC prior to estimating mineral
resources. The NorthMet database includes 114 (116) historic drill holes, 323 PolyMet drill holes, 240 vertical sounding holes, 15 depths to bedrock test pits, and 47 geologic holes from the surrounding area. Of the 739 drill holes, only 437 drill
holes were used in the estimation, although many of the 437 holes include only select analytical information. The database was validated using Leapfrog Geo 3D® Version 2.0.0 software. Validation checks performed prior to loading the database into
Datamine’s Studio 3 Version 3.24.25.0 mining software included:
●
|
No overlapping intervals;
|
●
|
Down-hole surveys at drill-hole collar;
|
●
|
Consistent drill-hole depths for all data tables; and
|
●
|
Gaps in the “from – to” data tables.
|
The analytical information used for the resource estimate includes copper, nickel, platinum, palladium, gold,
silver, cobalt and sulfur. All assay values Below Detection Limits (BDL) were assigned a value of one half of the detection limit, and missing or non-sampled intervals were assigned a value of zero (0).
HRC reviewed PolyMet’s check assay programs and considers the programs to provide adequate confidence in the data.
Samples that are associated with QA/QC failures were reviewed and reanalyzed as necessary.
Exploration drilling, sampling, security, and analysis procedures were conducted in a manner that meets or exceeds
industry standard practice. All drill cores and cuttings from PolyMet’s drilling have been photographed. Drill logs have been digitally entered into an exploration database organized and maintained in Gemcom. The split core and cutting trays have
been securely stored and are available for further checks.
Mineral Processing and Metallurgical Testing
The NorthMet deposit is hosted in the Duluth Complex in northeastern Minnesota. A significant amount of
metallurgical test work has been conducted on the Duluth Complex; therefore, the general metallurgy of the complex is fairly well understood.
Orway Mineral Consultants (“OMC”) in 2014 studied SAG Mill based comminution circuits for the NorthMet Project.
This was done to assess if a SAG Mill based circuit would be practical for the NorthMet Project and capable of rationalizing the existing 4-stage crushing circuit (total of 11 crushers) and 12 lines of Rod Mill + Ball Mill grinding circuits in the
existing Erie concentrator. Comminution test work results from SGS were interpreted by OMC and used to scope out a SAG mill based comminution circuit to process 32,000 STPD. Further comminution test work was conducted by Hazen Research (Golden,
Co.) in 2015 to confirm the comminution parameters.
The development of the current NorthMet flotation process flowsheet was based on test work (SGS, 2015) and includes
the following:
●
|
Flotation Test work conducted by SGS Lakefield (“SGS”) between 1998 and 2014, and
|
●
|
Supplementary flotation test work conducted by SGS in 2015 and interpreted by Eurus Mineral Consultants (“EMC”) for circuit modeling and
flotation plant design.
|
SGS conducted extensive flotation test work up until 2010. The work covered by SGS included significant amounts of
batch and rate flotation test work on a number of samples provided by PolyMet. A flotation process block flow diagram was developed from the results and observations of the initial batch test work conducted by SGS. The process block flow diagram
shown in Figure 13-1 in the 2018 Technical Report can be summarized into three main circuits as follows:
●
|
The Bulk Copper-Nickel Flotation circuit
|
●
|
The Copper-Nickel Separation Circuit
|
●
|
The Pyrrhotite Flotation Circuit
|
Pilot scale test work was conducted by SGS to demonstrate the flowsheet developed for the NorthMet process. The
results of the pilot test work are also included in the SGS report.
Additional flotation test work was requested of SGS in 2015 to fill in gaps in the flotation test work. EMC
conducted a flotation circuit simulation of the process flow based on the results obtained from both SGS's batch and pilot scale test work. The work that EMC conducted was initially targeted at simulating the pilot plant, and then to producing full
production scale results. EMC's simulations were based on a throughput of 32,000 STPD. The results of the simulations were used to review the previous design and update the current process plant design basis and criteria.
A second pilot plant program was carried out by SGS in 2009 to investigate hydrometallurgical processes.
Mineral Resource Estimates
Zachary J. Black, RM-SME, of Hard Rock Consulting, LLC (“HRC”) is a Qualified Person as defined by NI 43-101 for mineral resource
estimation and classification. HRC estimated the mineral resource for the NorthMet Project from drill-hole data constrained by geologic boundaries using an Ordinary Kriging (“OK”) algorithm.
The NorthMet deposit was divided into eight units for geological modeling: the Biwabik Iron Formation including banded iron formation,
sedimentary marine rocks of the Virginia Formation that overlie the Biwabik Formation, and five distinct units within the Duluth Complex and overburden.
The Magenta Zone, a smaller mineralized zone that cuts through Units 3 through 7 but resides primarily within Units 5 and 6, was modeled
from select intercepts provided by PolyMet US. Grades that were estimated include copper, nickel, cobalt, platinum, palladium, gold, silver and total sulfur.
HRC created a rotated three-dimensional block model in Datamine Studio 3® mining software. The block resource model was estimated using
the lithologic boundaries of the Duluth Complex as the basis for an estimation domain. Units 1, 3, 5, 6, 7, the Magenta Zone, and Virginia Formation were all estimated using only samples that resided inside of the defined boundaries. Grades were
estimated from 10-foot (ft) down-hole composites using Ordinary Kriging. Composites were coded according to their domain. Each metal was estimated using variogram parameters established by AGP Mining Consultants Inc. (“AGP”) in 2013, which were
re-evaluated by HRC and deemed acceptable for use in the current mineral resource estimation.
The mineral resources reported herein are classified as Measured, Indicated and Inferred in accordance with standards defined by the
Canadian Institute of Mining, Metallurgy and Petroleum (“CIM”) and prepared by the CIM Standing Committee on Reserve Definitions and adopted by CIM Council on May 10, 2014. Each individual mineral resource classification reflects an associated
relative confidence of the grade estimates.
The mineral resources estimated for the NorthMet Project includes 649.3 million tons of Measured and Indicated resources and 508.9
million tons Inferred resources. The resource has been limited to the material that resides above the optimized pit shell. All mineralization below the optimized pit shell has been excluded from any resource classification and is not considered to
be part of the mineral resource.
The mineral resource estimate for the NorthMet Project is summarized in the below table. This mineral resource estimate includes all
drill data obtained as of January 31, 2016 and has been independently verified by HRC. The Measured and Indicated mineral resources are
inclusive
of the mineral reserves.
Inferred mineral resources are, by definition, always additional to mineral reserves.
Class
|
|
|
|
|
|
|
Grades (Undiluted)
|
|
|
Copper
|
|
Nickel
|
|
Platinum
|
|
Palladium
|
|
Gold
|
|
Cobalt
|
|
Silver
|
|
NSR
|
|
Cu-Eq
|
|
|
(%)
|
|
(%)
|
|
(ppb)
|
|
(ppb)
|
|
(ppb)
|
|
(ppm)
|
|
(ppm)
|
|
$/ton
|
|
(%)
|
Measured
|
|
|
237.2
|
|
|
|
0.270
|
|
|
|
0.080
|
|
|
|
69
|
|
|
|
241
|
|
|
|
35
|
|
|
|
72
|
|
|
|
0.97
|
|
|
|
19.67
|
|
|
|
0.541
|
|
Indicated
|
|
|
412.2
|
|
|
|
0.230
|
|
|
|
0.070
|
|
|
|
63
|
|
|
|
210
|
|
|
|
32
|
|
|
|
70
|
|
|
|
0.87
|
|
|
|
16.95
|
|
|
|
0.470
|
|
M&I
|
|
|
649.3
|
|
|
|
0.245
|
|
|
|
0.074
|
|
|
|
65
|
|
|
|
221
|
|
|
|
33
|
|
|
|
71
|
|
|
|
0.91
|
|
|
|
17.94
|
|
|
|
0.496
|
|
Inferred
|
|
|
508.9
|
|
|
|
0.240
|
|
|
|
0.070
|
|
|
|
72
|
|
|
|
234
|
|
|
|
37
|
|
|
|
66
|
|
|
|
0.93
|
|
|
|
17.66
|
|
|
|
0.489
|
|
Source: Hard Rock Consulting, LLC, January 2018
*Notes:
1.
|
Mineral resources are not mineral reserves and do not have demonstrated economic viability.
|
2.
|
All resources are stated above a $7.35 NSR cut-off. Cut-off is based on estimated processing and G&A costs. Metal Prices
and metallurgical recoveries used for the development of cut-off grade are presented in Table 14-33 of the 2018 Technical Report.
|
3.
|
Mineral resource tonnage and contained metal have been rounded to reflect the accuracy of the estimate, and numbers may not
add due to rounding.
|
4.
|
Cu-Eq (copper equivalent grade) is based on the mill recovery to concentrates and metal prices (see Table 14-33 of the 2018
Technical Report).
|
5.
|
Copper Equivalent (Cu Eq) = ((Cu head grade x recovery x Cu Price)) + (Ni head grade x recovery x Ni Price) +
(Pt head grade x recovery x Pt Price) + (Pd head grade x recovery x Pd Price) +(Au head grade x recovery x Au Price) + (Co head grade x recovery x Co Price) + (Ag head grade x recovery x Ag Price)) / (Cu recovery x Cu Price).
|
Mineral Reserve Estimates
Proven and Probable Mineral Reserves of 254.7
million
tons are reported for the NorthMet Project within the final pit design used for the mine production schedule and shown in the below table. All inferred material was classified as waste and scheduled to the appropriate waste stockpile. The final
mineral reserves are reported using a $7.98
NSR cut-off inside the pit design using the diluted grades. Both the mineral resource and mineral reserve estimates
take into consideration metallurgical recoveries, concentrate grades, transportation costs, smelter treatment charges and royalties in determining NSR values. The below table also shows the mineral reserves by classification category and grade. The
Qualified Person responsible for the Mineral Reserve estimate is Herb Welhener, Vice President of IMC.
Class
|
|
Tonnage
(x 1,000)
|
|
Grades (Diluted)
|
|
|
Copper
|
|
Nickel
|
|
Platinum
|
|
Palladium
|
|
Gold
|
|
Cobalt
|
|
Silver
|
|
NSR
|
|
Cu-Eq
|
|
(%)
|
|
(%)
|
|
(ppb)
|
|
(ppb)
|
|
(ppb)
|
|
(ppm)
|
|
(ppm)
|
|
$/ton
|
|
(%)
|
Proven
|
|
|
121,849
|
|
|
|
0.308
|
|
|
|
0.087
|
|
|
|
82
|
|
|
|
282
|
|
|
|
41
|
|
|
|
74.81
|
|
|
|
1.11
|
|
|
|
19.87
|
|
|
|
0.612
|
|
Probable
|
|
|
132,820
|
|
|
|
0.281
|
|
|
|
0.081
|
|
|
|
78
|
|
|
|
256
|
|
|
|
37
|
|
|
|
74.06
|
|
|
|
1.02
|
|
|
|
18.02
|
|
|
|
0.559
|
|
Total
|
|
|
254,669
|
|
|
|
0.294
|
|
|
|
0.084
|
|
|
|
80
|
|
|
|
268
|
|
|
|
39
|
|
|
|
74.42
|
|
|
|
1.06
|
|
|
|
18.90
|
|
|
|
0.584
|
|
*Notes:
1.
|
Mineral reserve tonnage and contained metal have been rounded to reflect the accuracy of the estimate, and numbers may not add
due to rounding.
|
2.
|
All reserves are stated above a $7.98 NSR cutoff and bound within the final pit design.
|
3.
|
Tonnage and grade estimates are in Imperial units.
|
4.
|
Total Tonnage within the pit is 628,499 ktons; average waste: ore ratio = 1.47
|
5.
|
Cu-Eq values are based on the metal prices in Table 15-2 of the 2018 Technical Repot and total mill recoveries in Table 15-3 of
the 2018 Technical Report and diluted mill feed.
|
6.
|
Copper Equivalent (CuEq) = ((Cu head grade x recovery x Cu Price) + (Ni head grade x recovery x Ni Price) + (Pt head grade x
recovery x Pt Price) + (Pd head grade x recovery x Pd Price) + (Au head grade x recovery x Au Price) + (Co head grade x recovery x Co Price) + (Ag head grade x recovery x Ag Price)) / (Cu head grade x recovery x Cu Price).
|
7.
|
NSR values include post property concentrate transportation,
smelting and refining costs and payable metal calculations
.
|
Mining Methods
Open Pit Mine Plan
The NorthMet Project contains mineralization at or near the surface that is ideal for open pit mining methods.
Mining is planned on a 7 day per week schedule, with two 12-hour shifts per day. There will be four crews planned
to cover the rotating schedule. The mine plan includes 225 million tons of ore at an overall strip ratio of 1.6:1. Mining is planned in three pits: The East Pit, the Central Pit, and the West Pit. As mining of the Central Pit commences, it will
extend into the East Pit, thereby joining the pits. The combined pit will be referred to as the East Pit.
The method of material transport evaluated for the 2018 Technical Report is open pit mining using two 36.6-yd3
hydraulic front shovels as the main loading units with a 22.5-yd3 front end loader as a backup loading unit. The material will be loaded into 240-ton haul trucks and the ore will be hauled to the rail transfer hopper for rail haulage to the mill or
ore surge pile (OSP) areas, and the waste rock to waste stockpiles or pit backfills.
During the first half of the operation, the more reactive waste rock mined will be placed in two temporary
stockpiles (one west of the East Pit referred to as the Category 4 Stockpile, and one south of the East Pit referred to as the Category 2/3 Stockpile), and the least reactive waste rock will be placed in a permanent stockpile north of the West Pit
(referred to as the Category 1 Stockpile). Once mining is completed in the East Pit, the more reactive waste rock mined will be placed directly in the East Pit as backfill. The more reactive waste rock in the Category 4 Stockpile (in the location
of the future Central Pit) will then be relocated as backfill into the East Pit, thus clearing the area for mining of the Central Pit. the Category 2/3 Stockpile will then be moved into the East Pit as backfill. Once mining is completed in the
Central Pit, waste rock will be backfilled into that pit, too. By the end of the mine life, all of the more reactive waste rock will be placed as backfill in the pits. As the least reactive waste rock is mined, it will be placed in the permanent
Category 1 Stockpile or in the East and Central Pits as backfill. The three mine pits will flood with water after mining and backfilling are completed, which results in the more reactive waste rock being permanently disposed of subaqueously. The
general Mine Site layout, including pits, waste rock stockpiles, ore surge pile, rail transfer facility, and overburden storage and laydown area are shown on Figure 16 1 in the 2018 Technical Report.
Pre-production Development
The pre-production mine development will be carried out by contractors until bedrock has been uncovered. Clearing,
grubbing and harvesting of marketable timber and biomass will be completed as part of Mine Site development and mining. The surface overburden consists of glacial till and peat. Final pre-stripping overburden bank slopes will be maintained at a
slope that is not steeper than 2.5H:1V. Excavated peat will be stockpiled in the OSLA or near construction footprints until it can be reused for construction and other on-site reclamation. The remaining glacial till fraction of the overburden
will also be removed from the pit footprints and, where necessary, within the stockpile liner footprints, separated based on being saturated or unsaturated, and hauled to the appropriate construction or disposal areas.
Pre-production mine development will utilize on-site construction materials, where possible, including overburden
materials and Category 1 waste rock, once available. Additional construction materials will be obtained, as approved by the MDNR. Potential construction materials include waste rock from the state-owned waste rock stockpile located approximately 5
miles west of the Mine Site along Dunka Road, and possibly waste rock and overburden from the inactive LTVSMC Area 5 Mine Site to the north and east of the FTB.
Before mining operations can begin, the Mine Site infrastructure, facilities and water management systems must be
developed. Mine Site development will take 18-24 months.
Production Schedule
The production schedule for the NorthMet Project is driven by the nominal ore rate of 32,000 STPD equivalent to
11.6 million tons per annum (average of 362.5 days per year, or 99% availability) with a 20-year mill life. Mining is planned on a 7 day per week schedule, with two 12-hour shifts per day. The mine plan includes 225 million tons of ore and an
overall strip ratio of 1.6:1. The production schedule has been calculated on an annual basis for the life of the mine.
The cutoff grade used for the mine schedule is based on the NSR values assigned to the block model described in
Section 15.1.3 of the 2018 Technical Report. The NSR value is based on the diluted metal grades and the dilution approach is described in Section 15.1.2 of the 2018 Technical Report. An elevated cutoff is used in the early mining years to achieve a
higher metal content in the mill feed tonnage. Material below mill cutoff is temporarily stockpiled for processing later in the mill schedule. The cutoff to the OSP is $8.50/t NSR and includes the tonnage between the mill cutoff NSR used in a
particular year and the $8.50/t NSR stockpile cutoff value. The NSR cutoff ranges between $14.00/t to $10.00/t during years 1 through 10 and then is $7.98/t for years 11 through 18. The cutoffs for the mill ore are shown in the below table as part
of the annual production schedule. The $7.98/t NSR cutoff covers the cost of processing, site G&A and waste water treatment on a per ton of ore basis.
The Life of Mine (LOM) schedule was developed on an annual basis for all years. Milling of the mined ore begins in
month four of Year 1 and ramps up to full production; a total of 7.250 Mt are milled during Year 1, approximately 63% of a full year’s production rate. The yearly mine production schedule showing ore and waste tonnages is presented in the below
table.
Yearly Mine Production Schedule
|
|
Total
|
Year -1
|
Year 1
|
Year 2
|
Year 3
|
Year 4
|
Year 5
|
Year 6
|
Year 7
|
Year 8
|
Year 9
|
Year 10
|
Year 11
|
Year 12
|
Year 13
|
Year 14
|
Year 15
|
Year 16
|
Year 17
|
Year 18
|
Year 19
|
Year 20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ore Mined
|
NSR cutoff -->
|
|
|
14.00
|
14.00
|
14.00
|
13.00
|
11.00
|
11.00
|
12.00
|
11.00
|
9.00
|
9.00
|
7.98
|
7.98
|
7.98
|
7.98
|
7.98
|
7.98
|
7.98
|
7.98
|
|
|
ktons
|
|
198,867
|
|
7,250
|
11,600
|
11,600
|
11,600
|
11,600
|
11,600
|
11,600
|
11,600
|
11,600
|
11,600
|
11,600
|
11,600
|
11,600
|
11,600
|
11,600
|
11,600
|
11,600
|
6,017
|
|
|
DCu, %
|
|
0.311
|
|
0.348
|
0.358
|
0.355
|
0.334
|
0.334
|
0.333
|
0.334
|
0.314
|
0.300
|
0.280
|
0.273
|
0.268
|
0.274
|
0.275
|
0.287
|
0.292
|
0.322
|
0.345
|
|
|
DNi, %
|
|
0.088
|
|
0.103
|
0.105
|
0.095
|
0.087
|
0.086
|
0.089
|
0.097
|
0.093
|
0.085
|
0.083
|
0.082
|
0.083
|
0.083
|
0.081
|
0.080
|
0.081
|
0.088
|
0.094
|
|
|
Cu-Eq Mill, %
|
|
0.617
|
|
0.688
|
0.712
|
0.716
|
0.674
|
0.662
|
0.664
|
0.664
|
0.619
|
0.597
|
0.555
|
0.559
|
0.562
|
0.548
|
0.540
|
0.563
|
0.564
|
0.613
|
0.650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ore to Stockpile (8.50/t NSR cutoff)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ktons
|
|
26,133
|
|
2,364
|
4,487
|
5,254
|
3,882
|
1,512
|
1,799
|
3,170
|
2,805
|
383
|
477
|
|
|
|
|
|
|
|
|
|
|
DCu, %
|
|
0.171
|
|
0.182
|
0.184
|
0.182
|
0.171
|
0.153
|
0.160
|
0.164
|
0.157
|
0.137
|
0.137
|
|
|
|
|
|
|
|
|
|
|
DNi, %
|
|
0.058
|
|
0.064
|
0.062
|
0.057
|
0.055
|
0.052
|
0.054
|
0.059
|
0.058
|
0.052
|
0.053
|
|
|
|
|
|
|
|
|
|
|
CuEq Mill, %
|
|
0.348
|
|
0.364
|
0.364
|
0.370
|
0.355
|
0.324
|
0.324
|
0.335
|
0.322
|
0.293
|
0.292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ore from Stockpile
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ktons
|
|
26,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,583
|
11,600
|
8,950
|
DCu, %
|
|
0.171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.171
|
0.171
|
0.171
|
DNi, %
|
|
0.058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.058
|
0.058
|
0.058
|
Cu-Eq Mill, %
|
|
0.348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.348
|
0.348
|
0.348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mill Feed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ktons
|
|
225,000
|
|
7,250
|
11,600
|
11,600
|
11,600
|
11,600
|
11,600
|
11,600
|
11,600
|
11,600
|
11,600
|
11,600
|
11,600
|
11,600
|
11,600
|
11,600
|
11,600
|
11,600
|
11,600
|
11,600
|
8,950
|
DCu, %
|
|
0.295
|
|
0.348
|
0.358
|
0.355
|
0.334
|
0.334
|
0.333
|
0.334
|
0.314
|
0.300
|
0.280
|
0.273
|
0.268
|
0.274
|
0.275
|
0.287
|
0.292
|
0.322
|
0.261
|
0.171
|
0.171
|
DNi, %
|
|
0.085
|
|
0.103
|
0.105
|
0.095
|
0.087
|
0.086
|
0.089
|
0.097
|
0.093
|
0.085
|
0.083
|
0.082
|
0.083
|
0.083
|
0.081
|
0.080
|
0.081
|
0.088
|
0.077
|
0.058
|
0.058
|
CuEq Mill, %
|
|
0.586
|
|
0.688
|
0.712
|
0.716
|
0.674
|
0.662
|
0.664
|
0.664
|
0.619
|
0.597
|
0.555
|
0.559
|
0.562
|
0.548
|
0.540
|
0.563
|
0.564
|
0.613
|
0.505
|
0.348
|
0.348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Waste, ktons
|
Total
|
348,823
|
|
25,868
|
23,913
|
20,204
|
24,518
|
26,888
|
26,601
|
17,142
|
16,743
|
18,379
|
19,923
|
20,400
|
17,280
|
15,509
|
16,440
|
15,085
|
16,433
|
18,030
|
9,467
|
0
|
|
Cat 1
|
|
212,065
|
|
16,686
|
13,409
|
13,462
|
18,810
|
20,864
|
20,088
|
10,802
|
7,235
|
10,477
|
11,283
|
12,180
|
10,462
|
8,637
|
8,939
|
7,730
|
8,177
|
9,222
|
3,602
|
|
|
Cat 2
|
|
95,980
|
|
4,029
|
5,191
|
4,814
|
4,740
|
4,830
|
4,978
|
4,792
|
7,307
|
5,571
|
5,740
|
5,637
|
4,591
|
4,601
|
5,425
|
6,104
|
6,838
|
6,895
|
3,897
|
|
|
Cat 3
|
|
23,490
|
|
1,200
|
1,713
|
821
|
810
|
979
|
1,166
|
1,094
|
1,435
|
1,710
|
2,020
|
2,023
|
1,623
|
1,576
|
1,351
|
954
|
1,143
|
851
|
1,021
|
|
|
Cat 4
|
|
17,288
|
|
3,953
|
3,600
|
1,107
|
158
|
215
|
369
|
454
|
766
|
621
|
880
|
560
|
604
|
695
|
725
|
297
|
275
|
1,062
|
947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ktons mined
|
573,823
|
|
|
35,482
|
40,000
|
37,058
|
40,000
|
40,000
|
40,000
|
31,912
|
31,148
|
30,362
|
32,000
|
32,000
|
28,880
|
27,109
|
28,040
|
26,685
|
28,033
|
29,630
|
15,484
|
0
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Re-handle, ktons
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockpiled ore to mill
|
26,133
|
|
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
5,583
|
11,600
|
8,950
|
Waste rock to pit backfill
|
60,521
|
|
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
7,384
|
7,385
|
2,000
|
2,000
|
2,000
|
1,000
|
3,021
|
2,812
|
1,000
|
10,000
|
18,270
|
3,649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ktons moved
|
660,477
|
|
|
35,482
|
40,000
|
37,058
|
40,000
|
40,000
|
40,000
|
31,912
|
31,148
|
37,746
|
39,385
|
34,000
|
30,880
|
29,109
|
29,040
|
29,706
|
30,845
|
30,630
|
31,067
|
29,870
|
12,599
|
|
|
|
Year -1
|
Year 1
|
Year 2
|
Year 3
|
Year 4
|
Year 5
|
Year 6
|
Year 7
|
Year 8
|
Year 9
|
Year 10
|
Year 11
|
Year 12
|
Year 13
|
Year 14
|
Year 15
|
Year 16
|
Year 17
|
Year 18
|
Year 19
|
Year 20
|
Water Management System
Water at the NorthMet Mine Site will be segregated as mine water and stormwater. Mine water is defined for the
NorthMet Project as water that has contacted surfaces disturbed by mining activities, such as drainage collected on stockpile liners, pit dewatering water, saturated overburden dewatering water, and runoff contacting ore, waste rock, and Mine Site
haul road surfaces. Mine water is collected by mine water management systems at the Mine Site. Mine water runoff from the overburden storage and laydown area or saturated overburden will be routed to the FTB or used to backfill the East Pit during
later years of the operation. The rest of the mine water would go through treatment by chemical precipitation or membrane separation treatment prior to discharge to the FTB or, after closure, to the Mine Site.
Water at the Plant Site will also be segregated into process water and stormwater. Water collected in the FTB
seepage capture systems will be routed to the FTB or WWTS for treatment by membrane separation prior to discharge to wetlands downstream of the FTB seepage capture systems.
Stormwater includes runoff that has not been exposed to active mining activities and includes non-contact,
industrial, and construction storm water. These include runoff from natural, stabilized, or reclaimed surfaces, or construction areas consisting primarily of unsaturated overburden or peat. Once areas are reclaimed, runoff is considered stormwater.
Stormwater is routed to sedimentation ponds prior to discharge off-site to tributaries to the Partridge River.
A diagram of the Process Plant Water Balance is included in Figure 16-4 in the 2018 Technical Report.
Railroad
PolyMet will utilize existing, private railroad infrastructure to transport ore from the Mine Site to the Coarse
Crusher at the Plant Site, receive incoming process consumables and supplies and to stage outgoing railcars containing the final products on common carrier Canadian National (“CN”) track for shipping. The existing private railroad infrastructure
was constructed by the original operator, Erie Mining Company, and consisted of two railroads; one for hauling run-of-mine ore from the operating pits to the Coarse Crusher and the second for hauling the product, taconite pellets, to Taconite
Harbor on Lake Superior. To insure consistent operations, it was critical to the previous site operators that the two railroads were reliable, therefore the railroad infrastructure was well maintained. The track to be used by PolyMet for ore
haulage between the Mine Site and the Plant Site is 136-pound per yard and 140-pound per yard rail, with much of the 140-pound per yard rail being welded. In 1999 a major railroad tie replacement program took place. PolyMet has agreements in
place with Cliffs Erie as part of its contract for deed arrangements with Cliffs Erie to utilize the existing railroad lines that will continue to be owned by Cleveland Cliffs.
Two new segments of railroad tracks will be constructed and an ore storage and loading pocket, also known as the
rail transfer hopper, will be re-constructed at the Mine Site. The rail transfer hopper is the transfer point where the run-of-mine ore is placed into the side dump rail cars for hauling to the Coarse Crusher.
In addition to the railroads and the loading pocket, infrastructure such as fueling stations, sand towers and
maintenance facilities, are in place and will be refurbished and returned to service by PolyMet.
Recovery Methods
Plant Design
The NorthMet Project plant design is based on utilizing as much of the
existing infrastructure as feasible, while ensuring a safe and cost effective operating philosophy by incorporating the latest technology.
The original plan for refurbishing the existing Erie
Plant
comminution circuit was
reviewed and the following was taken into consideration:
●
|
The existing circuit design and equipment is more than 50 years old;
|
●
|
The plant has been idle for more than 15 years;
|
●
|
The complex’s operational and maintenance requirements associated with running a tertiary and quaternary crushing circuit as well as 12 milling
streams; and
|
●
|
The large number of transfer points associated with the above.
|
Based on this, the viability of replacing the existing milling circuit with larger, modern mills capable of handling
the throughput requirements through a single stream was investigated. A single stream SAG and ball mill circuit with a pebble crusher would mean significant changes to the layout within the concentrator building, but has the following benefits:
●
|
Tertiary and quaternary crushing would no longer be required. This eliminates a large portion of the current circuit which is highly maintenance
intensive, and also requires significant dust control measures and building heating requirements;
|
●
|
The ore storage bin operating and discharge methodology would be changed to allow a greater volume of the bin to be used, while also reducing the
number of operating transfer points. This would significantly reduce the dust emissions within the concentrator building;
|
●
|
The new milling circuit would have variable speed control on both mills allowing for greater process control and adaptability to cater to any
potential variability in the upstream and downstream process characteristics;
|
●
|
New larger mills have greater operating efficiencies and less maintenance requirements, therefore reducing operating costs; and
|
●
|
Simplified milling control system as a result of reduced service requirements to the mills. These include process water addition points,
lubrication systems monitoring, discharge density and grind size control and ore feed.
|
Based on all of the above, the decision to change the milling philosophy to incorporate a new semi autogenous
ball-mill-crushing (“SABC”), circuit was made. The concentrator building was modelled to accommodate the new equipment, while ensuring that the building structure remained as per the original design. The new circuit also allowed for the existing
electrical rooms, cranes and process water tanks to be utilized.
Existing equipment was analysed to determine its suitability to the new process. Generally, existing equipment that
was found to be compatible with the new process design would require refurbishment. Where possible, the original equipment manufacturers (“OEMs”) were utilised to determine the refurbishment requirements and costs.
Detailed plant models were developed to identify existing infrastructure and to determine the space available for
the new process equipment. Figure 17-1 in the 2018 Technical Report illustrates the main buildings that would be utilised in the new plant design.
Process Plant Flowsheet Development
The overall plant process flows for the NorthMet Project are shown in Figure 17-5 in the 2018 Technical Report.
Hydrometallurgical Processing
PolyMet’s previous hydrometallurgical recovery process design included two autoclaves and a copper solvent
extraction/electrowinning (“SX-EW”) circuit to produce copper metal. In addition, the process included the precipitation processes of nickel-cobalt hydroxide and precious metals as value-added by-products.
PolyMet has now simplified this metallurgical process to recover base metals, gold and PGMs. PolyMet intends to
construct the plant in two phases:
●
|
Phase I: The Beneficiation Plant consisting of crushing, grinding, flotation, concentrate thickening and concentrate filtration. The
Beneficiation Plant will produce and market concentrates containing copper, nickel, cobalt and precious metals; and
|
●
|
Phase II: In mine year 2, a hydrometallurgical plant is expected to be commissioned to process nickel sulfide and pyrrhotite concentrates, with
processing starting in mine year 3. This concentrate stream will be processed through a single autoclave to recover high-grade copper concentrate and recover nickel-cobalt hydroxide and precious metals precipitates as by-products.
|
The advantages of the phased approach to building the complete plant is to delay capital expenditure by deferring
the hydrometallurgical plant. This deferral of costs reduces capital-at-risk in the initial years of production of the NorthMet deposit.
Water Management
Water will be consumed at the NorthMet Plant Site in both the Beneficiation Plant and the Hydrometallurgical
Plant. For the most part, water operations within these two plants would be independent of each other. The only exceptions would be the transfer of flotation concentrates from the Beneficiation Plant to the Hydrometallurgical Plant and the
combining of filtered copper concentrate and solution from Au/PGM Recovery in the Copper Concentrate Enrichment process step.
All water that enters the Hydrometallurgical Plant will be recycled at each step of the process. The average annual
water demand for the Hydrometallurgical Plant is estimated at 240 gpm, but may vary from 114 to 406 gpm monthly as operating and climatological variations occur. To the extent possible, water used to transport residue to the tailing facility would
be returned to the Hydrometallurgical Plant; however, losses may occur via evaporation and storage within the pores of the deposited residue. In addition, spilled fluids will be returned to the appropriate process streams.
Project Infrastructure
The NorthMet Project has a large amount of existing infrastructure that is well established but requires
modifications and refurbishment to support the process application. The existing usable infrastructure includes the following:
●
|
138 kV incoming HV power supply from the Minnesota Power grid
|
●
|
Power distribution to the existing facilities
|
●
|
Process plant buildings complete with distribution services
|
●
|
Administration and site offices
|
●
|
Site and mine access roads
|
●
|
Rail network including locomotive services and re-fueling facilities
|
●
|
FTB with return water barge and pumps
|
●
|
Mining and plant workshops
|
A description of the existing and new infrastructure required for the NorthMet Project, along with details of the
work required to bring these facilities into operation, is described in detail in Section 18 of the 2018 Technical Report.
Market Studies and Contracts
Saleable products from the NorthMet Project will initially be copper and nickel concentrates under the Phase I
scenario. These products will be sold to smelting and refining complexes capable of recovering a number of metals contained in these products. It is estimated copper will contribute 61% of net revenues, nickel 18%, PGMs 18%, cobalt 2%, gold and
silver 1%.
Phase II of the NorthMet Project includes construction of a hydrometallurgical facility that will result in
upgrading the nickel concentrates into a higher purity nickel-cobalt hydroxide and a precious metals precipitate. Including copper concentrate sales, it is estimated net revenues will comprise copper 54%, nickel 20%, PGMs 22%, cobalt 2% and gold
and silver 2%.
PolyMet has entered into a long-term marketing agreement with Glencore AG (“Glencore”) whereby Glencore will
purchase all products (metals, concentrates or intermediate products) on independent commercial terms at the time of sale. Glencore will take possession of the products at site and be responsible for transportation and ultimate sale. Pricing is
based on London Metal Exchange with market terms for processing. In the case of copper concentrates, the benchmark is annual Japanese smelter contracts.
