UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F/A
☐ REGISTRATION
STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☒ ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2018
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☐
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company
report ____________________________
For the transition period from_________________to______________
Commission File Number: 000-05151
NEXTSOURCE MATERIALS INC.
(Exact name of Registrant as specified in
its charter)
Ontario, Canada
(Jurisdiction of incorporation or organization)
1001-145 Wellington Street West
Toronto, Ontario
Canada M5J 1H8
(Address of principal executive offices)
Craig Scherba, Telephone (416) 364-4911
1001-145 Wellington Street West, Toronto,
Ontario Canada M5J 1H8
(Name, telephone, e-mail and/or facsimile
number and address of company contact person)
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Securities registered or to be registered pursuant to section 12(b) of the Act:
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None
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Securities registered or to be registered pursuant to Section 12(g) of the Act:
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Common Stock, $0.001 par value
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(Title of Class)
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Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
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None
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(Title of Class)
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The number of outstanding shares of the issuer’s common stock as of June 30, 2018:
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469,933,611 shares
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Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
If this report is an annual or a transition report, indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit such files). Yes ☒
No ☐
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer”
in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer ☐
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Accelerated filer ☐
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Non-accelerated filer ☒
Emerging growth Company ☐
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If an emerging growth company that prepares its financial statements
in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark which basis of accounting the registrant
has used to prepare the financial statements included in this filing:
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U.S. GAAP ☐
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International Financial Reporting Standards
by the International Accounting
Standards Board ☒
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Other ☐
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If “Other” has been checked in response to the previous
question, indicate by check mark which financial statement item the registrant has elected to follow.
Item 17 ☐ Item
18 ☐
If this is an annual report, indicate by check mark whether
the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
☒
EXPLANATORY NOTE
This Amendment on Form 20-F/A is being filed
by NextSource Materials Inc. as Amendment No. 1 to its annual report on Form 20-F for the fiscal year ended June 30,
2008, as filed with the Securities and Exchange Commission on October 1, 2018.
We
have updated the disclosures contained in our annual report on Form 20-F to include a PCAOB compliant audit opinion in the Audited
Annual Consolidated Financial Statements and additional exhibits as required under Form 20-F. We have made no other changes to
our report. The disclosures in the report remain effective and no changes were required for events that have occurred since October
1, 2018, the date on which we originally filed our annual report on Form 20-F.
ANNUAL INFORMATION FORM,
AUDITED ANNUAL CONSOLIDATED FINANCIAL
STATEMENTS,
MANAGEMENT DISCUSSION AND ANALYSIS,
AND NOTICE OF ANNUAL MEETING AND MANAGEMETN
PROXY CIRCULAR
Annual Information Form
The Registrant’s Annual Information
Form for the fiscal year ended June 30, 2018 is attached as
Exhibit 99.1
to this Annual Report on Form 20-F and is incorporated
herein by reference.
Audited Annual Consolidated Financial
Statements
The Registrant’s audited annual consolidated
financial statements for the fiscal year ended June 30, 2018, including the report of the independent registered public accounting
firm with respect thereto, are attached as
Exhibit 99.2
to this Annual Report on Form 20-F and are incorporated herein by
reference.
Management’s Discussion and Analysis
The Registrant’s Management’s
Discussion and Analysis for the fiscal year ended June 30, 2018 is attached as
Exhibit 99.3
to this Annual Report on Form
20-F and is incorporated herein by reference.
Notice of Annual Meeting and Management
Proxy Circular
The Registrant's Notice of Annual and Special
Meeting of Shareholders and Management Information Circular for the fiscal year ended June 30, 2018 is attached as
Exhibit 99.4
to this Annual Report on Form 20-F and is incorporated herein by reference.
Additional Information
An Additional Information document is attached
as
Exhibit 99.5
to this Annual Report on Form 20-F and is incorporated herein by reference.
Cross Reference to
Form 20-F
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Item No.
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Cross Reference to Form 20-F
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Exhibit
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Part I
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Item 1
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Identity of Directors, Senior Management and Advisers
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99.4
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Item 2
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Offer Statistics and Expected Timetable
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N/A
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Item 3
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Key Information
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A. Selected financial data
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99.2
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B. Capitalization and indebtedness
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N/A
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C. Reasons for the offer and use of proceeds
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N/A
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D. Risk factors
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99.1
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Item 4
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Information on the Company
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A. History and development of the company
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99.1
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B. Business overview
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99.1
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C. Organizational structure
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99.1
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D. Property, plants and equipment
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99.1 and 99.2
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Item 4A
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Unresolved Staff Comments
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N/A
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Item 5
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Operating and Financial Review and Prospects
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A. Operating results
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99.2 and 99.3
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B. Liquidity and capital resources
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99.2 and 99.3
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C. Research and development, patents and licenses, etc.
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N/A
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D. Trend information
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99.1
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E. Off-balance sheet arrangements
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99.3
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F. Tabular disclosure of contractual obligations
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N/A
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G. Safe harbor
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99.1
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Item 6
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Directors, Senior Management and Employees
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A. Directors and senior management
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99.1 and 99.4
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B. Compensation
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99.1 and 99.4
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C. Board practices
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99.1 and 99.4
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D. Employees
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99.1 and 99.4
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E. Share Ownership
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99.1 and 99.4
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Item 7
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Major Shareholders and Related Party Transactions
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A. Major shareholders
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99.4 and 99.5
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B. Related party transactions
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99.1 and 99.2
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C. Interests of experts and counsel
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99.1
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Item 8
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Financial Information
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A. Consolidated Statements and Other Financial Information
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99.1 and 99.2
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B. Significant changes
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99.2
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Item 9
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The Offer and Listing
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A. Offer and listing details
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N/A
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B. Plan of distribution
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N/A
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C. Markets
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N/A
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D. Selling shareholders
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N/A
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E. Dilution
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N/A
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F. Expenses of the issue
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N/A
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Item 10
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Additional Information
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A. Share Capital
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99.1 and 99.2
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B. Memorandum and articles of association
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1.1 and 1.2
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C. Material contracts
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4.1, 4.2, 4.3, 4.4, 4.5, 4.6, 4.7, 4.8
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D. Exchange controls
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N/A
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E. Taxation
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N/A
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F. Dividends and paying agents
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N/A
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G. Statement by experts
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99.1
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H. Documents on display
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99.1
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I. Subsidiary information
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N/A
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Item 11
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Quantitative and Qualitative Disclosures About Market Risk
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N/A
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Item 12
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Description of Securities Other than Equity Securities
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N/A
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Part II
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Item 13
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Defaults, Dividend Arrearages and Delinquencies
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N/A
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Item 14
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Material Modifications to the Rights of Security Holders and Use of Proceeds
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N/A
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Item 15
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Controls and Procedures
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99.3
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Item 16
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[Reserved]
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Item 16A.
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Audit committee financial expert
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99.5
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Item 16B.
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Code of Ethics
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11
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Item 16C.
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Principal Accountant Fees and Services
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99.4
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Item 16D.
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Exemptions from the Listing Standards for Audit Committees
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N/A
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Item 16E.
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Purchases of Equity Securities by the Issuer and Affiliated Purchases
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N/A
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Item 16F.
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Change in Registrant’s Certifying Accountant
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N/A
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Item 16G.
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Corporate Governance
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N/A
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Item 16H.
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Mine Safety Disclosure
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N/A
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Part III
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Item 17
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Financial Statements
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N/A
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Item 18
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Financial Statements
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99.2
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Item 19
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Exhibits
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Exhibit Index
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EXHIBIT INDEX
The registrant hereby certifies that it meets all of the requirements
for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
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Dated: October 31, 2018
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NEXTSOURCE MATERIALS INC.,
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By:
/s/ Marc Johnson
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Name: Marc Johnson
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Title: Chief Financial Officer
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Exhibit 1.1
Certificate of Continuance Canada Business Corporations Act Certificat de prorogation Loi canadienne sur les sociétés par actions NextSource Materials Inc. Corporate name / Dénomination sociale 1055709 - 9 Corporation number / Numéro de société Virginie Ethier Director / Directeur 2017 - 12 - 27 Date of Continuance (YYYY - MM - DD) Date de prorogation (AAAA - MM - JJ) JE CERTIFIE que la société susmentionnée, dont les clauses de prorogation sont jointes, est prorogée en vertu de l'article 187 de la Loi canadienne sur les sociétés par actions (LCSA). I HEREBY CERTIFY that the above - named corporation, the articles of continuance of which are attached, is continued under section 187 of the Canada Business Corporations Act (CBCA).
Form 11 Articles of Continuance Canada Business Corporations Act (CBCA) (s. 187) Formulaire 11 Clauses de prorogation Loi canadienne sur les sociétés par actions (LCSA) (art. 187) 1 3 4 5 7 8 Corporate name Dénomination sociale NextSource Materials Inc. The province or territory in Canada where the registered office is situated La province ou le territoire au Canada où est situé le siège social ON The classes and the maximum number of shares that the corporation is authorized to issue Catégories et le nombre maximal d’actions que la société est autorisée à émettre The Corporation is authorized to issue an unlimited number of common shares. Restrictions on share transfers Restrictions sur le transfert des actions None Restrictions on the business the corporation may carry on Limites imposées à l’activité commerciale de la société None Other Provisions Autres dispositions See attached schedule / Voir l'annexe ci - jointe Minimum and maximum number of directors Nombre minimal et maximal d’administrateurs Min. 1 Max. 10 6 2 (1) If change of name effected, previous name S’il y a changement de dénomination sociale, indiquer la dénomination sociale antérieure Not Applicable / Sans objet (2) Details of incorporation Détails de la constitution The Corporation was incorporated under the Minnesota Business Corporation Act on May 7, 2008 Marc Johnson 9 Misrepresentation constitutes an offence and, on summary conviction, a person is liable to a fine not exceeding $5000 or to imprisonment for a term not exceeding six months or both (subsection 250(1) of the CBCA). Faire une fausse déclaration constitue une infraction et son auteur, sur déclaration de culpabilité par procédure sommaire, est passible d’une amende maximale de 5 000 $ et d’un emprisonnement maximal de six mois, ou l’une de ces peines (paragraphe 250(1) de la LCSA). You are providing information required by the CBCA. Note that both the CBCA and the Privacy Act allow this information to be disclosed to the public. It will be stored in personal information bank number IC/PPU - 049. Vous fournissez des renseignements exigés par la LCSA. Il est à noter que la LCSA et la Loi sur les renseignements personnels permettent que de tels renseignements soient divulgués au public. Ils seront stockés dans la banque de renseignements personnels numéro IC/PPU - 049. IC 3247 (2008/04) Declaration: I certify that I am a director or an officer of the company continuing into the CBCA. Déclaration : J’atteste que je suis un administrateur ou un dirigeant de la société se prorogeant sous le régime de la LCSA. Original signed by / Original signé par Marc Johnson
Schedule / Annexe Other Provisions / Autres dispositions Without in any way restricting the powers conferred upon the Corporation or its board of directors by the Canada Business Corporations Act, as now enacted or as the same may from time to time be amended, re - enacted or replaced, the board of directors may from time to time, without authorization of the shareholders, in such amounts and on such terms as it deems expedient: (a) borrow money upon the credit of the Corporation; (b) issue, re - issue, sell or pledge debt obligations of the Corporation; (c) subject to the provisions of the Canada Business Corporations Act, as now enacted or as the same may from time to time be amended, re - enacted or replaced, give a guarantee on behalf of the Corporation to secure performance of an obligation of any person; and (d) mortgage, hypothecate, pledge or otherwise create a security interest in all or any property of the Corporation owned or subsequently acquired, to secure any obligation of the Corporation. The board of directors may from time to time delegate to a director, a committee of directors or an officer of the Corporation any or all of the powers conferred on the board as set out above, to such extent and in such manner as the board shall determine at the time of such delegation. Between annual and general meetings of the Corporation, the directors of the Corporation may appoint one or more additional directors to serve until the next annual and general meeting but the number of additional directors shall not at any time exceed one - third of the number of directors who held office at the expiration of the last annual and general meeting.
Formulaire 2 Siège social initial et premier conseil d’administration Loi canadienne sur les sociétés par actions (LCSA) (art. 19 et 106) Form 2 Initial Registered Office Address and First Board of Directors Canada Business Corporations Act (CBCA) (s. 19 and 106) 4 1 2 3 Corporate name Dénomination sociale NextSource Materials Inc. Address of registered office Adresse du siège social 145 Wellington Street West, Suite 1001 Toronto ON M5J 1H8 Additional address Autre adresse Members of the board of directors Membres du conseil d’administration See attached schedule / Voir l’annexe ci - jointe Misrepresentation constitutes an offence and, on summary conviction, a person is liable to a fine not exceeding $5000 or to imprisonment for a term not exceeding six months or both (subsection 250(1) of the CBCA). Faire une fausse déclaration constitue une infraction et son auteur, sur déclaration de culpabilité par procédure sommaire, est passible d’une amende maximale de 5 000 $ et d’un emprisonnement maximal de six mois, ou l’une de ces peines (paragraphe 250(1) de la LCSA). You are providing information required by the CBCA. Note that both the CBCA and the Privacy Act allow this information to be disclosed to the public. It will be stored in personal information bank number IC/PPU - 049. Vous fournissez des renseignements exigés par la LCSA. Il est à noter que la LCSA et la Loi sur les renseignements personnels permettent que de tels renseignements soient divulgués au public. Ils seront stockés dans la banque de renseignements personnels numéro IC/PPU - 049. 5 Declaration: I certify that I have relevant knowledge and that I am authorized to sign this form. Déclaration : J’atteste que je possède une connaissance suffisante et que je suis autorisé(e) à signer le présent formulaire. Original signed by / Original signé par Marc Johnson Marc Johnson 416 - 306 - 2854 IC 2904 (2008/04)
Schedule / Annexe Members of the board of directors / Membres du conseil d’administration Resident Canadian Résident Canadien John Sanderson 145 Wellington Street West, Suite 1001, Toronto ON M5J 1H8, Canada Yes / Oui Craig Scherba 145 Wellington Street West, Suite 1001, Toronto ON M5J 1H8, Canada Yes / Oui Quentin Yarie 145 Wellington Street West, Suite 1001, Toronto ON M5J 1H8, Canada Yes / Oui Robin Borley 145 Wellington Street West, Suite 1001, Toronto ON M5J 1H8, Canada No / Non Dean Comand 145 Wellington Street West, Suite 1001, Toronto ON M5J 1H8, Canada Yes / Oui Dalton Larson 145 Wellington Street West, Suite 1001, Toronto ON M5J 1H8, Canada Yes / Oui
Exhibit 1.2
BY-LAW NO. 1
NEXTSOURCE
MATERIALS INC.
CONTENTS
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Part One
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Interpretation
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Part Two
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Business of the Corporation
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Part Three
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Directors
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Part Four
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Meetings of Directors
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Part Five
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Committees
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Part Six
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-
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Officers
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Part Seven
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Protection of Directors, Officers and Others
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Part Eight
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-
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Shares
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Part Nine
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Dividends and Rights
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Part Ten
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Meetings of Shareholders
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Part Eleven
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-
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Notices
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Part Twelve
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-
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Electronic Documents
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Part Thirteen
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Effective Date
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BE IT ENACTED AND
IT IS HEREBY ENACTED as a by-law of NextSource Materials Inc. (the "
Corporation
") as follows:
PART One
INTERPRETATION
In this by-law and
all other by-laws of the Corporation, unless the context otherwise specifies or requires:
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(1)
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"Act"
means the Canada Business Corporations Act, R.S.C., 1985, c. C-44 and the regulations
made under the Act, as from time to time amended, and every statute that may be substituted
therefor and, in the case of such amendment or substitution, any reference in the by-laws
of the Corporation shall be read as referring to the amended or substituted provisions
therefor;
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(2)
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“appoint”
includes “elect” and vice versa;
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(3)
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“articles”
means the articles of the Corporation as from time to time amended or restated;
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(4)
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"board"
means the board of directors of the Corporation;
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(5)
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"by-laws"
means this by-law and any other by-law of the Corporation from time to time in force
and effect;
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(6)
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"meeting
of shareholders" includes an annual meeting of shareholders and a special meeting
of shareholders;
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(7)
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"non-business
day" means Saturday, Sunday and any other day that is a holiday as defined in the
Interpretation Act (Canada);
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(8)
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"recorded
address" means in the case of a shareholder, his or her address as recorded in the
securities register; and in the case of joint shareholders, the address appearing in
the securities register in respect of such joint holding, or the first address so appearing
if there are more than one; and in the case of a director, officer, auditor or member
of a committee of the board, his or her latest address as recorded in the records of
the Corporation;
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(9)
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"signing
officer" means, in relation to any instrument, any person authorized to sign the
same on behalf of the Corporation by section 2.04 or by a resolution passed pursuant
to section 2.04;
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(10)
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"special
meeting of shareholders" includes a meeting of any class or classes of shareholders,
and means a special meeting of all shareholders entitled to vote at an annual meeting
of shareholders;
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(11)
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all terms
contained in the by-laws that are not otherwise defined in the by-laws and which are
defined in the Act, such as “resident Canadian”, shall have the meanings
given to such terms in the Act;
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(12)
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words importing
the singular shall include the plural and vice-versa; words importing the masculine gender
shall include the feminine and neuter genders; and the word “persons” shall
include individuals, bodies corporate, partnerships, associations, personal representatives
and any number or aggregate of persons; and
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(13)
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the headings
used in the by-laws are inserted for reference purposes only, and are not to be considered
or taken into account in construing the terms or provisions thereof, or to be deemed
in any way to clarify, modify or explain the effect of any such terms or provisions.
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In the event of any
inconsistencies between the by-laws and mandatory provisions of the Act, the provisions of the Act shall prevail.
PART Two
BUSINESS OF THE CORPORATION
Unless changed in
accordance with the Act, the registered office of the Corporation shall be in the province in Canada from time to time specified
in the articles and at such address within such province as the directors may from time to time determine.
The Corporation may,
but need not, adopt a corporate seal and if one is adopted it shall be in such form as the directors may by resolution adopt from
time to time.
The first financial
period of the Corporation and thereafter the fiscal year of the Corporation shall terminate on such date as the directors may
by resolution determine.
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2.04
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Execution of Instruments
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Subject to section
2.06, contracts, documents or instruments in writing requiring the signature of the Corporation may be signed on behalf of the
Corporation by any one officer or director. The directors are authorized from time to time by resolution to appoint any officer
or officers or any other person or persons on behalf of the Corporation either to sign contracts, documents or instruments in
writing generally or to sign specific contracts, documents or instruments in writing. In addition, any director or officer who
may execute contracts, documents or instruments in writing, on behalf of the Corporation, may direct the manner in which and the
person or persons by whom any particular contract, document or instrument in writing, or class thereof, may or shall be executed
and delivered on behalf of the Corporation.
The signature or signatures
of any officer or director of the Corporation and of any officer or officers, person or persons appointed as set out above by
resolution of the directors may, if specifically authorized by resolution of the directors, be printed, engraved, lithographed
or otherwise mechanically or electronically reproduced upon all contracts, documents or instruments in writing or bonds, debentures
or other securities of the Corporation executed or issued by or on behalf of the Corporation, and all contracts, documents or
instruments in writing or securities of the Corporation on which the signature or signatures of any of the foregoing officers,
directors or persons shall be so reproduced, as authorized by resolution of the directors, shall be deemed to have been manually
signed by such officers, directors or persons whose signature or signatures is or are so reproduced, and shall be as valid to
all intents and purposes as if they had been signed manually, and notwithstanding that the officers, directors or persons whose
signature or signatures is or are so reproduced may have ceased to hold office at the date of the delivery or issue of such contracts,
documents or instruments in writing or securities of the Corporation.
The corporate seal
of the Corporation may, when required, be affixed to contracts, documents or instruments in writing signed as set out above or
by an officer or officers, person or persons appointed as set out above by resolution of the board of directors, although a document
is not invalid merely because a corporate seal is not affixed to it.
The term "contracts,
documents or instruments in writing" as used in this by-law shall include deeds, mortgages, hypothecs, charges, conveyances,
transfers and assignments of property, real or personal, immovable or movable, agreements, releases, receipts and discharges for
the payment of money or other obligations, conveyances, transfers and assignments of securities and all paper writings.
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2.05
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Banking Arrangements
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The banking business
of the Corporation including, without limitation, the borrowing of money and the giving of security therefor, shall be transacted
with such banks, trust companies or other bodies corporate or organizations as may from time to time be designated by or under
the authority of the directors. Such banking business or any part thereof shall be transacted under such agreements, instructions
and delegations of powers as the directors may from time to time by resolution prescribe or authorize.
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2.06
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Cheques, Drafts, Notes, Etc.
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All cheques, drafts
or orders for the payment of money, and all notes, acceptances and bills of exchange shall be signed by such officer or officers
or other person or persons, whether or not an officer or officers of the Corporation, and in such manner as the directors may
from time to time designate by resolution.
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2.07
|
Custody of Securities
|
All securities (including
shares, debentures, bonds, notes, warrants or other obligations or securities) owned by the Corporation shall be lodged in the
name of the Corporation with a chartered bank or a trust company or in a safety deposit box or, if so authorized by resolution
of the directors, with such other depositaries or in such other manner as may be determined from time to time by the directors.
All securities (including shares, debentures, bonds, notes, warrants or other obligations or securities) belonging to the Corporation
may be issued and held in the name of a nominee or nominees of the Corporation (and if issued or held in the names of more than
one nominee shall be held in the names of the nominees jointly with right of survivorship), and shall be endorsed in blank with
endorsement guaranteed in order to enable transfer thereof to be completed and registration thereof to be effected.
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2.08
|
Voting Securities in Other Bodies
Corporate
|
The signing officers
of the Corporation may execute and deliver proxies and arrange for the issuance of voting certificates or other evidence of the
right to exercise the voting rights attaching to any securities held by the Corporation. Such instruments shall be in favour of
such persons as may be determined by the said signing officers executing or arranging for the same. In addition, the directors
may from time to time direct the manner in which and the persons by whom any particular voting rights or class of voting rights
may or shall be exercised.
PART Three
DIRECTORS
Until changed in accordance
with the Act, the board shall consist of not fewer than the minimum number and not more than the maximum number of directors provided
in the articles.
Every director shall
be an individual 18 or more years of age, and no one who is of unsound mind and has been so found by a court in Canada or elsewhere,
or who has the status of a bankrupt shall be a director. Unless the articles otherwise provide, a director need not be a shareholder.
Subject to the Act, at least 25% of the directors of the Corporation must be resident Canadians. If at any time the Corporation
has less than four directors, at least one director must be a resident Canadian.
A director's term
of office (subject to the provisions, if any, of the Corporation's articles, and subject to his or her election for an expressly
stated term) shall be from the date of the meeting at which he or she is elected or appointed until the close of the annual meeting
next following, or until his or her successor is elected or appointed.
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3.04
|
Election and Removal
|
Directors shall be
elected by the shareholders in a meeting on a show of hands unless a poll is demanded, and if a poll is demanded, such election
shall be by ballot. The number of directors to be elected at any such meeting shall be the number of directors then in office
unless the directors or the shareholders otherwise determine. Except for those directors elected for an expressly stated term,
all the directors then in office shall cease to hold office at the close of a meeting of shareholders at which directors are elected
but, if qualified, are eligible for re-election. If a meeting of the shareholders of the Corporation fails to elect the number
or the minimum number of directors required by the articles by reason of the disqualification, incapacity or the death of any
candidates, the directors elected at that meeting may exercise all the powers of the directors if the number of directors so elected
constitutes a quorum. Subject to subsection 2 of section 109 of the Act, the shareholders of the Corporation may, by ordinary
resolution at a special meeting, remove any director before the expiration of his or her term of office, in which case the director
so removed shall vacate office forthwith upon the passing of the resolution for his or her removal, and may, by a majority of
the votes cast at the meeting, elect any person in his or her stead for the remainder of his or her term.
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3.05
|
Advance Notice of Nomination of Directors
|
Subject only to the
Act and the articles of the Corporation, only persons who are nominated in accordance with the following procedures shall be eligible
for election as directors of the Corporation. Nominations of persons for election to the board may be made at any annual meeting
of shareholders, or at any special meeting of shareholders if one of the purposes for which the special meeting was called was
the election of directors, (i) by or at the direction of the board or an authorized officer of the Corporation, including pursuant
to a notice of meeting; (ii) by or at the direction or request of one or more shareholders pursuant to a proposal made in accordance
with the provisions of the Act or a requisition of the shareholders made in accordance with the provisions of the Act; or (iii)
by any person (a “
Nominating Shareholder
”) (i) who, at the close of business on the date of the giving of the
notice provided for below in this Section 3.05 and on the record date for notice of such meeting, is entered in the securities
register as a holder of one or more shares carrying the right to vote at such meeting or who beneficially owns shares that are
entitled to be voted at such meeting and (ii) who complies with the notice procedures set forth below in this Section 3.05:
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(a)
|
In addition
to any other applicable requirements, for a nomination to be made by a Nominating Shareholder,
the Nominating Shareholder must have given timely notice thereof in proper written form
to the secretary of the Corporation at the principal executive offices of the Corporation
in accordance with this Section 3.05.
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(b)
|
To be
timely, a Nominating Shareholder’s notice to the secretary of the Corporation must
be made (a) in the case of an annual meeting of shareholders, not less than thirty (30)
nor more than sixty-five (65) days prior to the date of the annual meeting of shareholders;
provided, however, that in the event that the annual meeting of shareholders is called
for a date that is less than fifty (50) days after the date (the “
Notice
Date
”) on which the first public announcement of the date of the annual meeting
was made, notice by the Nominating Shareholder may be made not later than the close of
business on the tenth (10
th
) day following the Notice Date; and (b) in the
case of a special meeting (which is not also an annual meeting) of shareholders called
for the purpose of electing directors (whether or not called for other purposes), not
later than the close of business on the fifteenth (15
th
) day following the
day on which the first public announcement of the date of the special meeting of shareholders
was made.
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(c)
|
In no
event shall any adjournment or postponement of a meeting of shareholders or the announcement
thereof commence a new time period for the giving of a Nominating Shareholder’s
notice as described above.
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|
(d)
|
To be
in proper written form, a Nominating Shareholder’s notice to the secretary of the
Corporation must set forth (a) as to each person whom the Nominating Shareholder proposes
to nominate for election as a director (i) the name, age, business address and residence
address of the person, (ii) the principal occupation or employment of the person, (iii)
the class or series and number of shares in the capital of the Corporation which are
controlled or which are owned beneficially or of record by the person as of the record
date for the meeting of shareholders (if such date shall then have been made publicly
available and shall have occurred) and as of the date of such notice, and (iv) any other
information relating to the person that would be required to be disclosed in a dissident’s
proxy circular in connection with solicitations of proxies for election of directors
pursuant to the Act and Applicable Securities Laws (as defined below); and (b) as to
the Nominating Shareholder giving the notice, any proxy, contract, arrangement, understanding
or relationship pursuant to which such Nominating Shareholder has a right to vote any
shares of the Corporation and any other information relating to such Nominating Shareholder
that would be required to be made in a dissident’s proxy circular in connection
with solicitations of proxies for election of directors pursuant to the Act and Applicable
Securities Laws (as defined below). The Corporation may require any proposed nominee
to furnish such other information, including a written consent to act, as may reasonably
be required by the Corporation to determine the eligibility of such proposed nominee
to serve as an independent director of the Corporation or that could be material to a
reasonable shareholder’s understanding of the independence, or lack thereof, of
such proposed nominee.