Environmental Studies and Social or Community
Impact
The NorthMet Project has undergone extensive state and federal environmental review culminating in publication of
the Final Environmental Impact Statement (“FEIS”) in November 2015. The FEIS concluded that the NorthMet Project could be constructed and operated in a manner that meets both federal and state environmental standards and is protective of human
health and the environment. The FEIS provides a detailed description of the NorthMet Project, the potential impacts to the environment, and the associated design and mitigating measures. PolyMet made numerous refinements during the environmental
review process to incorporate avoidance or mitigation measures that will produce substantial environmental benefits and other advantages to the NorthMet Project.
Environmental Review and Permitting
The Co-Lead Agencies (USFS, USACE, and MDNR) published the FEIS in November 2015. In March 2016, the MDNR issued a Record of Decision
(“ROD”) concluding that the FEIS addresses the objectives defined in the EIS scoping review, meets procedural requirements, and responds appropriately to public comments. The 30-day period allowed by state law to challenge the ROD passed without any
legal challenge being filed.
In January 2017, the USFS issued its Final ROD authorizing the land exchange which stated the land exchange
eliminates a fundamental conflict between the rights that PolyMet has as a result of control of the mineral rights and the USFS position on those rights which otherwise could result in litigation that has no certain outcome and could set a judicial
precedent regarding other lands acquired in the same deed under the Weeks Act.
On June 28, 2018, the Company and USFS exchanged titles to federal and private lands, completing the land exchange
giving the Company control over both surface and mineral rights in and around the NorthMet ore body and consolidating the Superior National Forest’s land holdings in northeast Minnesota.
In November 2018, the Company received all final MDNR permits for NorthMet for which the Company had applied, including the Permit to
Mine, dam safety, water appropriations, endangered and threatened species takings, and public waters work permits, along with Wetland Conservation Act approval.
In December 2018, the Company received all final MPCA permits for NorthMet for which the Company had applied, including the water
quality permit, air emission quality permit, and Section 401 Certification.
In March 2019, the Company received the federal Record of Decision and wetlands permit from the USACE, which is the last key permit or approval needed to
construct and operate the NorthMet Project.
At this point, the NorthMet Project is fully permitted.
Baseline Studies
Extensive baseline studies were completed for the NorthMet Project and are described in Section 4 (Affected Environment) of the FEIS. These
studies include extensive data on local lakes and rivers, including: meteorological conditions, ground and surface water, wetlands, hydrology, geotechnical stability, waste characterization, air quality, vegetation (types, invasive non-native
plants, and threatened and endangered species), wildlife (listed species and species of special concern, species of greatest conservation need and regionally sensitive species), aquatic species (surface water habitat, special status fish and
macroinvertebrates), noise, socioeconomics, recreational and visual resources, and wilderness and other special designation areas. Receipt of all permits necessary to construct and
operate
the NorthMet
Project confirms that the design can meet applicable federal and state standards.
Environmental Considerations
There are no known environmental issues for the NorthMet Project that cannot be successfully mitigated through
implementation of the various management plans that have been developed based on accepted scientific and engineering practices. Adaptive management will be employed at the NorthMet Project by using flexible engineering controls that can be
adjusted to continue achieving compliance with applicable water quality standards and permit conditions when site-specific conditions vary.
Receipt of all permits necessary to construct and operate
the NorthMet Project confirms that
the design can meet applicable federal and state standards.
Waste Management
PolyMet plans to re-use an existing taconite tailings basin for storage of NorthMet’s Flotation Tailings. The stability and design of the FTB have been investigated and reviewed by numerous
geotechnical consultants, including Barr Engineering, Knight Piésold, Scott Olson (geotechnical professor at the University of Illinois), and Dirk Van Zyl (University of British Columbia). The results and recommendations of these third-party peer
reviews have been incorporated into the design and operating plans for the FTB, which is fully permitted following review by applicable regulatory agencies and their independent experts.
The results of PolyMet’s waste characterization program were used for multiple purposes in support of the design,
environmental review, and permitting of the NorthMet Project. At early stages of Project design, results from the waste characterization program were used to form the conceptual models for metal leaching and potential acid generation from Project
materials. The characterization data on mineralogy, petrology, chemistry (including dissolved solids release), acid-base accounting, and static leach tests on Project materials were used to identify the minerals with potential to release metals or
acidity during weathering, and the NorthMet Project-specific mechanisms that are expected to consume acidity. Results from the waste characterization program were used to identify the sulfur criteria thresholds used to classify waste rock as part
of the NorthMet Project’s waste rock management program.
Custom test work on tailings deposition, conducted by Saint Anthony Falls Laboratory, University of Minnesota,
informed decisions on management of the Flotation Tailings. Additional custom test work on potential interactions between Flotation Tailings and LTVSMC tailings was used to identify potential chemical interaction, or lack thereof, that would need
to be incorporated into predictions of the chemistry of the FTB seepage. In the case of the hydrometallurgical residue, waste characterization results were used to compare leachate chemistry with criteria values for classification of hazardous
waste.
In addition to the testing listed above, results from the waste characterization program were used to define input parameters for PolyMet’s probabilistic
water models developed to predict water quantity and quality at the Mine Site and the Plant Site used for environmental review and permitting. Input parameters from PolyMet’s waste characterization program included constituent release rates,
concentration caps, constituent flushing loads, time lag to formation of acidic conditions, and parameters that are used to model residual saturation of Flotation Tailings.
Receipt of all permits necessary to construct and
operate
the NorthMet Project confirms that the design
can meet applicable federal and state standards.
Water Management
The overall NorthMet Project water management strategy includes reusing water from the Mine Site at the Plant Site,
as well as reusing water within various Plant Site facilities, to maximize water recycling and minimize discharges to the environment. Water will be treated using chemical precipitation and/or membrane separation treatment. Treated water discharge
will be used to augment streamflow, where needed, in watersheds around the FTB. The NorthMet Project design includes systems for managing and monitoring water to comply with applicable surface water and groundwater quality standards at appropriate
compliance points. PolyMet designed the water management systems to achieve compliance based on modeling of expected water quantity and quality (See Section 16-8 in the 2018 Technical Report). The key treatment technologies include membrane
filtration and high-density sludge chemical precipitation. Additionally, PolyMet has created adaptive management and contingency mitigation procedures for water management that it will utilize as necessary to maintain regulatory compliance.
Air Management
PolyMet will use air pollution control techniques common to mining and other industrial operations. These control techniques include fabric filters, venturi
and packed-bed scrubbers, and fugitive dust control procedures at various facilities, locations, and phases within the NorthMet Project to provide levels of emission control that will protect human health and the environment.
The MPCA, pursuant to its authority under state law and under the federal CAA as delegated by the USEPA, is responsible for the air permitting
for the NorthMet Project. PolyMet’s air permit contains achievable terms and conditions to protect human health and the environment as applicable to air quality management.
Land Management
PolyMet has control of the mineral rights necessary for the NorthMet Project. Control of the surface rights at the Mine Site were the
subject of the land exchange with the USFS. As noted above, the USFS issued its ROD on January 9, 2017 and on June 28, 2018, the Company acquired surface rights over the NorthMet deposit through a land exchange with the USFS using land the Company
previously owned. With the exchange, PolyMet has total surface rights, including ownership and other use and occupancy rights, to approximately 19,050 contiguous acres (29.8 square miles) of land including the land at the mine and processing
sites, the transportation corridor connecting those sites, and buffer lands.
Treaties and Indigenous Groups
The NorthMet Project area is located within the territory ceded by the Chippewa of Lake Superior to the United
States in 1854. The Chippewa hunt, fish, and gather on lands in the 1854 Ceded Territory. Harvest levels and other activities are governed by either individual tribal entities (in the case of the Fond du Lac Band) or the 1854 General Codes and
subsequent Amendments under the 1854 Treaty Authority (in the case of the Grand Portage and Bois Forte bands). Pursuant to Section 106 of the National Historic Preservation Act, the federal Co-lead Agencies identified several historic properties
in consultation with the State Historic Preservation Office (“SHPO”), Bands, and PolyMet. A Memorandum of Agreement under Section 106 was signed by PolyMet, USFS, USACE, and SHPO in December 2016.
Closure Plan and Financial Assurance
PolyMet plans to build and operate the NorthMet Project in a manner that will facilitate concurrent reclamation, in
order to minimize the portion of the NorthMet Project that will need to be reclaimed at closure.
The overall objectives of the Closure Plan are to meet the following criteria:
●
|
The closed Mining Area or portion is safe, secure, and free of hazards;
|
●
|
It is in an environmentally stable condition; and
|
●
|
It minimizes hydrologic impacts and the release of hazardous substances that adversely affect natural resources; and it is maintenance free.
|
As a condition of receiving the Permit to Mine, financial assurance instruments covering the estimated cost of
reclamation, should the mine be required to close in the upcoming year, were submitted and approved by the MDNR. Minnesota Rules require PolyMet to annually update its financial assurance. This process acknowledges possible future changes to the
financial assurance, including possible changes based on any revisions to applicable law or to the mine plan. These costs have been accounted for in the overall project economics. For purposes of the 2018 Technical Report, PolyMet has assumed that
the Minnesota water quality standards governing sulfate in wild rice water will be revised, as required by law, after the NorthMet Project is in operations.
Capital and Operating Costs
Capital and operating costs for the NorthMet Project were developed and estimated based on feasibility-level design
and engineering performed by Senet, Barr, IMC, Krech Ojard (KO) and M3. Site inspections were conducted (with vendors where possible) to evaluate the condition of the plant, the mine and the equipment.
Capital Cost Estimates
The capital cost estimate is divided into the following major sections:
●
|
Mine CAPEX which includes cost estimates for mine site development and major mining equipment costs;
|
●
|
Mine ore loadout and mine and plant railroad refurbishment costs;
|
●
|
Comminution, processing, utilities and plant refurbishment costs;
|
●
|
Costs to build out the existing tailings basin; and
|
●
|
Costs for water treatment and water management.
|
The capital cost estimate is based on the following assumptions:
●
|
The NorthMet Project utilizes a 20-year LOM plan.
|
●
|
It isn’t anticipated that final operating permits will result in any material changes to mine or plant design.
|
●
|
Most of the process equipment would be procured and fabricated in the US and is transportable to site by road or rail.
|
The below table depicts the initial direct capital requirement for the development of the NorthMet Project. This
estimate includes capital costs compiled by the firms associated with numerous scopes of work for the mine, mine equipment and refurbishing the Erie Plant (Phase I) which have been escalated to reflect Q4 2017 pricing.
Phase I Direct Costs
Description
|
PHASE I
($000)
|
***DIRECT COST***
|
MINE CAPEX
|
|
Mine Site
|
65,395
|
Construction Material Testing
|
1,490
|
Mine Equipment
|
99,710
|
RAILROAD AND ORE DELIVERY
|
20,200
|
COMMINUTION
|
135,013
|
COPPER & NICKEL CONCENTRATION
|
120,609
|
CONCENTRATES LOADOUT FACILITIES
|
49,895
|
WATER MANAGEMENT
|
62,651
|
PLANT CONTROL SYSTEM (PCS)
|
1,919
|
FLOTATION TAILINGS BASIN
|
39,684
|
PLANT INFRASTRUCTURE
|
10,879
|
PLANT UTILITIES
|
99,245
|
Subtotal DIRECT COST (MINE & CONCENTRATOR)
|
706,690
|
The capital costs for the Phase II Hydrometallurgical Plant, as set out in the below table, were developed by M3 and
were based on the following:
●
|
Recent quotations (Q4 2016 and Q1 2017) were obtained for new mechanical equipment based on detailed enquiries including specifications and
equipment duty sheets. The mechanical equipment was sized based on test work results, system modelling and in certain cases equipment sizing was dictated by physical layout/foot print constraints.
|
●
|
Preliminary designs for new structures, bins and chutes.
|
●
|
Preliminary civil and earthworks designs associated with the new structures, equipment and operational requirements including access and spillage
containment.
|
●
|
Priced piping and valve MTOs developed from preliminary PFDs and General Arrangement drawings.
|
●
|
Quotations for electrical and instrumentation equipment based on recent enquiries, including installation on similar projects.
|
●
|
A complete instrument index including a comprehensive BOM was developed and issued for pricing.
|
●
|
Man-hour estimations for the installation of new equipment, electrical, instrumentation, structures and associated civil works. These were based
on industry standards.
|
Phase II Direct Costs (Hydrometallurgical Plant)
***DIRECT COST***
|
PHASE II
($000)
|
HYDROMET
|
|
Site General
|
24,152
|
Ni-Cu Concentrate Oxidative Leaching
|
68,880
|
Au/PGM Recovery
|
3,780
|
Cu Concentrate
|
3,743
|
Cu Sulfide Precipitation
|
1,621
|
Iron/Acid Removal
|
5,808
|
Mixed Hydroxide Precipitation
|
3,486
|
Magnesium Removal
|
736
|
Hydromet Tailings
|
840
|
Hydrometallurgical Residue Facility
|
43,903
|
Reagent Storage and Mixing
|
15,671
|
Plant Scrubber
|
1,591
|
Hydromet Raw Water
|
1,647
|
Hydromet Process Water
|
1,241
|
Steam Systems
|
1,085
|
Gas Systems
|
784
|
Subtotal DIRECT COST (PHASE II)
|
178,966
|
The following table depicts the estimated direct and indirect capital costs for the development of the NorthMet
Project for Phases I and II.
Direct and Indirect Costs (Phase I & II)
|
|
|
|
PHASE I
($000)
|
PHASE II
($000)
|
TOTAL DIRECT COST (Excluding Mine Equipment)
|
|
|
606,980
|
178,966
|
FREIGHT - LOGISTICS
|
|
|
19,393
|
7,017
|
MOBILIZATION, TEMPORARY FACILITIES AND POWER
|
|
|
|
4,523
|
TOTAL CONSTRUCTED COST
|
|
|
626,373
|
$190,506
|
EPCM
|
|
|
|
90,999
|
32,196
|
COMMISSIONING
|
|
|
7,790
|
1,394
|
CAPITAL SPARES
|
|
|
|
|
929
|
TOTAL CONTRACTED COST
|
|
|
725,162
|
225,025
|
CONTINGENCY
|
|
|
|
71,597
|
33,754
|
AVERAGE CONTINGENCY
|
|
|
9.9%
|
15%
|
ADDED OWNER'S COST
(including initial fills & reagents)
|
|
|
24,489
|
|
TOTAL CONTRACTED AND OWNER'S COST
|
|
821,248
|
258,779
|
Owner's Cost Mine Equipment (Initial Capital)
|
|
99,710
|
|
Haul Truck Tire Adjustment
|
|
(900)
|
|
EIP Credits
|
|
25,065
|
|
TOTAL EVALUATED PROJECT COST
|
|
945,124
|
258,779
|
COMBINED TOTALS
|
|
1,203,903
|
Operating Cost Estimates
The following table is a summary of the mine operating costs for the NorthMet Project by the major categories of
labor, consumables and repair parts.
Mine Operating Costs by Process
|
|
% of Total
|
CATEGORY
|
($000)
|
Mining Cost
|
Drilling
|
50,662
|
5.6
|
Blasting
|
97,144
|
10.7
|
Loading
|
99,297
|
11.0
|
Hauling
|
257,502
|
28.5
|
Auxiliary
|
147,737
|
16.3
|
General Mine
|
32,512
|
3.6
|
General Maintenance
|
33,888
|
3.7
|
Mine G&A
|
98,338
|
10.9
|
Locomotive
|
79,884
|
8.8
|
Other
|
1,587
|
0.2
|
Analytical Lab Contract
|
6,000
|
0.7
|
TOTAL MINING COST
|
904,553
|
100
|
The following table is a summary of the operating cost estimates for PolyMet’s Erie Process Plant and assay.
Phase I Operating Cost Estimate Summary
|
|
32,000 STPD
|
|
OPEX Parameter
|
Units
|
Value
|
Fraction (%)
|
Tonnage Processed
|
tpa
|
11,600,000
|
|
Labor
|
USD/t
|
1.04
|
15.9
|
Power
|
USD/t
|
2.11
|
32.2
|
Natural Gas
|
USD/t
|
0.27
|
4.1
|
Consumables/Water Treatment
|
USD/t
|
2.44
|
37.3
|
Maintenance Supplies & Plant Vehicles
|
USD/t
|
0.66
|
10.1
|
Assay Costs
|
USD/t
|
0.02
|
0.3
|
Phase I Plant Costs
|
USD/t
|
6.55
|
100
|
M3 developed the on-site operating costs associated with the hydrometallurgical plant (or Phase II) which are
summarized by cost element of labor, electric power, reagents, maintenance parts and supplies and services in the below table.
Phase II Operating Cost Estimate Summary
|
|
32,000 STPD
|
|
OPEX Parameter
|
Units
|
Value
|
Fraction (%)
|
Tonnage Processed
|
tpa
|
11,600,000
|
|
Labor
|
USD/t
|
0.21
|
9.9
|
Power
|
USD/t
|
0.11
|
5.2
|
Consumables and Reagents
|
USD/t
|
1.17
|
55.2
|
Maintenance
|
USD/t
|
0.57
|
26.9
|
Supplies & Services
|
USD/t
|
0.06
|
2.8
|
Phase II Plant Costs
|
USD/t
|
2.12
|
100
|
Additional detail concerning operating costs for the NorthMet Project are set out in Section 21 of the 2018
Technical Report.
Economic Analysis
The following economic analysis of the NorthMet Project was prepared on the basis of processing 225 million tons of
ore at a mining rate of 32,000 STPD (11.6 million tons per annum) for 20 years. Financial analysis was performed to determine the Net Present Value (“NPV”), payback period (time in years to recapture the initial capital investment), and the
Internal Rate of Return (“IRR”) for the NorthMet Project. Annual cash flow projections were estimated over the anticipated life of the mine (20 years) based on estimates of capital expenditures, production cost and sales revenue. The sales revenue
is based on the estimated production of copper and nickel concentrates containing PGMs, cobalt, and precious metals. The economic analysis uses the estimated capital expenditure and site production costs developed for the NorthMet Project and
presented in Section 21 of the 2018 Technical Report. Financial projections have not been audited by PricewaterhouseCoopers LLP, the Company’s independent registered public accounting firm.
The following economic analysis reflects PolyMet’s plan to build the NorthMet Project in two phases (with Phase II
being the addition of a Hydrometallurgical Plant):
●
|
Phase I: produce and market concentrates containing copper, nickel, PGMs, cobalt and precious metals.
|
●
|
Phase II: once processed via Phase I, continue processing the nickel concentrate through a single autoclave, resulting in production and sale of
high grade copper concentrate, value added nickel-cobalt hydroxide, and precious metals precipitate products.
|
Life of mine, and the first five years at full production (years 2-6), economic assumptions and highlights for
Phase I and Phase I & II combined are shown in the below table.
LOM Operating Cost Highlights – Phase I and Phase I & II Combined
Cost Category
|
UOM
|
Phase I
|
Phase I & II
|
Capital Costs
|
|
|
|
Initial Capital
|
$ millions
|
945.1
|
1,203.9
|
LOM Sustaining Capital
|
$ millions
|
220.6
|
220.6
(1)
|
Operating Costs
|
|
LOM
|
Mining & Delivery to Plant
|
$/st processed
|
4.02
|
4.02
|
Processing
|
$/st processed
|
6.55
|
8.66
|
G&A
|
$/st processed
|
0.48
|
0.48
|
Total
|
$/st processed
|
11.05
|
13.16
|
LOM Average Annual Payable Metal in Cons Produced
|
|
|
|
Copper
|
000 lbs
|
54,792
|
57,754
|
Nickel
|
000 lbs
|
6,646
|
8,711
|
Cobalt
|
000 lbs
|
281
|
311
|
Platinum
|
koz
|
8
|
14
|
Palladium
|
koz
|
42
|
59
|
Gold
|
koz
|
2
|
4
|
Silver
|
koz
|
48
|
48
|
Average Annual Payable Metal in Cons Produced (Yrs 2-6)
|
|
|
|
Copper
|
000 lbs
|
66,748
|
69,384
|
Nickel
|
000 lbs
|
7,867
|
9,647
|
Cobalt
|
000 lbs
|
333
|
352
|
Platinum
|
koz
|
12
|
19
|
Palladium
|
koz
|
58
|
73
|
Gold
|
koz
|
3
|
6
|
Silver
|
koz
|
68
|
68
|
(1)
|
Sustaining capex for Phase II is included as an OPEX cost for replacement parts piping liners etc for Hydromet plant
|
Base Case metal price assumptions, process plant recoveries and key operating data for the average over the life of
mine are presented in the below table.
32,000 STPD Base Case (Phase I) Price and Operating Assumptions and Key Production Numbers
|
Base Case
($/lb or
$/oz)
|
Metal
Recovery
to Conc.
(%)
|
Production
(million lbs
or oz)
|
Contribution
to net
revenue (%)
|
Cash Cost
per lb Cu Eq
|
Cash Cost
per lb Cu
|
Cu Eq$/lb or
$/oz
|
by-product
$/lb or $/oz
|
Assumptions
|
LOM
|
Phase I
|
Copper (lb)
|
3.22
|
91.8
|
1,096
|
60.5
|
1.91
|
1.06
|
Nickel (lb)
|
7.95
|
63.5
|
133
|
18.1
|
|
|
Cobalt (lb)
|
20.68
|
35.9
|
5.6
|
2.0
|
|
|
Platinum (oz)
|
1,128
|
73.4
|
170
|
3.3
|
|
|
Palladium (oz)
|
973
|
78.1
|
836
|
13.9
|
|
|
Gold (oz)
|
1,308
|
58.9
|
45
|
1.0
|
|
|
Silver (oz)
|
18.92
|
56.9
|
958
|
0.3
|
|
|
Low-grade Nickel PGM (Ktonne)
|
55.00
|
N/A
|
912
|
0.9
|
|
|
During years 2 through 6 of full-scale production for Phase I, cash costs of production (excluding amortization of
capital) on a co-product basis (allocating costs to each metal according to its contribution to revenue) are projected at $1.71/lb for copper.
Base Case (Phase I & II) Price and Operating Assumptions and Key Production Numbers
|
Base Case
($/lb or
$/oz)
|
Metal
Recovery
to Conc.
(%)
|
Production
(million lbs
or oz)
|
Contribution
to net
revenue (%)
|
Cash Cost
per lb Cu Eq
|
Cash Cost
per lb Cu
|
Cu Eq$/lb or
$/oz
|
by-product
$/lb or $/oz
|
Assumptions
|
LOM
|
Phase I & II
|
Copper (lb)
|
3.22
|
91.8
|
1,155
|
54.3
|
1.79
|
0.59
|
Nickel (lb)
|
7.95
|
63.5
|
174
|
20.2
|
|
|
Cobalt (lb)
|
20.68
|
35.9
|
6.2
|
1.9
|
|
|
Platinum (oz)
|
1,128
|
73.4
|
286
|
4.7
|
|
|
Palladium (oz)
|
973
|
78.1
|
1,189
|
16.9
|
|
|
Gold (oz)
|
1,308
|
58.9
|
86
|
1.6
|
|
|
Silver (oz)
|
18.92
|
56.9
|
958
|
0.3
|
|
|
Low-grade Nickel PGM (Ktonne)
|
55.00
|
N/A
|
175
|
0.1
|
|
|
The key estimated financial results for Phase I and combined Phase I and II for the NorthMet Project are presented
in the below table.
Financial Summary – 32,000 STPD
|
|
Phase I
|
|
Phase I & II
|
|
Units
|
First 5 Yrs
1
|
LOM
|
|
LOM
2
|
Life of Mine
|
Yrs
|
|
20
|
|
20
|
Material Mined
|
Mt
|
197
|
574
|
|
574
|
Ore Mined
|
Mt
|
58
|
225
|
|
225
|
Waste: Ore Ratio
|
|
2.4
|
1.6
|
|
1.6
|
Ore Grade
|
|
|
|
|
|
Copper
|
%
|
0.343
|
0.295
|
|
0.295
|
Nickel
|
%
|
0.092
|
0.085
|
|
0.085
|
Cobalt
|
ppm
|
76
|
75
|
|
75
|
Palladium
|
ppm
|
0.327
|
0.269
|
|
0.269
|
Platinum
|
ppm
|
0.099
|
0.079
|
|
0.079
|
Gold
|
ppm
|
0.048
|
0.039
|
|
0.039
|
Annual Payable Metal Produced
|
|
|
|
|
|
Copper
|
mlb
|
66.7
|
54.8
|
|
57.8
|
Nickel
|
mlb
|
7.9
|
6.6
|
|
8.7
|
Cobalt
|
mlb
|
0.33
|
0.28
|
|
0.31
|
Palladium
|
koz
|
57.6
|
41.8
|
|
59.4
|
Platinum
|
koz
|
12.4
|
8.5
|
|
14.3
|
Gold
|
koz
|
3.4
|
2.2
|
|
4.3
|
Copper Equivalent
3
|
mlb
|
112.4
|
90.6
|
|
106.4
|
|
|
|
|
|
|
Cash Costs: by-product
|
$/lb Cu
|
0.67
|
1.06
|
|
0.59
|
Cash Costs: Cu equivalent
|
$/lb CuEq
|
1.71
|
1.91
|
|
1.79
|
|
|
|
|
|
|
Development Capital
|
$M
|
945
|
945
|
|
1,204
|
Sustaining Capital
|
$M
|
99
|
221
|
|
221
|
|
|
|
|
|
|
Annual Revenue
|
$M
|
362
|
292
|
|
343
|
Annual EBITDA
|
$M
|
170
|
118
|
|
152
|
NPV
7
(After Taxes)
|
$M
|
|
173
|
|
271
|
IRR (After Taxes)
|
%
|
|
9.6
|
|
10.3
|
Payback (after taxes, from first production)
|
Years
|
|
7.3
|
|
7.5
|
1
Represents first five years at full concentrator
production.
2
Phase II production is projected to commence in Year 3 of operations.
3
Cu Eq recovered payable metal, is based on prices shown in
Table 1-4 of the 2018 Technical Report, mill recovery assumptions shown in Table 15-3 of the 2018 Technical Report and Hydromet Phase II recoveries shown in Table 13-14 of the 2018 Technical Report.
Key estimated Phase I results include a pre-tax IRR of 10.2%, a pre-tax NPV@7% of $217 million, an after-tax IRR of
9.6%, an after-tax NPV@7% of $173 million and an after-tax payback period of 7.3 years.
Key estimated Phase I and II combined results include a pre-tax IRR of 10.9%, a pre-tax NPV@7% of $322 million, an
after-tax IRR of 10.3%, an after-tax NPV@7% of $271 million and an after-tax payback period of 7.5 years.
Adjacent Properties
There are no adjacent properties that PolyMet is proposing to explore or drill as part of any drilling program or
other evaluation. There are several other deposits in the Duluth Complex, including the Mesaba project owned by Teck Resources Limited, Serpentine owned by Encampment Resources, and the Maturi project owned by Twin Metals Minnesota, a wholly owned
subsidiary of Antofagasta plc.
Other Relevant Data and Information
Project Implementation
The proposed execution of the NorthMet Project assumes a seamless transition between critical project phases,
minimal project interruptions and a reduction in potential risks.
The NorthMet Project implementation would consist of the following phases:
●
|
Engineering – Basic and Detailed
|
It is anticipated that the stages may somewhat overlap depending on receipt of final permits.
This approach assumes that all work associated with asset preservation has been accomplished prior to demolition.
Asset preservation includes the removal of all asbestos, mold, and lead paint as well as some basic infrastructure repairs such as repair of the fire water loop and pumping system.
Potential Opportunities
PolyMet has considered opportunities to improve annual operating costs and LOM strategies at the NorthMet Project
using the existing block resource model tons and grades as a basis for alternate economic scenarios. The scenarios presented in this section should not be misconstrued as proposals or detailed plans or strategies. PolyMet would need to prepare
preliminary and definitive feasibility studies, as well as to conduct an analysis of the environmental impact and alternatives and budget and cost decisions prior to any decision to apply for permits to pursue these opportunities. Any such
opportunities would be subject to various regulatory requirements and would require significant capital investment. Because the steps in this process have not been undertaken by PolyMet, the results presented in this section should be considered
speculative.
In addition, any future project proposal would be subject to additional environmental review and permitting
requirements and or public notice and comment, and approval by appropriate federal and state agencies. The NorthMet FEIS evaluates the reasonably foreseeable environmental effects of the NorthMet Project based in part on a mine plan that identified
an average production rate of 32,000 STPD (approximately 225 million short tons over the 20-year life of the mine). PolyMet’s focus and intention is to put into operation the 32,000 STPD plan detailed in the 2018 Technical Report as soon as
possible.
A preliminary investigation was undertaken to evaluate the potential of developing the NorthMet deposit to achieve
higher throughputs than the current 32,000 STPD mine plan. In particular, and subject to the caveats above, the following two additional scenarios were evaluated at a PEA-level for the NorthMet deposit: (i) increase the daily mill feed rate to
59,000 STPD and mine to the completion of the West Pit design; and (ii) increase the daily mill feed rate to 118,000 STPD by expanding the pit limits outside the current permit limits. It is important to note that both the 59,000 STPD and 118,000
STPD scenarios include materials classified as inferred in addition to measured and indicated material. Inferred material is considered too poorly defined to include in most mine planning exercises except at the PEA level and are too speculative
geologically to have the economic considerations applied to them that would enable them to be categorized as Mineral Reserves. Hence, the results predicted for the 59,000 STPD and 118,000 STPD throughput are speculative and may not be realized.
PEA-level initial and sustaining capital estimates were developed for the 59,000 and 118,000 STPD scenarios, as
were operating costs for each scenario. For the 118,000 STPD scenario, M3 developed an estimate from current 2017 budgetary quotes and quotes from recently constructed projects of similar size. In some cases, costs were scaled from the original
estimate using the “0.6 power rule” formula:
Examples of scaled costs from the 32,000 STPD CAPEX include revised civil/site work estimates, reagent & clear service pumps, HVAC, material quantity take-offs for structural steel and concrete, as well as piping and electrical
allowances. For 59,000 STPD, cost estimates for the 32,000 STPD case were escalated to reflect current fourth quarter 2017 pricing using an ENR factor and then scaled using the 0.6 power rule to meet the new tonnage. In a few cases, the
modifications/additions in plant equipment and process needs listed above were estimated separately and added to escalated totals. Capital costs for the 59,000 & 118,000 scenarios are presented in the below table.
LOM Operating Highlights for 59,000 STPD & 118,000 STPD
Operating Plan
|
Unit of Measure
|
59,000 STPD
|
118,000 STPD
|
|
|
Phase I
|
Phase I & II
|
Phase I
|
Phase I & II
|
Mineralized Material Processed
|
Million st
|
293
|
293
|
730
|
730
|
Operating Life
|
years
|
15
|
15
|
19
|
19
|
LOM Strip Ratio
|
|
1.5
|
1.5
|
2.2
|
2.2
|
Capital Costs
|
|
|
|
|
|
Initial Capital
|
$ millions
|
1,095
|
1,354
|
1,614
|
1,872
|
LOM Sustaining Capital
|
$ millions
|
249
|
249
|
900
|
900
|
Operating Costs
|
|
|
|
|
|
Mining & Delivery to Plant
|
$/st processed
|
3.16
|
3.16
|
3.36
|
3.36
|
Processing
|
$/st processed
|
5.32
|
6.94
|
5.36
|
6.34
|
G&A
|
$/st processed
|
0.78
|
0.78
|
0.28
|
0.28
|
Subtotal Operating Costs
|
$/st processed
|
9.26
|
10.88
|
9.00
|
9.98
|
Selling Costs
|
$/st processed
|
3.23
|
2.55
|
2.94
|
2.34
|
Total Operating Costs
|
$/st processed
|
12.49
|
13.43
|
11.94
|
12.32
|
Note: 118,000 STPD case mining and delivery costs to plant include G&A costs.
For the 59,000 STPD scenario (Phase I and II), operating cost over the LOM is estimated to be $13.43 per ton of mineralized material
processed. For the 118,000 STPD scenario (Phase I and II), operating cost over the LOM is estimated to be $12.32 per ton of mineralized material processed. This represents a cost savings per ton processed for $2.28 and $3.40 for the 59,000 STPD and
the 118,000 STPD scenarios, respectively, over the 32,000 STPD case.
The preliminary estimate developed for a throughput of 59,000 STPD (using total Phase I and II) amounted to an
additional $150 million dollars in initial capital over the 32,000 STPD base case (Phase I and II) and $28 million US dollars in additional sustaining capital. Estimated financial indicators for the 59,000 STPD case improved over the 32,000 STPD
throughput to $963 million US dollars NPV@ 7% and 18.5% IRR for Phase I and II. The economic summary reflects processing 293 million tons of mineralized material grading at 0.576% Cu-Eq over a 15-year mine life, at an average of 59,000 STPD.
59,000 STPD Economic Highlights
|
|
Phase I
|
|
Phase I & II
|
|
Units
|
First 5 Yrs
1
|
LOM
|
|
LOM
2
|
Life of Mine
|
Yrs
|
|
15
4
|
|
15
|
Material Mined
|
Mt
|
294
|
724
|
|
724
|
Mill Feed Mined
|
Mt
|
106
|
293
|
|
293
|
Waste: Mill Feed Ratio
|
|
1.8
|
1.5
|
|
1.5
|
Mill Feed Grade
|
|
|
|
|
|
Copper
|
%
|
0.313
|
0.290
|
|
0.290
|
Nickel
|
%
|
0.087
|
0.083
|
|
0.083
|
Cobalt
|
ppm
|
75
|
74
|
|
74
|
Palladium
|
ppm
|
0.293
|
0.264
|
|
0.264
|
Platinum
|
ppm
|
0.087
|
0.079
|
|
0.079
|
Gold
|
ppm
|
0.043
|
0.039
|
|
0.039
|
Annual Payable Metal Produced
|
|
|
|
|
|
Copper
|
mlb
|
110.5
|
93.6
|
|
98.2
|
Nickel
|
mlb
|
13.2
|
11.3
|
|
14.5
|
Cobalt
|
mlb
|
0.56
|
0.48
|
|
0.52
|
Palladium
|
koz
|
90.5
|
71.4
|
|
99.2
|
Platinum
|
koz
|
19.1
|
14.8
|
|
24.1
|
Gold
|
koz
|
5.0
|
3.9
|
|
7.3
|
Copper Equivalent
3
|
mlb
|
184.7
|
154.7
|
|
179.7
|
|
|
|
|
|
|
Cash Costs: by-product
|
$/lb Cu
|
0.45
|
0.72
|
|
0.23
|
Cash Costs: Cu equivalent
|
$/lb CuEq
|
1.56
|
1.71
|
|
1.59
|
|
|
|
|
|
|
Development Capital
|
$M
|
1,095
|
1,095
|
|
1,354
|
Sustaining Capital
|
$M
|
128
|
249
|
|
249
|
|
|
|
|
|
|
Annual Revenue
|
$M
|
595
|
498
|
|
579
|
Annual EBITDA
|
$M
|
307
|
234
|
|
294
|
NPV
7
|
$M
|
|
751
|
|
963
|
IRR
|
%
|
|
17.5
|
|
18.5
|
Payback (from first production)
|
Years
|
|
4.6
|
|
4.8
|
1
Represents first five years at
full concentrator production.
2
Phase II production is projected to commence in Year 3 of
operations.
3
Cu Eq recovered payable metal, is based on prices shown in
Table 1-4 of the 2018 Technical Report, mill recovery assumptions shown in Table 15-3 of the 2018 Technical Report and HydroMet Phase II recoveries shown in Table 13-14 of the 2018 Technical Report.
4
The 15
th
year is not a full year of production.
The 118,000 STPD case (Phase I and II) improved economics over the 32,000 STPD case. The post-tax NPV@7% is
approximately $2,243 million with an IRR of 23.6% and a payback period of 4.1 years for Phase I and II, as summarized in the below table. The economic summary reflects processing 730 million tons of mineralized material grading at 0.530% Cu-Eq
(recovered) over a nineteen-year life, at an average of 118,000 STPD.
118,000 STPD Economic Highlights
|
|
Phase I
|
|
Phase I & II
|
|
Units
|
First 5 Yrs
1
|
LOM
|
|
LOM
2
|
Life of Mine
|
Yrs
|
5
|
19
4
|
|
19
4
|
Material Mined
|
Mt
|
767
|
2,366
|
|
2,366
|
Mill Feed Mined
|
Mt
|
212
|
730
|
|
730
|
Waste: Mill Feed Ratio
|
|
2.6
|
2.2
|
|
2.2
|
Mill Feed Grade
|
|
|
|
|
|
Copper
|
%
|
0.292
|
0.268
|
|
0.268
|
Nickel
|
%
|
0.084
|
0.076
|
|
0.076
|
Cobalt
|
ppm
|
74
|
70
|
|
70
|
Palladium
|
ppm
|
0.281
|
0.247
|
|
0.247
|
Platinum
|
ppm
|
0.074
|
0.073
|
|
0.073
|
Gold
|
ppm
|
0.038
|
0.037
|
|
0.037
|
Annual Payable Metal Produced
|
|
|
|
|
|
Copper
|
mlb
|
203.5
|
167.8
|
|
172.4
|
Nickel
|
mlb
|
23.8
|
19.0
|
|
23.3
|
Cobalt
|
mlb
|
1.01
|
0.80
|
|
0.83
|
Palladium
|
koz
|
163.5
|
129.7
|
|
170.9
|
Platinum
|
koz
|
28.0
|
26.0
|
|
38.5
|
Gold
|
koz
|
7.8
|
7.6
|
|
11.6
|
Copper Equivalent
3
|
mlb
|
336.9
|
275.6
|
|
309.5
|
|
|
|
|
|
|
Cash Costs: by-product
|
$/lb Cu
|
0.56
|
0.85
|
|
0.39
|
Cash Costs: Cu equivalent
|
$/lb CuEq
|
1.61
|
1.78
|
|
1.64
|
|
|
|
|
|
|
Development Capital
|
$M
|
1,614
|
1,614
|
|
1,872
|
Sustaining Capital
|
$M
|
226
|
900
|
|
900
|
|
|
|
|
|
|
Annual Revenue
|
$M
|
1085
|
887
|
|
997
|
Annual EBITDA
|
$M
|
542
|
397
|
|
488
|
NPV
7
|
$M
|
|
1737
|
|
2243
|
IRR
|
%
|
|
21.9
|
|
23.6
|
Payback (from first production)
|
Years
|
|
4.1
|
|
4.1
|
1
Represents first five years at
full concentrator production.
2
Phase II production is projected to commence in Year 3 of
operations.
3
Cu Eq recovered payable metal, is based on prices shown in
Table 1-4 of the 2018 Technical Report, mill recovery assumptions shown in Table 15-3 of the 2018 Technical Report and HydroMet Phase II recoveries shown in Table 13-14 of the 2018 Technical Report.
4
The 20
th
year is not a full year of production.
The foregoing economic analyses of the 59,000 STPD and 118,000 STPD scenarios are of a preliminary economic
assessment level, is preliminary in nature and includes mineral resources that are considered too speculative geologically to have economic considerations applied to them that would enable them to be categorized as mineral reserves, and there is no
certainty the preliminary economic assessment would be realized.
Conclusions and Recommendations
M3 recommended that PolyMet should proceed with final design engineering and initiate asset preservation and
demolition activities of the Erie Plant as soon as permitting allows.
Prior to construction of the NorthMet Project, PolyMet should:
●
|
Review and update the scope of the NorthMet Project design to reflect changes resulting from the permitting process, if any, and other Project
enhancements.
|
●
|
Select a water treatment plant design and supply provider once the final permits are in place.
|
●
|
Complete basic engineering on all designs and initiate detailed design.
|
●
|
Establish construction contracts formats.
|
●
|
Establish documents that will be used for all equipment purchases.
|
●
|
Finalize permitting activities.
|
Other recommendations for further work resulting from this and the scoping-level expansion study include the
potential for expansion and increasing mine mineralized material production.
The NorthMet resource base and the geometry of the deposits could allow for an increase in mineralized material
tonnage. Section 24 details these resources and possible expansion and ramp-up scenarios. The following are recommendations to pursue expansion of the mine and maximize throughput and economic value.
●
|
Commence a NI-43-101 pre-feasibility study to increase the level of accuracy of the capital and operating estimates presented in Section 24.2 of
the 2018 Technical Report.
|
●
|
Design general arrangement drawings of the plant area to develop more accurate material take-offs for both the maximum and ramp-up throughput
capital cost estimates.
|
●
|
Update the financial model based on any changes to the current capital and operating cost estimates and to reflect current metal prices. Metal
prices and terms for mine planning purposes may not be reflective of the prices presented in the 2018 Technical Report at the commencement of mining.
|
●
|
M3 recommends reviewing the design of the WWTS with respect to the building costs and construction schedule.
|
●
|
Design an infill drilling program on inferred resources in an attempt to move inferred into the measured and indicated
classification.
|
The cost of performing this work to a pre-feasibility level is estimated to be approximately $500,000.
The following are major risk factors management has identified which relate to the Company’s business activities. Such risk factors
could materially affect the Company's future financial results and could cause events to differ materially from those described in forward-looking statements relating to the Company. Although the following are major risk factors identified by
management, they do not comprise a definitive list of all risk factors related to the Company's business and operations. Other specific risk factors are discussed elsewhere in this AIF, as well as in the Company’s consolidated financial
statements (under the headings “Nature of Business”, “Basis of Presentation”, and “Financial Instruments and Risk Management” and elsewhere within that document) and in management’s discussion and analysis (under the headings “Critical Accounting
Estimates and Judgments”, “Financial Instruments and Risk Management”, and “Risk and Uncertainties” and elsewhere within that document) for its most recently completed fiscal year ended December 31, 2018, and its other disclosure documents, all
as filed on SEDAR and EDGAR.
Dependence on a single mineral project.
The NorthMet Project accounts for all of the mineral resources and mineral reserves and exclusively represents the
current potential for the future generation of revenue. Mineral exploration and development involves a high degree of risk that even a combination of careful evaluation, experience and knowledge cannot eliminate and few properties that are
explored are ultimately developed into producing mines. Any adverse development affecting the NorthMet Project may have a material adverse effect on PolyMet’s business, prospects, financial position, results of operations and cash flows.
The Company may experience delays, higher than expected costs, difficulties in obtaining
environmental permits and other obstacles when implementing current and future development plans and opportunities.
PolyMet is investing heavily in various facets of the NorthMet Project, which is subject to a number of risks that
may make it less successful than anticipated, including:
●
|
delays in the issuance of permits;
|
●
|
delays or higher than expected costs in obtaining the necessary equipment or services to build and operate the Project; and
|
●
|
adverse mining conditions may delay and hamper PolyMet’s ability to produce the expected quantities of minerals.
|
Future activities could be subject to environmental laws and regulations, which may have a materially adverse effect
on future operations, in which case operations could be suspended or terminated.
PolyMet, like other companies doing business in Canada and the United States, is subject to a variety of federal,
provincial, state and local statutes, rules and regulations designed to, among other things:
●
|
protect the environment, including the quality of the air and water in the vicinity of exploration, development, and mining operations;
|
●
|
remediate the environmental impacts of those exploration, development, and mining operations;
|
●
|
protect and preserve wetlands and endangered species; and
|
●
|
mitigate negative impacts on certain archaeological and cultural sites.
|
Compliance with statutory environmental quality requirements described above may require significant capital outlays, impacting the
Company’s earning power, or cause material changes in its intended activities. Environmental standards imposed by federal, state, or local governments may be changed or become more stringent in the future, which could materially and adversely
affect proposed activities.
Moreover, governmental authorities and private parties may bring lawsuits based upon damage to property and injury
to persons resulting from the environmental, health and safety impacts of prior and current operations. These lawsuits could lead to the imposition of substantial fines, remediation costs, penalties and other civil and criminal sanctions.
Substantial costs and liabilities, including for restoring the environment after the closure of mines, are inherent in the Company’s operations. PolyMet cannot assure that any such law, regulation, enforcement or private claim would not have a
material adverse effect on its financial condition, results of operations or cash flows.
Land reclamation requirements for the NorthMet Project may be burdensome.
Land reclamation requirements are generally imposed on mineral exploration companies (as well as companies with mining
operations) in order to minimize long-term effects of land disturbance. In order to carry out reclamation obligations imposed on the Company in connection with exploration, potential development and production activities, PolyMet must allocate
financial resources that might otherwise be spent on further exploration and development programs. In addition, regulatory changes could increase the Company’s obligations to perform reclamation and mine closing activities. If PolyMet is
required to carry out unanticipated reclamation work, the Company’s financial position could be adversely affected.
PolyMet is subject to significant governmental regulations and related costs and delays may negatively affect
business.
Mining activities are subject to extensive federal, state, local and foreign laws and regulations governing environmental protection,
natural resources, prospecting, development, production, post-closure reclamation, taxes, labor standards and occupational health and safety laws and regulations, including mine safety, toxic substances and other matters. The costs associated
with compliance with such laws and regulations are substantial. Possible future laws and regulations, or more restrictive interpretations of current laws and regulations by governmental authorities, could cause additional expense, capital
expenditures, restrictions on or suspensions of operations and delays in the development of new properties.
PolyMet is required to obtain various governmental permits to conduct exploration, development, construction and mining activities at
its properties. Obtaining the necessary governmental permits is often a complex and time-consuming process involving numerous United States or Canadian federal, provincial, state, and local agencies. The duration and success of each permitting
effort is contingent upon many variables not within the Company’s control. In the context of obtaining permits or approvals, PolyMet must comply with known standards, existing laws, and regulations that may entail greater or lesser costs and delays
depending on the nature of the activity to be permitted and the interpretation of the laws and regulations implemented by the permitting authority. The failure to obtain certain permits or the adoption of more stringent permitting requirements
could have a material adverse effect on business, operations, and properties and the Company may be unable to proceed with current or future exploration and development programs.
Federal legislation and implementing regulations adopted and administered by the United States Environmental Protection Agency, Army
Corp of Engineers, Forest Service, Fish and Wildlife Service, Mine Safety and Health Administration, and other federal agencies, and legislation such as the Federal Clean Water Act, Clean Air Act, National Environmental Policy Act, Endangered
Species Act, and Comprehensive Environmental Response, Compensation, and Liability Act, have a direct bearing on exploration, development and mining operations United States. Due to the uncertainties inherent in the permitting process, the Company
cannot be certain that it will be able to obtain required approvals for current or future proposed activities in a timely manner, or that PolyMet’s current or future proposed activities will be allowed at all.
Failure to comply with applicable laws, regulations and permitting requirements may result in enforcement actions, including orders
issued by regulatory or judicial authorities causing operations to cease or be curtailed, which may require corrective measures including capital expenditures, installation of additional equipment or remedial actions. Parties engaged in mining
operations or in the exploration or development of mineral properties may be required to compensate those suffering loss or damage by reason of the mining activities and may be subject to civil or criminal fines or penalties imposed for
violations of applicable laws or regulations. Any such penalties, fines, sanctions or shutdowns could have a material adverse effect on business and results of operations.
Because the price of metals fluctuate, if the prices of metals in PolyMet’s ore body decrease
below a specified level, it may no longer be profitable to develop the NorthMet Project for those metals and PolyMet could cease operations.
Prices of metals are determined by some of the following factors:
●
|
global and regional supply and demand;
|
●
|
political and economic conditions and production costs in major metal producing regions;
|
●
|
the strength of the United States dollar; and
|
●
|
expectations for inflation.
|
The aggregate effect of these factors on metals prices is impossible for the Company to predict. In addition, the prices of metals are sometimes subject to rapid short-term and/or prolonged changes because of speculative activities. The
current demand for and supply of various metals affect the prices of copper, nickel, cobalt, platinum, palladium and gold, but not necessarily in the same manner as current supply and demand affect the prices of other commodities. The supply of
these metals primarily consists of new production from mining. If the prices of copper, nickel, cobalt, platinum, palladium and gold are, for a substantial period, below foreseeable costs of production, PolyMet could cease operations.
PolyMet is dependent on its key personnel.
Company success depends on key members of management. The loss of the services of one or more of such key management personnel could
have a material adverse effect on the Company. PolyMet’s ability to manage exploration and development activities, and hence success, will depend in large part on the efforts of these individuals. PolyMet faces intense competition for qualified
personnel, and cannot be certain that it will be able to attract and retain such personnel.
In addition, PolyMet anticipates that if the NorthMet Project goes into production, PolyMet will experience
significant growth in operations. PolyMet expects this growth to create new positions and responsibilities for management and technical personnel and will increase demands on operating and financial systems. There can be no assurance that PolyMet
will successfully meet these demands and effectively attract and retain additional qualified personnel to manage anticipated growth. The failure to attract such qualified personnel to manage growth would have a material adverse effect on
business, financial position, results of operations and cash flows.
The Company may not be able to raise the funds necessary to develop the NorthMet Project. If
PolyMet is unable to raise such additional funds, the Company will have to suspend or cease operations.
PolyMet will need to seek additional financing to complete the development and construction of the NorthMet
Project, in addition to the funding required to repay its current indebtedness. Sources of such external financing may include future equity and debt offerings, advance payments by potential customers to secure long-term supply contracts, grants
and low-cost debt from certain state financial institutions, and commercial debt secured by the NorthMet Project. There is no guarantee that any such financing will be available to the Company. If the Company cannot raise the money necessary to
continue to explore, develop and construct the NorthMet Project, PolyMet may have to suspend or cease operations.
PolyMet’s metals exploration and development efforts are highly speculative in nature and may be unsuccessful.
As a development stage company, PolyMet’s work is speculative and involves unique and greater risks than are generally associated with
other businesses.
The development of mineral deposits involves uncertainties, which careful evaluation, experience, and knowledge cannot eliminate. Few
properties explored are ultimately developed into producing mines. It is impossible to ensure that the current development program the Company has planned will result in a profitable commercial mining operation.
PolyMet is subject to all the risks inherent to the mining industry, which may have an adverse affect on business
operations.
PolyMet is subject to all of the risks inherent in the mining industry, including, without limitation, the
following:
●
|
Success in discovering and developing commercially viable quantities of minerals is the result of a number of factors, including the quality of
management, the interpretation of geological data, the level of geological and technical expertise and the quality of land available for exploration;
|
●
|
Operations are subject to a variety of existing laws and regulations relating to exploration and development, permitting procedures, safety
precautions, property reclamation, employee health and safety, air and water quality standards, pollution and other environmental protection controls, all of which are subject to change and are becoming more stringent and costly to comply
with;
|
●
|
A large number of factors beyond PolyMet’s control, including fluctuations in metal prices and production costs, inflation, the proximity and
liquidity of precious metals and energy fuels markets and processing equipment, government regulations, including regulations relating to prices, taxes, royalties, land tenure, land use, importing and exporting of minerals and
environmental protection, and other economic conditions, will affect the economic feasibility of mining;
|
●
|
Substantial expenditures are required to construct mining and processing facilities;
|
●
|
Title to mining properties may be subject to other claims; and
|
●
|
In the development stage of a mining operation, PolyMet’s mining activities could be subject to substantial operating risks and hazards,
including metal bullion losses, environmental hazards, industrial accidents, labor disputes, 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 falls, periodic interruptions due to inclement weather conditions or other unfavorable operating conditions and other acts of God. Some of these risks and hazards are not insurable
or may be subject to exclusion or limitation in any coverage, which the Company obtains or may not be insured due to economic considerations.
|
Actual mineral reserves and mineral resources may not conform to the Company’s established estimates.
The figures for mineral reserves and mineral resources stated in this AIF are estimates and no assurances can be given that the
anticipated tonnages and grades will be achieved or that the indicated level of recovery will be realized. Market fluctuations and the prices of metals may render reserves and mineral resources uneconomic. Moreover, short-term operating factors
relating to the mineral deposits, such as the need for the orderly development of the deposits or the processing of new or different grades of ore, may cause a mining operation to be unprofitable in any particular accounting period.
The estimating of mineral
reserves and mineral resources is a subjective process that relies on the judgment of the persons preparing the estimates. Estimates of mineral resources are, to a large extent, based on the interpretation of geological data obtained from drill
holes and other sampling techniques. This information is used to calculate estimates of the configuration of the mineral resource, expected recovery rates, anticipated environmental conditions and other factors. As a result, mineral resource
estimates for the NorthMet Project may require adjustments or downward revisions based upon further exploration or development work or upon actual production experience, thereby adversely impacting the economics of the NorthMet Project. Any
material reductions in estimates of mineralization, or of the Company's ability to extract this mineralization, could have a material adverse effect on the Company's results of operations or financial condition.
There is no assurance that any of PolyMet’s mineral resources, not currently classified as mineral reserves, will
ever be classified as mineral reserves under the disclosure standards of the SEC.
Item 4 of this AIF discusses mineral resources in accordance with NI 43-101. Resources are classified as “measured resources”,
“indicated resources” and “inferred resources” under NI 43-101. However, U.S. investors are cautioned that the SEC does not recognize these resource classifications. There is no assurance that any of the Company’s mineral resources, not currently
classified as mineral reserves, will be converted into mineral reserves under the disclosure standards of the SEC.
The Company has had no production history and does not know if it will generate revenues in the future.
While the Company was incorporated in 1981, it has no history of producing minerals. The Company has not developed or operated any mines
and has no operating history upon which an evaluation of future success or failure can be made. PolyMet currently has no mining operations of any kind. The Company’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. PolyMet may not successfully establish mining operations or profitably produce metals at any of its properties. As
such, the Company does not know if it will ever generate revenues.
PolyMet has a history of losses, which it expects will continue for the future. If the Company does not begin to
generate revenues, it may either have to suspend or cease operations.
As a development stage company with negative cash flows and no holdings in any producing mines, PolyMet continues
to incur losses and expects to incur losses in the immediate future. As at December 31, 2018, the Company had an accumulated deficit of $149 million. PolyMet may not be able to achieve or sustain profitability in the future. If the Company does not
begin to generate revenues, it may either have to suspend or cease operations.
While in the past the Company has been successful in closing financing agreements, there can be no assurance it will be able to do so
again. Factors that could affect the availability of financing include the state of debt and equity markets, investor perceptions and expectations, and the metals markets.
The Company has incurred significant indebtedness and there is no guarantee that the Company
will be able to repay or refinance such indebtedness.
There is no assurance that any indebtedness of the Company will be extended, repaid, refinanced or restructured, or
that additional financing on commercially reasonable terms will be available. Failure to repay indebtedness and satisfy the conditions of such indebtedness could ultimately result in loss of substantially all of the Company’s assets. In addition,
repayment of such indebtedness could require the issuance by the Company of a significant number of common shares and thereby result in dilution to existing shareholders of the Company. The issuance of such a large number of common shares to the
Company’s secured lender, which already holds approximately 28.9% of the Company’s issued and outstanding common shares (and 39.8% on a partially-diluted basis), in connection with the repayment of the outstanding debt could result in such
shareholder obtaining majority control of the Company’s issued and outstanding common shares.
Repayment of the indebtedness may adversely affect the Company’s future cash flow, which may adversely affect the Company’s future
ability to operate effectively and, therefore, require the Corporation to refinance or restructure the Company’s consolidated indebtedness.
The Company may not be able to raise the funds necessary to develop the NorthMet Project. If PolyMet is unable to
raise such additional funds, the Company may have to suspend or cease operations.
PolyMet will need to seek additional financing to complete the development and construction of the NorthMet Project, in
addition to the funding required to repay its current indebtedness. Sources of such external financing may include future equity and debt offerings, advance payments by potential customers to secure long-term supply contracts, grants and
low-cost debt from certain state financial institutions, and commercial debt secured by the NorthMet Project. There is no guarantee that any such financing will be available to the Company. If the Company cannot raise the money necessary to
continue to explore, develop and construct the NorthMet Project, PolyMet may have to suspend or cease operations.
The Company may not have adequate, if any, insurance coverage for some business risks that could
lead to economically harmful consequences to PolyMet.
The Company’s business is generally subject to a number of risks and hazards, including:
●
|
equipment failures; and
|
●
|
severe weather and other natural phenomena.
|
These occurrences could result in damage to, or destruction of, mineral properties, production facilities, transportation facilities, or
equipment. They could also result in personal injury or death, environmental damage, waste of resources or intermediate products, delays or interruption in mining, production or transportation activities, monetary losses and possible legal
liability. The insurance the Company maintains against risks that are typical in the business may not provide adequate coverage. Insurance against some risks (including liabilities for environmental pollution or certain hazards or interruption of
certain business activities) may not be available at a reasonable cost or at all. As a result, accidents or other negative developments involving mining, production or transportation facilities could have a material adverse effect on operations.
PolyMet may be subject to future litigation and regulatory proceedings which may have an adverse effect on business
operations.
PolyMet may be subject to civil claims (including class action claims) based on allegations of negligence, breach of statutory duty,
public nuisance or private nuisance or otherwise in connection with its operations or investigations relating thereto. While the Company is presently unable to quantify its potential liability under any of the above, such liability may be material
to the Company and may have a material adverse effect on its ability to continue in operation.
In addition, the Company may be subject to actions or related investigations by governmental or regulatory authorities. Such actions may
include civil or criminal prosecution for breach of relevant statues, regulations or rules or failure to comply with the terms of PolyMet’s licenses and permits and may result in liability for pollution, other fines or penalties, revocation of
consents, permits, approvals or licenses or similar action, which could be material and may affect the Company's results of operations. Exposures to fines and penalties generally are uninsurable as a matter of public policy.
The mining industry is an intensely competitive industry and the Company may have difficulty
effectively competing with other mining companies in the future.
The Company faces intense competition from other mining and producing companies. In recent years, the mining industry has experienced
significant consolidation among some of the Company’s competitors. PolyMet cannot assure you that the result of current or further consolidation in the industry will not adversely affect the Company.
In addition, because mines have limited lives, PolyMet must periodically seek to replace and expand its reserves by acquiring new
properties. Significant competition exists to acquire properties producing, or capable of producing, copper, nickel and other metals.
If PolyMet is unable to successfully manage these risks, its growth prospects and profitability may suffer.
The Company is dependent on information technology and its systems and infrastructure face certain risks, including
cyber security risks and data leakage risks.
PolyMet utilizes a variety of information technology systems and infrastructure. Any significant breakdown, invasion, destruction or
interruption of these systems by employees, others with authorized access to the systems, or unauthorized persons could negatively impact operations. There is also a risk that the Company could experience a business interruption, theft of
information, or reputational damage as a result of a cyber-attack, such as a data leakage of confidential information either internally or by third-party providers. While the Company has invested in the protection of its data and information
technology to reduce these risks and periodically test the security of its information systems network, there can be no assurance that these efforts will prevent breakdowns or breaches in PolyMet’s systems that could adversely affect the business.
PolyMet may be subject to risks relating to the global economy.
Market events and conditions in recent years, including disruptions in the international credit markets and other financial systems and
the deterioration of global economic conditions could impede the Company’s access to capital or increase the cost of capital. These disruptions in the credit and financial markets have had a significant material adverse impact on a number of
financial institutions and have limited access to capital and credit for many companies, including PolyMet. These disruptions could, among other things, make it more difficult for the Company to obtain, or increase its cost of obtaining capital
and financing for operations.
RISKS RELATED TO THE OWNERSHIP OF POLYMET COMMON SHARES
PolyMet may experience volatility in its share price.
PolyMet’s common shares are listed for trading on the TSX and on the NYSE American. Shareholders may be unable to sell significant
quantities of the common shares into the public trading markets without a significant reduction in the price of the Company’s shares, if at all. The market price of the common shares may be affected significantly by factors such as changes in
operating results, the availability of funds, fluctuations in the price of metals, the interest of investors, traders and others in development stage public companies such as PolyMet and general market conditions. In recent years, the securities
markets have experienced a high level of price and volume volatility, and the market price of securities of many companies, particularly development companies similar to PolyMet, have experienced wide fluctuations, which have not necessarily been
related to the operating performances, underlying asset values, or the future prospects of such companies. There can be no assurance that future fluctuations in the price of PolyMet’s shares will not occur.
A large number of shares will be eligible for future sale and may depress PolyMet’s share price.
Shares that are eligible for future sale may have an adverse effect on the price of the Company’s common shares. As at December 31,
2018 there were 321,190,069
common shares outstanding. The average trading volume for the three months prior to December 31, 2018 was approximately 10,000 shares per day on the
TSX and 430,000 shares per day on the NYSE American. Sales of substantial amounts of the Company’s common shares, or a perception that such sales could occur, and the existence of options or warrants to purchase common shares and debt convertible
into common shares at prices that may be below the then current market price of the common shares, could adversely affect the market price of common shares and could impair the Company’s ability to raise capital through the sale of equity
securities.
Ownership interest, voting power and the market price of common shares may decrease because the
Company has issued, and may continue to issue, a substantial number of securities convertible or exercisable into common shares.
PolyMet has issued common shares, options, restricted shares, restricted share units, convertible debt and warrants to purchase its
common shares to satisfy its obligations and fund operations. Since the Company currently does not have a source of revenue, it will likely issue additional common shares, or other securities exercisable for or convertible into common shares to
raise money for continued operations or as non-cash incentives to the Company’s directors, officers, and key employees. If conversions of securities exercisable into common shares or additional sales of equity occur, ownership interest and voting
power in PolyMet will be diluted and the market price of common shares may decrease.
Under the Company’s 2007 Omnibus Share Compensation Plan, as amended and restated (“Omnibus Plan”), the aggregate number of share
options, restricted shares, restricted share units, and other share-based awards is restricted to 10% of the issued and outstanding common shares on the grant date, excluding 2,500,000 common shares pursuant to an exemption approved by the Toronto
Stock Exchange.
Because PolyMet believes that it will be classified as a passive foreign investment company, or
“PFIC”, United States holders of common shares may be subject to United States federal income tax consequences that are worse than those that would apply if PolyMet were not a PFIC.
Because PolyMet believes that it will be classified as a PFIC, United States holders of common shares may be subject to United States
federal income tax consequences that are worse than those that would apply if the Company were not a PFIC, such as ordinary income treatment plus a charge in lieu of interest upon a sale or disposition of common shares even if the shares were held
as a capital asset.
Since its incorporation, PolyMet has not declared or paid, and has no present intention to declare or to pay, any cash dividends with
respect to its common shares. Earnings will be retained to finance further growth and development of the Company’s business. However, if the board of directors were to declare a dividend, all common shares would participate equally.
The Company’s authorized capital consists of an unlimited number of common shares, without par value of which 321,190,069 common shares
were issued and outstanding as fully paid and non-assessable as of December 31, 2018.
Shareholders are entitled to one vote per common share at all meetings of Shareholders except meetings at which only holders of another
specified class or series of shares of the Company are entitled to vote separately as a class or series. The holders of common shares are entitled to receive dividends as and when declared by the Board, and to receive a pro rata share of the
remaining property and assets of the Company in the event of liquidation, dissolution or winding up of the Company. The common shares carry no pre-emptive, redemption, purchase or conversion rights. Pursuant to the terms of prior financings,
Glencore has certain anti-dilution rights that permit it to acquire additional securities so as to maintain its proportional equity interest in the Company. Neither the
Business Corporations Act
(British Columbia) (“BCBCA”) nor the constating documents of the Company impose restrictions on the transfer of common shares on the register of the Company, provided that the Company receives the
certificate representing the common shares to be transferred together with a duly endorsed instrument of transfer and payment of any fees and taxes which may be prescribed by the Board from time to time. There are no sinking fund provisions in
relation to the common shares and they are not liable to further calls or to assessment by the Company. The BCBCA provides that the rights and provisions attached to any class of shares may not be modified, amended or varied unless consented to by
special resolution passed by a majority of not less than two-thirds of the votes cast in person or by proxy holders of the common shares.
PolyMet’s common shares are listed and posted for trading on the TSX under the symbol “POM”, and on the NYSE American under the symbol
“PLM”. The following table sets forth the market price range and trading volumes of the Company’s common shares on each of the TSX and NYSE American for the periods indicated.
|
TSX
|
NYSE American
|
Month
|
High
(C$)
|
Low
(C$)
|
Volume
|
High
(US$)
|
Low
(US$)
|
Volume
|
January 2018
|
1.60
|
1.10
|
2,843,800
|
1.32
|
0.88
|
21,629,600
|
February 2018
|
1.59
|
1.43
|
1,185,700
|
1.25
|
1.15
|
12,207,500
|
March 2018
|
1.56
|
1.12
|
589,900
|
1.22
|
0.87
|
9,847,500
|
April 2018
|
1.14
|
1.00
|
395,800
|
0.90
|
0.79
|
6,904,900
|
May 2018
|
1.08
|
0.98
|
136,200
|
0.85
|
0.78
|
3,150,700
|
June 2018
|
1.42
|
0.99
|
808,400
|
1.07
|
0.77
|
13,043,600
|
July 2018
|
1.25
|
1.03
|
99,500
|
1.00
|
0.79
|
4,681,000
|
August 2018
|
1.16
|
1.02
|
64,900
|
0.88
|
0.79
|
3,969,500
|
September 2018
|
1.33
|
1.08
|
124,200
|
1.02
|
0.83
|
5,169,500
|
October 2018
|
1.26
|
1.17
|
88,700
|
1.00
|
0.88
|
4,299,300
|
November 2018
|
1.48
|
1.06
|
479,000
|
1.13
|
0.80
|
14,628,600
|
December 2018
|
1.12
|
1.07
|
70,400
|
0.83
|
0.80
|
8,147,900
|
9.
|
Securities Not Listed or Quoted
|
The only classes of securities of the Company that are not listed or quoted on a marketplace are stock options,
restricted shares units (“RSU’s”), deferred share units (“DSU’s”) and share purchase warrants.
The following stock options were issued during the
year
ended December 31, 2018
:
Date of Issuance
|
Number of Stock Options Issued
|
Exercise Price (US$)
|
March 2, 2018
|
250,000
|
1.22
|
March 30, 2018
|
2,253,000
|
0.87
|
The following RSU’s were issued during the
year ended
December 31, 2018
:
Date of Issuance
|
Number of Restricted Share Units Issued
|
Exercise Price (US$)
|
March 30, 2018
|
888,972
|
N/A
|
During the
year ended December 31, 2018, 6,458,001 share
purchase warrants were issued
at $0.8231 per share exercisable at any time until March 31, 2019 and subject to mandatory exercise if the 20-day volume weighted average price (“VWAP”) of PolyMet common shares is equal to or greater than
150% of the exercise price and PolyMet has received permits and construction finance is available (“Exercise Triggering Event”).