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(e)
|
No person
shall be eligible for election as a director of the Corporation unless nominated in accordance
with the provisions of this Section 3.05; provided, however, that nothing in this Section
3.05 shall be deemed to preclude discussion by a shareholder (as distinct from nominating
directors) at a meeting of shareholders of any matter in respect of which it would have
been entitled to submit a proposal pursuant to the provisions of the Act. The chairperson
of the meeting shall have the power and duty to determine whether a nomination was made
in accordance with the procedures set forth in the foregoing provisions and, if any proposed
nomination is not in compliance with such foregoing provisions, to declare that such
defective nomination shall be disregarded.
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(f)
|
For
purposes of this Section 3.05, (i) “public announcement” shall mean disclosure
in a press release reported by a national news service in Canada, or in a document publicly
filed by the Corporation under its profile on the System of Electronic Document Analysis
and Retrieval at www.sedar.com; and (ii) “Applicable Securities Laws” means
the applicable
Securities Act
of each relevant province and territory of Canada,
as amended from time to time, the rules, regulations and forms made or promulgated under
any such statute and the published national instruments, multilateral instruments, policies,
bulletins and notices of the securities commission and similar regulatory authority of
each province and territory of Canada.
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(g)
|
Notwithstanding
any other provision of the by-laws of the Corporation, notice given to the secretary
of the Corporation pursuant to this Section 3.05 may only be given by personal delivery,
facsimile transmission or by email (at such email address as stipulated from time to
time by the secretary of the Corporation for purposes of this notice), and shall be deemed
to have been given and made only at the time it is served by personal delivery, email
(at the address as aforesaid) or sent by facsimile transmission (provided that receipt
of confirmation of such transmission has been received) to the secretary at the address
of the principal executive offices of the Corporation; provided that if such delivery
or electronic communication is made on a day which is not a business day or later than
5:00 p.m. (Toronto time) on a day which is a business day, then such delivery or electronic
communication shall be deemed to have been made on the subsequent day that is a business
day.
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(h)
|
Notwithstanding
the foregoing, the board may, in its sole discretion, waive any requirement in this Section
3.05.
|
The office of a director
shall
ipso facto
be vacated if:
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|
(b)
|
he or
she is removed from office by the shareholders;
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|
(c)
|
he or
she becomes bankrupt;
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|
(d)
|
he or
she is found by a court in Canada or elsewhere to be of unsound mind; or
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|
|
(e)
|
his
or her written resignation is received by the Corporation, or if a time is specified
in such resignation, at the time so specified, whichever is later.
|
Subject to the Act,
where a vacancy occurs in the board, except a vacancy resulting from an increase in the number or minimum number of directors
or from failure to elect the number or minimum number of directors required by the articles, and a quorum of directors remains
in office, the directors then in office (even though 25% of such directors are not resident Canadians) may appoint a person to
fill the vacancy for the remainder of the term. If there is not then a quorum of directors or if there has been a failure to elect
the number or minimum number of directors required by the articles, the directors then in office shall without delay call a special
meeting of shareholders to fill the vacancy and, if they fail to do so or if there are no directors then in office, the meeting
may be called by any shareholder.
The directors shall
manage, or supervise the management of, the business and affairs of the Corporation, and may exercise all such powers and do all
such acts and things as may be exercised or done by the Corporation and are not by the Act, the articles, the by-laws, any special
resolution of the Corporation, or by statute expressly directed or required to be done in some other manner.
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|
3.09
|
Canadian Directors Present at Meetings
|
The directors shall
not transact business at a meeting unless at least twenty-five per cent of the directors present are resident Canadians or, if
the Corporation has less than four directors, at least one of the directors present is a resident Canadian, except where:
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|
(a)
|
a resident
Canadian director who is unable to be present approves in writing or by telephonic, electronic
or other communication facility, the business transacted at the meeting; and
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|
(b)
|
the
required number of resident Canadian directors would have been present had that director
been present at the meeting.
|
Every director and
officer of the Corporation in exercising his or her powers and discharging his or her duties shall:
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|
(a)
|
act
honestly and in good faith with a view to the best interests of the Corporation; and
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|
(b)
|
exercise
the care, diligence and skill that a reasonably prudent person would exercise in comparable
circumstances.
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An act by a director
or officer is valid notwithstanding an irregularity in his or her election or appointment or a defect in his or her qualification.
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|
3.12
|
Remuneration and Expenses
|
The remuneration to
be paid to the directors shall be such as the directors shall from time to time determine. The directors may also by resolution
award special remuneration to any director in undertaking any special services on the Corporation's behalf other than the routine
work ordinarily required of a director of a Corporation. The confirmation of any such resolution or resolutions by the shareholders
shall not be required. The directors shall also be entitled to be paid their travelling and other expenses properly incurred by
them in connection with the affairs of the Corporation.
PART Four
MEETINGS OF DIRECTORS
Meetings of the directors
shall be held from time to time at such place as the chairman of the board (if any), the president or vice-president who is a
director or any two directors may determine and the corporate secretary shall, upon direction of any of the foregoing, convene
a meeting of directors.
Meetings of directors
and of any committee of directors may be held at any place in or outside Canada.
Notice of the time
and place for the holding of any such meeting shall be delivered personally, by mail or by facsimile, or otherwise communicated
by electronic means upon written consent in accordance with the requirements of the Act (“Electronic Communications”)
to each director not less than two business days (exclusive of the day on which the notice is delivered, mailed, or sent by Electronic
Communications but inclusive of the day for which notice is given) before the date of the meeting; provided that meetings of the
directors or of any committee of directors may be held at any time without formal notice if all the directors are present (except
where a director attends a meeting for the express purpose of objecting to the transaction of any business on the grounds that
the meeting is not lawfully called) or if all absent directors have waived notice. Notice of any meeting of directors or of any
committee of directors or any irregularity in any meeting or the notice thereof may be waived by any director in writing or by
Electronic Communication addressed to the Corporation or in any other manner, and such waiver may be validly given either before
or after the meeting to which such waiver relates. A notice of meeting of directors or of any committee of directors need not
specify the purpose of or the business to be transacted at the meeting except where the Act requires such purpose or business
to be specified.
Subject to section
3.09, the quorum for the transaction of business at any meeting of the directors shall consist of a majority of the directors
then in office and, notwithstanding any vacancy among the directors, a quorum of directors may exercise all the powers of the
directors.
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|
4.05
|
First Meeting of the New Board
|
For the first meeting
of directors to be held following the election of directors at an annual or special meeting of the shareholders, or for a meeting
of directors at which a director is appointed to fill a vacancy in the board, no notice of such meeting need be given to the newly
elected or appointed director or directors in order for the meeting to be duly constituted, provided a quorum of the directors
is present.
Any meeting of directors
or of any committee of directors may be adjourned from time to time by the chairman of the meeting, with the consent of the meeting,
to a fixed time and place, and no notice of the time and place for the holding of the adjourned meeting need be given to any director
if the time and place of the adjourned meeting are announced at the original meeting. Any adjourned meeting shall be duly constituted
if held in accordance with the terms of the adjournment and a quorum is present thereat. The directors who formed a quorum at
the original meeting are not required to form the quorum at the adjourned meeting. If there is no quorum present at the adjourned
meeting, the original meeting shall be deemed to have terminated forthwith after its adjournment.
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|
4.07
|
Electronic Participation
|
Subject to the Act,
if all of the directors consent, a director may participate in a meeting of the directors or a committee of directors by means
of such telephonic, electronic or other communications facilities as permit all persons participating in the meeting to communicate
adequately with each other, and a director participating in a meeting by such means shall be deemed to be present at that meeting.
A consent is effective whether given before or after the meeting and may be given with respect to all meetings of the directors
and committees of the directors.
The directors may
appoint a day or days in any month or months for regular meetings of the directors at a place and hour to be named. A copy of
any resolution of the board fixing the place and time of such regular meetings shall be sent to each director forthwith after
being passed, but no other notice shall be required for any such regular meeting except where the Act requires the purpose thereof
or the business to be transacted thereat to be specified.
The chairman of any
meeting of the directors shall be the first mentioned of such of the following officers as have been appointed and who is a director
and is present at the meeting: chairman of the board, chief executive officer, president, lead director or a vice-president. If
no such officer is present, the directors present shall choose one of their number to be chairman.
All questions arising
at any meeting of directors shall be decided by a majority of votes. In case of an equality of votes, the chairman of the meeting
in addition to his or her original vote shall not have a second or casting vote.
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|
4.11
|
Resolution in Lieu of Meeting
|
A resolution in writing
signed by all the directors entitled to vote on that resolution at a meeting of directors or committee of directors is as valid
as if it had been passed at a meeting of directors or committee of directors. A copy of every such resolution shall be kept with
the minutes of the proceedings of the directors or committee of directors.
PART Five
COMMITTEES
|
|
5.01
|
Committees of Directors
|
The directors may
appoint one or more committees of the board, however designated, and delegate to any such committee any of the powers of the board
except those which pertain to items which, under the Act, a committee of the board has no authority to exercise.
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|
5.02
|
Transaction of Business
|
Subject to the provisions
of section 4.07, the powers of such committee or committees of directors may be exercised by a meeting at which a quorum is present
or by resolution in writing signed by all the members of such committee who would have been entitled to vote on that resolution
at a meeting of the committee. Meetings of such committee may be held at any place in or outside Canada.
The directors shall
appoint annually from among its number an audit committee to be composed of not fewer than three directors. At least such number
of directors as may be specified by the Act, other applicable law or stock exchange requirements shall not be officers or employees
of the Corporation or its affiliates. The audit committee shall have the powers provided in the Act and in other applicable law
and in, addition, such other powers and duties as the directors may determine.
The directors may
from time to time appoint advisory bodies as they may deem advisable.
Unless otherwise determined
by the directors, each committee shall have the power to fix its quorum at not less than a majority of its members, to elect its
chairman and to regulate its procedure.
PART Six
OFFICERS
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|
6.01
|
Appointment of Officers
|
The directors shall
annually or as often as may be required appoint a chief executive officer, president, chief financial officer and a corporate
secretary, and if deemed advisable, may annually or as often as may be required appoint one or more vice-presidents (to which
title may be words added indicating seniority or function), a treasurer, a controller and such other officers as the directors
may determine, including one or more assistants to any one of the officers so appointed. Subject to sections 6.02 and 6.03, an
officer may but need not be a director, and one person may hold more than one office. In case and whenever the same person holds
the offices of corporate secretary and treasurer, he or she may but need not be known as the secretary-treasurer. The directors
may from time to time appoint such other officers, employees and agents as they shall deem necessary who shall have such authority
and shall perform such functions and duties as may from time to time be prescribed by resolution of the directors.
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|
6.02
|
Chairman of the Board
|
The board may from
time to time appoint a chairman of the board who shall be a director. If appointed, the directors may assign to him or her any
of the powers and duties that are by any provisions of this by-law assigned to the lead director or to the president; and he or
she shall, subject to the provisions of the Act, have such other powers and duties as the directors may specify. During the absence
or disability of the chairman of the board, his or her duties shall be performed and his or her powers exercised by the lead director,
if any, or by the president.
The board of directors
may appoint from their number a lead director who, unless otherwise permitted by the Act, shall be a resident Canadian. Subject
to the Act, a lead director shall possess and exercise such authority and powers and shall perform such duties as may be determined
by the by-laws and the board of directors. A lead director shall not be an officer of the Corporation.
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|
6.04
|
Chief Executive Officer
|
The chief executive
officer shall have, under the control of the board of directors, general supervision and direction of the business and affairs
of the Corporation. The chief executive officer shall possess and exercise such authority and powers and perform such other duties
as may be determined by the by-laws, the board of directors and the chairman of the board. In the absence of the chairman of the
board and lead director, if any, and if the executive officer is also a director of the Corporation, the executive officer shall,
when present, preside at all meetings of the directors, any committee of the directors and shareholders; he or she shall sign
such contracts, documents or instruments in writing as require his or her signature, and shall have such other powers and shall
perform such other duties as may from time to time be assigned to him or her by resolution of the directors or as are incident
to his or her office.
Unless the board of
directors determines otherwise, the president shall be the chief operating officer of the Corporation and shall have, under the
control of the board of directors and the chief executive officer, general supervision of the business of the Corporation. The
president shall possess and exercise such authority and powers and perform such other duties as may be determined by the by-laws,
the board of directors, the chairman of the board and the chief executive officer. In the absence of the chairman of the board
and the lead director, if any, and the chief executive officer, and if the president is also a director of the Corporation, the
president shall, when present, preside at all meetings of the directors, any committee of the directors and shareholders; he or
she shall sign such contracts, documents or instruments in writing as require his or her signature, and shall have such other
powers and shall perform such other duties as may from time to time be assigned to him or her by resolution of the directors or
as are incident to his or her office.
The vice-president
or, if more than one, the vice-presidents in order of seniority, shall be vested with all the powers and shall perform all the
duties of the president in the absence or inability or refusal to act of the chief executive officer, provided, however, that
a vice-president who is not a director shall not preside as chairman at any meeting of directors or shareholders. The vice-president
or, if more than one, the vice-presidents in order of seniority, shall sign such contracts, documents or instruments in writing
as require his, her or their signatures and shall also have such other powers and duties as may from time to time be assigned
to him, her or them by resolution of the directors.
The corporate secretary
shall possess and exercise such authority and powers and perform such duties as may be determined by the by-laws, the board of
directors, the chairman of the board, the chief executive officer and the president.
The corporate secretary
shall give or cause to be given, as and when instructed, notices to the board of directors, the shareholders, officers, auditors
and members of committees and advisory bodies of the board of directors. Unless otherwise determined by the board of directors,
the corporate secretary shall attend and record minutes of all meetings of the board of directors, committees of the board of
directors, shareholders and advisory bodies. The corporate secretary shall have charge of the corporate seal or seals and of the
corporate records, subject to section 8.03 hereof, required by law to be kept, except accounting records.