As at December 31, 2018, the Company had the following outstanding securities held in escrow:
Designation of Class
|
Number of Securities
held in Escrow
|
Percentage of Class
|
Common shares
(1)
|
191,000
|
0.01%
|
(1)
|
Common shares are held by Farris, Vaughan, Wills & Murphy LLP and were issued as restricted shares to certain United
States employees. Contractual restrictions on transfer ends on receipt of permits to commence construction (95,500 common shares) and commencement of commercial production (95,500 common shares).
|
10.
|
Directors and Officers
|
Name, Occupation and Security Holding
The name, province or state, country of residence, position or office held with the Company and principal occupation during the past
five years of each director and executive officer of the Company as at December 31, 2018 and as at the date hereof are described as follows:
Name & Residence
|
Position(s) with the
Company
|
Principal Occupation during
past five years
|
Director since
|
Dennis Bartlett
(1,4,5)
Arizona, United States
|
Director
|
Chief Executive Officer & Director, Cupric Canyon Capital
|
July 19, 2017
|
Jonathan Cherry
(4,5)
Minnesota, United States
|
Director, President & Chief Executive Officer
|
Same
|
July 16, 2012
|
Mike Ciricillo
(4,5)
Arizona, United States
|
Director
|
Head of Copper Smelting and Refining, Glencore
|
July 19, 2017
|
David Dreisinger
(2,3,4,5)
British Columbia, Canada
|
Director
|
Professor and Chairholder of the Industrial Research and Chair in Hydrometallurgy, University British Columbia
|
October 3, 2003
|
W. Ian L. Forrest
(1,2,3)
Vaud, Switzerland
|
Director, Chairman
|
Chartered Accountant
|
October 3, 2003
|
Helen Harper
(2,3,4,5)
Ontario, Canada
|
Director
|
Asset Manager for North America Copper Operations, Glencore
|
July 13, 2016
|
Alan R. Hodnik
(1,4)
Minnesota, United States
|
Director
|
Chairman, President and Chief Executive Officer, Allete Inc.
|
March 9, 2011
|
Stephen Rowland
(1,3)
Connecticut, United States
|
Director
|
Executive, Glencore
|
October 30, 2008
|
Michael M. Sill
(2, 3)
Minnesota, United States
|
Director
|
Chief Executive Officer, Road Machinery & Supplies Co.
|
March 9, 2011
|
Patrick Keenan
Minnesota, United States
|
Chief Financial Officer
|
Same, and previously Senior Vice President - Finance, Newmont Mining Corporation, and previously Chief Financial Officer, Rio
Tinto Energy
|
N/A
|
Bradley Moore
Minnesota, United States
|
Executive Vice President, Environmental & Governmental Affairs
|
Same
|
N/A
|
|
Notes:
|
(1)
|
Member of the Compensation Committee. Stephen Rowland is a non-voting participant.
|
|
|
(2)
|
Member of the Audit Committee. Helen Harper is a non-voting participant.
|
|
|
(3)
|
Member of the Nominating and Corporate Governance Committee. Helen Harper and Stephen
Rowland are non-voting participants.
|
|
|
(4)
|
Member of the Health, Safety, Environment and Communities Committee.
|
|
|
(5)
|
Member of the Technical Steering Committee.
|
As at the date of this AIF, PolyMet’s directors and executive officers, as a group, beneficially owned, directly or indirectly, or
exercised control or direction over 5,896,924 common shares, representing 1.8 percent of the total number of common shares outstanding before giving effect to the exercise of options or warrants to purchase common shares held by such directors and
executive officers. The statement as to the number of common shares beneficially owned, directly or indirectly, or over which control or direction is exercised by the Company’s directors and executive officers as a group is based upon information
furnished by the directors and executive officers.
Each Director serves until the next annual general meeting of shareholders or until his/her successor is duly elected, unless his/her
office is vacated in accordance with the Articles of Incorporation. Vacancies on the Board of Directors are filled by election from nominees chosen by the remaining Directors and the persons filling those vacancies will hold office until the next
annual general meeting of shareholders, at which time they may be re-elected or replaced.
Indebtedness
No director or executive officer, nor any of their respective associates or affiliates is or has been at any time since the beginning of
the last completed fiscal year indebted to PolyMet.
Cease Trade Orders, Bankruptcies, Penalties or Sanctions
To the knowledge of PolyMet’s management and as of the date of this AIF, except for Mr. Forrest’s directorships as noted below, no directors: (i)
are, at the date hereof, or have been, during the 10 years prior to the date hereof, a director or executive officer of any 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 became subject to or instituted any proceedings, arrangement or compromise with creditors, or had a receiver, receiver-manager or trustee
appointed to hold assets of the director; or (ii) have, within the 10 years before the date hereof, become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or become subject to or instituted any proceedings,
arrangements or compromises with creditors, or had a receiver, receiver manager or trustee appointed to hold assets of the director. Viatrade plc, an investment company of which Mr. Forrest was a director, went into administration in August
2009. Georex SA, an oil services company of which Mr. Forrest was a director, filed for administration in France in
June
2017 on account of its business model no longer being sustainable. Poros SAS, an
associated company of Georex SA of which Mr. Forrest was also a director, has ceased to be active in
March 2016
since France banned oil shale fracking.
Conflicts of Interest
Directors and officers may become in a position of conflict. Directors and officers must disclose the nature and extent of the conflict
and abstain from voting on the approval of the proposed contract or transaction, unless all of the directors have a disclosable interest, in which case the director may vote on such resolution and may be liable to account to the Company for any
profit that accrued under such transaction. To the knowledge of PolyMet’s management and as of the date of this AIF, there are no known existing conflicts of interest between the Company and any of PolyMet’s directors or officers as a result of
such individual’s outside business interests.
11.
|
Legal Proceedings and Regulatory Actions
|
To the knowledge of Company’s management, there are no material legal proceedings or regulatory actions outstanding to which PolyMet is a party,
or to which any of its property is subject to and no such proceedings or regulatory actions are known to the Company to be threatened or pending, as of the date hereof, with the exception of challenges to regulatory permit and approval decisions
by the MDNR, MPCA, and USFS
as discussed in Item 3 above.
12.
|
Interest of Management and Others in Material Transactions
|
Other than as disclosed in this AIF, PolyMet is not aware of any material interest, direct or indirect, involving any director or
executive officer or any shareholder who holds more than 10% of the outstanding voting securities, or any associate or affiliate of any of the foregoing, which has been entered into since the commencement of the last completed fiscal year or in any
proposed transaction which, in either case, has materially affected or will materially affect PolyMet or any of PolyMet’s subsidiaries.
13.
|
Transfer Agent and Registrar
|
The Company’s registrar and transfer agent is Computershare Investor Services Inc. located at 100 University Avenue, 9th Floor, Toronto,
Ontario M5J 2Y1, Canada.
The following is a summary of each material contract to which the Company is a party, other than contracts entered into in the ordinary
course of business, for the last fiscal year or before the last fiscal year that is still in effect.
●
|
Acquisition of the mineral rights, see Item 4 for additional information;
|
●
|
Acquisition of the Erie Plant and associated infrastructure acquired in the Asset Purchase Agreements I and II, see Item 4 for additional
information; and
|
●
|
Financing agreements entered into with Glencore, see Items 3 and 4 for additional information.
|
PricewaterhouseCoopers LLP has served as PolyMet’s auditor since April 2006 and is located at 250 Howe Street, Suite 1400, Vancouver,
British Columbia, Canada V6C 3S7. PricewaterhouseCoopers LLP report that they are independent of the Company in accordance with the code of professional conduct of the Chartered Professional Accountants of British Columbia and the rules of the
Public Company Accounting Oversight Board and the Securities and Exchange Commission.
PolyMet has relied on the work of the qualified persons listed in the section of this AIF titled “Introductory Notes - Qualified Persons
Under NI 43-101” in connection with the scientific and technical information presented in this AIF in respect of its mineral property, NorthMet, which is based upon the NI 43-101 Technical Report filed on SEDAR and EDGAR.
None of the qualified persons listed in the section of this AIF titled “Introductory Notes - Qualified Persons Under NI 43-101”, nor any
of the companies listed therein that employ those individuals, received or has received a direct or indirect interest in the property of the Company or of any associate or affiliate of the Company in connection with the preparation of reports
relating to the Company’s mineral properties. As of the date hereof, the aforementioned persons and companies beneficially own, directly or indirectly, less than 1% of the Company’s outstanding securities of any class and less than 1% of the
outstanding securities of any class of PolyMet’s associates or affiliates.
PolyMet is subject to National Instrument 52-110 -
Audit
Committees
, which has been adopted in various Canadian provinces and territories and which prescribes certain requirements in relation to audit committees and defines the meaning of independence with respect to directors. These reflect
current regulatory guidelines of the CSA as well as certain U.S. initiatives under the
Sarbanes-Oxley Act of 2002
and adopted corporate governance rules of
the NYSE American. A copy of the Company’s Audit Committee’s charter is attached as Schedule A to this AIF.
The Company’s Audit Committee was composed of Michael M. Sill, Dr. David Dreisinger, and W. Ian L. Forrest, each of whom, in the opinion
of the Company’s Board of Directors, is independent as determined under the rules of the TSX and NYSE American and each of whom is financially literate. The Audit Committee meets the composition requirements set forth by TSX and NYSE American
rules.
Michael M. Sill has served as a member of PolyMet’s board of directors since March 2011. He serves as the Chair on the Audit committee
and also serves on the Nominating and Corporate Governance committee. Since 1994, Mr. Sill has served as President and CEO of Road Machinery & Supplies Co., a distributor of construction, mining and forestry equipment. Educated at Dartmouth
College and J.L. Kellogg Graduate School of Management, Mr. Sill started his career as a financial analyst and commercial lending officer with The Northern Trust Company. He serves on the board of Reviva Corporation and Dunwoody College of
Technology, and has previously served on the Twin Cities Regional Board of US Bank and numerous industry association boards.
Dr. David Dreisinger has served as a member of PolyMet’s board of directors since October 2003. He serves as the Chair of the Technical
Steering committee and also serves on the Health, Safety, Environment and Communities, Audit, and on the Nominating and Corporate Governance committees. Since 1988, Dr. Dreisinger has been a member of the faculty at the University of British
Columbia in the Department of Materials Engineering and is currently Professor and Chairholder of the Industrial Research and Chair in Hydrometallurgy. He has published over 300 papers and has been extensively involved as a process consultant in
industrial research programs with metallurgical companies. Dr. Dreisinger has participated in 21 U.S. patents for work in areas such as pressure leaching, ion exchange removal of impurities from process solutions, use of thiosulfate as an
alternative to cyanide in gold leaching, and leach-electrolysis treatment of copper recovery from sulfide ores, and the Sepon Copper Process for copper recovery from sulfidic-clayey ores. Dr. Dreisinger serves as a director of Euro Manganese
Inc., Search Minerals, Inc. and LeadFX Inc., and as Vice President – Metallurgy for each of Camrova Resources, Inc., and Search Minerals Inc.
W. Ian L. Forrest has served as a member of PolyMet’s board of directors since October 2003 and as its Chairman since July 2012. Mr.
Forrest previously served as Chairman of the board from May 2004 to February 2008 and Co-Chairman from January 2011 to July 2012. He serves as the Chair on the Nominating and Corporate Governance committees and also serves on the Audit and
Compensation committees. Mr. Forrest played an important role in the Company’s revival in 2003. Mr. Forrest is a member of the Institute of Chartered Accountants of Scotland. Mr. Forrest has more than 40 years of experience with public companies
in the resource sector. His experience encompasses the areas of promotion, financing, exploration, production and company management. He has also participated in several notable projects including Gulfstream's North Dome gas discovery, Qatar,
Reunion Mining's Scorpion zinc, Namibia, which was subsequently developed by Anglo American, and Ocean Diamond Mining, which pioneered the independent diamond dredging industry off the west coast of southern Africa. He also served as a director of
Tanager Energy Inc. (formerly MGold Resources Inc.) until October 2011 and Belmore Resources (Holdings) plc until July 2011 when it was acquired by Lundin Mining Ltd. Mr. Forrest was a director of Viatrade plc Georex SA, and Poros SAS. See
further discussion surrounding these directorships in Item 10 above.
During the year ended December 31, 2018, the Board of Directors determined that W. Ian L. Forrest qualified as the Audit Committee’s
“financial expert,” as defined under the rules of the TSX and NYSE American and was “financially sophisticated” as defined under the rules of the TSX and NYSE American.
Mr. Forrest qualifies as a financial expert and is financially sophisticated, in that he has an understanding of generally accepted
accounting principles and financial statements; is able to assess the general application of accounting principles in connection with the accounting for estimates, accruals and reserves; has experience analyzing or evaluating financial statements
that entail accounting issues of equal complexity to the Company's financial statements (or actively supervising another person who did so); and has a general understanding of internal controls and procedures for financial reporting and an
understanding of audit committee functions.
The members of the Audit Committee do not have fixed terms and are appointed and replaced from time to time by resolution of the Board
of Directors.
The Audit Committee meets four times a year, at a minimum, and has access to all officers, management and employees of the Company and
may engage advisors or counsel as deemed necessary to perform its duties and responsibilities as a committee.
The Audit Committee also meets with the Company’s President and CEO, the Company’s CFO, and the Company’s independent auditors to review
and inquire into matters affecting financial reporting, the system of internal accounting and financial controls, and the Company’s audit procedures and audit plans. The Audit Committee also recommends to the Board of Directors the independent
auditors to be appointed for each year. In addition, the Audit Committee reviews and recommends to the Board of Directors for approval the annual and quarterly financial statements and management’s discussion and analysis. Finally, the Audit
Committee undertakes other activities as required by the rules and regulations of the TSX and the NYSE American and other governing regulatory authorities.
Pre-Approval Policies and Procedures
All fees paid to the external auditors, PricewaterhouseCoopers LLP, were pre-approved by the Audit Committee. This pre-approval
involved a submission by the auditors to the Audit Committee of a scope of work to complete the audit and prepare tax returns, an estimate of the time involved, and a proposal for the fees to be charged for the audit. The Audit Committee reviewed
this proposal with management and after discussion with the auditors, pre-approved the scope of work and fees.
External Auditor Service Fees
The following outlines the expenditures for accounting fees billed and paid for the last two fiscal periods ended:
Fiscal Year Ending
|
Audit Fees
|
Audit Related Fees
|
Tax Fees
|
All Other Fees
|
|
|
|
|
|
|
|
|
|
|
"Audit Fees" are the aggregate fees billed by PricewaterhouseCoopers LLP for the audit of the Company's consolidated annual financial
statements.
"Audit-Related Fees" are fees billed by PricewaterhouseCoopers LLP for services reasonably related to the performance of the audit or
interim review and services associated with registration statements and prospectuses.
"Tax Fees" are fees for professional services rendered by PricewaterhouseCoopers LLP for tax compliance, tax advice on actual or
contemplated transactions.
17.
|
Additional Information
|
All documents referred to in this AIF are available for inspection at the Company’s registered and records office, listed below, during
normal office hours.
Farris, Vaughan, Wills & Murphy LLP
2500 - 700 W Georgia St
Vancouver BC
Canada V7Y 1B3
In Canada, the Company will file reports and other information with the Canadian Securities Administrators. These materials include
additional financial information provided in the Company’s financial statements and MD&A for its most recently completed fiscal year. These materials also include directors’ and officers’ remuneration and indebtedness, principal holders of the
Company’s securities and securities authorized for issuance under equity compensation plans, as contained in the Management Information Circular for the most recent annual meeting of security holders that involves the election of directors.
Additional reports, registration statements, and other information relating to PolyMet may be found on SEDAR at
www.sedar.com
.
In the United States, the Company will file reports and other information with the SEC in accordance with the requirements of the
Exchange Act. These materials, including this AIF and exhibits and the Company’s financial statements and MD&A for its most recently completed fiscal year, may be inspected and copied at the SEC’s Public Reference Room at 100 F Street, N.E.,
Washington, D.C. 20549 and at the SEC’s regional office at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of the materials may be obtained from the Public Reference Room of the Commission at 100 F. Street, N.E., Washington,
D.C. 20549 at prescribed rates. The public may obtain information on the operation of the Commission’s Public Reference Room by calling the Commission in the United States at 1-800-SEC-0330. Additional reports, registration statements and other
information relating to PolyMet can also be inspected on EDGAR available on the SEC’s website at
www.sec.gov
.
SCHEDULE A
AUDIT COMMITTEE CHARTER
1.
PURPOSE
The purpose of the Audit Committee (in this charter, the “Committee") is to oversee the accounting and financial reporting processes
of PolyMet Mining Corp. (the “Company”), the audits of the Company's financial statements, the qualifications of the public accounting firm engaged as the Company's independent auditor to prepare or issue an audit report on the financial
statements of the Company and internal control over financial reporting, and the performance of the Company's internal audit function and independent auditor. The Committee reviews and assesses the qualitative aspects of the Company’s financial
reporting to shareholders, the Company’s financial risk assessment and management, and the Company’s ethics and compliance programs. The Committee is directly responsible for the appointment (subject to shareholder ratification), compensation,
retention, and oversight of the independent auditor. The Committee also reviews and assesses the Company’s processes to manage and control risk, except for risks assigned to other committees of the Board or retained by the Board.
2.
STRUCTURE AND OPERATIONS
The Committee shall be composed of not less than three (3) directors. Members of the Committee shall be independent and each shall be
“financially literate” and will be appointed or reappointed at the meeting of the Board, immediately following the annual general meeting of the shareholders of the Company (the “AGM”), and in the normal course of business will serve a minimum of
three (3) years. At least one member of the Committee shall in the judgment of the Board be an "audit committee financial expert" as defined by the rules and regulations of the Canadian Securities Administrators and the Securities and Exchange
Commission. Each member shall continue to be a member of the Committee until a successor is appointed, unless the member resigns, is removed or ceases to be a director. The Board may fill a vacancy that occurs in the Committee at any time.
Generally, no member of the Committee may serve on more than three audit committees of publicly traded companies (including the Audit Committee of the Company) at the same time.
“Financially Literate” means 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 the Company’s financial statements.
The Board or, in the event of its failure to do so, the members of the Committee, shall appoint or reappoint, at the meeting of the
Board immediately following the AGM, a chairman from among their number. The chairman shall not be a former officer of the Company and shall serve as a liaison between the Committee and members of the Company’s management team (“Management”).
Meetings of the Committee shall be held at least four times annually, provided that due notice is given and a quorum of a majority of
the members is present. Where a meeting is not possible, resolutions in writing which are signed by all members of the Committee are as valid as if they had been passed at a duly held meeting. The frequency and nature of the meeting agendas are
dependent upon business matters and affairs which the Company faces from time to time.
The Committee shall report to the Board on its activities after each of its meetings. In addition, it shall review and assess the
adequacy of this charter annually and, where necessary, recommend changes to the Board for approval. The Committee shall undertake and review with the Board an annual performance evaluation of the Committee.
3.
RESOURCES AND AUTHORITY
The Committee shall have the resources and authority appropriate to discharge its responsibilities, including the authority to use
internal personnel and to obtain advice and assistance from internal or external legal, accounting or other advisors and the funding for compensating any such external advisors. In addition, the Committee shall have sole authority to retain and
terminate any such firms and to approve the fees and other retention terms related to the appointment such firms.
4.
RESPONSIBILITIES
The responsibilities of the Committee are:
|
1.
|
To assist the Board of Directors in fulfilling its fiduciary responsibilities’ relating to the Company's quality and integrity of accounting, auditing, and reporting
practices and the integrity of the Company's internal accounting controls and management information systems;
|
|
2.
|
To review with the auditors, internal accountants and management of the Company:
|
|
a.
|
any audited financial statement of the Company, including any such statement that is to be presented to an annual general meeting or provided to shareholders or filed with
regulatory authorities and including any audited financial statement contained in a prospectus, registration statement or other similar document, and
|
|
b.
|
the financial disclosure in each Annual Report and Management Discussion and Analysis of the Company which accompanies such audited financial statement and in each such
filing, prospectus, registration statement or other similar document;
|
|
3.
|
To review with the internal accountants and management of the Company:
|
|
a.
|
any unaudited financial statement of the Company, including any such statement that is to be presented to an annual general meeting or provided to shareholders or filed
with regulatory authorities and including any unaudited financial statement contained in a prospectus, registration statement, Quarterly Report or other similar document,
|
|
b.
|
the financial disclosure in each Quarterly Report and when applicable, Management Discussion and Analysis of the Company accompanying such unaudited financial statement and
in each such filing, prospectus, registration statement or other similar document which accompanies such unaudited financial statement, and
|
|
c.
|
in connection with the annual reports of the Company, review (i) Management's disclosure to the Committee and the independent auditor under Section 302 of the
Sarbanes-Oxley Act, including identified changes in internal control over financial reporting; and (ii) the contents of the Chief Executive Officer and the Chief Financial Officer certificates to be filed under Sections 302 and 906 of
the Sarbanes-Oxley Act and the process conducted to support the certifications;
|
|
4.
|
To otherwise review as required and report to the Board of Directors with respect to the adequacy of internal accounting and audit procedures and the adequacy of the
Company’s management information systems;
|
|
5.
|
To otherwise ensure that no restrictions are placed by Management on the scope of the auditors review and examination of the Company’s accounts;
|
|
6.
|
To appoint or replace the independent auditor and approve the terms on which the independent auditor is engaged for the ensuing fiscal year;
|
|
7.
|
At least annually, evaluate the independent auditor's qualifications, performance, and independence, including that of the lead partner. The evaluation will include
obtaining a written report from the independent auditor describing the firm's internal quality control procedures; any material issues raised by the most recent Public Company Accounting Oversight Board inspection, internal quality
control review, or PCAOB review, of the firm or by any inquiry or investigation by governmental or professional authorities within the past five years, concerning an independent audit or audits carried out by the firm, and any steps
taken to deal with those issues; and all relationships between the independent auditor and the Company;
|
|
8.
|
Resolve any disagreements between Management and the independent auditor about financial reporting;
|
|
9.
|
Establish and oversee a policy designating permissible services that the independent auditor may perform for the Company, providing for preapproval of those services by the
Committee subject to the de minimis exceptions permitted under applicable rules, and quarterly review of any services approved by the designated member under the policy and the firm's non-audit services and related fees;
|
|
10.
|
Ensure receipt from the independent auditor of a formal written statement delineating all relationships between the auditor and the Company, consistent with applicable
requirements of the PCAOB regarding the independent auditor’s communications with the Committee concerning independence, actively engage in a dialogue with the auditor about any disclosed relationships or services that may impact the
objectivity and independence of the auditor, and take appropriate action to oversee the independence of the independent auditor;
|
|
11.
|
Advise the Board about the Committee's determination whether the Committee consists of three or more members who are Financially Literate, including at least one member
who has financial sophistication and is a financial expert;
|
|
12.
|
Inquire of Management and the independent auditor about significant risks or exposures, review the Company's policies for risk assessment and risk management, and assess
the steps Management has taken to control such risk to the Company, except as to those risks for which oversight has been assigned to other committees of the Board or retained by the Board;
|
|
13.
|
Review with Management and the independent auditor:
|
|
a.
|
The Company's annual assessment of the effectiveness of its internal controls and the independent auditor's attestation,
|
|
b.
|
The adequacy of the Company's internal controls, including computerized information system controls and security,
|
|
c.
|
Any "material weakness" or "significant deficiency" in the design or operation of internal control over financial reporting, and any steps taken to resolve the issue, and
|
|
d.
|
Any related significant findings and recommendations of the independent auditor and internal audit together with Management's responses;
|
|
14.
|
Develop, review, and oversee procedures for (i) receipt, retention, and treatment of complaints received by the Company regarding accounting, internal accounting
controls, and auditing matters and (ii) the confidential, anonymous submission of employee concerns regarding accounting or auditing matters;
|
|
15.
|
Review policies and procedures with respect to transactions between the Company and officers and directors, or affiliates of officers or directors, or transactions that
are not a normal part of the Company’s business, and review and approve those related-party transactions that would be disclosed pursuant to International Financial Reporting Standards, IAS 24 and SEC Regulation S-K, Item 404;
|
|
16.
|
Review with Management and the independent auditor at least annually the Company's critical accounting policies and significant judgments and estimates, including any
significant changes in the Company's selection or application of accounting principles and the effect of regulatory and accounting initiatives on the financial statements of the Company;
|
|
17.
|
To ensure that the Company disseminates information concerning its financial position and results of operations to the public in a timely fashion;
|
|
18.
|
Complete an annual evaluation of the Committee’s performance;
|
|
19.
|
Include a copy of the Committee charter as an appendix to the proxy statement at least once every three years, or disclose annually in the proxy statement where the
charter can be found on the Company's website;
|
|
20.
|
Set clear hiring policies for the Company's hiring of employees or former employees of the independent auditor who were engaged in the Company's account, and ensure the
policies comply with any regulations applicable to the Company; and
|
|
21.
|
Review with Management the Company’s policies and processes for tax planning and compliance.
|
5.0
COMMUNICATIONS
The independent auditor reports directly to the Committee. The Committee is expected to maintain free and open communication with the
independent auditor, the internal auditors, and Management. This communication will include periodic private executive sessions with each of these parties.
6.0
EDUCATION
The Company is responsible for providing new members with appropriate orientation briefings and educational opportunities, and the
full Committee with educational resources related to accounting principles and procedures, current accounting topics pertinent to the Company, and other matters as may be requested by the Committee. The Company will assist the Committee in
maintaining appropriate financial literacy.
56
Exhibit 99.2
POLYMET MINING CORP.
CONSOLIDATED FINANCIAL STATEMENTS
As at December 31, 2018 and 2017
And for the twelve months ended December 31, 2018
and eleven months ended December 31, 2017
Management’s Responsibility for Consolidated Financial Statements
The accompanying Consolidated Financial Statements of PolyMet Mining Corp. (the “Company) are the responsibility of management. The Consolidated Financial
Statements have been prepared by management in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and include certain estimates that reflect management’s best
judgments.
The Company’s Board of Directors has approved the information contained in the Consolidated Financial Statements. The Board of Directors fulfills its
responsibilities regarding the Consolidated Financial Statements mainly through its Audit Committee, which has a written mandate that complies with current requirements of Canadian securities legislation, United States securities legislation, and the
United States Sarbanes-Oxley Act of 2002. The Audit Committee meets at least on a quarterly basis.
Management’s Annual Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is
a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Consolidated Financial Statements for external reporting purposes in accordance with IFRS as issued by the IASB.
Internal control over financial reporting, no matter how well designed, has inherent limitations. Also, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management has assessed the effectiveness of the Company’s internal control over financial reporting as at December 31, 2018. In making its assessment,
management has used the criteria established in
Internal Control - Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (“COSO”) to evaluate the Company’s internal control over financial reporting. Based on this assessment, management has concluded that the Company’s internal control over financial reporting was effective as at that date.
The effectiveness of the Company’s internal control over financial reporting as at December 31, 2018 has been audited by PricewaterhouseCoopers LLP, the
Company’s independent registered public accounting firm, as stated in their report, which appears herein.
/s/ Jonathan Cherry
|
|
/s/ Patrick Keenan
|
|
Jonathan Cherry
|
|
Patrick Keenan
|
|
President and Chief Executive Officer
|
|
Chief Financial Officer
|
|
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of PolyMet Mining Corp
.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of PolyMet Mining Corp
.
and its subsidiaries (the “Company”) as of December 31, 2
0
18 and 2017
,
and the related consolidated statements of loss and comprehensive loss
,
changes in
shareholders’ equity and cash flows for the year ended December 31
,
2
0
18 and the
eleven month period ended December 31
,
2
0
17
,
including the related notes (collectively referred to as the “consolidated financial statements”)
.
We also
have audited the Company's internal control over financial reporting as of December 31
,
2018
,
based on criteria established in
Internal Control
-
Integrated Framework
(2
0
13)
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects
,
the financial position of the Company as of December 31
,
2
0
18 and 2
0
17
,
and their financial performance and their cash flows for the year ended December 31
,
2018 and the eleven month period ended December 31
,
2
0
17 in conformity with International Financial Reporting Standards as issued by the
International Accounting Standards Board (IFRS)
.
Also in our opinion, the Company maintained
,
in all material respects, effective
internal control over financial reporting as of December 31
,
2
0
18
,
based on criteria established in
Internal Control – Integrated Framework
(2
0
13) issued by the COSO
.
Change in Accounting Principles
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which
it accounts for financial instruments and leases in 2
0
18
.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining
effective internal control over financial reporting
,
and for its assessment of the effectiveness of internal control over financial reporting
,
included in the accompanying Management's Annual Report on Internal Control Over Financial Reporting
.
Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U
.
S
.
federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB
.
We conducted our audits in accordance with the standards of the PCAOB
.
Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement
,
whether due to error or fraud
,
and whether effective internal control over financial
reporting was maintained in all material respects.
PricewaterhouseCoopers LLP
PricewaterhouseCoopers Place, 250 Howe Street, Suite 14
0
0, Vancouver
,
British Columbia, Canada V6C 3S7
T: +1 6
0
4 806 7
000
, F: +1 6
0
4 806 7806
“PwC” refers to PricewaterhouseCoopers LLP
,
an Ontario limited liability partnership.
Our audits of the consolidated financial statements included performing procedures to assess the risks of
material misstatement of the consolidated financial statements, whether due to error or fraud
,
and performing procedures that respond to those risks. Such procedures
included examining, on a test basis
,
evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management
,
as well as evaluating the overall presentation of the consolidated financial statements. Our
audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness
of internal control based on the assessed risk
.
Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe
that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles
.
A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that
,
in reasonable detail
,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations
of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use
,
or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations
,
internal control over financial reporting may not prevent or detect misstatements. Also
,
projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/PricewaterhouseCoopers LLP
Chartered Professional Accountants
Vancouver
,
Canada
March 28
,
2
0
19
We have served as the Company's auditor since 2006.
PolyMet Mining Corp.
Consolidated Balance Sheets
All figures in thousands of U.S. Dollars
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
Cash
|
|
$
|
13,857
|
|
|
$
|
6,931
|
|
Amounts receivable
(Note
5)
|
|
|
796
|
|
|
|
432
|
|
Prepaid expenses
|
|
|
1,161
|
|
|
|
811
|
|
|
|
|
15,814
|
|
|
|
8,174
|
|
Non-Current
|
|
|
|
|
|
|
|
|
Restricted cash deposits
(Note
6)
|
|
|
10,286
|
|
|
|
-
|
|
Amounts receivable
(Note
5)
|
|
|
1,796
|
|
|
|
2,533
|
|
Mineral Property, Plant and Equipment
(Notes 3 and 4)
|
|
|
433,548
|
|
|
|
395,205
|
|
Intangible
(Note 5)
|
|
|
24,185
|
|
|
|
3,130
|
|
Total Assets
|
|
|
485,629
|
|
|
|
409,042
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
Accounts payable and accruals
|
|
|
4,013
|
|
|
|
3,630
|
|
Convertible debt
(Notes 7
and 8)
|
|
|
56,984
|
|
|
|
49,067
|
|
Non-convertible debt
(Notes
7 and 9)
|
|
|
178,483
|
|
|
|
92,268
|
|
Environmental rehabilitation provision
(Note 6)
|
|
|
1,693
|
|
|
|
1,266
|
|
|
|
|
241,173
|
|
|
|
146,231
|
|
Non-Current
|
|
|
|
|
|
|
|
|
Environmental rehabilitation provision
(Note 6)
|
|
|
59,414
|
|
|
|
64,136
|
|
Total Liabilities
|
|
|
300,587
|
|
|
|
210,367
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share Capital
(Note 10)
|
|
|
271,269
|
|
|
|
269,516
|
|
Share Premium
|
|
|
1,151
|
|
|
|
1,151
|
|
Equity Reserves
|
|
|
62,111
|
|
|
|
60,505
|
|
Deficit
|
|
|
(149,489
|
)
|
|
|
(132,497
|
)
|
Total Shareholders’ Equity
|
|
|
185,042
|
|
|
|
198,675
|
|
Total Liabilities and Shareholders’ Equity
|
|
$
|
485,629
|
|
|
$
|
409,042
|
|
|
|
|
|
|
|
|
|
|
Nature of Business and Liquidity
(Note 1)
Commitments and Contingencies
(Note 14)
Subsequent Events
(Note 16)
ON BEHALF OF THE BOARD OF DIRECTORS:
/s/ Jonathan Cherry
|
, Director
|
/s/ Dr. David Dreisinger
|
, Director
|
- See Accompanying Notes –
PolyMet Mining Corp.
Consolidated Statements of Loss and Comprehensive Loss
All figures in thousands of U.S. Dollars, except for shares and per share amounts
|
|
|
|
|
|
Twelve months
ended
December 31,
2018
|
|
|
Eleven months
ended
December 31,
2017
|
|
General and Administrative Expenses
|
|
|
|
|
|
|
Salaries, directors’ fees and related benefits
|
|
$
|
2,547
|
|
|
$
|
2,209
|
|
Share-based compensation
(Note 10)
|
|
|
1,742
|
|
|
|
1,318
|
|
Professional fees
|
|
|
634
|
|
|
|
784
|
|
Regulatory fees
|
|
|
197
|
|
|
|
137
|
|
Investor and public relations
|
|
|
1,174
|
|
|
|
1,036
|
|
Office and administration
|
|
|
646
|
|
|
|
637
|
|
Depreciation
|
|
|
130
|
|
|
|
4
|
|
Total General and Administration Expenses
|
|
|
7,070
|
|
|
|
6,125
|
|
|
|
|
|
|
|
|
|
|
Other Expenses (Income)
|
|
|
|
|
|
|
|
|
Finance costs - net
(Note 11)
|
|
|
2,381
|
|
|
|
2,233
|
|
(Gain) / loss on foreign exchange
|
|
|
(3
|
)
|
|
|
6
|
|
Loss on modification of debentures
(Notes 7, 8 and 9)
|
|
|
4,109
|
|
|
|
-
|
|
Loss on land exchange
(Note 4)
|
|
|
553
|
|
|
|
-
|
|
Gain on disposal of financial instrument
(Note 5)
|
|
|
-
|
|
|
|
(36
|
)
|
Loss on disposal of intangible
(Note 5)
|
|
|
-
|
|
|
|
1,324
|
|
Loss on disposal of lands
(Note 5)
|
|
|
-
|
|
|
|
469
|
|
Loss on financial instrument fair value
(Note 5)
|
|
|
971
|
|
|
|
-
|
|
Other income
|
|
|
(38
|
)
|
|
|
(23
|
)
|
Total Other Expenses
|
|
|
7,973
|
|
|
|
3,973
|
|
|
|
|
|
|
|
|
|
|
Loss for the Period
|
|
|
15,043
|
|
|
|
10,098
|
|
|
|
|
|
|
|
|
|
|
Other Comprehensive Loss
|
|
|
|
|
|
|
|
|
Reclass on disposal of financial instrument
(Note 5)
|
|
|
-
|
|
|
|
36
|
|
Items that may be subsequently reclassified to profit or loss:
|
|
|
|
|
|
|
|
|
Unrealized loss on financial instrument
(Note 5)
|
|
|
-
|
|
|
|
166
|
|
Other Comprehensive Loss for the Period
|
|
|
-
|
|
|
|
202
|
|
|
|
|
|
|
|
|
|
|
Total Comprehensive Loss for the Period – Net of Tax
|
|
$
|
15,043
|
|
|
$
|
10,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted Loss per Share
|
|
$
|
(0.05
|
)
|
|
$
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
Weighted Average Number of Shares – basis and diluted
|
|
|
320,495,981
|
|
|
|
318,891,961
|
|
- See Accompanying Notes -
PolyMet Mining Corp.
Consolidated Statements of Changes in Shareholders’ Equity
All figures in thousands of U.S. Dollars, except for shares
|
|
Share Capital (authorized = unlimited)
|
|
|
Equity Reserves
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Issued
|
|
|
Share
|
|
|
Share
|
|
|
Contributed
|
|
|
Other Comp
|
|
|
Equity
|
|
|
|
|
|
Shareholders'
|
|
|
|
Shares
|
|
|
Capital
|
|
|
Premium
|
|
|
Surplus
|
|
|
Inc / (Loss)
|
|
|
Reserves
|
|
|
Deficit
|
|
|
Equity
|
|
Balance - January 31, 2017
|
|
|
318,545,519
|
|
|
$
|
268,895
|
|
|
$
|
1,151
|
|
|
$
|
59,270
|
|
|
$
|
412
|
|
|
$
|
59,682
|
|
|
$
|
(122,399
|
)
|
|
$
|
207,329
|
|
Total comprehensive loss for the period
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(202
|
)
|
|
|
(202
|
)
|
|
|
(10,098
|
)
|
|
|
(10,300
|
)
|
Payment of land purchase options
(Note 10)
|
|
|
396,616
|
|
|
|
256
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
256
|
|
Vesting of restricted shares and RSU’s
(Note 10)
|
|
|
360,963
|
|
|
|
365
|
|
|
|
-
|
|
|
|
(365
|
)
|
|
|
-
|
|
|
|
(365
|
)
|
|
|
-
|
|
|
|
-
|
|
Share-based compensation
(Note 10)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,111
|
|
|
|
-
|
|
|
|
1,111
|
|
|
|
-
|
|
|
|
1,111
|
|
Bonus share cost amortization
(Note 10)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
279
|
|
|
|
-
|
|
|
|
279
|
|
|
|
-
|
|
|
|
279
|
|
Balance – December 31, 2017
|
|
|
319,303,098
|
|
|
|
269,516
|
|
|
|
1,151
|
|
|
|
60,295
|
|
|
|
210
|
|
|
|
60,505
|
|
|
|
(132,497
|
)
|
|
|
198,675
|
|
Change in Accounting Policy
(Note 2)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(210
|
)
|
|
|
(210
|
)
|
|
|
(1,949
|
)
|
|
|
(2,159
|
)
|
Balance – January 1, 2018
|
|
|
319,303,098
|
|
|
|
269,516
|
|
|
|
1,151
|
|
|
|
60,295
|
|
|
|
-
|
|
|
|
60,295
|
|
|
|
(134,446
|
)
|
|
|
196,516
|
|
Total comprehensive loss for the period
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(15,043
|
)
|
|
|
(15,043
|
)
|
Debenture refinancing warrants
(Note 7)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,331
|
|
|
|
-
|
|
|
|
2,331
|
|
|
|
-
|
|
|
|
2,331
|
|
Payment of land purchase options
(Note 10)
|
|
|
128,750
|
|
|
|
123
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
123
|
|
Exercise of share options
(Note 10)
|
|
|
225,000
|
|
|
|
218
|
|
|
|
-
|
|
|
|
(67
|
)
|
|
|
-
|
|
|
|
(67
|
)
|
|
|
-
|
|
|
|
151
|
|
Exercise of warrants
(Note 10)
|
|
|
590,500
|
|
|
|
683
|
|
|
|
-
|
|
|
|
(92
|
)
|
|
|
-
|
|
|
|
(92
|
)
|
|
|
-
|
|
|
|
591
|
|
Vesting of restricted shares and RSU’s
(Note 10)
|
|
|
843,413
|
|
|
|
624
|
|
|
|
-
|
|
|
|
(624
|
)
|
|
|
-
|
|
|
|
(624
|
)
|
|
|
-
|
|
|
|
-
|
|
Share-based compensation
(Note 10)
|
|
|
99,308
|
|
|
|
105
|
|
|
|
-
|
|
|
|
1,787
|
|
|
|
-
|
|
|
|
1,787
|
|
|
|
-
|
|
|
|
1,892
|
|
Bonus share cost amortization (forfeiture)
(Note 10)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,519
|
)
|
|
|
-
|
|
|
|
(1,519
|
)
|
|
|
-
|
|
|
|
(1,519
|
)
|
Balance – December 31, 2018
|
|
|
321,190,069
|
|
|
$
|
271,269
|
|
|
$
|
1,151
|
|
|
$
|
62,111
|
|
|
$
|
-
|
|
|
$
|
62,111
|
|
|
$
|
(149,489
|
)
|
|
$
|
185,042
|
|
- See Accompanying Notes -
PolyMet Mining Corp.
Consolidated Statements of Cash Flows
All figures in thousands of U.S. Dollars
|
|
|
|
|
|
Twelve months
ended
December 31,
2018
|
|
|
Eleven months
ended
December 31,
2017
|
|
Operating Activities
|
|
|
|
|
|
|
Loss for the period
|
|
$
|
(15,043
|
)
|
|
$
|
(10,098
|
)
|
Items not involving cash:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
130
|
|
|
|
4
|
|
Environmental rehabilitation provision accretion
(Note 6)
|
|
|
1,796
|
|
|
|
1,776
|
|
Share-based compensation
(Note 10)
|
|
|
1,742
|
|
|
|
1,318
|
|
Unrealized loss on foreign exchange
|
|
|
7
|
|
|
|
1
|
|
Loss on modification of debentures
(Notes
7, 8 and 9)
|
|
|
4,109
|
|
|
|
-
|
|
Loss on land exchange
(Note 4)
|
|
|
553
|
|
|
|
-
|
|
Loss on disposal of intangible
(Note
5)
|
|
|
-
|
|
|
|
1,324
|
|
Loss on disposal of lands
(Note 5)
|
|
|
-
|
|
|
|
469
|
|
Gain on disposal of financial instrument
(Note 5)
|
|
|
-
|
|
|
|
(36
|
)
|
Loss on financial instrument fair value
(Note 5)
|
|
|
971
|
|
|
|
-
|
|
Changes in non-cash working capital:
|
|
|
|
|
|
|
|
|
Amounts receivable
|
|
|
(384
|
)
|
|
|
23
|
|
Prepaid expenses
|
|
|
(350
|
)
|
|
|
2
|
|
Accounts payable and accruals
|
|
|
667
|
|
|
|
227
|
|
Net cash used in operating activities
|
|
|
(5,802
|
)
|
|
|
(4,990
|
)
|
|
|
|
|
|
|
|
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
Share issuance proceeds, net of costs
(Note 10)
|
|
|
742
|
|
|
|
-
|
|
Debenture funding, net of costs
(Notes 7 and 9)
|
|
|
69,723
|
|
|
|
14,917
|
|
RSU’s settled for cash
(Note 10)
|
|
|
(377
|
)
|
|
|
-
|
|
Net cash provided by financing activities
|
|
|
70,088
|
|
|
|
14,917
|
|
|
|
|
|
|
|
|
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
Property, plant and equipment purchases
(Note 4)
|
|
|
(26,437
|
)
|
|
|
(21,030
|
)
|
Intangible purchases
(Note 5)
|
|
|
(21,055
|
)
|
|
|
(810
|
)
|
Financial instrument
disposal
proceeds
(Note 5)
|
|
|
-
|
|
|
|
171
|
|
Land disposal proceeds
(Note
4)
|
|
|
425
|
|
|
|
-
|
|
Restricted cash deposits
(Note
6)
|
|
|
(10,286
|
)
|
|
|
-
|
|
Net cash used in investing activities
|
|
|
(57,353
|
)
|
|
|
(21,669
|
)
|
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) in Cash
|
|
|
6,933
|
|
|
|
(11,742
|
)
|
Effect of foreign exchange on Cash
|
|
|
(7
|
)
|
|
|
(1
|
)
|
Cash - Beginning of period
|
|
|
6,931
|
|
|
|
18,674
|
|
Cash - End of period
|
|
$
|
13,857
|
|
|
$
|
6,931
|
|
Supplemental information – non-cash investing and financing
|
|
|
|
|
|
|
|
|
Accounts payable and accruals
|
|
$
|
(390
|
)
|
|
$
|
(60
|
)
|
Transfer from PP&E to Intangible
(Note 5)
|
|
|
-
|
|
|
|
2,320
|
|
Debt accretion and capitalized interest
(Notes 7, 8 and 9)
|
|
|
20,560
|
|
|
|
18,512
|
|
Share-based compensation
(Note 10)
|
|
|
460
|
|
|
|
232
|
|
Bonus share amortization and forfeiture
(Note 10)
|
|
|
(1,519
|
)
|
|
|
279
|
|
Fair value of shares issued for land options
(Note 10)
|
|
$
|
123
|
|
|
$
|
256
|
|
- See Accompanying Notes -
PolyMet Mining Corp.
Notes to Consolidated Financial Statements
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts
1.
|
Nature of Business and Liquidity
|
PolyMet Mining Corp. was incorporated in British Columbia, Canada on March 4, 1981 under the name Fleck Resources Ltd. and changed its
name to PolyMet Mining Corp. on June 10, 1998. Through its 100%-owned subsidiary, Poly Met Mining, Inc. (“PolyMet US” and, together with PolyMet Mining Corp., “PolyMet” or the “Company”), the Company is engaged in the exploration and development of
natural resource properties. The Company’s primary mineral property is the NorthMet Project (“NorthMet” or “Project”), a polymetallic project in northeastern Minnesota, United States of America, which comprises the NorthMet copper-nickel-precious
metals ore body and the Erie Plant, a processing facility located approximately six miles from the ore body. The realization of the Company’s investment in NorthMet and other assets is dependent upon various factors, including the existence of
economically recoverable mineral reserves, the ability to obtain and maintain permits necessary to construct and operate NorthMet, the ability to obtain financing necessary to complete the development of NorthMet, and generate future profitable
operations or alternatively, disposal of the investment on an advantageous basis.
The corporate address and records office of the Company are located at 100 King Street West, Suite 5700, Toronto,
Ontario, Canada M5X 1C7, and 700 West Georgia, 25
th
Floor, Vancouver, British Columbia, Canada, V7Y 1B3, respectively. The executive office of PolyMet US is located at
444
Cedar Street, Suite 2060, St. Paul, Minnesota, United States of America, 55101
.
On December 7, 2017, the Board of Directors approved a resolution to change the year-end from January 31 to December 31. Accordingly, the
comparative period in these consolidated financial statements is at and for the eleven months ended December 31, 2017.
The consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of
assets and the settlement of liabilities in the normal course of operations.
Liquidity risk is the risk the Company will not be able to meet its financial obligations as they become due and arises through the excess of financial obligations over financial assets due at any
point in time.
As at December 31, 2018, the Company had cash of $13.857 million and a working capital deficiency of $225.359 million primarily due to $56.984 million secured convertible debt and $178.483 million
secured non-convertible debt owed to Glencore AG, a wholly owned subsidiary of Glencore plc (together “Glencore”) being classified as a current liability. Subsequent to year end, the Company entered into an agreement with Glencore to extend the
maturity date of the secured convertible and non-convertible debt to provide the Company time to prepare for and complete a rights offering by June 30, 2019, fully backstopped by Glencore, to raise sufficient funds to repay all outstanding debt
(see Note 16).
Management believes, based upon the underlying value of the NorthMet Project, the receipt of all permits necessary to construct and
operate
the NorthMet Project (see Note 16), the history of support from its shareholders and ongoing discussions with
potential financiers
, that financing will be available
to allow
the Company to complete the development of NorthMet and generate future profitable operations. While in the past the Company has been successful in closing financing agreements, there can be no assurance it
will be able to do so again. Factors that could affect the availability of financing include the state of debt, equity, and environmental bonding markets, investor perceptions and expectations and the market for metals expected to be produced from the
NorthMet Project.
PolyMet Mining Corp.
Notes to Consolidated Financial Statements
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts
a) Statement of Compliance
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued
by the International Accounting Standards Board (“IASB”). The financial statements were approved by the Board of Directors on March 28, 2019.
b) Basis of Consolidation and Presentation
The consolidated financial statements include the accounts of the Company and its wholly‑owned subsidiary. Intercompany balances and
transactions have been eliminated on consolidation.
The consolidated financial statements have been prepared under the historical cost convention. All dollar amounts presented are in United
States (“U.S.”) dollars unless otherwise specified.
c) Change in Accounting Policies
On January 1, 2018, the Company adopted the following new accounting standards that were previously issued by the IASB. Certain other new
standards and interpretations have been issued and were effective as of January 1, 2018 but did not have a material impact on the Company’s financial statements and are therefore not discussed below.
The accounting policies discussed below reflect the Company’s adoption of IFRS 9 - Financial Instruments, effective January 1, 2018, and
IFRS 16 - Leases, which had an effective date of January 1, 2019 but for which the company early adopted as of January 1, 2018. For the eleven months ended December 31, 2017, the Company applied policies based on IAS 39 and IAS 17 and the effects of
the transition from IAS 39 to IFRS 9 and from IAS 17 to IFRS 16 are described below.
IFRS 9 – Financial Instruments
IFRS 9 addresses the classification, measurement and recognition of financial assets and financial liabilities. This standard replaces
parts of IAS 39 - Financial Instruments: Recognition and Measurement. The Company adopted IFRS 9 effective January 1, 2018 on a retrospective basis without restating prior period comparatives.
IFRS 9 requires financial assets to be classified into the following measurement categories: fair value through profit and loss, fair
value through other comprehensive income, and those measured at amortized cost. The determination is made at initial recognition. On transition, the EIP receivable (see Note 5) previously classified as available-for-sale and measured at fair value
through other comprehensive income was re-classified as fair value through profit or loss with changes in fair value recognized in the statement of loss instead of through other comprehensive loss. Adoption resulted in re-classification of $0.210
million to the opening deficit from accumulated other comprehensive loss for cumulative gains on the EIP receivable. The following table shows the original measurement categories under IAS 39 and the new measurement categories under IFRS 9 for the
Company’s financial assets as at January 1, 2018:
Financial assets
|
2017 classification
under IAS 39
|
2018 classification
under IFRS 9
|
Cash
|
Loans and receivable
|
Amortized cost
|
Amounts receivable
|
Loans and receivable
|
Amortized cost
|
Amounts receivable
|
Available-for-sale
|
Fair value through profit or loss
|
PolyMet Mining Corp.
Notes to Consolidated Financial Statements
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts
2. Basis of Presentation
-
Continued
For financial liabilities, the standard retains most of the IAS 39 requirements, except as it relates to modifications of liabilities. Under IAS 39, when an entity modified a financial liability, it would decide whether this modification was
significant enough to constitute an extinguishment. If the modification was considered an extinguishment of the initial debt, the new modified debt was recorded at fair value and a gain/loss recognized in the statement of loss for the difference
between the carrying amount of the old debt and the fair value of the new debt. This extinguishment accounting remains the same under IFRS 9. However, accounting differs where the change was not significant enough to be an extinguishment. Under IAS
39, modifications would not lead to an immediate income charge, whereas, under IFRS 9, the cash flows under the modified debt are discounted using the original effective interest rate of the instrument with an immediate income charge. Adoption
resulted in a $2.159 million adjustment to increase the opening deficit as at January 1, 2018 and increase the carrying value of the convertible and non-convertible debt. This reflects accounting for prior year modifications to the outstanding
debentures under the new standard (see Notes 8 and 9).
IFRS 16 – Leases
IFRS 16 replaces IAS 17 – Leases. The new standard requires capitalization of certain leases by the leasee and results in accounting
treatment similar to finance leases under IAS 17 - Leases. Exemptions for leases of very low value or short duration leases are applicable. The new standard results in an increase in lease assets and liabilities for the lessee. Under the new standard
the treatment of all lease expenses is aligned in the statement of earnings with depreciation, and an interest expense component recognized for each lease, in line with finance lease accounting under IAS 17 - Leases.
The Company early adopted IFRS 16 effective January 1, 2018 on a modified retrospective basis without restating prior period
comparatives. As a result, the Company recorded a $0.211 million lease asset and corresponding lease liability for the one qualifying office lease that has been recognized over the remaining term. The Company’s other leases (see Note 3) are leases
to explore mining rights, which are excluded from IFRS 16’s scope.
The following table summarizes the impact of adopting IFRS 9 - Financial Instruments and IFRS 16 - Leases:
Consolidated Balance Sheet Impact
|
|
Dec 31, 2017
|
|
|
IFRS 9
|
|
|
IFRS 16
|
|
|
Jan 1, 2018
|
|
Mineral Property, Plant and Equipment
|
|
$
|
395,205
|
|
|
$
|
-
|
|
|
$
|
211
|
|
|
$
|
395,416
|
|
Accounts Payable and Accruals
|
|
|
3,630
|
|
|
|
-
|
|
|
|
211
|
|
|
|
3,841
|
|
Convertible Debt
|
|
|
49,067
|
|
|
|
1,346
|
|
|
|
-
|
|
|
|
50,413
|
|
Non-Convertible Debt
|
|
|
92,268
|
|
|
|
813
|
|
|
|
-
|
|
|
|
93,081
|
|
Equity Reserves
|
|
|
60,505
|
|
|
|
(210
|
)
|
|
|
-
|
|
|
|
60,295
|
|
Deficit
|
|
$
|
(132,497
|
)
|
|
$
|
(1,949
|
)
|
|
$
|
-
|
|
|
$
|
(134,446
|
)
|
d) Critical Accounting Estimates
The preparation of consolidated financial statements in conformity with IFRS requires the use of certain critical accounting estimates.
These critical accounting estimates require management to make estimates that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as at the date of the financial statements.
Critical accounting estimates used in the preparation of the consolidated financial statements are as follows:
PolyMet Mining Corp.
Notes to Consolidated Financial Statements
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts
2. Basis of Presentation
-
Continued
Determination of mineral reserves
Reserves are estimates of the amount of product that can be economically and legally extracted from the Company’s property. In order to
estimate reserves, estimates are required about a range of geological, technical and economic factors, including quantities, production techniques, production costs, capital costs, transport costs, demand, prices and exchange rates. Estimating the
quantity of reserves requires the size, shape and depth of deposits to be determined by analyzing geological data. This process may require complex and difficult geological judgments to interpret the data. In addition, management will form a view of
forecast sales prices, based on current and long-term historical average price trends. Changes in the proven and probable reserves estimates may impact the carrying value of property, plant and equipment, rehabilitation provisions, recognition of
deferred tax amounts and depreciation, depletion and amortization.
Provision for Environmental Rehabilitation Costs
Provisions for environmental rehabilitation costs associated with mineral property, plant and equipment, are recognized when the Company
has a present legal or constructive obligation that can be estimated reliably, and it is probable an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a
pre-tax risk-free rate that reflects current market assessments of the time value of money.
The Company’s estimates of its ultimate environmental rehabilitation liabilities could be affected by changes in regulations, changes in
the extent of environmental rehabilitation required, changes in the means of rehabilitation, changes in the extent of responsibility for the financial liability, changes in operating plans, or changes in cost estimates. The operations of the Company
may in the future be affected from time to time in varying degrees by changes in environmental regulations, including those for future removal and site restoration costs. Both the likelihood of new regulations and their overall effect upon the
Company may vary greatly and are not predictable.
The Company’s provision for environmental rehabilitation cost obligations represents management’s best estimate of the present value of
the future cash outflows required to settle the liability. See additional discussion in Note 6.
e) Critical Accounting Judgments
The preparation of consolidated financial statements in conformity with IFRS requires the use of certain critical accounting judgments.
These critical accounting judgments require management to make judgments that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as at the date of the financial statements.
Critical accounting judgments used in the preparation of the consolidated financial statements are as follows:
Impairment of non-financial assets
The carrying amounts of the Company’s non-financial assets, including mineral property, plant and equipment, and intangible are reviewed
at each reporting date or when events or changes in circumstances occur that indicate the asset may not be recoverable to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is
estimated at the greater of its value in use and its fair value less costs of disposal. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that
PolyMet Mining Corp.
Notes to Consolidated Financial Statements
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts
2. Basis of Presentation
-
Continued
reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is recognized if
the carrying amount of an asset exceeds its estimated recoverable amount. An impairment loss previously recorded is reversed if there has been a change in the estimates used to determine the recoverable amount resulting in an increase in the
estimated service potential of an asset.
The Company considers both external and internal sources of information in assessing whether there are any indications of impairment.
External sources of information the Company considers include changes in the market, economic, and legal environment in which the Company operates that are not within its control and affect the recoverable amount. Internal sources of information the
Company considers include indications of economic performance of the asset.
The carrying value of mineral property, plant, and equipment, and intangible at the balance sheet date are described in Notes 4 and 5,
respectively. No impairment indicators were identified on the mineral property, plant and equipment or intangible for the twelve months ended December 31, 2018 or eleven months ended December 31, 2017.
Going concern assumptions
The Company must assess its ability to continue as a going concern and prepare financial statements on a going concern basis unless it
either intends to liquidate or cease trading or has no realistic alternative but to do so. In assessing whether the going concern assumption is appropriate, the Company takes into account all available information about the future, which is at
least, but is not limited to, twelve months from the end of the reporting period.
f)
|
Summary of Significant Accounting Policies
|
Cash and Cash Equivalents and Restricted Cash Deposits
The Company considers cash and cash equivalents to include amounts held in banks and highly liquid investments with original maturities of
three months or less. Restricted Cash Deposits are held in a trust account and invested in highly liquid investments with a major financial institution as security and collateral for reclamation activities.
Financial Assets
All financial assets are initially recorded at fair value and designated upon inception as one of the following categories: amortized cost
or fair value through profit or loss (“FVTPL”). Financial assets classified as FVTPL are measured at fair value with gains and losses recognized through profit and loss. Financial assets classified as amortized cost are measured at amortized cost
using the effective interest method less any allowance for impairment. The effective interest method is a method of calculating the amortized cost of a financial asset and of allocating interest income over the relevant period. The effective
interest rate is the rate that discounts estimated future cash receipts through the expected life of the financial asset, or, where appropriate, a shorter period. The Company recognizes loss allowances for Expected Credit Losses (“ECL”) for amounts
receivable not measured at FVTPL. Loss allowances for amounts receivable are measured at an amount equal to lifetime ECL. ECL is a probability-weighted estimate and measured as at the present value of all cash shortfalls including the impact of
forward looking information. The loss allowance is presented as a deduction to amounts receivable. Transaction costs associated with FVTPL financial assets are expensed as incurred, while transaction costs associated with amortized cost financial
assets are included in the initial carrying amount of the asset. See additional discussion in Note 15.
PolyMet Mining Corp.
Notes to Consolidated Financial Statements
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts
2. Basis of Presentation
-
Continued
Mineral Property
Exploration and evaluation costs incurred prior to a Definitive Feasibility Study (“DFS”) are expensed as incurred. Development costs
incurred subsequent to a DFS and mineral property acquisition costs are capitalized until the property is placed into production, sold, allowed to lapse or abandoned. As a result of the DFS, NorthMet entered the development stage effective October 1,
2006. The Company has capitalized development expenditures related to NorthMet from that date.
Upon commencement of production, related property acquisition and development costs are amortized on a unit of production basis over the
estimated proven and probable mineral reserves not to exceed the assets’ useful lives.
Plant and Equipment
Plant and equipment are recorded at historical cost less accumulated depreciation and if applicable, accumulated impairment losses.
Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, if it is probable that the future economic benefits of the expenditure will flow to the Company and its cost can be measured reliably.
The carrying amount of a replaced part is derecognized. All other repairs and maintenance are charged to the statement of loss and comprehensive loss during the period in which they are incurred.
Depreciation of plant and equipment is calculated using the cost of the asset, less its residual value, over the estimated useful life of
the asset on a unit of production or straight-line basis, as appropriate.
Leases
The Company recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially
measured at cost, which comprises the initial amount of the lease liability, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is
located, less any lease incentives received. The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease
term. The lease liability is initially measured at the present value of the lease payments, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing rate. Generally,
the Company uses its incremental borrowing rate as the discount rate.
Intangible
Intangible costs and related acquisition costs are capitalized until the wetland credits are used, sold, or abandoned. Wetland credits
are used to offset and mitigate wetlands disturbed during construction
and operation of NorthMet. As such, costs will be transferred to Mineral Property, Plant and Equipment once placed into service and
amortized on a unit of production basis over the estimated proven and probable mineral reserves not to exceed the assets’ useful lives. See additional discussion in Note 5.
Financial Liabilities
All financial liabilities are initially recorded at fair value and designated upon inception as FVTPL or other financial liabilities.
Financial liabilities classified as FVTPL are initially recognized at fair value with directly attributable transaction costs expensed as incurred. At the end of each reporting period, financial liabilities at FVTPL are measured at fair value, with
changes in fair value recognized directly in profit or loss in the period in which they arise. Financial liabilities classified as other financial liabilities are initially recognized at fair value less directly attributable transaction costs and
PolyMet Mining Corp.
Notes to Consolidated Financial Statements
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts
2. Basis of Presentation
-
Continued
subsequently measured at amortized cost using the effective interest method which calculates the amortized cost of a financial liability
and allocates interest expense over the expected life of the financial liability.
Exchanges of instruments and modifications to debt are assessed using quantitative and qualitative factors to consider whether the
exchange or modification constitutes an extinguishment of the original financial liability and establishment of a new financial liability. In the case of extinguishment, any fees or costs incurred are recognized in profit or loss in the period in
which they arise. Where the terms in an exchange or modification are not assessed to be substantially different, a modification gain or loss is recognized at an amount equal to the difference between the modified cash flows discounted at the
original effective interest rate and the carrying value of the debt. The carrying value of the debt is adjusted for this modification gain or loss, directly attributable transaction costs, and any cash paid to or received from the debt holder. See
additional discussion in Note 15.
Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset are capitalized as part of the
cost of that asset until such time as the asset is substantially complete and ready for its intended use or sale. Where funds have been borrowed specifically to finance an asset, the amount capitalized is the actual borrowing costs incurred. Where
the funds used to finance an asset form part of general borrowings, the amount capitalized is calculated using a weighted average of rates applicable to relevant borrowings of the Company during the period. Other borrowing costs not directly
attributable to a qualifying asset are expensed in the year incurred. Classification in the cash flow statement is in accordance with the classification of the underlying asset to which those payments were capitalized.
Share‑Based Compensation
All share-based compensation awards made to directors, employees and non-employees are measured and recognized using a fair value based
method. For directors and employees, or those providing services similar to employees, the fair value of options is determined using the Black-Scholes pricing model. The fair value of the bonus shares, restricted shares, and restricted share units
expected to be settled in shares are calculated using the intrinsic value of the shares at issuance and is amortised over the vesting period. For awards expected to be settled in cash, the change in market value and corresponding liability is
adjusted to fair value at each reporting period.
The award is accrued and charged over the vesting period either to operations or mineral property plant and equipment, with the offsetting
credit to equity reserves for equity settled awards or liabilities for cash settled awards. If and when share options are ultimately exercised or bonus shares, restricted shares, and restricted share units vest, the applicable amounts are
transferred to share capital or removed from liabilities.
Certain awards vest upon achievement of non-market performance conditions. On a quarterly basis, management assesses the probability of
achieving those performance conditions using the best available information and estimates the appropriate vesting period.
When the Company amends the terms of share options, the incremental change in the fair value of the options due to the amendment, as
determined using the Black-Scholes pricing model, is recognized over the vesting period in the statement of loss or capitalized as appropriate.
PolyMet Mining Corp.
Notes to Consolidated Financial Statements
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts
2. Basis of Presentation
-
Continued
Share Purchase Warrants
The Company issues share purchase warrants in connection with certain financing transactions. The fair value of the warrants, as
determined using the Black-Scholes pricing model or fair value of goods or services received, is credited to equity reserves. The recorded value of share purchase warrants is transferred to share capital upon exercise.
Foreign Currency Translation
The U.S. dollar is the functional currency of the Company and its wholly-owned subsidiary. Amounts in the consolidated financial
statements are expressed in U.S. dollars unless otherwise stated. Transactions in foreign currencies are translated into the functional currency at the exchange rates at the date of the transactions. Monetary assets and liabilities of the Company’s
operations denominated in a currency other than the U.S. dollar are translated using exchange rates prevailing at the balance sheet date. Revenue and expense items are translated at the exchange rates in effect at the date of the underlying
transaction. Exchange differences are recognized in net loss in the year in which they arise.
Loss Per Share
Loss per share is computed by dividing the loss for the year by the weighted average number of common shares outstanding during the year.
Basic and diluted loss per share for each year presented are the same due to the effect of potential issuances of shares under warrant or share option agreements being, in total, anti-dilutive.
Income Taxes and Deferred Taxes
The income tax expense or benefit for the year consists of two components: current and deferred.
Current tax is the expected tax payable or receivable on the taxable profit or loss for the year. Current tax is calculated using tax
rates and laws that were enacted or substantively enacted at the balance sheet date in each of the jurisdictions and include any adjustments for taxes payable or recovery in respect of prior periods.
Taxable profit or loss differs from profit or loss as reported in the Consolidated Statements of Loss and Comprehensive Loss because of
items of income or expense that are taxable or deductible in other years, and items that are never taxable or deductible.
Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the financial statements and
the corresponding tax basis used in the computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences not eligible for offset. Deferred tax assets are generally recognized for all deductible
temporary differences, loss carry forwards and tax credit carry forwards to the extent that it is probable that taxable profits will be available against which they can be utilized. To the extent that the Company does not consider it to be probable
that taxable profits will be available against which deductible temporary differences, loss carry forwards, and tax credit carry forwards can be utilized, a deferred tax asset is not recognized.
PolyMet Mining Corp.
Notes to Consolidated Financial Statements
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts
3.
|
Mineral Property Agreements
|
NorthMet, Minnesota, U.S.A.
Pursuant to an agreement dated January 4, 1989, subsequently amended and assigned, the Company leases certain mineral property rights in
St. Louis County, Minnesota from RGGS Land & Minerals Ltd., L.P. Provided the Company continues to make annual lease payments, the lease period continues until June 12, 2048 with an option to extend the lease for up to five additional ten-year
periods on the same terms and further extend as long as there are commercial mining operations. All lease payments have been paid to date with the next annual payment of $0.175 million due in January 2020.
Pursuant to an agreement dated December 1, 2008, the Company leases certain mineral property rights in St. Louis County, Minnesota from
LMC Minerals. Provided the Company continues to make annual lease payments, the lease period continues until December 1, 2028 with an option to extend the lease for up to four additional five-year periods on the same terms. All lease payments have
been paid to date with the next annual payment of $0.030 million due in November 2019.
The lease payments are considered advance royalty payments and will be deducted from future production royalties payable to the lessor,
which range from 3% to 5% based on the net smelter return per ton received by the Company. The Company’s recovery of $3.000 million in advance royalty payments to RGGS Land & Minerals Ltd., L.P. is subject to the lessor receiving an amount not
less than the amount of the annual lease payment due for that year. The Company’s recovery of $0.219 million in advance royalty payments to LMC Minerals is subject to the lessor receiving an amount not less than the amount of the annual lease
payment due for that year.
4.
|
Mineral Property, Plant and Equipment
|
Details of the Mineral Property, Plant, and Equipment are as follows:
Net Book Value
|
|
NorthMet
|
|
|
Other fixed
assets
|
|
|
Total
|
|
Balance at January 31, 2017
|
|
$
|
364,793
|
|
|
$
|
120
|
|
|
$
|
364,913
|
|
Additions
|
|
|
39,474
|
|
|
|
32
|
|
|
|
39,506
|
|
Disposals
(Note 5)
|
|
|
(2,789
|
)
|
|
|
-
|
|
|
|
(2,789
|
)
|
Changes to rehabilitation provision
(Note 6)
|
|
|
(6,363
|
)
|
|
|
-
|
|
|
|
(6,363
|
)
|
Amortization
|
|
|
-
|
|
|
|
(62
|
)
|
|
|
(62
|
)
|
Balance at December 31, 2017
|
|
|
395,115
|
|
|
|
90
|
|
|
|
395,205
|
|
Adoption of IFRS 16
(Note 2)
|
|
|
-
|
|
|
|
211
|
|
|
|
211
|
|
Balance at January 1, 2018
|
|
|
395,115
|
|
|
|
301
|
|
|
|
395,416
|
|
Additions
|
|
|
41,710
|
|
|
|
87
|
|
|
|
41,797
|
|
Changes to environmental rehabilitation provision
(Note 6)
|
|
|
(3,478
|
)
|
|
|
-
|
|
|
|
(3,478
|
)
|
Amortization and Depreciation
|
|
|
-
|
|
|
|
(187
|
)
|
|
|
(187
|
)
|
Balance at December 31, 2018
|
|
$
|
433,347
|
|
|
$
|
201
|
|
|
$
|
433,548
|
|
PolyMet Mining Corp.
Notes to Consolidated Financial Statements
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts
4. Mineral Property, Plant and Equipment
–
Continued
NorthMet
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
Mineral property acquisition and interest costs
|
|
$
|
112,002
|
|
|
$
|
86,863
|
|
Mine plan and development
|
|
|
48,383
|
|
|
|
50,250
|
|
Environmental
|
|
|
133,638
|
|
|
|
122,396
|
|
Consulting and wages
|
|
|
55,076
|
|
|
|
52,965
|
|
Reclamation and remediation
(Note 6)
|
|
|
56,811
|
|
|
|
60,289
|
|
Site activities
|
|
|
26,488
|
|
|
|
21,403
|
|
Mine equipment
|
|
|
949
|
|
|
|
949
|
|
Total
|
|
$
|
433,347
|
|
|
$
|
395,115
|
|
Erie Plant, Minnesota, U.S.A.