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|
6.08
|
Treasurer or Assistant Treasurer
|
The Treasurer or Assistant
Treasurer shall keep proper accounting records in compliance with the Act and shall be responsible for the deposit of money, the
safekeeping of securities and the disbursement of the funds of the Corporation; he or she shall render to the board whenever required
an account of all his or her transactions as Treasurer or Assistant Treasurer and of the financial position of the Corporation;
and he or she shall have such other powers and duties as the directors may specify. Unless and until the directors designate any
other officer of the Corporation to be the Chief Financial Officer of the Corporation, the Treasurer or Assistant Treasurer shall
be the Chief Financial Officer of the Corporation.
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|
6.09
|
Powers and Duties of Other Officers
|
The powers and duties
of all other officers shall be such as the terms of their engagement call for or as the directors or the chief executive officer
may specify. Any of the powers and duties of an officer to whom an assistant has been appointed may be exercised and performed
by such assistant, unless the board or the chief executive officer otherwise directs.
All officers, employees
and agents, in the absence of agreement to the contrary, shall be subject to removal by resolution of the directors at any time,
with or without cause. Otherwise, each officer appointed by the directors shall hold office until his or her successor is appointed
or until the earlier of his or her resignation or death.
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|
6.11
|
Variation of Powers and Duties
|
The directors may
from time to time and subject to the provisions of the Act, vary, add to or limit the powers and duties of any officer.
|
|
6.12
|
Terms of Employment and Remuneration
|
The terms of employment
and remuneration of all officers appointed by the board, including the chairman of the board, if any, and the president shall
be determined from time to time by resolution of the board. The fact that any officer or employee is a director or shareholder
shall not disqualify him or her from receiving such remuneration as may be determined.
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|
6.13
|
Conflict of Interest
|
An officer shall disclose
his or her interest in any material contract or proposed material contract with the Corporation in accordance with section 7.04.
If the office of chairman,
lead director, president, vice-president, corporate secretary, controller, treasurer, or any other office created by the directors
pursuant to section 6.01 hereof shall be or become vacant by reason of death, resignation or in any other manner whatsoever, the
directors shall in the case of the president or the corporate secretary and may in the case of any other officer appoint an officer
to fill such vacancy.
The duties of all
other officers of the Corporation shall be such as the terms of their engagement call for or the board requires of them. Any of
the powers and duties of an officer to whom an assistant has been appointed may be exercised and performed by such assistant,
unless the board otherwise directs.
PART Seven
PROTECTION OF DIRECTORS AND OFFICERS
|
|
7.01
|
Limitation of Liability
|
Except as otherwise
provided in the Act, no director or officer for the time being of the Corporation shall be liable for the acts, receipts, neglects
or defaults of any other director or officer or employee or for joining in any receipt or act for conformity, or for any loss,
damage or expense happening to the Corporation through the insufficiency or deficiency of title to any property acquired by the
Corporation or for or on behalf of the Corporation, or for the insufficiency or deficiency of any security in or upon which any
of the moneys of or belonging to the Corporation shall be placed out or invested, or for any loss or damage arising from the bankruptcy,
insolvency or tortious act of any person, including any person with whom or which any moneys, securities or effects shall be lodged
or deposited, or for any loss, conversion, misapplication or misappropriation of or any damage resulting from any dealings with
any moneys, securities or other assets belonging to the Corporation or for any other loss, damage or misfortune whatever which
may happen in the execution of the duties of his or her office or in relation thereto, unless the same shall happen by or through
his or her failure to exercise his or her powers and to discharge his or her duties honestly, in good faith with a view to the
best interests of the Corporation, and in connection therewith to exercise the care, diligence and skill that a reasonably prudent
person would exercise in comparable circumstances, provided that nothing in these by-laws shall relieve a director or officer
from the duty to act in accordance with the Act and regulations made thereunder, or relieve him or her from liability for a breach
thereof. The directors for the time being of the Corporation shall not be under any duty or responsibility in respect of any contract,
act or transaction whether or not made, done or entered into in the name or on behalf of the Corporation, except such as shall
have been submitted to and authorized or approved by the board of directors.
Subject to the Act,
the Corporation shall indemnify a director or officer of the Corporation, a former director or officer of the Corporation or another
individual who acts or acted at the Corporation's request as a director or officer, or an individual acting in a similar capacity,
of another entity, against all costs, charges and expenses, including an amount paid to settle an action or satisfy a judgment,
reasonably incurred by the individual in respect of any civil, criminal, administrative, investigative or other proceeding to
which the individual is involved because of that association with the Corporation or other entity, if:
|
|
(a)
|
the
individual acted honestly and in good faith with a view to the best interests of the
Corporation, or, as the case may be, to the best interests of the other entity for which
the individual acted as director or officer or in a similar capacity at the Corporation’s
request; and
|
|
|
(b)
|
in the
case of a criminal or administrative action or proceeding that is enforced by a monetary
penalty, the individual had reasonable grounds for believing that the individual’s
conduct was lawful.
|
The Corporation shall
also indemnify such person in such other circumstances as the Act permits or requires. The individual shall repay the monies if
he or she does not fulfill the conditions set out in paragraphs (a) and (b) above. Nothing in this by-law shall limit the right
of any individual entitled to indemnity to claim indemnity apart from the provisions of this by-law.
Subject to the Act,
the Corporation may purchase and maintain insurance for the benefit of any person referred to in section 7.02 against any liability
incurred by him or her in his or her capacity as a director or officer, or an individual acting in a similar capacity, of the
Corporation or of another body corporate at the Corporation's request.
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7.04
|
Conflict of Interest
|
A director or officer
who is a party to, or who is a director or officer (or acting in a similar capacity) of or has a material interest in a party
to, any material contract or transaction, whether made or proposed, with the Corporation shall disclose the nature and extent
of his or her interest at the time and in the manner provided by the Act. Any such contract or transaction shall be referred to
the directors or shareholders for approval even if such contract is one that in the ordinary course of the Corporation's business
would not require approval by the directors or shareholders, and a director interested in a contract so referred to the permitted
board shall not vote on any resolution to approve the same, except as permitted by the Act.
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7.05
|
Submission of Contracts or Transactions
to Shareholders for Approval
|
The directors in their
discretion may submit any contract, act or transaction for approval, ratification or confirmation at any annual meeting of the
shareholders or at any special meeting of the shareholders called for the purpose of considering the same and any contract, act
or transaction that shall be approved, ratified or confirmed by resolution passed by a majority of the votes cast at any such
meeting (unless any different or additional requirement is imposed by the Act or by the Corporation's articles or any other by-law)
shall be as valid and as binding upon the Corporation and upon all the shareholders as though it had been approved, ratified and/or
confirmed by every shareholder of the Corporation.
PART Eight
SHARES
Subject to the Act
and the articles of the Corporation, the directors may from time to time issue, or grant options to purchase, the whole or any
part of the authorized and unissued shares of the Corporation at such times and to such persons and for such consideration as
the directors may determine, provided that no share shall be issued until it is fully paid as provided by the Act.
The directors may
from time to time authorize the Corporation to pay a reasonable commission to any person in consideration of such person purchasing
or agreeing to purchase shares of the Corporation, whether from the Corporation or from any other person, or procuring or agreeing
to procure purchasers for any such shares.
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8.03
|
Transfer Agents and Registrars
|
The directors may
from time to time appoint a registrar to maintain the securities register and a transfer agent to maintain the register of transfers
and may also appoint one or more branch registrars to maintain branch securities registers and one or more branch transfer agents
to maintain branch registers of transfers, but one person may be appointed both registrar and transfer agent. The directors may
at any time terminate any such appointment.
Every holder of one
or more shares of the Corporation shall be entitled, at his or her option, to a share certificate, or to a non-transferable written
acknowledgement of his or her right to obtain a share certificate, stating the number and class or series of shares held by him
or her as shown on the securities register. Share certificates and acknowledgements of a shareholder's right to a share certificate
shall be in such form as the directors shall from time to time approve. Any share certificate shall be signed in accordance with
section 2.04; it need not be under the corporate seal. The signature of one of the signing officers may be printed or mechanically
reproduced upon share certificates. Every printed or mechanically reproduced signature shall for all purposes be deemed to be
a signature binding upon the Corporation. Unless the directors otherwise determine, certificates representing shares in respect
of which a transfer agent or registrar, as the case may be, has been appointed shall not be valid unless countersigned by or on
behalf of such transfer agent or registrar. In the case of share certificates which are not valid unless countersigned by or on
behalf of a transfer agent or registrar, the signature of any signing officer may be printed or mechanically reproduced upon share
certificates and every such printed or mechanically reproduced signature shall for all purposes be deemed to be a signature binding
upon the Corporation. Notwithstanding any change in the persons holding office between the time of signing and the issuance of
any certificate, and notwithstanding that a person may not have held office at the date of issuance of such certificate, any such
certificate so signed shall be valid and binding upon the Corporation.
If two or more persons
are registered as joint holders of any share, the Corporation shall not be bound to issue more than one certificate in respect
thereof, and delivery of such certificate to one of such persons shall be sufficient delivery to all of them. Any one of such
persons may give effectual receipts for the certificate issued in respect thereof or for any dividend, bonus, return of capital
or other money payable or warrant issuable in respect of such share.
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8.06
|
Deceased Shareholders
|
In the event of the
death of a holder, or of one of the joint holders, of any share, the Corporation shall not be required to make any entry in the
securities register in respect thereof or to make dividends or other payments in respect thereon except upon production of all
such documents as may be required by law and upon compliance with the reasonable requirements of the Corporation and its transfer
agents.
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8.07
|
Replacement of Share Certificates
|
The directors or any
officer or agent designated by the directors may in their or his or her discretion direct the issue of a new share certificate
in lieu of and upon cancellation of a share certificate that has been mutilated or in substitution for a share certificate claimed
to have been lost, destroyed or wrongfully taken on payment of such reasonable fee, and on such terms as to indemnity, reimbursement
of expenses and evidence of loss and of title as the directors, or any officer or agent designated by the directors, may from
time to time prescribe, whether generally or in any particular case.
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8.08
|
Lien for Indebtedness
|
If the articles provide
that the Corporation shall have a lien on shares registered in the name of a shareholder indebted to the Corporation, such lien
may be enforced, subject to the articles, by the sale of the shares thereby affected or by any other action, suit, remedy or proceeding
authorized or permitted by law or by equity and, pending such enforcement, may refuse to register a transfer of the whole or any
part of such shares.
PART Nine
DIVIDENDS AND RIGHTS
Subject to the Act,
the directors may from time to time declare dividends payable to the shareholders according to their respective rights and interests
in the Corporation. Dividends may be paid in money or property or by issuing fully paid shares of the Corporation.
A dividend payable
in money shall be paid by either electronically by direct deposit or by cheque drawn on the Corporation's bankers or one of them
to the order of each registered holder of shares of the class or series in respect of which it has been declared and, if paid
by cheque, mailed by prepaid ordinary mail to such registered holder at his or her recorded address, unless such holder otherwise
directs. In the case of joint holders any cheque issued shall, unless such joint holders otherwise direct, be made payable to
the order of all of such joint holders and mailed to them at their recorded address. The mailing of such cheque as set out in
this section, unless the same is not paid on due presentation, shall satisfy and discharge the liability for the dividend to the
extent of the sum represented thereby plus the amount of any tax which the Corporation is required to and does withhold.
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9.03
|
Non-Receipt of Cheques
|
In the event of non-receipt
of any dividend cheque by the person to whom it is sent as set out in section 9.02, the Corporation shall issue to such person
a replacement cheque for a like amount on such terms as to indemnity, reimbursement of expenses and evidence of non-receipt and
of title as the directors may from time to time prescribe, whether generally or in any particular case.
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9.04
|
Record Date for Dividends and Rights
|
The directors may
fix in advance a date, preceding by not more than 50 days the date for the payment of any dividend or the date for the issue of
any warrant or other evidence of right to subscribe for securities of the Corporation, as a record date for the determination
of the persons entitled to receive payment for such dividend or to exercise the right to subscribe for such securities, and notice
of any such record date shall be given not less than 7 days before such record date in the manner provided in the Act. If no record
date is so fixed, the record date for the determination of the persons entitled to receive payment of any dividend or to exercise
the right to subscribe for securities of the Corporation shall be at the close of business on the day on which the resolution
relating to such dividend or right to subscribe is passed by the directors.
Any dividend unclaimed
after a period of six years from the date on which the same has been declared to be payable shall be forfeited and shall revert
to the Corporation.
PART Ten
MEETINGS OF SHAREHOLDERS
The annual meeting
of shareholders shall be held on such day and at such time in each year and, subject to section 10.03, at such place as the directors,
the chairman of the board or the chief executive officer may from time to time determine, in any event no later than the earlier
of (i) six months after the end of each financial year of the Corporation and (ii) 15 months after the Corporation’s last
annual meeting of shareholders, for the purpose of considering the financial statements and reports required by the Act to be
placed before the annual meeting, electing directors, appointing auditors and for the transaction of such other business as may
properly be brought before the meeting.
An annual meeting
of shareholders may also be constituted as an annual and special meeting of shareholders to consider and transact any special
business, which may be considered and transacted at a special meeting of shareholders.
The directors shall
have power to call a special meeting of shareholders at any time.
Subject to the Act,
meetings of shareholders shall be held at the place within Canada that the directors determine. If the Corporation makes available
a telephonic, electronic or other communication facility that permits all participants of a shareholders meeting to communicate
adequately with each other during the meeting and otherwise complies with the Act, any person entitled to attend such meeting
may participate by means of such communication facility in the manner prescribed by the Act, and any person participating in the
meeting by such means is deemed to be present at the meeting.
Notice of the time
and place of each meeting of shareholders shall be given in the manner provided in Part Eleven not less than 21 nor more than
60 days before the date of the meeting to each director, to the auditors and to each shareholder who at the close of business
on the record date is entered in the securities register as the holder of one or more shares carrying the right to vote at the
meeting. Notice of a meeting of shareholders called for any purpose other than consideration of the financial statements and the
auditors' report, election of directors and reappointment of incumbent auditors shall state the nature of such business in sufficient
detail to permit the shareholder to form a reasoned judgment thereon and shall state the text of any special resolution to be
submitted to the meeting.