In November 2005, the Company acquired from Cliffs Erie LLC, a subsidiary of Cleveland Cliffs Inc. (together “Cliffs”) large parts of the
Erie Plant, a processing facility located approximately six miles from the ore body.
In December 2006, the Company acquired from Cliffs additional property and associated rights sufficient to provide it with a railroad
connection linking the mine development site and the Erie Plant. The transaction also included a railcar fleet, locomotive fueling and maintenance facilities, water rights and pipelines, administrative offices on site and an additional 6,000 acres
of land to the east and west of the existing tailings storage facilities.
The consideration paid for the Erie Plant and associated infrastructure was $18.9 million in cash and 9,200,547 shares at a fair market
value of $13.953 million. As part of the consideration, the Company indemnified Cliffs for reclamation and remediation obligations of the acquired property (see Note 6).
During the twelve months ended December 31, 2018, the Company capitalized 100% of the borrowing costs on the convertible debt (see Note 8)
and non-convertible debt (see Note 9) in the amount of $20.560 million (eleven months ended December 31, 2017 - $18.512 million) as part of the cost of NorthMet assets. Costs to acquire the surface rights over the mineral rights were reclassed from
mine plan and development to mineral property acquisition following the land exchange closing in June 2018 which resulted in cash proceeds of $0.425 million and a non-cash loss of $0.553 million based on independent valuation appraisals of the lands
exchanged. As NorthMet assets are not in use or capable of operating in a manner intended by management, no depreciation or amortization of these assets has been recorded to December 31, 2018.
PolyMet Mining Corp.
Notes to Consolidated Financial Statements
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts
5.
|
Intangible and EIP Receivable
|
Details of the Intangible are as follows:
|
|
Twelve months ended
December 31, 2018
|
|
|
Eleven months ended
December 31, 2017
|
|
Intangible – beginning of period
|
|
$
|
3,130
|
|
|
$
|
1,888
|
|
Purchases
|
|
|
21,055
|
|
|
|
810
|
|
Other Additions
|
|
|
-
|
|
|
|
2,320
|
|
Disposals
|
|
|
-
|
|
|
|
(1,888
|
)
|
Intangible – end of period
|
|
$
|
24,185
|
|
|
$
|
3,130
|
|
Details of the EIP receivable are as follows:
|
|
Twelve months ended
December 31, 2018
|
|
|
Eleven months ended
December 31, 2017
|
|
EIP Receivable – beginning of period
|
|
$
|
2,883
|
|
|
$
|
2,656
|
|
Initial recognition
|
|
|
-
|
|
|
|
564
|
|
Collections
|
|
|
-
|
|
|
|
(171
|
)
|
Loss on re-measurement
|
|
|
(971
|
)
|
|
|
(166
|
)
|
EIP Receivable – end of period
|
|
|
1,912
|
|
|
|
2,883
|
|
Less current portion
|
|
|
(116
|
)
|
|
|
(350
|
)
|
Non-current portion
|
|
$
|
1,796
|
|
|
$
|
2,533
|
|
In April 2015, the Company entered into an agreement with EIP Minnesota, LLC (“EIP”) whereby EIP will seek to sell wetland credits the
Company is unable to use for the NorthMet Project to third parties and, over time, reimburse the Company for its costs. In February 2017, additional wetland credits the Company is unable to use were added to the receivable under the same terms as
the April 2015 agreement. The timing of EIP’s sale to third parties and reimbursement of the Company is uncertain and volatile. The Company initially recognized the February 2017 receivable at fair value calculated using a 9.75% discount rate and
15-year term resulting in a receivable of $0.564 million and a non-cash loss of $1.324 million. The EIP receivable is recorded at fair value at each reporting period, based on management’s best estimate of cash flows expected from future sales by
EIP. Fair value changes were accounted for through other comprehensive income or loss prior to adoption of IFRS 9 after which changes are accounted for through income or loss.
In October 2017, the Company entered into an agreement with EIP Credit Co., LLC to reserve wetland bank credits the Company can use for
the NorthMet Project for a minimum of five years in exchange for an initial down payment applicable to the purchase price, contractual transfer of certain lands, and annual option payments not applicable to the purchase price. The initial
consideration paid was $0.810 million in cash and $2.320 million in lands valued using Level 3 measurements (see Note 15) and resulted in a non-cash charge of $0.469 million. Annual option payments of $0.250 million are expensed as incurred whereas
option exercise payments will be recorded to Intangible and transferred to Mineral Property, Plant and Equipment once placed into service. During the twelve months ended December 31, 2018, the Company exercised part of its rights and purchased
wetland bank credits, which resulted in a $21.055 million addition to Intangible.
PolyMet Mining Corp.
Notes to Consolidated Financial Statements
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts
6.
|
Environmental Rehabilitation Provision
|
Details of the Environmental Rehabilitation Provision are as follows:
|
|
|
|
|
|
Twelve months ended
December 31, 2018
|
|
|
Eleven months ended
December 31, 2017
|
|
Environmental Rehabilitation Provision – beginning of period
|
|
$
|
65,402
|
|
|
$
|
70,626
|
|
Change in estimate
|
|
|
(3,478
|
)
|
|
|
(6,363
|
)
|
Liabilities discharged
|
|
|
(2,613
|
)
|
|
|
(637
|
)
|
Accretion expense
|
|
|
1,796
|
|
|
|
1,776
|
|
Environmental Rehabilitation Provision – end of period
|
|
|
61,107
|
|
|
|
65,402
|
|
Less current portion
|
|
|
(1,693
|
)
|
|
|
(1,266
|
)
|
Non-current portion
|
|
$
|
59,414
|
|
|
$
|
64,136
|
|
Federal, state and local laws and regulations concerning environmental protection affect the Company’s assets. As part of the
consideration for the asset acquisitions from Cliffs (see Note 4), the Company indemnified Cliffs for reclamation and remediation obligations of the acquired property. The Company’s provisions are based upon existing laws and regulations. It is not
currently possible to estimate the impact on operating results, if any, of future legislative or regulatory developments.
In April 2010, Cliffs entered into a consent decree with the Minnesota Pollution Control Agency (“MPCA”) relating to alleged violations on
the Cliffs Erie Property. This consent decree required both short-term and long-term mitigation. Field studies were completed in 2010 and 2011 and short-term mitigations approved by the MPCA were initiated in 2011. In April 2012, long-term
mitigation plans were submitted to the MPCA and, in October 2012, the MPCA approved plans for pilot tests of various treatment options to determine the best course of action. Although there is substantial uncertainty related to applicable water
quality standards and engineering scope, the October 2012 response from the MPCA, subsequent communications amongst the MPCA, Cliffs and the Company, and closure plans reflected in the Permit to Mine support the long-term mitigation plans included in
the Company’s environmental rehabilitation provision.
The Company’s best estimate of the environmental rehabilitation provision as at December 31, 2018 was $61.107 million (December 31, 2017 -
$65.402 million) based on estimated cash flows required to settle this obligation in present day costs of $71.146 million (December 31, 2017 - $73.301 million), a projected inflation rate of 2.00% (December 31, 2017 – 2.00%), a market risk-free
interest rate of 3.13% (December 31, 2017 – 2.58%) and expenditures expected to occur over a period of approximately 30 years. The decrease during the twelve months ended December 31, 2018 was primarily due to revisions to estimated cash flows as a
result of changes in the market risk-free interest rate and liabilities discharged for rehabilitation work completed in the processing plant. The decrease during the eleven months ended December 31, 2017 was primarily due to revisions to estimated
cash flows as a result of closure plans reflected in the Permit to Mine application.
On November 1, 2018, the Company received the Permit to Mine for NorthMet
and certain other permits
from the Minnesota Department of Natural Resources (“MDNR”) which
included a schedule for financial assurance obligations
, including
required
cash
contributions to a trust fund. The Company has satisfied its current financial assurance
obligations
primarily
by establishing and contributing $10 million in restricted cash deposits to a trust fund and providing $65 million in surety bonds and letters of credit, with the MDNR as the beneficiary
in each case.
Financial assurance obligations
must be
reviewed annually based on
the
Company’s planned reclamation activities, with
the
total assurance
and
related financial instruments adjusted accordingly if the underlying estimated reclamation costs are revised. The Company
may
terminate these financial instruments
, partially or in full,
only upon meeting site reclamation requirements and securing approval from
the MDNR
.
Future required
cash
contributions to the trust fund are $2.0 million per year beginning in
the first year of mining operations
and continue
until the eighth year after which annual contributions will be prorated based on the expected reclamation obligation at the end of mining
. In addition, the Company provided Cliffs with a $13.4 million letter of credit to satisfy
requirements under the asset acquisition agreements and related obligations.
PolyMet Mining Corp.
Notes to Consolidated Financial Statements
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts
Since October 2008, the Company and Glencore have entered into a series of financing agreements comprising:
●
|
Equity – five separate agreements comprising $25.0 million placement of PolyMet common shares in calendar 2009 in two tranches; a $30.0 million placement of PolyMet common shares in calendar
2010 in three tranches; a $20.0 million placement of PolyMet common shares in calendar 2011 in one tranche; a $20.960 million purchase of PolyMet common shares in the 2013 Rights Offering; and a $10.583 million purchase of PolyMet common
shares in the 2016 Private Placement;
|
●
|
Convertible debt (“Glencore Convertible Debt”) – agreement comprising $25.0 million initial principal secured convertible debentures drawn in
four tranches (see Notes 8 and 16); and
|
●
|
Non-convertible debt (“Glencore Non-Convertible Debt”) – five separate agreements
comprising $30.0 million initial principal secured debentures in calendar 2015 drawn in four tranches; an $11.0 million initial principal secured debenture in calendar 2016 drawn in one tranche; $14.0 million initial principal secured
debentures in calendar 2016 drawn in four tranches; $20.0 million initial principal secured debentures in calendar 2017 drawn in two tranches; and $80.0 million initial principal secured debenture in calendar 2018 drawn in four tranches
with the fifth tranche in the amount of $15.0 million cancelled subsequent to year end (see Notes 9 and 16).
|
As a result of these financing transactions and the purchase by Glencore of PolyMet common shares previously owned by Cliffs, Glencore's
ownership and ownership rights of PolyMet as at December 31, 2018 comprises:
●
|
92,836,072 shares representing 28.9% of PolyMet's issued shares (December 31, 2017 - 92,836,072 shares);
|
●
|
Glencore Convertible Debt exchangeable through the exercise of an exchange warrant (“Exchange Warrant”) at $1.2696 per share into 44,303,743 common
shares of PolyMet (including capitalized and accrued interest as at December 31, 2018), and where the exercise price and the number of shares issuable are subject to conventional anti-dilution provisions (see Notes 8 and 16);
|
●
|
Warrants to purchase 6,458,001 common shares at $0.8231 per share at any time until March 31, 2019, subject to mandatory exercise if the 20-day
volume weighted average price (“VWAP”) of PolyMet common shares is equal to or greater than 150% of the exercise price and PolyMet has received permits and construction finance is available (“Exercise Triggering Event”), and where the
exercise price and the number of warrants are subject to conventional anti-dilution provisions. See 2018 Agreement below for additional details;
|
PolyMet Mining Corp.
Notes to Consolidated Financial Statements
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts
7. Glencore Financing
–
Continued
●
|
Warrants to purchase 7,055,626 common shares at $1.00 per share at any time
until October 28, 2021, subject to acceleration at the Company’s option provided all permits necessary to construct NorthMet have been received (“Acceleration Triggering Event”), and where the exercise price and the number of warrants are
subject to conventional anti-dilution provisions; and
|
●
|
Warrants to purchase 625,000 common shares at $0.7797 per share at any time until October 28, 2021, and where the exercise price and the number of
warrants are subject to conventional anti-dilution provisions.
|
If Glencore were to exercise all of its rights and obligations under these agreements, it would own 151,278,442 common
shares of PolyMet, representing 39.8% on a partially diluted basis, that is, if no other options or warrants were exercised or 36.1% on a fully diluted basis, if all other options and warrants were exercised as at December 31, 2018.
2017 Agreements
In September 2017, the Company agreed to issue to Glencore secured debentures with a total principal amount of $20.0
million. The debentures bear interest at twelve month US dollar LIBOR plus 15.0% and are due on the earlier of (i) March 31, 2018 or (ii) the availability of at least $100 million of debt or equity financing or (iii) when it is prudent for PolyMet
to repay the debt, on which date all principal and interest accrued to such date will be due and payable. The Tranche N Debenture in the amount of $15.0 million was issued on September 18, 2017. The Tranche O Debenture in the amount of $5.0 million
was issued on January 18, 2018. Transaction costs for the financing were $0.083 million. The maturity date of these debentures was extended to March 31, 2019 as noted below.
2018 Agreement
On March 23, 2018, the Company amended its financing arrangement with Glencore. The maturity date of the Convertible Debt and the
Non-Convertible Debt was extended to the earlier of (i) March 31, 2019 or (ii) the availability of at least $100 million of debt or equity financing or (iii) when the Company elects to repay the debt early and demonstrates that such repayment is
prudent. The interest rate was reduced from twelve month US dollar LIBOR plus 15.0% to twelve month US dollar LIBOR plus 10.0% effective April 1, 2018. The convertibility of the Convertible Debt was extended to March 31, 2019 and 6,458,001
purchase warrants were reissued with an expiration date of March 31, 2019 and an exercise price of $0.8231 per share, both of which were approved by the NYSE American and TSX. All other terms of both the debentures and the warrants described above
remain unchanged.
In addition, the Company agreed to issue to Glencore secured debentures with a total principal amount of up to $80 million at the
Company’s option. The debentures bear interest at twelve month US dollar LIBOR plus 10.0% and if issued, are due on the earlier of (i) March 31, 2019 or (ii) the availability of at least $100 million of debt or equity financing or (iii) when the
Company elects to repay the debt early and demonstrates that such repayment is prudent, on which date all principal and interest accrued to such date will be due and payable. The Tranche P Debenture in the amount of $20.0 million was issued on May
7, 2018. The Tranche Q Debenture in the amount of $15.0 million and Tranche T Debenture in the amount of $10 million were issued on October 25, 2018. The Tranche S Debenture in the amount of $20.0 million was issued on December 18, 2018. Under the
extension agreement and repayment plan agreed to subsequent to December 31, 2018, the commitment to issue Tranche R in the amount of $15.0 million was cancelled.
See
additional discussion in Note 16.
The transaction has been accounted for as a modification of the existing debentures with a $4.109 million modification loss
recognized during the twelve month period ending December 31, 2018, consisting of the following:
●
|
$3.142 million to increase the convertible debt carrying value to the revised cash flows discounted using the original effective
interest rate of 6.7%;
|
●
|
$1.452 million to reduce the non-convertible debt carrying value to the revised cash flows discounted using the original effective
interest rate of 14.9%;
|
●
|
$2.331 million to recognize fair value of the purchase warrants issued; and
|
●
|
$0.088 million to recognize transaction costs which were allocated on a pro rata basis to the Glencore Non-Convertible Debt and
Glencore Convertible Debt.
|
PolyMet Mining Corp.
Notes to Consolidated Financial Statements
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts
Details of the Convertible Debt are as follows:
|
|
Twelve months ended
December 31, 2018
|
|
|
Eleven months ended
December 31, 2017
|
|
Convertible Debt – beginning of period
|
|
$
|
49,067
|
|
|
$
|
42,154
|
|
Transition to IFRS 9
(Note 2)
|
|
|
1,346
|
|
|
|
-
|
|
Convertible Debt – adjusted beginning of period
|
|
|
50,413
|
|
|
|
42,154
|
|
Change due to modification
(Note 7)
|
|
|
3,142
|
|
|
|
-
|
|
Accretion and capitalized interest
|
|
|
3,429
|
|
|
|
6,913
|
|
Convertible Debt – end of period
|
|
|
56,984
|
|
|
|
49,067
|
|
Less current portion
|
|
|
(56,984
|
)
|
|
|
(49,067
|
)
|
Non-current portion
|
|
$
|
-
|
|
|
$
|
-
|
|
Since October 2008, the Company has issued $25.0 million of secured convertible debentures to Glencore. The Company has
provided security on these debentures covering all of the assets of PolyMet.
These debentures bear interest at twelve month U.S. dollar LIBOR plus 4.0% through July 31, 2015, twelve month U.S.
dollar LIBOR plus 8.0% through December 31, 2015, twelve month U.S. dollar LIBOR plus 15.0% beginning January 1, 2016, and twelve month U.S. dollar LIBOR plus 10.0% beginning April 1, 2018. Interest is compounded quarterly and payable in cash or by
increasing the principal amount of the debentures, at Glencore’s option. Since inception, $31.248 million of interest has been capitalized to the principal amount of the debenture. All borrowing costs were eligible for capitalization and 100% of
these costs were capitalized during the twelve months ended December 31, 2018.
The due date of these debentures was the earlier of (i) March 31, 2019 or (ii) the availability of at least $100 million
of debt or equity financing or (iii) when the Company elects to repay the debt early and demonstrates that such repayment is prudent, on which date all principal and interest accrued to such date will be due and payable. Upon receipt of ten days
notice of PolyMet’s intention to repay the debentures, Glencore can exercise the Exchange Warrant and exchange the initial principal and capitalized interest into common shares of PolyMet at $1.2696 per share. Glencore has the right to exchange some
or all of the debentures at any time under the same conversion terms. The Company has the right to require exchange of all of the debentures upon receipt of permits required to commence construction of NorthMet and construction finance acceptable to
Glencore under the same conversion terms.
Subsequent to December 31, 2018, PolyMet and Glencore agreed to extend the maturity date of the secured convertible debt
to provide the Company time to prepare for and complete a rights offering by June 30, 2019, fully backstopped by Glencore, to raise sufficient funds to repay the secured convertible debt.
See additional discussion in Note 16.
PolyMet Mining Corp.
Notes to Consolidated Financial Statements
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts
Details of the Non-Convertible Debt are as follows:
|
|
Twelve months ended
December 31, 2018
|
|
|
Eleven months ended
December 31, 2017
|
|
Non-Convertible Debt – beginning of period
|
|
$
|
92,268
|
|
|
$
|
65,752
|
|
Transition to IFRS 9
(Note 2)
|
|
|
813
|
|
|
|
-
|
|
Non-Convertible Debt – adjusted beginning of period
|
|
|
93,081
|
|
|
|
65,752
|
|
Change due to modification
(Note 7)
|
|
|
(1,452
|
)
|
|
|
-
|
|
Accretion and capitalized interest
|
|
|
17,131
|
|
|
|
11,599
|
|
Funding, net of costs
|
|
|
69,723
|
|
|
|
14,917
|
|
Total Non-Convertible Debt
|
|
|
178,483
|
|
|
|
92,268
|
|
Less current portion
|
|
|
(178,483
|
)
|
|
|
(92,268
|
)
|
Non-current portion
|
|
$
|
-
|
|
|
$
|
-
|
|
Since January 2015, the Company has issued $140.0 million of secured non-convertible debentures to Glencore,
including $70.0 million during the twelve months ended December 31, 2018. The Company has provided security on these debentures covering all of the assets of PolyMet.
These debentures bear interest at twelve month U.S. dollar LIBOR plus 8.0% through December 31, 2015, twelve month
U.S. dollar LIBOR plus 15.0% beginning January 1, 2016, and twelve month U.S. dollar LIBOR plus 10.0% beginning April 1, 2018. Interest is compounded quarterly and payable in cash or by increasing the principal amount of the debentures, at
Glencore’s option. Since inception, $38.882 million of interest has been capitalized to the principal amount of the debenture. All borrowing costs were eligible for capitalization and 100% of these costs were capitalized during the twelve months
ended December 31, 2018.
The due date of these debentures was the earlier of (i) March 31, 2019 or (ii) the availability of at least $100
million of debt or equity financing or (iii) when the Company elects to repay the debt early and demonstrates that such repayment is prudent, on which date all principal and interest accrued to such date will be due and payable.
Subsequent to December 31, 2018, PolyMet and Glencore agreed to extend the maturity date of the secured
non-convertible debt to provide the Company time to prepare for and complete a rights offering by June 30, 2019, fully backstopped by Glencore, to raise sufficient funds to repay the secured non-convertible debt.
See additional discussion in Note 16.
PolyMet Mining Corp.
Notes to Consolidated Financial Statements
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts
10.
Share Capital
a)
|
Issuances for Cash and Land Acquisition
|
During the twelve months ended December 31, 2018 the Company issued 815,500 shares (December 31, 2017 – nil) pursuant to
the exercise of share options and warrants for proceeds of $0.742 million (December 31, 2017 - $nil).
During the twelve months ended December 31, 2018 the Company issued 128,750 shares (December 31, 2017 – 396,616 shares)
to maintain land purchase options with the shares valued at $0.123 million (December 31, 2017 - $0.256 million).
|
b)
|
Share-Based Compensation
|
The Omnibus Share Compensation Plan (“Omnibus Plan”) was created to align the interests of the Company’s
employees, directors, officers and consultants with those of shareholders. Effective May 25, 2007, the Company adopted the Omnibus Plan, which was approved by the Company’s shareholders on June 27, 2007, modified and further ratified and reconfirmed
by the Company’s shareholders most recently on June 27, 2018. The Omnibus Plan restricts the award of share options, restricted shares, restricted share units, and other share-based awards to 10% of the common shares issued and outstanding on the
grant date, excluding 2,500,000 common shares underlying options pursuant to an exemption approved by the Toronto Stock Exchange.
During the twelve months ended December 31, 2018, the Company recorded $2.202 million for
share-based compensation (December 31, 2017 - $1.550 million) with $1.742 million expensed to share-based compensation (December 31, 2017 - $1.318 million) and $0.460 million capitalized to mineral property, plant and equipment (December 31, 2017 -
$0.232 million). The offsetting entries were to equity reserves for $1.787 million (December 31, 2017 - $1.111 million), share capital for $0.105 million (December 31, 2017 - $nil) and payables for $0.310 million (December 31, 2017 - $0.439). Total
share-based compensation for the twelve months ended December 31, 2018 comprised $0.803 million for share options (December 31, 2017 - $0.368 million), $1.294 million for restricted shares and restricted share units (December 31, 2017 - $1.182
million), and $0.105 million for issuance of unrestricted shares (December 31, 2017 - $nil). Exercise of share options and warrants and vesting of restricted share units during the twelve months ended December 31, 2018 resulted in $0.783 million
being transferred from equity reserves to share capital (December 31, 2017 - $0.365 million).
Share options granted may not exceed a term of ten years and are forfeited if the grantee ceases to be an eligible person under the
Omnibus Plan. Details of the share options are as follows:
|
|
Twelve months ended
December 31, 2018
|
|
Eleven months ended
December 31, 2017
|
|
|
|
Number of
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Number of
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding – beginning of period
|
|
|
21,659,002
|
|
|
$
|
0.98
|
|
|
|
20,962,002
|
|
|
$
|
1.10
|
|
Granted
|
|
|
2,503,000
|
|
|
|
0.91
|
|
|
|
2,142,000
|
|
|
|
0.62
|
|
Exercised
|
|
|
(225,000
|
)
|
|
|
0.67
|
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
(1,245,000
|
)
|
|
|
2.06
|
|
|
|
(1,445,000
|
)
|
|
|
2.19
|
|
Outstanding – end of period
|
|
|
22,692,002
|
|
|
$
|
0.91
|
|
|
|
21,659,002
|
|
|
$
|
0.98
|
|
PolyMet Mining Corp.
Notes to Consolidated Financial Statements
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts
10. Share Capital
-
Continued
The weighted average share price when share options were exercised during the twelve months ended December 31, 2018
was $1.00.
The fair value of share options granted was estimated at the date of grant using the Black-Scholes pricing model with
the following weighted average assumptions:
|
|
Twelve months ended
December 31, 2018
|
|
|
Eleven months ended
December 31, 2017
|
|
Risk-free interest rate
|
|
2.33% to 2.58%
|
|
|
1.42% to 1.82%
|
|
Expected dividend yield
|
|
|
-
|
|
|
|
-
|
|
Expected forfeiture rate
|
|
|
-
|
|
|
|
-
|
|
Expected volatility
|
|
56.07% to 61.80%
|
|
|
53.91% to 57.06%
|
|
Expected life in years
|
|
2.50 to 5.00
|
|
|
2.50 to 5.00
|
|
Weighted average fair value of each option
|
|
$
|
0.34 to $0.61
|
|
|
$
|
0.22 to $0.32
|
|
The expected volatility reflects the Company’s expectation that historical volatility
over a period similar to the life of the option is indicative of future trends, which may or may not necessarily be the actual outcome.
Details of the share options outstanding as at December 31, 2018 are as follows:
Range of Exercise
Prices
|
|
Number of
options
outstanding
|
|
Number of
options
exercisable
|
|
Weighted Average
Exercise Price
|
|
Weighted Average
Remaining Life
|
0.61 to 0.80
|
|
|
11,529,000
|
|
|
|
10,095,667
|
|
|
$
|
0.73
|
|
|
|
3.16
|
|
0.80 to 1.00
|
|
|
6,092,000
|
|
|
|
5,343,000
|
|
|
|
0.93
|
|
|
|
4.91
|
|
1.00 to 1.50
|
|
|
3,846,002
|
|
|
|
3,846,002
|
|
|
|
1.11
|
|
|
|
2.77
|
|
1.50 to 2.00
|
|
|
1,050,000
|
|
|
|
1,050,000
|
|
|
|
1.80
|
|
|
|
2.41
|
|
2.00 to 3.07
|
|
|
175,000
|
|
|
|
115,000
|
|
|
|
2.57
|
|
|
|
1.12
|
|
|
|
|
22,692,002
|
|
|
|
20,449,669
|
|
|
$
|
0.91
|
|
|
|
3.51
|
|
As at December 31, 2018 all outstanding share options had vested and were exercisable, with the exception of 2,242,333, which were
scheduled to vest upon completion of specific targets (Permits – 883,333; Production – 699,000; Other – 60,000) or dates (June 2019 – 300,000; June 2020 – 300,000). The outstanding share options have expiry periods between 0.08 and 9.18 years and
are expected to be settled in shares upon exercise.
d)
Restricted Shares and Restricted Share Units
Restricted shares and restricted share units granted are forfeited if the grantee ceases to be an eligible person under the Omnibus Plan.
Details of the restricted shares and restricted share units are as follows:
|
|
|
|
|
|
Twelve months ended
December 31, 2018
|
|
|
Eleven months ended
December 31, 2017
|
|
Outstanding - beginning of period
|
|
|
3,281,030
|
|
|
|
2,618,020
|
|
Issued
|
|
|
1,227,004
|
|
|
|
1,077,869
|
|
Forfeited
|
|
|
-
|
|
|
|
(8,896
|
)
|
Vested
|
|
|
(1,160,127
|
)
|
|
|
(405,963
|
)
|
Outstanding - end of period
|
|
|
3,347,907
|
|
|
|
3,281,030
|
|
PolyMet Mining Corp.
Notes to Consolidated Financial Statements
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts
10. Share Capital
-
Continued
During the twelve months ended December 31, 2018, the Company issued 1,227,004 restricted share units, which had a fair value of $1.135
million to be expensed and capitalized over the vesting periods.
During the twelve months ended December 31, 2018, there were 316,714 restricted share units settled upon vesting with $0.377 million in
cash.
As at December 31, 2018, outstanding restricted shares and restricted share units were scheduled to vest upon completion of specific
targets (Permits – 134,891; Construction Finance – 750,000; Production – 410,701) or dates (1,529,093 between January 2019 and June 2020). The remaining 523,222 outstanding restricted shares and restricted share units have vested but share delivery
is deferred until retirement, termination, or death. The Company expects 721,961 outstanding restricted share units will be settled in cash and the remainder will be settled in shares as allowed under the Omnibus Plan.
The bonus share incentive plan was established for the Company’s directors and key employees and was approved by the disinterested
shareholders at the Company’s shareholders’ meeting held in May 2004. The Company has authorized 3,640,000 bonus shares for the achievement of Milestone 4 representing commencement of commercial production at NorthMet at a time when the Company has
not less than 50% ownership interest in NorthMet. At the Company’s Annual General Meeting of shareholders held in June 2008, the disinterested shareholders approved issuance of these shares upon achievement of Milestone 4. Regulatory approval is
also required prior to issuance of these shares. Details of the bonus shares are as follows:
|
|
Twelve months ended
December 31, 2018
|
|
|
Eleven months ended
December 31, 2017
|
|
|
|
Allocated
|
|
|
Authorized
& Unissued
|
|
|
Allocated
|
|
|
Authorized
& Unissued
|
|
Outstanding – beginning of period
|
|
|
3,150,000
|
|
|
|
3,640,000
|
|
|
|
3,150,000
|
|
|
|
3,640,000
|
|
Forfeited
|
|
|
(450,000
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Outstanding – end of period
|
|
|
2,700,000
|
|
|
|
3,640,000
|
|
|
|
3,150,000
|
|
|
|
3,640,000
|
|
The fair value of these unissued bonus shares was being amortized until the estimated date of issuance and was fully amortized during 2018. During the twelve months ended December 31, 2018, the
Company recorded $0.025 million for amortization related to Milestone 4 bonus shares (eleven months ended December 31, 2017 – $0.279 million) which was capitalized to Mineral Property, Plant and Equipment. During the twelve months ended December 31,
2018, the Company also reversed $1.544 million of previously capitalized fair value related to the forfeiture of 450,000 bonus shares by a former director of the Company.
PolyMet Mining Corp.
Notes to Consolidated Financial Statements
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts
10. Share Capital
-
Continued
f)
Share Purchase Warrants
Details of the share purchase warrants are as follows:
|
|
Twelve months ended
December 31, 2018
|
|
|
Eleven months ended
December 31, 2017
|
|
|
|
Number of
Purchase
Warrants
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Number of
Purchase
Warrants
|
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding – beginning of period
|
|
|
21,322,212
|
|
|
$
|
0.99
|
|
|
|
27,780,213
|
|
|
$
|
0.95
|
|
Issued
|
|
|
6,458,001
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
(590,500
|
)
|
|
|
1.00
|
|
|
|
-
|
|
|
|
-
|
|
Expiration
|
|
|
-
|
|
|
|
-
|
|
|
|
(6,458,001
|
)
|
|
|
(0.82
|
)
|
Outstanding – end of period
|
|
|
27,189,713
|
|
|
$
|
0.95
|
|
|
|
21,322,212
|
|
|
$
|
0.99
|
|
The outstanding share purchase warrants have expiry periods between 0.25 years and 2.83 years, subject to acceleration in certain
circumstances.
Expirations during the eleven months ended December 31, 2017 and issuances during the twelve months ended December 31,
2018 relate to Glencore financing (see Note 7).
The weighted average share price when warrants were exercised during the twelve months ended December 31, 2018 was $0.99.
The fair value of share purchase warrants granted were estimated at the date of grant using the Black-Scholes pricing
model with the following weighted average assumptions:
|
|
Twelve months ended
December 31, 2018
|
|
|
Eleven months ended
December 31, 2017
|
|
Risk-free interest rate
|
|
|
2.05
|
%
|
|
|
-
|
|
Expected dividend yield
|
|
|
-
|
|
|
|
-
|
|
Expected forfeiture rate
|
|
|
-
|
|
|
|
-
|
|
Expected volatility
|
|
|
54.54
|
%
|
|
|
-
|
|
Expected life in years
|
|
|
1.02
|
|
|
|
-
|
|
Weighted average fair value of each warrant
(1)
|
|
$
|
0.36
|
|
|
|
-
|
|
The expected volatility reflects the Company’s expectation that historical volatility over a period similar to the life
of the warrant is indicative of future trends, which may or may not necessarily be the actual outcome.
PolyMet Mining Corp.
Notes to Consolidated Financial Statements
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts
Details of net finance costs are as follows:
|
|
|
|
|
|
Twelve months ended
December 31, 2018
|
|
|
Eleven months ended
December 31, 2017
|
|
Debt accretion and capitalized interest:
Convertible debt
(Note 8)
|
|
$
|
3,429
|
|
|
$
|
6,913
|
|
Non-convertible debt
(Note
9)
|
|
|
17,131
|
|
|
|
11,599
|
|
Environmental rehabilitation accretion
(Note 6)
|
|
|
1,796
|
|
|
|
1,776
|
|
Other finance costs
|
|
|
858
|
|
|
|
562
|
|
Less: amounts capitalized on qualifying assets
|
|
|
(20,560
|
)
|
|
|
(18,512
|
)
|
Finance costs
|
|
|
2,654
|
|
|
|
2,338
|
|
Interest income:
Bank deposits
|
|
|
(273
|
)
|
|
|
(105
|
)
|
Finance income
|
|
|
(273
|
)
|
|
|
(105
|
)
|
Finance costs - net
|
|
$
|
2,381
|
|
|
$
|
2,233
|
|
12.
|
Related Party Transactions
|
The Company conducted transactions with senior management, directors and persons or companies related to these individuals, and paid or
accrued amounts, as follows:
|
|
|
|
|
|
Twelve months ended
December 31, 2018
|
|
|
Eleven months ended
December 31, 2017
|
|
Salaries and other short-term benefits
|
|
$
|
1,956
|
|
|
$
|
1,898
|
|
Other long-term benefits
|
|
|
44
|
|
|
|
42
|
|
Share-based payment
(1)
|
|
|
1,680
|
|
|
|
836
|
|
Total
|
|
$
|
3,680
|
|
|
$
|
2,776
|
|
(1)
|
Share-based payment represents the amount capitalized or expensed during the period (see Note 10).
|
There are agreements with key employees, including the President and Chief Executive Officer, containing severance provisions for
termination without cause or in the event of a change in control. No other PolyMet director has an agreement providing for benefits upon termination.
As a result of Glencore’s ownership of 28.9% it is also a related party. In addition to the transactions described in Notes 7, 8, 9 and
16, the Company has entered into a Technical Services Agreement with Glencore whereby the Company reimburses Glencore for NorthMet technical support costs requested under an agreed scope of work, primarily in detailed project design and mineral
processing. During the twelve months ended December 31, 2018, the Company recorded $0.070 million (eleven months ended December 31, 2017 - $nil) for services under this agreement.
PolyMet Mining Corp.
Notes to Consolidated Financial Statements
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts
a)
Effective
tax rate
The effective tax rate differs from the cumulative Canadian federal and provincial income tax rate due to the following:
|
|
Twelve months ended
December 31, 2018
|
|
|
Eleven months ended
December 31, 2017
|
|
Loss for the year before taxes
|
|
$
|
(15,043
|
)
|
|
$
|
(10,098
|
)
|
Canadian statutory tax rate
|
|
|
27.0
|
%
|
|
|
27.0
|
%
|
Expected tax recovery
|
|
|
(4,062
|
)
|
|
|
(2,726
|
)
|
Difference in foreign tax rates
|
|
|
(91
|
)
|
|
|
(84
|
)
|
Non-deductible items
|
|
|
1,538
|
|
|
|
356
|
|
Change in tax rate
|
|
|
-
|
|
|
|
5,025
|
|
Change in unrecognized deferred tax and other items
|
|
|
2,615
|
|
|
|
(2,571
|
)
|
Income Tax Expense / (Recovery)
|
|
$
|
-
|
|
|
$
|
-
|
|
In December 2017 tax reform was enacted in the United States. The significant changes include a reduction to corporate income tax rates
from 35% to 21% effective January 1, 2018, which resulted in a decrease in the Company’s deferred income tax asset by $5.025 million in the prior year period.
b)
|
Deferred income tax assets and liabilities
|
Deferred income tax assets and liabilities have been recognized in respect of the following items:
|
|
Twelve months
ended December
31, 2018
|
|
|
Eleven months
ended December
31, 2017
|
|
Non-capital loss carry forward assets
|
|
$
|
29,353
|
|
|
$
|
27,799
|
|
Mineral property acquisition, exploration and development costs
|
|
|
(29,353
|
)
|
|
|
(27,799
|
)
|
Net deferred income tax liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
Deferred income tax assets have not yet been recognized in respect of the following items:
|
|
Twelve months
ended December
31, 2018
|
|
|
Eleven months
ended December
31, 2017
|
|
Non-capital loss carry forward assets
|
|
$
|
25,437
|
|
|
$
|
22,786
|
|
Capital loss carry forward assets
|
|
|
360
|
|
|
|
360
|
|
Intercompany receivable assets
|
|
|
2,109
|
|
|
|
2,109
|
|
Other assets
|
|
|
1,125
|
|
|
|
1,159
|
|
Unrecognized deferred income tax assets
|
|
$
|
29,031
|
|
|
$
|
26,414
|
|
As of December 31, 2018, the Company has Canadian non-capital loss carry forwards of approximately $47.6 million
(December 31, 2017 - $42.8 million) and US non-capital loss carry forwards of approximately $146.7 million (December 31, 2017 - $136.4 million). The non-capital loss carry forwards are available to reduce future income for tax purposes and expire
between 2019 and 2038, except for US state non-capital loss carry forwards which expire between 2019 and 2033.
The Company is not recognizing these deferred tax assets because they relate to entities with a history of losses and
there is not convincing evidence that future taxable income will enable timely offset.
PolyMet Mining Corp.
Notes to Consolidated Financial Statements
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts
14.
|
Commitments and Contingencies
|
In addition to items described elsewhere in these financial statements, as at December 31, 2018, the Company had firm commitments related
to financial assurance obligations (see Note 6), compliance, land options, and rent of approximately $16.4 million with approximately $0.4 million due over the next year and the majority due a period of three to ten years.
The following table lists the known contractual obligations as at December 31, 2018:
Contractual Obligations
|
|
Carrying
Value
|
|
|
Contractual
Cash flows
|
|
|
Less than
1 year
|
|
|
1 – 3
years
|
|
|
3 – 5
years
|
|
|
More than
5 years
|
|
Accounts payable and accruals
|
|
$
|
4,013
|
|
|
$
|
4,013
|
|
|
$
|
4,013
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Convertible debt
(Note 8)
|
|
|
56,984
|
|
|
|
58,077
|
|
|
|
58,077
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Non-convertible debt
(Note 9)
|
|
|
178,483
|
|
|
|
184,698
|
|
|
|
184,698
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Firm commitments
|
|
|
-
|
|
|
|
16,413
|
|
|
|
388
|
|
|
|
25
|
|
|
|
4,000
|
|
|
|
12,000
|
|
Total
|
|
$
|
239,480
|
|
|
$
|
263,201
|
|
|
$
|
247,176
|
|
|
$
|
25
|
|
|
$
|
4,000
|
|
|
$
|
12,000
|
|
15.
|
Financial Instruments and Risk Management
|
The carrying values of each classification of financial instrument as at December 31, 2018 are:
|
|
Amortized
Cost
|
|
|
Fair value
through
profit or loss
|
|
|
Total carrying
value
|
|
Financial assets
|
|
|
|
|
|
|
|
|
|
Cash and Restricted Cash Deposits
|
|
$
|
24,143
|
|
|
$
|
-
|
|
|
$
|
24,143
|
|
Amounts receivable
|
|
|
680
|
|
|
|
1,912
|
|
|
|
2,592
|
|
Total financial assets
|
|
|
24,823
|
|
|
|
1,912
|
|
|
|
26,735
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accruals
|
|
|
3,642
|
|
|
|
371
|
|
|
|
4,013
|
|
Convertible debt
|
|
|
56,984
|
|
|
|
-
|
|
|
|
56,984
|
|
Non-convertible debt
|
|
|
178,483
|
|
|
|
-
|
|
|
|
178,483
|
|
Total financial liabilities
|
|
$
|
239,109
|
|
|
$
|
371
|
|
|
$
|
239,480
|
|
The carrying values of each classification of financial instrument as at December 31, 2017 are:
|
|
Loans and
receivables
|
|
|
Available for
sale
|
|
|
Other
financial
liabilities
|
|
|
Total carrying
value
|
|
Financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
6,931
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
6,931
|
|
Amounts receivable
|
|
|
82
|
|
|
|
2,883
|
|
|
|
-
|
|
|
|
2,965
|
|
Total financial assets
|
|
|
7,013
|
|
|
|
2,883
|
|
|
|
-
|
|
|
|
9,896
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accruals
|
|
|
-
|
|
|
|
-
|
|
|
|
3,630
|
|
|
|
3,630
|
|
Convertible debt
|
|
|
-
|
|
|
|
-
|
|
|
|
49,067
|
|
|
|
49,067
|
|
Non-convertible debt
|
|
|
-
|
|
|
|
-
|
|
|
|
92,268
|
|
|
|
92,268
|
|
Total financial liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
144,965
|
|
|
$
|
144,965
|
|
PolyMet Mining Corp.
Notes to Consolidated Financial Statements
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts
15. Financial Instruments and Risk Management
-
Continued
Fair Value Measurements
The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest
priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described
below:
|
Level 1 –
|
Quoted prices (unadjusted) in active markets for identical assets or liabilities.
|
|
Level 2 –
|
Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly.
|
|
Level 3 –
|
Inputs for the asset or liability that are not based on observable market data.
|
The only financial instruments measured at fair value subsequent to recognition is the EIP receivable (see Note 5) which is measured at fair value through profit or loss using Level 3 inputs resulting
in a carrying value of $1.912 million (December 31, 2017 - $2.883 million) and an amount classified within accounts payable and accruals representing expected payments to settle restricted share units measured at fair value through profit or loss
using Level 2 inputs resulting in a carrying value of $0.371 million (December 31, 2017 - $0.439 million).
The fair values of cash and restricted cash deposits, other current amounts receivable, and
accounts payable and accruals
approximate their carrying amounts due to their short-term nature. Convertible debt and non-convertible debt are classified as amortized cost and the carrying amount
approximates fair value. The Company believes this is appropriate as the maturity date is twelve months or less.
Risks Arising from Financial Instruments and Risk Management
The Company’s activities expose it to a variety of financial risks: market risk (including currency and interest rate), credit risk, and
liquidity risk. Reflecting the current stage of development of the Company’s NorthMet Project, the overall risk management program focuses on facilitating the Company’s ability to continue as a going concern and seeks to minimize potential adverse
effects on the Company’s ability to execute its business plan.
Risk management is the responsibility of executive management. Material risks are identified and monitored and are discussed with the
Audit Committee and the Board of Directors.
Currency Risk
The Company incurs expenditures in Canada and the United States. The functional and reporting currency of the Company and its subsidiary
is the U.S. dollar. Foreign exchange risk arises because the amount of Canadian dollar cash, amounts receivable, or accounts payable and accruals will vary in U.S. dollar terms due to changes in exchange rates.
As the majority of the Company’s expenditures are in U.S. dollars, the Company has kept a significant portion of its cash in U.S.
dollars. The Company has not hedged its exposure to currency fluctuations as the exposure to currency risk is currently insignificant.
PolyMet Mining Corp.
Notes to Consolidated Financial Statements
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts
15. Financial Instruments and Risk Management
-
Continued
Interest Rate Risk
Interest rate risk arises from interest paid on floating rate debt and interest received on cash and liquid short-term deposits. The
Company has not hedged any of its interest rate risk. The Company currently capitalizes to qualifying assets the majority of interest charges, and therefore the risk exposure is primarily on cash interest payable and net earnings in relation to the
subsequent depreciation of capitalized interest charges.
The Company was exposed to interest rate risk through the following assets and liabilities:
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
Cash and restricted cash deposits
|
|
$
|
24,143
|
|
|
$
|
6,931
|
|
Convertible debt
|
|
|
56,984
|
|
|
|
49,067
|
|
Non-convertible debt
|
|
$
|
178,483
|
|
|
$
|
92,268
|
|
Based on the above net exposures, as at December 31, 2018, a 1% change interest rates would have impacted the Company’s loss by
approximately $0.241 million and carrying value of convertible and non-convertible debt by approximately $2.355 million.
Credit Risk
Credit risk arises on cash and restricted cash deposits held with banks and financial institutions, as well as credit exposure on
outstanding amounts receivable. The maximum exposure to credit risk is equal to the carrying value of the financial assets of $26.735 million.
The Company’s cash and restricted cash deposits are primarily held through large Canadian and United States financial institutions.
Liquidity Risk
Liquidity risk is the risk the Company will not be able to meet its financial obligations as they become due and arises through the excess
of financial obligations over available financial assets due at any point in time. The Company’s objective in managing liquidity risk is to maintain sufficient readily available reserves in order to meet its liquidity requirements at any point in
time and is achieved by maintaining sufficient cash and managing convertible and non-convertible debt. See additional discussion in Note 1.
Capital Management
The Company’s capital management objective is to safeguard the Company’s ability to continue as a going concern in order to pursue the
development of its mineral property. In the management of capital, the Company includes the components of shareholders’ equity, convertible debt and non-convertible debt. The Company manages the capital structure and makes adjustments to it
depending on economic conditions and the rate of anticipated expenditures. To maintain or adjust the capital structure, the Company may attempt to issue new shares, issue new debt, acquire or dispose of assets. The Company has no externally imposed
capital requirements.
PolyMet Mining Corp.
Notes to Consolidated Financial Statements
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts
15. Financial Instruments and Risk Management
-
Continued
In order to assist in management of its capital requirements, the Company prepares budgets that are updated as necessary depending on various factors. The budgets are approved by the Company’s Board of Directors.
Although the Company expects to have the necessary resources to carry out its plans and operations through December 31, 2019, it does not
currently have sufficient capital to complete the development of NorthMet and generate future profitable operations and is in discussions to arrange sufficient capital to meet these requirements. During the upcoming fiscal year, the Company’s
objective is to identify the source or sources from which it will obtain the capital required to complete the Project. See additional discussion in Note 1.
On March 21, 2019, the United States Army Corps of Engineers issued its Record of Decision and Section 404 wetlands permit for the
NorthMet Project. Along with recently issued state permits, PolyMet now holds all necessary permits to construct and operate the NorthMet Project.
On March 22, 2019, the Company entered into an extension agreement with Glencore with respect to the secured convertible and non-convertible debt set
to mature on March 31, 2019.
Glencore agreed to extend the maturity date of the debt
initially to May 10, 2019
to provide the Company time to prepare for and
launch
a rights offering, fully backstopped by Glencore, to raise sufficient funds to repay all outstanding debt.
Provided the Company has achieved certain milestones in respect of the
rights offering by that date, Glencore will further extend the maturity date of the debt to June 30, 2019 to provide the Company with additional time to complete and close the
offering.
In connection
with the extension agreement, the Company has also agreed to issue 6,458,001 additional purchase warrants at current market prices to Glencore and to make certain amendments to the existing exchange warrants held by Glencore, both subject to
applicable stock exchange approval.
26
Exhibit 99.3
POLYMET MINING CORP.
MANAGEMENT DISCUSSION AND ANALYSIS
As at December 31, 2018 and 2017
And for the twelve months ended December 31, 2018
and eleven months ended December 31, 2017
PolyMet Mining Corp.
Management Discussion and Analysis
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts
General
The following information, prepared as at March 28, 2019
should be read in
conjunction with the audited consolidated financial statements of PolyMet Mining Corp. and its subsidiaries (together “PolyMet” or the “Company”) as at December 31, 2018 and December 31, 2017 and for the twelve months ended December 31, 2018 and
eleven months ended December 31, 2017 and related notes attached thereto, which are prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). All amounts
are expressed in United States (“U.S.”) dollars unless otherwise indicated.
Change of the Financial Year End
On December 7, 2017, the Company’s Board of Directors approved a change of the financial year end from January 31 to December 31. The
Company’s transition year consisted of an eleven-month period ended on December 31, 2017.
For additional information see the Notice filed on SEDAR.
Forward Looking Statements
This Management Discussion and Analysis (“MD&A”) contains statements that constitute "forward-looking statements" within the meaning of Section 21E of
the United States Securities Exchange Act of 1934, as amended (the “US Exchange Act”). These statements appear in a number of different places in this MD&A and can frequently, but not always, be identified by words such as “expects”,
“anticipates”, “believes”, “intends”, “estimates”, “potential”, “possible”, “projects”, “plans” and similar expressions, or statements that events, conditions or results “will”, “may”, “could” or “should” occur or be achieved or their negatives or
other comparable words. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause PolyMet’s actual results, performance or achievements to be materially different from any future results,
performance or achievements that may be expressed or implied by such forward-looking statements. Forward-looking statements include statements regarding the outlook for the Company’s future operations, plans and timing for PolyMet’s exploration
and development programs, statements about future market conditions, supply and demand conditions, forecasts of future costs and expenditures, the outcome of legal proceedings, and other expectations, intentions and plans that are not historical
fact. The Company’s actual results may differ materially from those in the forward-looking statements due to risks facing PolyMet or due to actual facts differing from the assumptions underlying the Company’s predictions.
The forward-looking statements contained in this MD&A are based on assumptions, which include, but are not limited to:
●
|
Obtaining and maintaining permits;
|
●
|
Raising the funds necessary to develop the NorthMet Project and continue operations;
|
●
|
Execution of prospective business plans; and
|
●
|
Complying with applicable government regulations and standards.
|
Such forward-looking statements are subject to risks, uncertainties and other factors, including those listed or incorporated by reference under “Risk
Factors” in the Annual Information Form. These risks, uncertainties and other factors include, but are not limited to:
●
|
Changes in general economic and business conditions, including changes in interest rates and exchange rates;
|
●
|
Changes in the resource market including prices of natural resources, costs associated with mineral exploration and development, and other
economic conditions;
|
●
|
Actions by governments and authorities including changes in government regulation;
|
●
|
Uncertainties associated with legal proceedings; and
|
●
|
Other factors, many of which are beyond the Company’s control.
|
All forward-looking statements included in this MD&A are based on information available to the Company on the date of this MD&A. The Company
expressly disclaims any obligation to update publicly, or otherwise, these statements, whether as a result of new information, future events or otherwise except to the extent required by law, rule or regulation. Readers should not place undue
reliance on forward-looking statements. Readers should carefully review the cautionary statements and risk factors contained in this and all other documents that the Company files from time to time with regulatory authorities.
PolyMet Mining Corp.
Management Discussion and Analysis
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts
Cautionary note to U.S. investors: The terms “measured and indicated mineral resource”, “mineral resource”, and “inferred mineral resource” used in this
MD&A are Canadian geological and mining terms as defined in accordance with National Instrument 43-101, Standards of Disclosure for Mineral Projects (“NI 43-101”) under the guidelines set out in the Canadian Institute of Mining, Metallurgy and
Petroleum (the “CIM”) Standards on Mineral Resources and Mineral Reserves. U.S. investors are advised that while such terms are recognized and required under Canadian regulations, the SEC does not recognize these terms. Mineral Resources do not
have demonstrated economic viability. It cannot be assumed that all or any part of a Mineral Resource will be upgraded to Mineral Reserves. Under Canadian rules, estimates of inferred mineral resources may not form the basis of or be included in
feasibility or other studies. U.S. investors are cautioned not to assume that any part of an inferred mineral resource exists, or is economically or legally mineable.
Summary of Business
PolyMet is a TSX and NYSE American listed Issuer engaged in the exploration and development of natural resource properties. The Company’s primary mineral
property and principal focus is the commercial development of its NorthMet Project (“NorthMet” or “Project”), a polymetallic project in northeastern Minnesota, United States of America, which hosts copper, nickel, cobalt, gold, silver and platinum
group metal mineralization.
The NorthMet ore body is at the western end of a series of known copper-nickel-precious metals deposits in the Duluth Complex. An updated technical report
and feasibility study published in March 2018 confirmed the technical and economic viability, positioning NorthMet as the most advanced of the four main deposits in the Duluth Complex: namely, from west to east, NorthMet, Mesaba, Serpentine and
Maturi.
The Erie Plant is located about six miles west of the NorthMet ore body and comprises a 100,000 ton-per-day crushing and milling facility, a railroad and
railroad access rights connecting the Erie Plant to the NorthMet ore body, tailings storage facilities, 120 railcars, locomotive fueling and maintenance facilities, water rights and pipelines, administrative offices and lands to the east and west
of the existing tailings storage facilities.
Upon completion of the land exchange on June 28, 2018, PolyMet now controls surface rights to approximately 19,050 acres or 30 square miles of contiguous
surface rights stretching from west of the Erie Plant to east of the proposed East Pit at NorthMet.
PolyMet received its Permit to Mine from the State of Minnesota on November 1, 2018, a crucial permit for construction and operation of the NorthMet
Project. The Minnesota Department of Natural Resources (“MDNR”) also issued all other permits for which the Company had applied including dam safety, water appropriations, takings, and public waters work permits, along with Wetlands Conservation
Act approval.
In addition, PolyMet received air and water permits from the Minnesota Pollution Control Agency (“MPCA”) on December 18, 2018. Further, PolyMet received
the federal Record of Decision and wetlands permit from the U.S. Army Corps of Engineers (“USACE”) on March 21, 2019, which is the last key permit or approval needed to construct and operate the NorthMet Project.
See additional discussion below.
PolyMet Mining Corp.
Management Discussion and Analysis
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts
Summary of Recent Events and Outlook
Highlights and recent events
PolyMet made significant progress during 2018 and 2019 to date. Notably the Company received all key permits and approvals required to construct and
operate NorthMet and secured title to the surface rights over and around the NorthMet mineral rights. PolyMet also released an updated technical report which included an assessment of higher potential production scenarios, and secured additional
financing to complete permitting, including required wetland credits and financial assurance, and advance final engineering and other activities to facilitate the transition to construction.
More specifically:
●
|
In March 2019, the Company received the federal Record of Decision and wetlands permit from the U.S. Army Corps of Engineers (“USACE”), which is
the last key permit or approval needed to construct and operate the NorthMet Project;
|
●
|
In March 2019, the Company and Glencore
AG, a wholly owned
subsidiary of Glencore plc (together “Glencore”)
agreed to extend the term of outstanding debentures to provide the Company time to prepare for and complete a rights offering by June 30, 2019, fully backstopped by Glencore, to
raise sufficient funds to repay all outstanding debt (see “Financing Activities” section below);
|
●
|
In December 2018, the Company received all MPCA permits for NorthMet for which the Company had applied, including air and water permits;
|
●
|
In November 2018, the Company received all MDNR permits for NorthMet for which the Company had applied, including the Permit to Mine, dam safety,
water appropriations and public waters work permits along with Wetland Conservation Act approval;
|
●
|
In June 2018, the Company and U.S. Forest Service (“USFS”) completed the federal land exchange giving PolyMet title and control over both surface
and mineral rights in and around the NorthMet ore body;
|
●
|
In March 2018, the Company issued an Updated Technical Report under NI 43-101 incorporating process improvements, project improvements and
environmental controls described in the Final Environmental Impact Statement and draft permits. The update also included detailed capital costs, operating costs, and economic valuations for the mine plan being permitted, as well as
discussion of potential future opportunities; and
|
●
|
In March 2018, the Company and Glencore agreed to extend the term of outstanding debentures until March 31, 2019 or certain events (see
“Financing Activities” section below), reduce the interest rate on the outstanding debentures, and make available up to $80 million in additional funding. Proceeds are being used to complete permitting, purchase wetland credits,
advance detailed engineering and perform certain early works to prepare the site for construction.
|
Net cash used in operating and investing activities during the twelve months ended December 31, 2018 was $63.155 million. Primary activities during the
period were related to permitting the NorthMet Project, including purchase of wetland credits, funding a cash trust, and reimbursement to the state of Minnesota for its internal staff and contractor costs. Other spending related to engineering and
studies, early works to prepare the site for construction, maintaining existing infrastructure, financing, and general corporate purposes.
PolyMet Mining Corp.
Management Discussion and Analysis
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts
Goals and Objectives for the Next Twelve Months
PolyMet’s objectives include:
●
|
Maintain political, social and regulatory support for the project;
|
●
|
Finalize
Project optimization plan;
|
●
|
Finalize
of Project implementation plan
;
|
●
|
Strengthen balance sheet through restructuring or repaying outstanding debt;
and
|
●
|
Execution
of construction finance, subject to typical conditions
precedent.
|
The Company is in discussions with commercial banks and other sources of debt and equity finance sufficient to fund construction of the Project.
Construction and ramp-up to commercial production is anticipated to take approximately twenty-four to thirty months from receipt of construction funding.
See additional discussion in the “Liquidity and Capital Resources” section below.
Detailed Description of Business
Asset Acquisitions
In November 2005, the Company acquired the Erie Plant, which is located approximately six miles west of the NorthMet deposit and includes crushing and
milling equipment, comprehensive spare parts, plant site buildings, real estate, tailings storage facilities and mine workshops, as well as access to extensive mining infrastructure including roads, rail, water and power. The plant was managed by
Cliffs Erie LLC, a subsidiary of Cleveland-Cliffs Inc. (together “Cliffs”) for many years and was acquired by Cliffs from LTV Steel Mining Company (“LTV”) after LTV’s bankruptcy, at which time the plant was shut down with a view to a potential
restart.
Plans are to refurbish, reactivate and, as appropriate, update the crushing, concentrating and tailings storage facilities at the Erie Plant to produce
concentrates containing copper, nickel, cobalt and precious metals – platinum, palladium, gold and silver. Once commercial operations are established, the Company may install an autoclave to upgrade nickel concentrates to produce a nickel-cobalt
hydroxide and a precious metals precipitate.
In December 2006, the Company acquired from Cliffs additional property and associated rights sufficient to provide a railroad connection linking the
NorthMet deposit and the Erie Plant. The transaction also included 120 railcars, locomotive fueling and maintenance facilities, water rights and pipelines, administrative offices and land to the east and west of the existing tailings storage
facilities.
PolyMet indemnified Cliffs for reclamation and remediation associated with the property under both transactions. In April 2010, Cliffs entered into a
consent decree with the MPCA regarding short-term and long-term environmental mitigation. Field studies were completed in 2010 and 2011 and short-term mitigations approved by the MPCA were initiated in 2011. In April 2012, long-term mitigation
plans were submitted to the MPCA and in October 2012, the MPCA approved plans for pilot tests of various treatment options to determine the best course of action. Although there is substantial uncertainty related to applicable water quality
standards and engineering scope, the October 2012 response from the MPCA, subsequent communications amongst the MPCA, Cliffs and the Company, and closure plans reflected in the Permit to Mine support the long-term mitigation plans included in the
Company’s environmental rehabilitation provision.
In June 2018, the Company acquired surface rights over the NorthMet deposit through a land exchange with the USFS using land the Company previously owned.
With the exchange, PolyMet has total surface rights, including ownership and other use and occupancy rights, to approximately 19,050 contiguous acres or 30 square miles of land including the land at the mine and processing sites, the transportation
corridor connecting those sites, and buffer lands.
PolyMet Mining Corp.
Management Discussion and Analysis
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts
Mineral rights in and around the NorthMet orebody are held through two mineral leases with RGGS Land & Minerals Ltd., L.P. (“RGGS”) and LMC Minerals
("LMC"). The RGGS lease covers 5,123 acres. Provided the Company continues to make annual lease payments, the lease period continues until June 12, 2048 with an option to extend the lease for up to five additional ten-year periods on the same
terms
and further extend as long as there are commercial mining operations. The LMC lease covers 120 acres that are encircled by the RGGS property. Provided the Company
continues to make annual lease payments, the lease period continues until December 1, 2028 with an option to extend the lease for up to four additional five-year periods on the same terms. Lease payments to both lessors are considered advance
royalty payments and will be deducted from future production royalties payable to the lessor, which range from 3% to 5% based on the net smelter return per ton received by the Company.
Feasibility Study, Mineral Resources and Mineral Reserves
PolyMet published an updated Technical Report under NI 43-101 dated March 26, 2018 incorporating process improvements, Project improvements and
environmental controls described in the Final EIS and draft permits. The update also includes detailed capital costs, operating costs and economic valuations for the mine plan being permitted. Preliminary economic assessments for higher
production scenarios were also presented. Proven and probable mineral reserves are estimated to be 254.7 million short tons grading 0.294% copper, 0.084% nickel, 80 ppb platinum, 268 ppb palladium, 39 ppb gold, 74.42 ppm cobalt, and 1.06 ppm
silver. These mineral reserves lie within measured and indicated mineral resources of an estimated 649.3 million short tons grading 0.245% copper, 0.074% nickel, 65 ppb platinum, 221 ppb palladium, 33 ppb gold, 71 ppm cobalt, and 0.91 ppm silver.
The mineral reserve estimates are based on metal prices of $2.93 per pound copper, $6.50 per pound nickel, $13.28 per pound cobalt, $734 per ounce palladium, $1,286 per ounce platinum, $1,263 per ounce gold and $19.06 per ounce silver. The
mineral resource estimates are based on metal prices of $3.30 per pound copper, $8.50 per pound nickel, $13.28 per pound cobalt, $734 per ounce palladium, $1,286 per ounce platinum, $1,263 per ounce gold and $19.06 per ounce silver. Metal recovery
factors are applied to each metal based on recovery curves developed. The net smelter return cutoff was set at $7.98 per ton for mineral reserves and $7.35 per ton for mineral resources and include processing, general and administrative, and water
treatment costs. See additional details in the Company’s most recent Annual Information Form or the Company’s NorthMet Project Form NI 43-101F1 Technical Report dated March 26, 2018, both filed on SEDAR and EDGAR.
Environmental Review and Permitting
In November 2015, the MDNR, USACE, and USFS published the Final EIS and in March 2016, the MDNR issued its decision that the Final EIS met the requirements
under the Minnesota Environmental Policy Act.
In November 2018, the Company received all final MDNR permits for which the Company had applied, including the Permit to Mine, dam safety, water
appropriations, endangered and threatened species takings, and public waters work permits, along with Wetland Conservation Act approval.
In December 2018, the Company received all final MPCA permits for which the Company had applied, including the water quality permit, air emission quality
permit, and Section 401 Certification.
Legal challenges were filed in the Minnesota Court of Appeals during 2018 and through March 28, 2019 contesting various aspects of the MDNR and MPCA
decisions. PolyMet is a co-respondent in all suits.
In March 2019, the Company received the federal Record of Decision and wetlands permit from the USACE, which is the last key permit or approval needed to
construct and operate the NorthMet Project
.
USFS Land Exchange
In January 2017, the USFS issued its Final ROD authorizing the land exchange which stated the land exchange eliminates a fundamental conflict between the
rights that PolyMet has as a result of control of the mineral rights and the USFS position on those rights which otherwise could result in litigation that has no certain outcome and could set a judicial precedent regarding other lands acquired in
the same deed under the Weeks Act.
PolyMet Mining Corp.
Management Discussion and Analysis
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts
Four legal challenges, which have since been consolidated into one proceeding, were filed during 2017 contesting various aspects of the land exchange Final
ROD. PolyMet is a co-defendant with the USFS in this proceeding. Motions were filed by PolyMet to dismiss each of these suits for lack of standing. In August 2017, the U.S. District Court for the District of Minnesota denied WaterLegacy’s motion
for a preliminary injunction to stop the land exchange from proceeding while the WaterLegacy suit was pending.
In June 2018, the Company and USFS exchanged titles to federal and private lands, completing the land exchange giving the Company control over both surface
and mineral rights in and around the NorthMet ore body and consolidating the Superior National Forest’s land holdings in northeast Minnesota.
Financing Activities
Since October 2008, the Company and Glencore have entered into a series of financing agreements comprising:
●
|
Equity – five separate agreements comprising $25.0 million placement of PolyMet common shares in calendar 2009 in two tranches; a $30.0 million
placement of PolyMet common shares in calendar 2010 in three tranches; a $20.0 million placement of PolyMet common shares in calendar 2011 in one tranche; a $20.960 million purchase of PolyMet common shares in the 2013 Rights Offering;
and a $10.583 million purchase of PolyMet common shares in the 2016 Private Placement;
|
●
|
Convertible debt (“Glencore Convertible Debt”) – agreement comprising $25.0 million initial principal secured convertible debentures drawn in
four tranches; and
|
●
|
Non-convertible debt (“Glencore Non-Convertible Debt”) – five separate agreements comprising $30.0 million initial principal secured debentures
in calendar 2015 drawn in four tranches; an $11.0 million initial principal secured debenture in calendar 2016 drawn in one tranche; $14.0 million initial principal secured debentures in calendar 2016 drawn in four tranches; $20.0 million
initial principal secured debentures in calendar 2017 drawn two tranches; and $80.0 million initial principal secured debenture in calendar 2018 drawn in four tranches with the fifth tranche in the amount of $15.0 million cancelled
subsequent to year end.
See additional details below.
|
As a result of these financing transactions and the purchase by Glencore of PolyMet common shares previously owned by
Cliffs, Glencore's ownership and ownership rights of PolyMet as at December 31, 2018 comprises:
●
|
92,836,072 shares representing 28.9% of PolyMet's issued shares (December 31, 2017 – 92,836,072);
|
●
|
Glencore Convertible Debt exchangeable through the exercise of an exchange warrant (“Exchange Warrant”) at $1.2696 per share into
44,303,743 common shares of PolyMet (including capitalized and accrued interest as at December 31, 2018) and where the exercise price and the number of shares issuable are subject to conventional anti-dilution provisions;
|
●
|
Warrants to purchase 6,458,001 common shares at $0.8231 per share at any time until March 31, 2019, subject to mandatory exercise if the 20-day
volume weighted average price (“VWAP”) of PolyMet common shares is equal to or greater than 150% of the exercise price and PolyMet has received permits and construction finance is available (“Exercise Triggering Event”), and where the
exercise price and the number of warrants are subject to conventional anti-dilution provisions;
|
●
|
Warrants to purchase 7,055,626 common shares at $1.00 per share at any time until October 28, 2021, subject to acceleration at the Company’s
option provided all permits necessary to construct NorthMet have been received (“Acceleration Triggering Event”), and where the exercise price and the number of warrants are subject to conventional anti-dilution provisions; and
|
●
|
Warrants to purchase 625,000 common shares at $0.7797 per share at any time until October 28, 2021, and where the exercise price and the number
of warrants are subject to conventional anti-dilution provisions.
|
PolyMet Mining Corp.
Management Discussion and Analysis
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts
If Glencore were to exercise all of its rights and obligations under these agreements, it would own 151,278,442 common shares of PolyMet,
representing 39.8% on a partially diluted basis, that is, if no other options or warrants were exercised or 36.1% on a fully diluted basis, if all other options and warrants were exercised as at December 31, 2018.
On March 23, 2018, the Company amended its financing arrangement with Glencore. The maturity date of the Convertible Debt and the Non-Convertible Debt was
extended to the earlier of (i) March 31, 2019 or (ii) the availability of at least $100 million of debt or equity financing or (iii) when the Company elects to repay the debt early and demonstrates that such repayment is prudent. The interest
rate was reduced from 12-month US dollar LIBOR plus 15.0% to 12-month US dollar LIBOR plus 10.0% effective April 1, 2018. The convertibility of the Convertible Debt was extended to March 31, 2019 and 6,458,001 purchase warrants were reissued with
an expiration date of March 31, 2019 and an exercise price of $0.8231 per share, both of which were approved by the NYSE American and TSX. All other terms of both the debentures and the warrants described above remain unchanged.
In addition, the Company agreed to issue to Glencore secured debentures with a total principal amount of up to $80 million at the Company’s option. The
debentures bear interest at twelve month US dollar LIBOR plus 10.0% and if issued, are due on the earlier of (i) March 31, 2019 or (ii) the availability of at least $100 million of debt or equity financing or (iii) when the Company elects to repay
the debt early and demonstrates that such repayment is prudent, on which date all principal and interest accrued to such date will be due and payable. The Tranche P Debenture in the amount of $20.0 million was issued on May 7, 2018. The Tranche Q
Debenture in the amount of $15.0 million and Tranche T Debenture in the amount of $10 million were issued on October 25, 2018. The Tranche S Debenture in the amount of $20.0 million was issued on December 18, 2018. Under the extension agreement
and repayment plan agreed subsequent to December 31, 2018 (see below), the commitment to issue Tranche R in the amount of $15.0 million was cancelled.