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10.05
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List of Shareholders Entitled to
Notice
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For every meeting
of shareholders, the Corporation shall prepare a list of shareholders entitled to receive notice of the meeting, arranged in alphabetical
order and showing the number of shares held by each shareholder entitled to vote at the meeting. If a record date for the meeting
is fixed pursuant to section 10.06, the shareholders listed shall be those registered at the close of business on such record
date. If no record date is fixed, the shareholders listed shall be those registered at the close of business on the day immediately
preceding the day on which notice of the meeting is given, or where no such notice is given, the day on which the meeting is held.
The list shall be available for examination by any shareholder during usual business hours at the registered office of the Corporation
or at the place where the central securities register is kept and at the meeting for which the list was prepared.
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10.06
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Record Date for Notice
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The directors may
fix in advance a record date, preceding the date of any meeting of shareholders by not more than 60 days and not less than 21
days, for the determination of the shareholders entitled to notice of the meeting, provided that notice of any such record date
is given not less than 7 days before such record date, in the manner provided in the Act. If no record date is so fixed, the record
date for the determination of the shareholders entitled to notice of the meeting shall be the close of business on the day immediately
preceding the day on which the notice is given, or, if no notice is given, the day on which the meeting is held.
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10.07
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Meetings Held by Electronic Means
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If the directors or
shareholders of the Corporation call a meeting of shareholders pursuant to the Act, the directors may determine that the meeting
shall be held, in accordance with the Act, entirely by means of a telephonic, electronic or other communications facility that
permits all participants to communicate adequately with each other during the meeting.
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10.08
|
Meetings without Notice
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A meeting of shareholders
may be held without notice at any time and place permitted by the Act (a) if all the shareholders entitled to vote thereat are
present in person or represented by proxy or if those not present or represented by proxy waive notice of or otherwise consent
to such meeting being held, and (b) if the auditors and the directors are present or waive notice of or otherwise consent to such
meeting being held, provided that such shareholders, auditors or directors present are not attending for the express purpose of
objecting to the transaction of any business on the grounds that the meeting is not lawfully called. At such a meeting, any business
may be transacted which the Corporation at a meeting of shareholders may transact.
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10.09
|
Chairman, Corporate Secretary and
Scrutineers
|
The chairman of any
meeting of shareholders shall be the first mentioned of such of the following officers as have been appointed and who is present
at the meeting: chairman of the board, chief executive officer, president, lead director or a vice-president who is a shareholder.
If no such officer is present within 15 minutes from the time fixed for holding the meeting, the persons present and entitled
to vote shall choose one of their number to be chairman. If the corporate secretary of the Corporation is absent, the chairman
shall appoint some person, who need not be a shareholder, to act as corporate secretary of the meeting. If desired, one or more
scrutineers, who need not be shareholders, may be appointed by a resolution or by the chairman with the consent of the meeting.
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10.10
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Persons Entitled to be Present
|
The only persons entitled
to be present at a meeting of shareholders shall be those entitled to vote thereat, the directors and auditors of the Corporation
and others who, although not entitled to vote, are entitled or required under any provision of the Act or the articles or by-laws
to be present at the meeting. Any other person may be admitted only on the invitation of the chairman of the meeting or with the
consent of the meeting.
Subject to the Act,
a quorum for the transaction of business at any meeting of shareholders shall be two persons present in person, each being a shareholder
entitled to vote thereat or a duly appointed proxy or proxyholder for an absent shareholder so entitled, holding or representing
in the aggregate not less than 10% of the issued and outstanding shares of the Corporation carrying voting rights at the meeting
of shareholders.
Subject to the provisions
of the Act as to authorized representatives of any other body corporate or association, at any meeting of shareholders for which
the Corporation has prepared the list referred to in paragraph 10.05, a shareholder whose name appears on such list is entitled
to vote the shares shown opposite his or her name at the meeting to which the list relates. At any meeting of shareholders for
which the Corporation has not prepared the list referred to in paragraph 10.05, every person shall be entitled to vote at the
meeting who at the time is entered in the securities register as the holder of one or more shares carrying the right to vote at
such meeting. The persons entitled to vote at any meeting of shareholders shall be the persons entitled to vote in accordance
with the Act.
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10.13
|
Proxyholders and Representatives
|
Every shareholder
entitled to vote at a meeting of shareholders may appoint a proxyholder, or one or more alternate proxyholders, to attend and
act as his or her representative at the meeting in the manner and to the extent authorized and with the authority conferred by
the proxy. A proxy shall be in writing executed by the shareholder or his or her attorney and shall conform with the requirements
of the Act. Alternatively, every such shareholder which is a body corporate or association may authorize by resolution of its
directors or governing body an individual to represent it at a meeting of shareholders and such individual may exercise on the
shareholder's behalf all the powers it could exercise if it were an individual shareholder. The authority of such an individual
shall be established by depositing with the Corporation a certified copy of such resolution, or in such other manner as may be
satisfactory to the corporate secretary of the Corporation or the chairman of the meeting. Any such proxyholder or representative
need not be a shareholder.
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10.14
|
Time for Deposit of Proxies
|
The directors may
specify in a notice calling a meeting of shareholders a time, preceding the time of such meeting by not more than 48 hours exclusive
of non-business days, before which time proxies to be used at such meeting must be deposited. A proxy shall be acted upon only
if, prior to the time so specified, it shall have been deposited with the Corporation or an agent thereof specified in such notice
or, if no such time is specified in such notice, it has been received by the corporate secretary of the Corporation or by the
chairman of the meeting or any adjournment thereof prior to the time of voting.
If two or more persons
hold shares jointly, any of them present in person or represented by proxy at a meeting of shareholders may, in the absence of
the other or others, vote the shares; but if two or more of those persons are present in person or represented by proxy, they
shall vote together as one on the shares jointly held by them.
At any meeting of
shareholders every question shall, unless otherwise required by the Act, the articles or by-laws or by law, be determined by the
majority of the votes cast on the question. In case of an equality of votes either upon a show of hand or upon a poll, the chairman
of the meeting shall not be entitled to a second or casting vote.
Subject to the Act,
any question at a meeting of shareholders shall be decided by a show of hands, which may include such other indication of a vote
made by means of the telephonic, electronic or other communication facility, if any, made available by the Corporation for that
purpose, unless a ballot thereon is required or demanded as provided in section 10.18. Upon a show of hands, every person who
is present, in person or by means of the telephonic, electronic or other communications facility, if any that the Corporation
has made available for such purpose, and entitled to vote shall have one vote. Whenever a vote by show of hands shall have been
taken upon a question, unless a ballot thereon is so required or demanded, a declaration by the chairman of the meeting that the
vote upon the question has been carried or carried by a particular majority or not carried and an entry to that effect in the
minutes of the meeting shall be prima facie evidence of the fact without proof of the number or proportion of the votes recorded
in favour of or against any resolution or other proceeding in respect of the said question, and the result of the vote so taken
shall be the decision of the shareholders upon the said question. For the purpose of this section, if at any meeting the Corporation
has made available to shareholders the means to vote electronically, any vote made electronically shall be included in tallying
any votes by show of hands.
On any question proposed
for consideration at a meeting of shareholders, and whether or not a show of hands has been taken thereon, the chairman may require
a ballot or any person who is present and entitled to vote at the meeting may require or demand a ballot. A ballot so required
or demanded shall be taken in such manner as the chairman shall direct. A requirement or demand for a ballot may be withdrawn
at any time prior to the taking of the ballot. If a ballot is taken each person present shall be entitled, in respect of the shares
which he or she is entitled to vote at the meeting upon the question, to that number of votes provided by the Act or the articles,
and the result of the ballot so taken shall be the decision of the shareholders upon the said question.
The chairman at a
meeting of shareholders may, with the consent of the meeting and subject to such conditions as the meeting may decide, adjourn
the meeting from time to time and from place to place. If a meeting of shareholders is adjourned for less than 30 days, it shall
not be necessary to give notice of the adjourned meeting, other than by announcement at the earliest meeting that is adjourned.
Subject to the Act, if a meeting of shareholders is adjourned by one or more adjournments for an aggregate of 30 days or more,
notice of the adjourned meeting shall be given as for an original meeting.
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10.20
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Resolution in Writing
|
A resolution in writing
signed by all the shareholders entitled to vote on that resolution at a meeting of shareholders is as valid as if it had been
passed at a meeting of the shareholders unless a written statement with respect to the subject matter of the resolution is submitted
by a director or the auditors in accordance with the Act.
PART Eleven
NOTICES
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11.01
|
Method of Giving Notices
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Any notice (which
term includes any communication or document) to be given (which term includes sent, delivered or served) pursuant to the Act,
the regulations thereunder, the articles, the by-laws or otherwise to a shareholder, director, officer, auditor or member of a
committee of the directors shall be sufficiently given if delivered personally to the person to whom it is to be given; delivered
to the recorded address of the person; mailed to the person’s recorded address by prepaid or ordinary or air mail; sent
to the person’s recorded address by any means of prepaid transmitted or recorded communication; or an electronic document
is provided in accordance with Part Twelve of this by-law.
A notice delivered
as set out in this section is deemed to have been given when it is delivered personally or to the recorded address; a notice mailed
as set out in this section shall be deemed to have been given when deposited in a post office or public letter box; and a notice
sent by means of transmitted or recorded communication as set out in this section is deemed to have been dispatched or delivered
to the appropriate communication company or agency or its representative for dispatch; and a notice sent by electronic means as
set out in this section and Part Twelve shall be deemed to have been given upon receipt of reasonable confirmation of transmission
to the designated information system indicated by the person entitled to receive such notice. The corporate secretary may change
or cause to be changed the recorded address of any shareholder, director, officer, auditor or member of a committee of the directors
in accordance with any information believed by him or her to be reliable.
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11.02
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Signature to Notices
|
The signature of any
director or officer of the Corporation to any notice or document to be given by the Corporation may be written, stamped, mechanically
reproduced or electronically reproduced in whole or in part.
With respect to every
notice sent by post it is sufficient to prove that the envelope or wrapper continuing the notice or other document was properly
addressed as provided in this by-law and put into a post office or into a letter box. With respect to every notice or other document
sent as an electronic document it is sufficient to prove that the electronic document was properly addressed to the designated
information system as provided in this by-law and sent by electronic means. A certificate of the chairman of the board, the chief
executive officer, the president, a vice-president, the corporate secretary, the treasurer or the controller or of any other officer
of the Corporation in office at the time of the making of the certificate or of a transfer officer of any transfer agent or branch
transfer agent of shares of any class of the Corporation as to the facts in relation to the mailing or delivery of any notice
or other document to any shareholder, director, officer or auditor or publication of any notice or other document shall be conclusive
evidence thereof and shall be binding on every shareholder, director, officer or auditor of the Corporation as the case may be.
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11.04
|
Notice to Joint Shareholders
|
If two or more persons
are registered as joint holders of any share, any notice may be addressed to all of such joint holders but notice to one of such
persons shall be sufficient notice to all of them.
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11.05
|
Computation of Time
|
In computing the date
when notice must be given under any provision requiring a specified number of days notice of any meeting or other event, the date
of giving the notice shall be excluded and the date of the meeting or other event shall be included.
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11.06
|
Undelivered Notices
|
If any notice given
to a shareholder pursuant to section 11.01 is returned on three consecutive occasions because he or she cannot be found, the Corporation
shall not be required to give any further notices to such shareholder until he or she informs the Corporation in writing of his
or her new address.
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11.07
|
Omissions and Errors
|
The accidental omission
to give any notice to any shareholder, director, officer, auditor or member of a committee of the board or the non-receipt of
any notice by any such person or any error in any notice not affecting the substance thereof shall not invalidate any action taken
at any meeting held pursuant to such notice or otherwise founded thereon.
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11.08
|
Persons Entitled by Death or Operation
of Law
|
Every person who,
by operation of law, transfer, death of shareholder or any other means whatsoever, shall become entitled to any share, shall be
bound by every notice in respect of such share which shall have been duly given to the shareholder through whom he or she derives
his or her title to such share prior to his or her name and address being entered on the securities register (whether such notice
was given before or after the happening of the event upon which he or she became so entitled) and prior to his or her furnishing
to the Corporation the proof of authority or evidence of his or her entitlement prescribed by the Act.
Any shareholder, proxyholder,
representative, director, officer, auditor, member of a committee of the board or other person entitled to attend a meeting of
shareholders may at any time waive any notice, or waive or abridge the time for any notice, required to be given to him or her
or to the shareholder whom the proxyholder or representative represents under any provision of the Act, the regulations thereunder,
the articles, the by-laws or otherwise and such waiver or abridgement, whether given before or after the meeting or other event
for which notice is required to be given shall cure any default in the giving or in the time of such notice, as the case may be.
Any such waiver or abridgement shall be in writing except a waiver of notice of a meeting of shareholders or of the board which
may be given in any manner.
PART Twelve
ELECTRONIC DOCUMENTS
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12.01
|
Creation and Provision of Information
|
Unless the Corporation’s
articles provide otherwise, and subject to and in accordance with the Act, the Corporation may satisfy any requirement of the
Act to create or provide a notice, document or other information to any person by the creation or provision of an electronic document.
Except as provided in the Act, “electronic document” means any form of representation of information or of concepts
fixed in any medium in or by electronic, optical or other similar means that can be read or perceived by a person by any means.
PART Thirteen
EFFECTIVE DATE
This by-law shall
come into force upon being passed by the directors in accordance with the Act.
MADE by the board
the 27th day of December, 2017.
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/S/ “
Marc Johnson
”
|
|
|
Marc Johnson
Chief Financial Officer
|
22
Exhibit 4.4
THIS WARRANT
CERTIFICATE, AND THE COMMON SHARES EVIDENCED HEREBY, WILL BE VOID AND OF NO VALUE UNLESS EXERCISED ON OR BEFORE 5:00 P.M. (EASTERN
TIME) ON August 17, 2020.
UNLESS
PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY MUST NOT TRADE THE SECURITY BEFORE DECEMBER 18, 2018.