On March 22, 2019, the Company entered into an extension agreement with Glencore with respect to the secured convertible and non-convertible debt set to
mature on March 31, 2019.
Glencore agreed to extend the maturity date of the debt
initially to May 10, 2019
to provide the Company time to prepare for and
launch
a rights offering, fully backstopped by Glencore, to raise sufficient funds to repay all outstanding debt.
Provided the Company has achieved certain milestones in respect of
the rights offering by that date, Glencore will further extend the maturity date of the debt to June 30, 2019 to provide the Company with additional time to complete and close the offering.
In connection with the extension agreement, the
Company has also agreed to issue 6,458,001 additional purchase warrants at current market prices to Glencore and to make certain amendments to the existing exchange warrants held by Glencore, both subject to applicable stock exchange approval.
Land Financing
During the twelve months ended December 31, 2018 the Company issued 128,750 shares (December 31, 2017 – 396,616 shares) to maintain land
purchase options with the shares valued at $0.123 million (December 31, 2017 - $0.256 million).
PolyMet Mining Corp.
Management Discussion and Analysis
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts
Summary of Quarterly Results
(All figures in thousands of U.S. dollars except loss per share)
|
|
Period Ended
|
|
|
|
Dec 31,
2018
|
|
|
Sep 30,
2018
|
|
|
Jun 30,
2018
|
|
|
Mar 31,
2018
|
|
|
Dec 31,
2017
|
|
|
Oct 31,
2017
|
|
|
Jul 31,
2017
|
|
|
Apr 30,
2017
|
|
General and Administrative
|
|
|
(1,529
|
)
|
|
|
(1,262
|
)
|
|
|
(1,509
|
)
|
|
|
(2,770
|
)
|
|
|
(1,584
|
)
|
|
|
(1,193
|
)
|
|
|
(2,080
|
)
|
|
|
(1,268
|
)
|
Other Income (Expenses)
|
|
|
(1,380
|
)
|
|
|
(426
|
)
|
|
|
(1,147
|
)
|
|
|
(5,020
|
)
|
|
|
(350
|
)
|
|
|
(1,058
|
)
|
|
|
(608
|
)
|
|
|
(1,957
|
)
|
Loss for the Period
|
|
|
(2,909
|
)
|
|
|
(1,688
|
)
|
|
|
(2,656
|
)
|
|
|
(7,790
|
)
|
|
|
(1,934
|
)
|
|
|
(2,251
|
)
|
|
|
(2,688
|
)
|
|
|
(3,225
|
)
|
Loss per Share
(1)
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
|
|
(0.02
|
)
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
Cash used in operating activities
|
|
|
(1,804
|
)
|
|
|
(512
|
)
|
|
|
(1,164
|
)
|
|
|
(2,322
|
)
|
|
|
(748
|
)
|
|
|
(914
|
)
|
|
|
(1,454
|
)
|
|
|
(1,874
|
)
|
Cash provided by (used) by financing activities
|
|
|
45,500
|
|
|
|
61
|
|
|
|
19,723
|
|
|
|
4,804
|
|
|
|
-
|
|
|
|
14,917
|
|
|
|
-
|
|
|
|
-
|
|
Cash used in investing activities
|
|
|
(36,794
|
)
|
|
|
(10,178
|
)
|
|
|
(5,383
|
)
|
|
|
(4,998
|
)
|
|
|
(3,569
|
)
|
|
|
(6,997
|
)
|
|
|
(6,166
|
)
|
|
|
(4,937
|
)
|
(1)
|
Loss per share amounts may not reconcile due to rounding differences.
|
The loss for the period includes share-based compensation for the period ended:
|
December 31, 2018 - $0.105 million
|
December 31, 2017 - $0.223 million
|
|
September 30, 2018 - $0.182 million
|
October 31, 2017 - $0.283 million
|
|
June 30, 2018 - $0.276 million
|
July 31, 2017 - $0.672 million
|
|
March 31, 2018 - $1.179 million
|
April 30, 2017 - $0.140 million
|
Results fluctuate from period to period based on NorthMet development, corporate activities, and non-cash items. Additional discussion of significant
items is included below.
Three months ended December 31, 2018 compared to two months ended
December 31, 2017
Focus during the current year period was on permitting the NorthMet Project, maintenance of existing infrastructure, early works to prepare
the site for construction, and financing.
a) Loss for the Period:
During the current year period, the Company incurred a loss of $2.909 million ($0.01 loss per share) compared to a loss of $1.934 million
($0.01 loss per share) during the prior year period. The increase in net loss was primarily due to a non-cash loss on revaluation of the EIP receivable in the current year period.
b) Cash Flows for the Period:
Cash used in operating activities during the current year period was $1.804 million compared to cash used during the prior year period of
$0.748 million. The increase was primarily due to legal and financial instrument costs tied to receipt of final state permits.
Cash provided by financing activities during the current year period was $45.500 million compared to cash provided during the prior year
period of $nil million. The increase was due to debenture funding with the remainder reflecting the exercise of warrants and share options.
Cash used in investing activities during the current year period was $36.794 million compared to cash used during the prior year period of
$3.569 million. The increase was primarily due to a $10 million restricted cash contribution to the environmental rehabilitation trust required under the Permit to Mine and a $18 million purchase of wetland credits required by the USACE 404
wetlands permit.
PolyMet Mining Corp.
Management Discussion and Analysis
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts
Including the effect of foreign exchange, total cash on hand increased during the current year period by $6.895 million to $13.857 million
compared to the prior year period where cash increased $4.317 million to $6.931 million.
c) Capital Expenditures for the Period:
During the current year period the Company capitalized $13.966 million of mineral property, plant, and equipment costs primarily related to the acquisition, development and preservation of the
NorthMet Project and other fixed assets as compared to reversing $0.573 million during the prior year period. The increase in capital expenditures was primarily due to early works to prepare the site for construction and prior year reduction to
the environmental rehabilitation provision to reflect closure plans in the Permit to Mine application. The Company also capitalized $17.950 million of intangibles during the current year period compared to $nil during the prior year period. The
increase was due to purchase of wetland credits required by the USACE 404 wetlands permit.
Selected Annual Financial Information
(All figures in thousands of U.S. dollar except loss per share)
For the Periods Ended
|
Twelve months ended
December 31, 2018
|
Eleven months ended
December 31, 2017
|
Twelve months ended
January 31, 2017
|
Revenue
|
-
|
-
|
-
|
Net Loss
|
(15,043)
|
(10,098)
|
(9,229)
|
Basic and Diluted Loss Per Share
|
(0.05)
|
(0.03)
|
(0.03)
|
Total Assets
|
485,629
|
409,042
|
389,049
|
Convertible and Non-Convertible Debt
|
235,467
|
141,335
|
107,906
|
Total Shareholders’ Equity
|
185,042
|
198,675
|
207,329
|
The loss for the fiscal year includes share-based compensation expense of:
December 31, 2018 - $1.742 million
December 31, 2017 - $1.318 million
January 31, 2017 - $1.808 million
Twelve months ended December 31, 2018 compared to eleven months ended
December 31, 2017
Focus during the current year was on environmental permitting for the NorthMet Project, maintenance of existing infrastructure, early works
to prepare site for construction, and financing.
a) Loss for the Year:
During the current year, the Company incurred a loss of $15.043 million
($0.05
loss per share) compared to a loss of $10.098 million ($0.03 loss per share) during the prior year. The increased net loss was due to a non-cash
charge
on
debenture refinancing in the current year.
b) Cash Flows for the Year:
Cash used in operating activities during the current year was $
5.802
million compared to cash used during the prior year of $
4.990
million. The
increase was primarily due to legal and financial instrument costs tied to receipt of final state permits.
Cash provided by financing activities during the current year was $70.088 million compared to cash provided during the prior year of
$14.917 million. The increase is primarily due to additional non-convertible loan funding in the current year.
PolyMet Mining Corp.
Management Discussion and Analysis
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts
Cash used in investing activities during the current year was $57.353 million compared to cash used during the prior year of $21.669
million. The increase was primarily due to a $10 million restricted cash contribution to the environmental rehabilitation trust required under the Permit to Mine and a $21 million purchase of wetland credits required by the USACE 404 wetlands
permit.
Including the effect of foreign exchange, total cash on hand increased
during the current year by $6.926
million to $13.857
million compared to
the prior year where cash decreased $11.741 million to $6.931 million.
c) Capital Expenditures for the Year:
During the current year the Company capitalized $38.343 million (prior
year - $
30.292
million) of mineral property, plant, and equipment costs related to the development and preservation of the NorthMet Project and other
fixed assets. The increase largely reflects a prior year reduction to the environmental rehabilitation provision to reflect closure plans in the Permit to Mine application. The Company also capitalized $21.055 million of intangibles during
the current year compared to $3.130 million during the prior year. The increase is due to purchase of wetland credits required by the USACE 404 wetlands permit.
Eleven months ended December 31, 2017 compared to twelve months ended
January 31, 2017
Focus during the eleven months ended December 31, 2017 was on environmental permitting process for the NorthMet Project, maintenance of
existing infrastructure and financing.
a) Loss for the Year:
During the eleven months ended December 31, 2017, the Company incurred a
loss of $10.098 million ($0.03
loss per share) compared to a loss of $9.229
million ($0.03 loss per share) during the twelve months ended January 31, 2017. The increased net loss was due to a non-cash
charge on disposal of intangibles and land in the
eleven months ended December 31, 2017.
b) Cash Flows for the Year:
Cash used in operating activities during the eleven months ended December
31, 2017 was $
4.990
million compared to cash used during the twelve months ended January 31, 2017 of $
5.463
million. The variance in cash is primarily due to the eleven months ended December 31, 2017 being one month shorter.
Cash provided by financing activities during the eleven months ended December 31, 2017 was $14.917 million compared to cash provided during
the twelve months ended January 31, 2017 of $37.248 million. The eleven months ended December 31, 2017 includes $14.917 million in net proceeds from funding of the non-convertible loan. The twelve months ended January 31, 2017 includes $28.535
million in share issuance proceeds and $13.943 million in non-convertible loan funding partially offset by $5.111 million debt repayment.
Cash used in investing activities during the eleven months ended December 31, 2017 was $21.669 million compared to cash used during the
twelve months ended January 31, 2017 of $23.363 million. The decrease was primarily due to decreased environmental technical support as the permitting process winds down and the eleven months ended December 31, 2017 being one month shorter.
Including the effect of foreign exchange, total cash on hand decreased
during the eleven months ended December 31, 2017 by $11.741
million to $6.931
million compared to the twelve months ended January 31, 2017 where cash increased $8.418 million to $18.674 million.
PolyMet Mining Corp.
Management Discussion and Analysis
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts
c) Capital Expenditures for the Year:
During the eleven months ended December 31, 2017 the Company capitalized
$30.292 million (twelve months ended January 31, 2017 - $
43.264
million) of mineral property, plant, and equipment costs primarily related to the development
and preservation of the NorthMet Project. The decrease largely reflects a reduction to the environmental rehabilitation provision to reflect closure plans in the Permit to Mine application.
Liquidity and Capital Resources
Liquidity risk is the risk the Company will not be able to meet its financial obligations as they become due and arises through the excess of financial
obligations over financial assets due at any point in time.
As at December 31, 2018, PolyMet had cash of $13.857 million and a working capital deficiency of $225.359 million primarily due to the $56.984 million
secured convertible debt and $178.483 million secured non-convertible debt due to Glencore being classified as a current liability. Subsequent to year end, the Company entered into an agreement with Glencore to extend the maturity date of the
secured convertible and non-convertible debt to provide the Company time to prepare for and complete a rights offering by June 30, 2019, fully backstopped by Glencore, to raise sufficient funds to repay all outstanding debt. See additional
details in the “Financing Activities” section above.
Management believes, based upon the underlying value of the NorthMet Project, the receipt of all permits necessary to construct and operate the NorthMet
Project, the history of support from its shareholders and the ongoing discussions with investment banks and investorspotential financiers, that financing will continue to be available allowingto allow the Company to complete the development of
NorthMet and generate future profitable operations. While in the past the Company has been successful in closing financing agreements, there can be no assurance it will be able to do so again. Factors that could affect the availability of
financing include the state of debt, equity, and environmental bonding markets, investor perceptions and expectations and the market for metals expected to be produced from the NorthMet Project.
The Company is in discussions with commercial banks and other sources of debt and equity finance sufficient to fund construction of the
Project. Construction and ramp up to commercial production is anticipated to take approximately twenty-four to thirty months
from receipt of construction funding.
In addition to items described elsewhere in the financial statements, as at December 31, 2018, the Company had firm commitments related to
financial assurance obligations, compliance, land options, and rent of approximately $16.4 million with approximately $0.4 million due over the next year and the majority due a period of three to ten years.
The following table lists the known contractual obligations as at December 31, 2018:
Contractual Obligations
|
|
Carrying
Value
|
|
|
Contractual
Cash flows
|
|
|
Less than
1 year
|
|
|
1 – 3
years
|
|
|
3 – 5
years
|
|
|
More than
5 years
|
|
Accounts payable and accruals
|
|
$
|
4,013
|
|
|
$
|
4,013
|
|
|
$
|
4,013
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Convertible debt
|
|
|
56,984
|
|
|
|
58,077
|
|
|
|
58,077
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Non-convertible debt
|
|
|
178,483
|
|
|
|
184,698
|
|
|
|
184,698
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Firm commitments
|
|
|
-
|
|
|
|
16,413
|
|
|
|
388
|
|
|
|
25
|
|
|
|
4,000
|
|
|
|
12,000
|
|
Total
|
|
$
|
239,480
|
|
|
$
|
263,201
|
|
|
$
|
247,176
|
|
|
$
|
25
|
|
|
$
|
4,000
|
|
|
$
|
12,000
|
|
PolyMet Mining Corp.
Management Discussion and Analysis
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts
Financial Instruments and Risk Management
The fair value hierarchy prioritizes inputs to valuation techniques used to measure fair value. The hierarchy gives highest priority to unadjusted quoted
prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:
|
Level 1 –
|
Quoted prices (unadjusted) in active markets for identical assets or liabilities.
|
|
Level 2 –
|
Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly.
|
|
Level 3 –
|
Inputs for the asset or liability that are not based on observable market data.
|
The only financial instrument measured at fair value subsequent to recognition is the EIP receivable which is measured at fair value through profit or loss using Level 3 inputs resulting in a
carrying value of $1.912 million (December 31, 2017 - $2.883 million)
and an amount classified within accounts payable and accruals representing expected payments to settle restricted share units measured at
fair value through profit or loss using Level 2 inputs resulting in a carrying value of $0.371 million (December 31, 2017 - $0.439 million).
The fair values of cash and restricted cash deposits, other current amounts receivable, and accounts payable and accruals approximate their carrying
amounts due to their short-term nature. Convertible debt and non-convertible debt are classified at amortized cost, and the carrying amount approximates fair value. The Company believes this is appropriate as the maturity date is twelve months or
less.
Risks Arising from Financial Instruments and Risk Management
The Company’s activities expose it to a variety of financial risks: market risk (including currency and interest rate), credit risk, and liquidity risk.
Reflecting the current stage of development of the Company’s NorthMet Project, the overall risk management program focuses on facilitating the Company’s ability to continue as a going concern and seeks to minimize potential adverse effects on the
Company’s ability to execute its business plan.
Risk management is the responsibility of executive management. Material risks are identified and monitored and are discussed with the Audit Committee and
the Board of Directors.
Currency Risk
The Company incurs expenditures in Canada and the United States. The functional and reporting currency of the Company and its subsidiary is the U.S.
dollar. Foreign exchange risk arises because the amount of Canadian dollar cash, amounts receivable, or accounts payable and accrued liabilities will vary in U.S. dollar terms due to changes in exchange rates.
PolyMet Mining Corp.
Management Discussion and Analysis
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts
As the majority of the Company’s expenditures are in U.S. dollars, the Company has kept a significant portion of its cash in U.S. dollars. The Company has
not hedged its exposure to currency fluctuations as the exposure to currency risk is currently insignificant.
Interest Rate Risk
Interest rate risk arises from interest paid on floating rate debt and interest received on cash and liquid short-term deposits. The Company has not
hedged any of its interest rate risk. The Company currently capitalizes to qualifying assets the majority of interest charges, and therefore the risk exposure is primarily on cash interest payable and net earnings in relation to the subsequent
depreciation of capitalized interest charges.
The Company was exposed to interest rate risk through the following assets and liabilities:
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
Cash and restricted cash deposits
|
|
|
24,143
|
|
|
$
|
6,931
|
|
Convertible debt
|
|
|
56,984
|
|
|
|
49,067
|
|
Non-convertible debt
|
|
|
178,483
|
|
|
$
|
92,268
|
|
Based on the above net exposures, as at December 31, 2018, a 1% change interest rates would have impacted the Company’s loss by approximately $0.241
million and carrying value of convertible and non-convertible debt by approximately $2.355 million.
Credit Risk
Credit risk arises on cash and restricted cash deposits held with banks and financial institutions, as well as credit exposure on outstanding amounts
receivable. The maximum exposure to credit risk is equal to the carrying value of the financial assets of $26.735 million.
The Company’s cash and restricted cash deposits are primarily held through large Canadian and United States financial institution.
Liquidity Risk
Liquidity risk is the risk the Company will not be able to meet its financial obligations as they become due and arises through the excess of financial
obligations over available financial assets due at any point in time. The Company’s objective in managing liquidity risk is to maintain sufficient readily available reserves in order to meet its liquidity requirements at any point in time and is
achieved by maintaining sufficient cash and managing convertible and non-convertible debt. See additional discussion in the “Liquidity and Capital Resources” section above.
Capital Management
The Company’s capital management objective is to safeguard the Company’s ability to continue as a going concern in order to pursue the development of its
mineral property. In the management of capital, the Company includes the components of shareholders’ equity, convertible debt and non-convertible debt. The Company manages the capital structure and makes adjustments to it depending on economic
conditions and the rate of anticipated expenditures. To maintain or adjust the capital structure, the Company may attempt to issue new shares, issue new debt, acquire or dispose of assets. The Company has no externally imposed capital
requirements.
In order to assist in management of its capital requirements, the Company prepares budgets that are updated as necessary depending on various factors. The
budgets are approved by the Company’s Board of Directors.
PolyMet Mining Corp.
Management Discussion and Analysis
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts
Although the Company expects to have the necessary resources to carry out its plans and operations through December 31, 2019, it does not currently have
sufficient capital to complete the development of NorthMet and generate future profitable operations and is in discussions to arrange sufficient capital to meet these requirements. During the upcoming fiscal year, the Company’s objective is to
identify the source or sources from which it will obtain the capital required to complete the Project. See additional discussion in the “Liquidity and Capital Resources” section above.
Related Party Transactions
The Company conducted transactions with senior management, directors and persons or companies related to these individuals, and paid or accrued amounts as
follows:
|
|
|
|
|
|
Twelve months ended
December 31, 2018
(1)
|
|
|
Eleven months ended
December 31, 2017
(1)
|
|
Salaries and other short-term benefits
|
|
|
1,956
|
|
|
$
|
1,898
|
|
Other long-term benefits
|
|
|
44
|
|
|
|
42
|
|
Share-based payment
(3)
|
|
|
1,680
|
|
|
|
836
|
|
Total
|
|
|
3,680
|
|
|
$
|
2,776
|
|
(1)
|
Twelve months ended December 31, 2018 includes Directors (Dennis Bartlett, Jonathan Cherry, Mike Ciricillo, David Dreisinger, W. Ian L. Forrest,
Helen Harper, Alan Hodnik, Stephen Rowland, and Michael Sill) and senior management (Jonathan Cherry, Patrick Keenan, and Bradley Moore).
|
(2)
|
Eleven months ended December 31, 2017 includes Directors (Dennis Bartlett, Jonathan Cherry, Mike Ciricillo, Matthew Daley, David Dreisinger, W.
Ian L. Forrest, Helen Harper, Alan Hodnik, Stephen Rowland, and Michael Sill) and senior management (Jonathan Cherry, Patrick Keenan, Douglas Newby, and Bradley Moore).
|
(3)
|
Share-based payment represents the amount capitalized or expensed during the period.
|
There are agreements with senior management (Jonathan Cherry, Patrick Keenan, Bradley Moore) containing severance provisions for termination without cause
or in the event of a change in control. No other PolyMet director has an agreement providing for benefits upon termination.
As a result of Glencore’s 28.9% ownership it is also a related party. In addition to the transactions described in the “Financing Activities” section
above, the Company has also entered into a Technical Services Agreement with Glencore whereby the Company reimburses Glencore for NorthMet technical support costs requested under an agreed scope of work, primarily in detailed project design and
mineral processing. During the year ended December 31, 2018, the Company recorded $0.070 million (December 31, 2017 - $nil) for services under this agreement.
Off Balance-Sheet Arrangements
The Company does not utilize off-balance sheet arrangements.
Proposed Transactions
There are no proposed transactions that will materially affect the performance of the Company.
PolyMet Mining Corp.
Management Discussion and Analysis
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts
Critical Accounting Estimates
The preparation of the consolidated financial statements in conformity with IFRS requires the use of certain critical accounting estimates. These critical
accounting estimates require management to make estimates that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as at the date of the financial statements.
Critical accounting estimates used in the preparation of the consolidated financial statements are as follows:
Determination of mineral reserves
Reserves are estimates of the amount of product that can be economically and legally extracted from the Company’s property. In order to estimate reserves,
estimates are required about a range of geological, technical and economic factors, including quantities, production techniques, production costs, capital costs, transport costs, demand, prices and exchange rates. Estimating the quantity of
reserves requires the size, shape and depth of deposits to be determined by analyzing geological data. This process may require complex and difficult geological judgments to interpret the data. In addition, management will form a view of forecast
sales prices, based on current and long-term historical average price trends. Changes in the proven and probable reserves estimates may impact the carrying value of property, plant and equipment, rehabilitation provisions, recognition of deferred
tax amounts and depreciation, depletion and amortization.
Provision for Environmental Rehabilitation Costs
Provisions for environmental rehabilitation costs associated with mineral property, plant and equipment, are recognized when the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable an
outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax risk-free rate that reflects current market assessments of the time value of money.
The Company’s estimates of its ultimate environmental rehabilitation liabilities could be affected by changes in regulations, changes in the extent of
environmental rehabilitation required, changes in the means of rehabilitation, changes in the extent of responsibility for the financial liability, changes in operating plans, or changes in cost estimates. The operations of the Company may in the
future be affected from time to time in varying degrees by changes in environmental regulations, including those for future removal and site restoration costs. Both the likelihood of new regulations and their overall effect upon the Company may
vary greatly and are not predictable.
The Company’s provision for environmental rehabilitation cost obligations represents management’s best estimate of the present value of the future cash
outflows required to settle the liability.
Critical Accounting Judgments
The preparation of consolidated financial statements in conformity with IFRS requires the use of certain critical accounting judgments. These critical
accounting judgments require management to make judgments that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as at the date of the financial statements.
Critical accounting judgments used in the preparation of the consolidated financial statements are as follows:
PolyMet Mining Corp.
Management Discussion and Analysis
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts
Impairment of non-financial assets
The carrying amounts of the Company’s non-financial assets, including mineral property, plant and equipment, and intangible are reviewed at each reporting
date or when events or changes in circumstances occur that indicate the asset may not be recoverable to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated at the
greater of its value in use and its fair value less costs of disposal. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of
the time value of money and the risks specific to the asset. An impairment loss is recognized if the carrying amount of an asset exceeds its estimated recoverable amount. An impairment loss previously recorded is reversed if there has been a
change in the estimates used to determine the recoverable amount resulting in an increase in the estimated service potential of an asset.
The Company considers both external and internal sources of information in assessing whether there are any indications of impairment. External sources of
information the Company considers include changes in the market, economic, and legal environment in which the Company operates that are not within its control and affect the recoverable amount. Internal sources of information the Company considers
include indications of economic performance of the asset.
No impairment indicators were identified on the mineral property, plant and equipment or intangible for the twelve months ended December 31, 2018 or eleven
months ended December 31, 2017.
Going concern assumptions
The Company must assess its ability to continue as a going concern and prepare financial statements on a going concern basis unless it
either intends to liquidate or cease trading or has no realistic alternative but to do so. In assessing whether the going concern assumption is appropriate, the Company takes into account all available information about the future, which is at
least, but is not limited to, twelve months from the end of the reporting period
.
Change in Accounting Policies
On January 1, 2018, the Company adopted the following new accounting standards that were previously issued by the IASB. Certain other new standards and
interpretations have been issued and were effective as of January 1, 2018 but did not have a material impact on the Company’s financial statements and are therefore not discussed below.
The accounting policies discussed below reflect the Company’s adoption of IFRS 9 - Financial Instruments, effective January 1, 2018, and IFRS 16 - Leases,
which had an effective date of January 1, 2019 but for which the company early adopted as of January 1, 2018. For the eleven months ended December 31, 2017, the Company applied policies based on IAS 39 and IAS 17 and the effects of the transition
from IAS 39 to IFRS 9 and from IAS 17 to IFRS 16 are described below.
IFRS 9 – Financial Instruments
IFRS 9 addresses the classification, measurement and recognition of financial assets and financial liabilities. This standard replaces parts of IAS 39 -
Financial Instruments: Recognition and Measurement. The Company adopted IFRS 9 effective January 1, 2018 on a retrospective basis without restating prior period comparatives.
PolyMet Mining Corp.
Management Discussion and Analysis
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts
IFRS 9 requires financial assets to be classified into the following measurement categories: fair value through profit and loss, fair value through other
comprehensive income, and those measured at amortized cost. The determination is made at initial recognition. On transition, the EIP receivable previously classified as available-for-sale and measured at fair value through other comprehensive
income was re-classified as fair value through profit or loss with changes in fair value recognized in the statement of loss instead of through other comprehensive loss. Adoption resulted in re-classification of $0.210 million to the opening
deficit from accumulated other comprehensive loss for cumulative gains on the EIP receivable. The following table shows the original measurement categories under IAS 39 and the new measurement categories under IFRS 9 for the Company’s financial
assets as at January 1, 2018:
Financial assets
|
2017 classification
under IAS 39
|
2018 classification
under IFRS 9
|
|
|
|
Cash
|
Loans and receivable
|
Amortized cost
|
Amounts receivable
|
Loans and receivable
|
Amortized cost
|
Amounts receivable
|
Available-for-sale
|
Fair value through profit or loss
|
For financial liabilities, the standard retains most of the IAS 39 requirements, except as it relates to modifications of liabilities. Under IAS 39, when
an entity modified a financial liability, it would decide whether this modification was significant enough to constitute an extinguishment. If the modification was considered an extinguishment of the initial debt, the new modified debt was recorded
at fair value and a gain/loss recognized in the statement of loss for the difference between the carrying amount of the old debt and the fair value of the new debt. This extinguishment accounting remains the same under IFRS 9. However, accounting
differs where the change was not significant enough to be an extinguishment. Under IAS 39, modifications would not lead to an immediate income charge, whereas, under IFRS 9, the cash flows under the modified debt are discounted using the original
effective interest rate of the instrument with an immediate income charge. Adoption resulted in a $2.159 million adjustment to increase the opening deficit as at January 1, 2018 and increase the carrying value of the convertible and
non-convertible debt. This reflects accounting for prior year modifications to the outstanding debentures under the new standard.
IFRS 16 – Leases
IFRS 16 replaces IAS 17 – Leases. The new standard requires capitalization of certain leases by the leasee and results in accounting treatment similar to
finance leases under IAS 17 - Leases. Exemptions for leases of very low value or short duration leases are applicable. The new standard results in an increase in lease assets and liabilities for the lessee. Under the new standard the treatment of
all lease expenses is aligned in the statement of earnings with depreciation, and an interest expense component recognized for each lease, in line with finance lease accounting under IAS 17 - Leases.
The Company early adopted IFRS 16 effective January 1, 2018 on a modified retrospective basis without restating prior period comparatives. As a result,
the Company recorded a $0.211 million lease asset and corresponding lease liability for the one qualifying office lease that has been recognized over the remaining term. The Company’s other leases are leases to explore mining rights, which are
excluded from IFRS 16’s scope.
The following table summarizes the impact of adopting IFRS 9 - Financial Instruments and IFRS 16 - Leases.
Consolidated Balance Sheet Impact
|
|
Dec 31, 2017
|
|
|
IFRS 9
|
|
|
IFRS 16
|
|
|
Jan 1, 2018
|
|
Mineral Property, Plant and Equipment
|
|
$
|
395,205
|
|
|
$
|
-
|
|
|
$
|
211
|
|
|
$
|
395,416
|
|
Accounts Payable and Accruals
|
|
|
3,630
|
|
|
|
-
|
|
|
|
211
|
|
|
|
3,841
|
|
Convertible Debt
|
|
|
49,067
|
|
|
|
1,346
|
|
|
|
-
|
|
|
|
50,413
|
|
Non-Convertible Debt
|
|
|
92,268
|
|
|
|
813
|
|
|
|
-
|
|
|
|
93,081
|
|
Equity Reserves
|
|
|
60,505
|
|
|
|
(210
|
)
|
|
|
-
|
|
|
|
60,295
|
|
Deficit
|
|
$
|
(132,497
|
)
|
|
$
|
(1,949
|
)
|
|
$
|
-
|
|
|
$
|
(134,446
|
)
|
PolyMet Mining Corp.
Management Discussion and Analysis
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts
Other MD&A Requirements
Outstanding Share Data
Authorized Capital: Unlimited common shares without par value.
The following table summarizes the outstanding share information as at March 22, 2019:
Type of Security
|
Number
Outstanding
|
Weighted Average
Exercise Price
|
Issued and outstanding common shares
|
322,157,863
|
|
$ -
|
Restricted share units
|
4,091,673
|
|
$ -
|
Share options
|
25,082,002
|
|
$ 0.91
|
Share purchase warrants
|
27,189,713
|
|
$ 0.95
|
Convertible debt including capitalized interest
|
44,303,743
|
|
$ 1.27
|
As at December 31, 2018, the Company had obligations to issue up to 3,640,000 shares under the Company’s bonus share incentive plan upon achievement of
Milestone 4 representing commencement of commercial production at NorthMet at a time when the Company has not less than 50% ownership interest in NorthMet. At the Company’s Annual General Meeting of shareholders held in June 2008, the
disinterested shareholders approved the bonus shares for Milestone 4. Regulatory approval is required prior to issuance of these shares.
Risks and Uncertainties
An investment in the Company’s common shares is highly speculative and
subject to a number of risks and uncertainties. Only those persons who can bear the risk of the entire loss of their investment should participate. An investor should carefully consider the risks described
in PolyMet’s Annual
Information Form for the year ended December 31, 2018
and other information filed with both the Canadian and United States securities regulators before investing in the
Company’s common shares. The risks described
in PolyMet’s Annual Information Form
are not the only ones faced. Additional risks that the Company currently
believes are immaterial may become important factors that affect the Company’s business. If any of the risks described
in PolyMet’s Annual Information Form for the year ended December 31, 2018 occur
, the Company’s business, operating results and financial condition could be seriously harmed and investors could lose all of their investment.
Evaluation of Disclosure Controls and Procedures
The Company's Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company's disclosure controls and procedures (as
such term is defined in Rules 13(a)-15(e) and 15(d)-15(e) under the US Exchange Act and the rules of the Canadian Securities Administrators as at December 31, 2018 (the "Evaluation Date"). Based on such evaluation, such officers have concluded
that, as of the Evaluation Date, the Company's disclosure controls and procedures are effective. Such disclosure controls and procedures are designed to ensure that the information required to be disclosed by the Company in reports that it files or
submits to the US Securities and Exchange Commission and the Canadian Securities Administrators is recorded, processed, summarized and reported within the time periods specified in applicable rules and forms, and includes controls and procedures
designed to ensure information relating to the Company required to be included in reports filed or submitted under Canadian and United States securities legislation is accumulated and communicated to the Company’s management to allow timely
decision regarding disclosure.
PolyMet Mining Corp.
Management Discussion and Analysis
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts
Management’s Responsibility for Consolidated Financial Statements
The information provided in this report and the accompanying Consolidated Financial Statements of the Company are the responsibility of
management. The Consolidated Financial Statements have been prepared by management in accordance with IFRS as issued by the IASB and include certain estimates that reflect management’s best judgments.
The Company’s Board of Directors has approved the information contained in the Consolidated Financial Statements. The Board of Directors
fulfills its responsibilities regarding the Consolidated Financial Statements mainly through its Audit Committee, which has a written mandate that complies with current requirements of Canadian securities legislation, United States securities
legislation, and the United States Sarbanes-Oxley Act of 2002. The Audit Committee meets at least on a quarterly basis.
Management’s Annual Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting
is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Consolidated Financial Statements for external reporting purposes in accordance with IFRS as issued by the IASB.
Internal control over financial reporting, no matter how well designed, has inherent limitations. Also, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management has assessed the effectiveness of the Company’s internal control over financial reporting as at December 31, 2018. In making its assessment,
management has used the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) to evaluate the Company’s internal control over financial
reporting. Based on this assessment, management has concluded that the Company’s internal control over financial reporting was effective as at that date.
The effectiveness of the Company’s internal control over financial reporting as at December 31, 2018 has been audited by PricewaterhouseCoopers LLP, the
Company’s independent registered public accounting firm, as stated in their report, which is included with the Company’s annual consolidated financial statements.
Additional Information
Additional information related to the Company is
available on SEDAR and EDGAR, respectively, at
www.sedar.com
and at
www.sec.gov
,
and on the Company’s website
www.polymetmining.com
.
19