NEXTSOURCE
MATERIALS INC.
a corporation incorporated under the laws
of Canada
and having its registered office at 1001-145 Wellington Street West, Toronto, Ontario, M5J 1H8
|
CERTIFICATE
|
2018-08-###
|
|
WARRANTS
|
XXXX
|
|
|
Each whole Warrant entitling the holder to acquire one common share of NextSource Materials Inc., subject to adjustment as set forth herein, in accordance with the terms and conditions set forth herein.
|
WARRANT
CERTIFICATE
THIS IS TO CERTIFY THAT
for value
received
[INVESTOR NAME]
(the “Holder”) is the registered holder of the number of Warrants stated above (each
a “Warrant” and collectively, the “Warrants”) and is entitled for each whole Warrant represented hereby
to purchase one (1) fully paid and non-assessable common share, subject to adjustment as hereinafter provided (each a “Share”
and collectively the “Shares”), in the capital of the NextSource Materials Inc. (the “Corporation”), at
any time and from time to time from the date of issue hereof up to and including 5:00 p.m. (Eastern Time) on
August 17, 2020
(the “Expiry Time”), at a price per Share equal to
$0.10 per Warrant
, subject to adjustment as hereinafter provided
(the “Exercise Price”), upon and subject to the following terms and conditions.
TERMS AND CONDITIONS
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|
1.
|
The Warrants represented by this Warrant Certificate may not be exercised in the United States
or by or on behalf of a U.S. Person nor will the Shares be registered or delivered to an address in the United States, unless an
exemption from registration is available under, the U.S. Securities Act of 1933, as amended (the “U.S. Securities Act”),
and the applicable securities laws of any U.S. state is available. The Warrants represented by this Warrant Certificate may not
be transferred to, or for the benefit of, a transferee in the United States or a U.S. Person, unless an exemption from registration
is available under, the U.S. Securities Act. As used herein, the terms “United States” and “U.S. Person”
have the meanings ascribed to them in Regulation S under the U.S. Securities Act.
|
The Warrants
represented by this Warrant Certificate and the Shares issuable upon exercise of these Warrants are subject to certain resale restrictions
under applicable securities legislation. The Holder is advised to seek professional advice as to applicable resale restrictions.
The certificates
representing the Shares, if any, issued prior to the date that is 4 months and a day from
August 17, 2018
shall bear, in
addition to any other legends required by applicable laws, the following legend:
“UNLESS
PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY MUST NOT TRADE THE SECURITY BEFORE DECEMBER 18, 2018.”
And if applicable
under the policies of the TSX, the additional legend as follows:
“THE
SECURITIES REPRESENTED BY THIS CERTIFICATE ARE LISTED ON THE TORONTO STOCK EXCHANGE (“TSX”); HOWEVER, THE SAID SECURITIES
CANNOT BE TRADED THROUGH THE FACILITIES OF THE TSX SINCE THEY ARE NOT FREELY TRANSFERABLE, AND CONSEQUENTLY ANY CERTIFICATE REPRESENTING
SUCH SECURITIES IS NOT “GOOD DELIVERY” IN SETTLEMENT OF TRANSACTIONS ON TSX”.
At any time
and from time to time at or prior to the Expiry Time (the “Exercise Period”), the Holder may exercise all or any number
of whole Warrants represented hereby, upon delivering to the Corporation at its principal office noted above, this Warrant Certificate,
together with a duly completed and executed subscription notice in the form attached hereto (the “Subscription Notice”)
evidencing the election of the Holder to exercise the number of Warrants set forth in the Subscription Notice (which shall not
be greater than the number of Warrants represented by this Warrant Certificate) and a certified cheque, money order or bank draft
payable to the Corporation for the aggregate Exercise Price of all Warrants being exercised. If the Holder is not exercising all
Warrants represented by this Warrant Certificate, the Holder shall be entitled to receive, without charge, a new Warrant Certificate
representing the number of Warrants which is the difference between the number of Warrants represented by the then original Warrant
Certificate and the number of Warrants being so exercised.
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2.
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The Holder shall be deemed to have become the holder of record of Shares on the date (the “Exercise
Date”) on which the Corporation has received a duly completed Subscription Notice, delivery of the Warrant Certificate and
payment of the full aggregate Exercise Price in respect of the Warrants being exercised pursuant to such Subscription Notice; provided,
however, that if such date is not a business day in the City of Toronto, Ontario (a “Business Day”) then the Shares
shall be deemed to have been issued and the Holder shall be deemed to have become the holder of record of the Shares on the next
following Business Day. Within five Business Days of the Exercise Date, the Corporation shall issue and deliver (or cause to be
delivered) to the Holder, by registered mail or pre-paid courier to his, her or its address specified in the register of the Corporation,
one or more certificates for the appropriate number of issued and outstanding Shares to which the Holder is entitled pursuant to
the exercise of Warrants.
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3.
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The Corporation covenants and agrees that, until the Expiry Time, while any of the Warrants represented
by this Warrant Certificate shall be outstanding, it shall reserve and there shall remain unissued out of its authorized capital
a sufficient number of Shares to satisfy the right of purchase herein provided, as such right of purchase may be adjusted pursuant
to Sections 4 and 5 of this Warrant Certificate. The Corporation represents and warrants that all Shares which shall be issued
upon the exercise of the right to purchase herein provided for, upon payment of the aggregate Exercise Price at which Shares may
at that time be purchased pursuant to the provisions hereof, shall be issued as fully paid and non-assessable shares and the holders
thereof shall not be liable to the Corporation or its creditors in respect thereof. The Corporation further represents and warrants
that this Warrant Certificate is a legal, valid and binding obligation of the Corporation, enforceable against the Corporation
in accordance with its terms, provided that enforcement thereof may be limited by laws effecting creditors’ rights generally
and that specific performance and other equitable remedies may only be granted in the discretion of a court of competent jurisdiction.
The Corporation covenants that it will make all requisite filings under applicable laws in connection with the exercise of the
Warrants and issue of Shares.
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4.
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The Exercise Price (and the number of Shares purchasable upon exercise) shall be subject to adjustment
from time to time in the events and in the manner provided as follows:
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(a)
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Share Reorganization
. If during the Exercise Period, the Corporation shall:
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(i)
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issue common shares or securities exchangeable for or convertible into common shares to holders
of all or substantially all of its then outstanding common shares by way of stock dividend or other distribution, or
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(ii)
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subdivide, re-divide or change its outstanding common shares into a greater number of common shares,
or
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(iii)
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consolidate, reduce or combine its outstanding Shares into a lesser number of common shares,
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(any of such events in these paragraphs
(i), (ii) and (iii) being a “Share Reorganization”), then the Exercise Price shall be adjusted as of the effective
date or record date, as the case may be, at which the holders of common shares are determined for the purpose of the Share Reorganization
by multiplying the Exercise Price in effect immediately prior to such effective date or record date by a fraction, the numerator
of which shall be the number of common shares outstanding on such effective date or record date before giving effect to such Share
Reorganization and the denominator of which shall be the number of common shares outstanding as of the effective date or record
date after giving effect to such Share Reorganization (including, in the case where securities exchangeable for or convertible
into common shares are distributed, the number of common shares that would have been outstanding had such securities been fully
exchanged for or converted into common shares on such record date or effective date). From and after any adjustment of the Exercise
Price pursuant to this Section 4(a), the number of Shares purchasable pursuant to this Warrant Certificate shall be adjusted contemporaneously
with the adjustment of the Exercise Price by multiplying the number of Shares then otherwise purchasable on the exercise thereof
by a fraction, the numerator of which shall be the Exercise Price in effect immediately prior to the adjustment and the denominator
of which shall be the Exercise Price resulting from such adjustment.
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(b)
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Rights Offering
. If and whenever during the Exercise Period the Corporation shall fix a
record date for the issue or distribution of rights, options or warrants to all or substantially all of the holders of common shares
under which such holders are entitled, during a period expiring not more than 45 days after the record date for such issue to subscribe
for or purchase common shares or securities exchangeable for or convertible into common shares at a price per share to the holder
(or having a conversion price or exchange price per common share) of less than 95% of the Current Market Price (as defined in Section
5 hereof) for the common shares on such record date (any of such events being called a “Rights Offering”), then the
Exercise Price shall be adjusted effective immediately after the record date for the Rights Offering to a price determined by multiplying
the Exercise Price in effect on such record date by a fraction:
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(i)
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the numerator of which shall be the aggregate of:
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(A)
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the number of common shares outstanding as of the record date for the Rights Offering, and
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(B)
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a number determined by dividing either
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I.
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the product of the number of common shares offered under the Rights Offering and the price at which
such common shares are offered,
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or, as the
case may be,
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II.
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the product of the exchange or conversion price per share of such securities offered and the maximum
number of common shares for or into which the securities so offered pursuant to the Rights Offering may be exchanged or converted,
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by the Current Market Price of
the common shares as of the record date for the Rights Offering; and
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(ii)
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the denominator of which shall be the aggregate of the number of common shares outstanding on such
record date after giving effect to the Rights Offering and including the number of common shares offered pursuant to the Rights
Offering (including shares issuable upon exercise of the rights, warrants or options under the Rights Offering or upon the exercise
of the exchange or conversion rights contained in such exchangeable or convertible securities under the Rights Offering).
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Any common shares owned by or held
for the account of the Corporation shall be deemed not to be outstanding for the purpose of any such calculation. To the extent
that such Rights Offering is not so made or any such rights, options or warrants are not exercised prior to the expiration thereof,
the Exercise Price shall then be readjusted to the Exercise Price which would then be in effect if such record date had not been
fixed or if such expired rights, options or warrants had not been issued. From and after any adjustment of the Exercise Price pursuant
to this Section 4(b), the number of Shares purchasable pursuant to this Warrant Certificate shall be adjusted contemporaneously
with the adjustment of the Exercise Price by multiplying the number of Shares then otherwise purchasable on the exercise thereof
by a fraction, the numerator of which shall be the Exercise Price in effect immediately prior to the adjustment and the denominator
of which shall be the Exercise Price resulting from such adjustment.
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(c)
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Special Distribution
. If and whenever during the Exercise Period the Corporation shall issue
or distribute to all or to substantially all the holders of the common shares:
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(i)
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securities of the Corporation including shares, rights, options or warrants to acquire shares of
any class or securities exchangeable for or convertible into or exchangeable into any such shares, or
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(ii)
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any cash, property or other assets or evidences of its indebtedness,
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and if such issuance or distribution
does not constitute a Share Reorganization or a Rights Offering (any of such non-excluded events being herein called a “Special
Distribution”), the Exercise Price shall be adjusted immediately after the record date for the Special Distribution so that
it shall equal the price determined by multiplying the Exercise Price in effect on such record date by a fraction:
(i) the
numerator of which shall be the difference between:
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(A)
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the amount obtained by multiplying the number of common shares outstanding on such record date
by the Current Market Price of the common shares on such record date, and
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(B)
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the fair value (as determined by the directors of the Corporation) to the holders of such common
shares of such Special Distribution; and
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(ii)
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the denominator of which shall be the total number of common shares outstanding on such record
date multiplied by such Current Market Price of the common shares on such record date.
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Any common shares owned by or held
for the account of the Corporation shall be deemed not to be outstanding for the purpose of any such computation. To the extent
that such Special Distribution is not so made or any such rights, options or warrants are not exercised prior to the expiration
thereof, the Exercise Price shall then be readjusted to the Exercise Price which would then be in effect if such record date had
not been fixed or if such expired rights, options or warrants had not been issued. From and after any adjustment of the Exercise
Price pursuant to this Section 4(c), the number of Shares purchasable pursuant to this Warrant Certificate shall be adjusted contemporaneously
with the adjustment of the Exercise Price by multiplying the number of Shares then otherwise purchasable on the exercise thereof
by a fraction, the numerator of which shall be the Exercise Price in effect immediately prior to the adjustment and the denominator
of which shall be the Exercise Price resulting from such adjustment.
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(d)
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Capital Reorganization
. If and whenever during the Exercise Period there shall be a reclassification
or redesignation of common shares at any time outstanding or a change of the common shares into other shares or into other securities
or any other capital reorganization (other than a Share Reorganization), or a consolidation, amalgamation, arrangement or merger
of the Corporation with or into any other corporation or other entity (other than a consolidation, amalgamation, arrangement or
merger which does not result in any reclassification or redesignation of the outstanding common shares or a change of the common
shares into other securities), or a transfer of the undertaking or assets of the Corporation as an entirety or substantially as
an entirety to another corporation or other entity (any of such events being herein called a “Capital Reorganization”),
the Holder, where he, she or it has not exercised the right of subscription and purchase under this Warrant Certificate prior to
the effective date or record date, as the case may be, of such Capital Reorganization, shall be entitled to receive, and shall
accept upon the exercise of such right for the same aggregate consideration, in lieu of the number of Shares to which such Holder
was theretofore entitled upon such exercise, the kind and aggregate number of shares, other securities or other property which
such holder would have been entitled to receive as a result of such Capital Reorganization if, on the effective date thereof, he
had been the registered holder of the number of Shares to which such holder was theretofore entitled to subscribe for and purchase;
provided however, that no such Capital Reorganization shall be carried into effect unless all necessary steps shall have been taken
by the Corporation to so entitle the Holder. If determined appropriate by the board of directors of the Corporation, acting reasonably
and in good faith, and subject to the prior written approval of the principal Canadian stock exchange or over-the-counter market
on which the common shares are then listed or quoted for trading if required by such stock exchange or over-the-counter market,
appropriate adjustments shall be made as a result of any such Capital Reorganization in the application of the provisions set forth
in this Section 4 with respect to the rights and interests thereafter of the Holder to the end that the provisions set forth in
this Section 4 shall thereafter correspondingly be made applicable as nearly as may reasonably be possible in relation to any shares,
other securities or other property thereafter deliverable upon the exercise of any Warrant. Any such adjustments shall be made
by and set forth in terms and conditions supplemental hereto approved by the board of directors of the Corporation, acting reasonably
and in good faith.
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(e)
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If and whenever at any time after the date hereof and prior to the Expiry Time, the Corporation
takes any action affecting its common shares to which the foregoing provisions of this Section 4, in the opinion of the board of
directors of the Corporation, acting reasonably and in good faith, are not strictly applicable, or if strictly applicable would
not fairly adjust the rights of the Holder against dilution in accordance with the intent and purposes thereof, or would otherwise
materially affect the rights of the Holder hereunder, then the Corporation shall execute and deliver to the Holder an amendment
hereto providing for an adjustment in the application of such provisions so as to adjust such rights as aforesaid in such a manner
as the board of directors of the Corporation may determine to be equitable in the circumstances, acting reasonably and in good
faith. The failure of the taking of action by the board of directors of the Corporation to so provide for any adjustment on or
prior to the effective date of any action or occurrence giving rise to such state of facts will be conclusive evidence, absent
manifest error, that the board of directors has determined that it is equitable to make no adjustment in the circumstances.
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5.
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The following rules and procedures shall be applicable to the adjustments made pursuant to Section
4:
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(a)
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The adjustments provided for in Section 4 are cumulative and shall be made successively whenever
an event referred to therein shall occur, and shall, in the case of adjustments to the Exercise Price be computed to the nearest
one-tenth of one cent subject to the following paragraphs of this Section 5.
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(b)
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No adjustment in the Exercise Price shall be required unless such adjustment would result in a
change of at least 1% in the prevailing Exercise Price and no adjustment shall be made in the number of Shares purchasable upon
exercise of this Warrant Certificate unless it would result in a change of at least one one-hundredth of a Share; provided, however,
that any adjustments which, except for the provisions of this Section 5(b) would otherwise have been required to be made, shall
be carried forward and taken into account in any subsequent adjustment.
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(c)
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No adjustment in the Exercise Price or in the number of Shares purchasable upon exercise of Warrants
shall be made in respect of any event described in Section 4, other than the events referred to in Sections 4(a)(ii) and (iii),
if the Holder is entitled to participate in such event on the same terms,
mutatis mutandis,
as if it had exercised its Warrants
prior to or on the effective date or record date, as the case may be, of such event. The terms of the participation of the Holder
in such event shall be subject to the prior written approval, if applicable, of the principal Canadian stock exchange or over-the-counter
market on which the Shares are then listed or quoted for trading.
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(d)
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No adjustment in the Exercise Price shall be made pursuant to Section 4 in respect of the issue
from time to time:
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|
|
(i)
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of Shares purchasable on exercise of the Warrants represented by this Warrant Certificate;
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(ii)
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of common shares to holders of common shares who exercise an option or election to receive substantially
equivalent dividends in common shares in lieu of receiving a cash dividend pursuant to a dividend reinvestment plan or similar
plan adopted by the Corporation in accordance with the requirements of the principal Canadian stock exchange or over-the-counter
market on which the common shares are then listed or quoted for trading and applicable securities laws; or
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(iii)
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of common shares pursuant to any stock option, stock option plan, stock purchase plan or benefit
plan in force at the date hereof for directors, officers, employees or consultants of the Corporation, as such option or plan is
amended or superseded from time to time in accordance with the requirements of the principal Canadian stock exchange or over-the-counter
market on which the common shares are then listed or quoted for trading and applicable securities laws, and such other stock option,
stock option plan or stock purchase plan as may be adopted by the Corporation in accordance with the requirements of the principal
Canadian stock exchange or over-the-counter market on which the common shares are then listed or quoted for trading and applicable
securities laws;
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and any such issue shall be deemed
not to be a Share Reorganization or Capital Reorganization.
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|
(e)
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If the Corporation shall set a record date to determine the holders of the common shares for the
purpose of entitling them to receive any dividend or distribution or any subscription or purchase rights and shall, thereafter
and before the distribution to such shareholders of any such dividend, distribution or subscription or purchase rights, legally
abandon its plan to pay or deliver such dividend, distribution or subscription or purchase rights, then no adjustment in the Exercise
Price or the number of Shares purchasable upon exercise of any Warrant shall be required by reason of the setting of such record
date.
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(f)
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As a condition precedent to the taking of any action which would require any adjustment in any
of the subscription rights pursuant to this Warrant Certificate, including the Exercise Price and the number or class of shares
or other securities which are to be received upon the exercise thereof, the Corporation shall take any corporate action which may,
in the opinion of counsel, be necessary in order that the Corporation have unissued and reserved Shares in its authorized capital,
and may validly and legally issue as fully paid and non-assessable all the shares or other securities which the Holder of such
Warrant Certificate is entitled to receive on the full exercise thereof in accordance with the provisions hereof.
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(g)
|
For the purposes of this Warrant Certificate, “Current Market Price” of a common share
at any date shall be calculated as the price per share equal to the weighted average price at which the common shares have traded
in the principal Canadian stock exchange or, if the common shares are not listed, the over-the-counter market, on which the common
shares are then listed or posted for trading during the 20 consecutive trading days ending not more than five trading days immediately
prior to such date as reported by such exchange or market in which the common shares are then trading or quoted. If the common
shares are not then traded in the over-the-counter market or on a recognized Canadian stock exchange, the Current Market Price
of the common shares shall be the fair market value of the common shares as determined in good faith by a nationally or internationally
recognized and independent investment dealer, investment banker or firm of chartered accountants.
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(h)
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In the absence of a resolution of the board of directors of the Corporation fixing a record date
for any dividend or distribution referred to in Section 4(a)(i) or any Rights Offering or Special Distribution, the Corporation
shall be deemed to have fixed as the record date therefore the date on which such dividend or distribution, Rights Offering or
Special Distribution is effected.
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(i)
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Any question that at any time or from time to time arises with respect to the amount of any adjustment
to the Exercise Price or other adjustments pursuant to Section 4 shall be conclusively determined by a firm of independent chartered
accountants and shall be binding upon the Corporation and the Holder, absent manifest error. Notwithstanding the foregoing, such
determination shall be subject to the prior written approval of the principal Canadian stock exchange or over-the-counter market
on which the common shares are then listed or quoted for trading if required by such stock exchange or over-the-counter market.
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6.
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On the happening of each and every such event set out in Section 4, the applicable provisions of
this Warrant Certificate, including the Exercise Price, shall,
ipso facto,
be deemed to be amended accordingly and the Corporation
shall take all necessary action so as to comply with such provisions as so amended.
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|
7.
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In any case in which Section 4 shall require that an adjustment shall be effective immediately
after a record date for an event referred to herein, the Corporation may defer, until the occurrence of such an event:
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|
|
(a)
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issuing to the holder of any Warrant exercised after such record date and before the occurrence
of such event, the additional Shares issuable upon such exercise by reason of the adjustment required by such event, and
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(b)
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delivering to such holder any distributions declared with respect to such additional Shares after
such Exercise Date and before such event;
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provided, however, that the Corporation
shall deliver or cause to be delivered to such holder, an appropriate instrument evidencing such holder’s right, upon the
occurrence of the event requiring the adjustment, to an adjustment in the Exercise Price and/or the number of Shares purchasable
on the exercise of any Warrant and to such distributions declared with respect to any additional Shares issuable on the exercise
of any Warrant.
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8.
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At least 21 days prior to the effective date or record date, as the case may be, of any event which
requires or might require adjustment in any of the subscription rights pursuant to this Warrant Certificate, including the Exercise
Price and the number of Shares which are purchasable upon the exercise thereof, or such longer period of notice as the Corporation
shall be required to provide holders of Shares in respect of any such event, the Corporation shall notify the Holder of the particulars
of such event and, if determinable, the required adjustment and the computation of such adjustment. In case any adjustment for
which such notice has been given is not then determinable, the Corporation shall promptly after such adjustment is determinable
notify the Holder of the adjustment and the computation of such adjustment.
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9.
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The Corporation shall maintain or cause to be maintained a register of holders in which shall be
entered the names and addresses of the holders of the Warrants and of the number of Warrants held by them.
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10.
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Where the Holder is entitled to receive on the exercise or partial exercise of its Warrants a fraction
of a Share, such right may only be exercised in respect of such fraction in combination with another Warrant or Warrants which
in the aggregate entitle the Holder to receive a whole number of Shares. If a Holder is not able to, or elects not to, combine
Warrants so as to be entitled to acquire a whole number of Shares, the Holder may not exercise the right to acquire a fractional
Share, and, does not have the right to receive a cash equivalent in lieu thereof.
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11.
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Subject as herein provided, all or any of the rights conferred upon the Holder by the terms hereof
may be enforced by the Holder by appropriate legal proceedings.
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12.
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The registered Holder of this Warrant Certificate may at any time up to and including the Expiry
Time, upon the surrender hereof to the Corporation at its principal office, exchange this Warrant Certificate for one or more Warrant
Certificates entitling the Holder to subscribe in the aggregate for the same number of Shares as is expressed in this Warrant Certificate.
Any Warrant Certificate tendered for exchange shall be surrendered to the Corporation and cancelled.
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13.
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If this Warrant Certificate becomes stolen, lost, mutilated or destroyed, the Corporation shall,
on such terms as it may in its discretion acting reasonably impose, issue and deliver to the Holder a new Warrant Certificate of
like denomination, tenor and date as the Warrant Certificate so stolen, lost, mutilated or destroyed.
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14.
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Nothing contained herein shall confer any right upon the Holder hereof or any other person to subscribe
for or purchase any Shares of the Corporation at any time subsequent to the Expiry Time. After the Expiry Time this Warrant Certificate
and all rights hereunder shall be void and of no value.
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15.
|
Except as expressly set out herein, the holding of this Warrant Certificate shall not constitute
a Holder hereof, a holder of Shares nor entitle it to any right or interest in respect thereof.
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16.
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Unless herein otherwise expressly provided, any notice to be given hereunder to the Holder shall
be deemed to be validly given if such notice is given by personal delivery or registered mail to the attention of the Holder at
its registered address recorded in the registers maintained by the Corporation. Any notice so given shall be deemed to be validly
given, if delivered personally, on the day of delivery and if sent by post or other means, on the fifth Business Day next following
the sending thereof. In determining under any provision hereof the date when notice of any event must be given, the date of giving
notice shall be included and the date of the event shall be excluded.
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17.
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This Warrant Certificate and the Warrants represented hereby are not transferable and are not assignable
until the date that is 4 months and a day from
August 17, 2018
.
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18.
|
Time is of the essence hereof.
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19.
|
This Warrant Certificate is binding upon the Corporation and its successors and assigns.
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20.
|
The laws of the Province of Ontario and the federal laws of Canada applicable shall govern this
Warrant Certificate and the Warrants represented hereby therein. References to “$” is a reference to Canadian dollars.
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IN WITNESS WHEREOF
this Warrant
Certificate has been executed on behalf of NextSource Materials Inc. as of
August 17, 2018
|
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NEXTSOURCE MATERIALS INC.
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Per:
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Authorized Signing Officer
|
subscription
notice
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TO:
|
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NextSource Materials Inc.,
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1001-145 Wellington Street West,
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|
|
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Toronto, Ontario, M5J 1H8
|
Terms used herein but not otherwise defined
have the meanings ascribed thereto in the attached Warrant Certificate.
The undersigned registered Holder of the
attached Warrant Certificate, hereby:
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(a)
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subscribes for ___________________________ Shares at a price per of $0.10 per Share (or such adjusted
price which may be in effect under the provisions of the Warrant Certificate) and in payment of the exercise price encloses a certified
cheque, bank draft or money order in lawful money of Canada payable to the order of NextSource Materials Inc. or its successor
corporation; and
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(b)
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delivers herewith the above-mentioned Warrant Certificate entitling the undersigned to subscribe
for the above-mentioned number of Shares;
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in each case in accordance
with the terms and conditions set out in the attached Warrant Certificate.
The Holder hereby certifies
that the undersigned is not a U.S. Person or a person in the United States and is not acquiring any of the Shares hereby subscribed
for the account or benefit of a U.S. Person or a person in the United States, and none of the persons listed in paragraph (b) above
is a U.S. Person or a person in the United States. For purposes hereof the terms “United States” and “U.S. Person”
shall have the meanings ascribed to them in Regulation S under the U.S. Securities Act of 1933, as amended (the “U.S. Securities
Act”).
Share certificates will not be registered
or delivered to an address in the United States without an opinion of counsel to the effect that the Shares have been registered
under the U.S. Securities Act or an exemption from registration is available.
The Shares purchased hereunder will either
settle in definitive certificates or will be deposited electronically with CDS Clearing and Depository Services Inc. (“CDS”)
through the book-based system administered by CDS. If the Shares are deposited electronically with CDS, the Subscriber will not
be entitled to receive definitive certificates or other instruments from the Issuer or CDS representing their interest in the securities
purchased hereunder. The Subscriber will receive only a customer confirmation from the registered dealer who is a CDS participant
and from or through whom the securities hereunder are purchased against payment of the Subscription Amount.
The Subscriber hereby provides the registration
and delivery instructions below in connection with the definitive certificates or electronic settlement of the Shares being purchased
hereunder:
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Share
Certificate Registration Instructions
:
|
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Share
Certificate Delivery Instructions
:
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(Registration Name)
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(Delivery Name)
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(Account Reference / Number, if applicable)
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(Account Reference / Number, if applicable)
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(Registration Mailing Address, including Postal Code)
|
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(Delivery Mailing Address, including Postal Code)
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(Contact Name)
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(Contact Name)
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(Contact Telephone Number)
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(Contact Fax Number)
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(Contact Telephone Number)
|
(Contact Fax Number)
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(Please print full name in which share certificates and warrant certificates are to be issued. If any of the Shares are to be issued to a person or persons other than the Holder, the Holder must pay to the Corporation all requisite taxes or other governmental charges.)
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DATED this _________ day of _____________________, 20__ .
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(Signature of Holder)
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(Print Name of Holder)
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(Holder Address)
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(Holder City, Province, Country)
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(Holder Phone Number)
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(Holder Email Address)
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[Subscription
Notice]
Exhibit 11
CODE OF ETHICS AND BUSINESS CONDUCT
1.
Introduction
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1.
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The
Board of Directors of NextSource Materials Inc. (together with its subsidiaries, the
"Company") has adopted this Code of Ethics and Business Conduct (the "Code")
in order to:
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a.
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promote honest and ethical conduct, including the ethical handling of actual or apparent conflicts
of interest;
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b.
|
promote full, fair, accurate, timely and understandable disclosure in reports and documents that
the Company files with, or submits to, the Ontario Securities Commisssion (the "OSC") and in other public communications
made by the Company;
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c.
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promote compliance with applicable governmental laws, rules and regulations;
|
|
|
d.
|
promote the protection of Company assets, including corporate opportunities and confidential information;
|
|
|
e.
|
promote fair dealing practices;
|
|
|
g.
|
ensure accountability for adherence to the Code.
|
|
|
2.
|
All
directors, officers and employees are required to be familiar with the Code, comply with
its provisions and report any suspected violations as described below in Section 10,
Reporting and Enforcement
.
|
2.
Honest and Ethical Conduct
|
|
1.
|
The
Company's policy is to promote high standards of integrity by conducting its affairs
honestly and ethically.
|
|
|
2.
|
Each
director, officer and employee must act with integrity and observe the highest ethical
standards of business conduct in his or her dealings with the Company's customers, suppliers,
partners, service providers, competitors, employees and anyone else with whom he or she
has contact in the course of performing his or her job.
|
3.
Conflicts of Interest
|
|
1.
|
A
conflict of interest occurs when an individual's private interest (or the interest of
a member of his or her family) interferes, or even appears to interfere, with the interests
of the Company as a whole. A conflict of interest can arise when an employee, officer
or director (or a member of his or her family) takes actions or has interests that may
make it difficult to perform his or her work for the Company objectively and effectively.
Conflicts of interest also arise when an employee, officer or director (or a member of
his or her family) receives improper personal benefits as a result of his or her position
in the Company.
|
|
|
2.
|
Loans
by the Company to, or guarantees by the Company of obligations of, employees or their
family members are of special concern and could constitute improper personal benefits
to the recipients of such loans or guarantees, depending on the facts and circumstances.
Loans by the Company to, or guarantees by the Company of obligations of, any director
or executive officer are expressly prohibited.
|
|
|
3.
|
Whether
or not a conflict of interest exists or will exist can be unclear. Conflicts of interest
should be avoided unless specifically authorized as described in Section 3.4.
|
|
|
4.
|
Persons
other than directors and executive officers who have questions about a potential conflict
of interest or who become aware of an actual or potential conflict should discuss the
matter with, and seek a determination and prior authorization or approval from, their
supervisor or the Chief Financial Officer. A supervisor may not authorize or approve
conflict of interest matters or make determinations as to whether a problematic conflict
of interest exists without first providing the Chief Financial Officer with a written
description of the activity and seeking the Chief Financial Officer's written approval.
If the supervisor is himself involved in the potential or actual conflict, the matter
should instead be discussed directly with the Chief Financial Officer.
|
|
|
5.
|
Directors
and executive officers must seek determinations and prior authorizations or approvals
of potential conflicts of interest exclusively from the Audit Committee.
|
4.
Compliance
|
|
1.
|
Employees,
officers and directors should comply, both in letter and spirit, with all applicable
laws, rules and regulations in the cities, states and countries in which the Company
operates.
|
|
|
2.
|
Although
not all employees, officers and directors are expected to know the details of all applicable
laws, rules and regulations, it is important to know enough to determine when to seek
advice from appropriate personnel. Questions about compliance should be addressed to
the Legal Department.
|
|
|
3.
|
No
director, officer or employee may purchase or sell any Company securities while in possession
of material non-public information regarding the Company, nor may any director, officer
or employee purchase or sell another company's securities while in possession of material
non-public information regarding that company. It is against Company policies and illegal
for any director, officer or employee to use material non-public information regarding
the Company or any other company to:
|
|
|
a.
|
obtain profit for himself or herself; or
|
|
|
b.
|
directly or indirectly "tip" others who might make an investment decision on the basis
of that information.
|
5.
Disclosure
|
|
1.
|
The
Company's periodic reports and other documents filed with the OSC, including all financial
statements and other financial information, must comply with applicable securities laws
and OSC rules.
|
|
|
2.
|
Each
director, officer and employee who contributes in any way to the preparation or verification
of the Company's financial statements and other financial information must ensure that
the Company's books, records and accounts are accurately maintained. Each director, officer
and employee must cooperate fully with the Company's accounting and internal audit departments,
as well as the Company's independent public accountants and counsel.
|
|
|
3.
|
Each
director, officer and employee who is involved in the Company's disclosure process must:
|
|
|
a.
|
be familiar with and comply with the Company's disclosure controls and procedures and its internal
control over financial reporting; and
|
|
|
b.
|
take all necessary steps to ensure that all filings with the OSC and all other public communications
about the financial and business condition of the Company provide full, fair, accurate, timely and understandable disclosure.
|
6.
Protection and Proper Use of Company Assets
|
|
1.
|
All
directors, officers and employees should protect the Company's assets and ensure their
efficient use. Theft, carelessness and waste have a direct impact on the Company's profitability
and are prohibited.
|
|
|
2.
|
All
Company assets should be used only for legitimate business purposes. Any suspected incident
of fraud or theft should be reported for investigation immediately.
|
|
|
3.
|
The
obligation to protect Company assets includes the Company's proprietary information.
Proprietary information includes intellectual property such as trade secrets, patents,
trademarks, and copyrights, as well as business and marketing plans, engineering and
manufacturing ideas, designs, databases, records and any non-public financial data or
reports. Unauthorized use or distribution of this information is prohibited and could
also be illegal and result in civil or criminal penalties.
|
7.
Corporate Opportunities
All
directors, officers and employees owe a duty to the Company to advance its interests when the opportunity arises. Directors, officers
and employees are prohibited from taking for themselves personally (or for the benefit of friends or family members) opportunities
that are discovered through the use of Company assets, property, information or position. Directors, officers and employees may
not use Company assets, property, information or position for personal gain (including gain of friends or family members). In
addition, no director, officer or employee may compete with the Company.
8.
Confidentiality
Directors,
officers and employees must maintain the confidentiality of information entrusted to them by the Company or by its customers,
suppliers or partners, except when disclosure is expressly authorized or is required or permitted by law. Confidential information
includes all non-public information (regardless of its source) that might be of use to the Company's competitors or harmful to
the Company or its customers, suppliers or partners if disclosed.
9.
Fair Dealing
Each
director, officer and employee must deal fairly with the Company's customers, suppliers, partners, service providers, competitors,
employees and anyone else with whom he or she has contact in the course of performing his or her job. No director, officer or
employee may take unfair advantage of anyone through manipulation, concealment, abuse or privileged information, misrepresentation
of facts or any other unfair dealing practice.
10.
Reporting and Enforcement
10.1
Reporting and Investigation of Violations.
|
|
(a)
|
Actions prohibited by this Code involving directors or executive officers must be reported to the
Audit Committee.
|
|
|
(b)
|
Actions prohibited by this Code involving anyone other than a director or executive officer must
be reported to the reporting person's supervisor or the Chief Financial Officer.
|
|
|
(c)
|
After receiving a report of an alleged prohibited action, the Audit Committee, the relevant supervisor
or the Chief Financial Officer must promptly take all appropriate actions necessary to investigate.
|
|
|
(d)
|
All directors, officers and employees are expected to cooperate in any internal investigation of
misconduct.
|
10.2
Enforcement.
|
|
(a)
|
The Company must ensure prompt and consistent action against violations of this Code.
|
|
|
(b)
|
If, after investigating a report of an alleged prohibited action by a director or executive officer,
the Audit Committee determines that a violation of this Code has occurred, the Audit Committee will report such determination to
the Board of Directors.
|
|
|
(c)
|
If, after investigating a report of an alleged prohibited action by any other person, the relevant
supervisor or the Chief Financial Officer determines that a violation of this Code has occurred, the supervisor or the Chief Financial
Officer will report such determination to the General Counsel or other designated compliance officer.
|
|
|
(d)
|
Upon receipt of a determination that there has been a violation of this Code, the Board of Directors
or the General Counsel (or other designated compliance officer) will take such preventative or disciplinary action as it deems
appropriate, including, but not limited to, reassignment, demotion, dismissal and, in the event of criminal conduct or other serious
violations of the law, notification of appropriate governmental authorities.
|
10.3
Waivers.
|
|
(a)
|
Each of the Board of Directors (in the case of a violation by a director or executive officer)
and the General Counsel or other designated compliance officer (in the case of a violation by any other person) may, in its discretion,
waive any violation of this Code.
|
|
|
(b)
|
Any waiver for a director or an executive officer shall be disclosed as required by OSC rules.
|
10.4
Prohibition on Retaliation.
|
|
(a)
|
The Company does not tolerate acts of retaliation against any director, officer or employee who
makes a good faith report of known or suspected acts of misconduct or other violations of this Code.
|
4
Exhibit 12.1
CERTIFICATION PURSUANT TO
RULE 13a-14 OF THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Craig Scherba, certify that:
|
|
1.
|
I have reviewed this annual report on Form 20-F for the fiscal year ended June 30, 2018 of NextSource
Materials Inc.;
|
|
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
|
|
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant
as of, and for, the periods presented in this report;
|
|
|
4.
|
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being
prepared;
|
|
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, 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;
|
|
|
(c)
|
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
|
|
|
(d)
|
Disclosed in this report any change in the registrant's internal control over financial reporting
that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting; and
|
|
|
5.
|
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation
of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
|
|
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize
and report financial information; and
|
|
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant's internal control over financial reporting.
|
Date: October 31, 2018
|
By:
|
/s/ Craig Scherba
|
|
|
|
Craig Scherba
|
|
|
|
Chief Executive Officer
|
|
|
|
(principal executive officer)
|
|
Exhibit 12.2
CERTIFICATION PURSUANT TO
RULE 13a-14 OF THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Marc Johnson, certify that:
|
|
1.
|
I have reviewed this annual report on Form 20-F for the fiscal year ended June 30, 2018 of NextSource
Materials Inc.;
|
|
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
|
|
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant
as of, and for, the periods presented in this report;
|
|
|
4.
|
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being
prepared;
|
|
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, 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;
|
|
|
(c)
|
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
|
|
|
(d)
|
Disclosed in this report any change in the registrant's internal control over financial reporting
that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting; and
|
|
|
5.
|
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation
of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
|
|
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize
and report financial information; and
|
|
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant's internal control over financial reporting.
|
Date: October 31, 2018
|
By:
|
/s/ Marc Johnson
|
|
|
|
Marc Johnson
|
|
|
|
Chief Financial Officer
|
|
|
|
(principal accounting officer)
|
|
Exhibit 13.1
CERTIFICATION PURSUANT TO
18 U.S.C. §1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on
Form 20-F for the fiscal year ended June 30, 2018 of NextSource Materials Inc. (the "Company"), the undersigned, in the
capacity and on the date indicated below, hereby certifies pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, that:
(1) The
Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The
information contained in the Report fairly presents, in all material respects, the financial condition and result of operations
of the Company.
Date: October 31, 2018
|
By:
|
/s/ Craig Scherba
|
|
|
|
Craig Scherba
|
|
|
|
Chief Executive Officer
|
|
|
|
(principal executive officer)
|
|
Exhibit 13.2
CERTIFICATION PURSUANT TO
18 U.S.C. §1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on
Form 20-F for the fiscal year ended June 30, 2018 of NextSource Materials Inc. (the "Company"), the undersigned, in the
capacity and on the date indicated below, hereby certifies pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, that:
(1) The
Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The
information contained in the Report fairly presents, in all material respects, the financial condition and result of operations
of the Company.
Date: October 31, 2018
|
By:
|
/s/ Marc Johnson
|
|
|
|
Marc Johnson
|
|
|
|
Chief Financial Officer
|
|
|
|
(principal accounting officer)
|
|
Exhibit 99.1
NextSource Materials Inc.
Annual Information Form (AIF)
For the year ended June 30, 2018
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2018
Table of Contents
|
1. Introduction
|
3
|
|
2. General Description of the Business
|
4
|
|
3. Corporate Highlights
|
6
|
|
4. Molo Graphite Property, Southern Madagascar Region, Madagascar
|
8
|
|
5. Green Giant Vanadium Project, Southern Madagascar Region, Madagascar
|
30
|
|
6. Sagar Property, Labrador Trough Region, Quebec, Canada
|
30
|
|
7. Risk Factors
|
30
|
|
8. Market for Securities
|
36
|
|
9. Directors and Officers
|
36
|
|
10. Legal Proceedings and Regulatory Actions
|
41
|
|
11. Interest of Management and Others in Material Transactions
|
41
|
|
12. Interest of Experts
|
41
|
|
13. Material Contracts
|
42
|
|
14. Transfer Agent and Registrar
|
42
|
|
15. Auditors
|
42
|
|
16. Additional Information
|
42
|
|
SCHEDULE A
|
43
|
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2018
This Annual Information Form (AIF) is intended to help the reader
understand NextSource Materials Inc.’s operations, financial performance, financial condition and business plans. All amounts
are in US dollars unless otherwise noted.
This AIF, which has been prepared as of September 28, 2018, should
be read in conjunction with NextSource’s consolidated financial statements for the years ended June 30, 2018 and 2017.
All amounts are in US dollars, unless otherwise indicated. The term
“NSR” stands for net smelter royalty. The term “tpa” stands for tonnes per annum. References to “NextSource”,
“Company”, “we”, “us”, “our”, refer to NextSource Materials Inc. and its consolidated
subsidiaries unless the context indicates otherwise.
Forward-Looking Statements
Securities regulators encourage companies to disclose
forward-looking information to help investors understand a company’s future prospects. This Annual Information Form contains
forward-looking information and statements (collectively, "forward-looking statements") within the meaning of applicable
Canadian securities legislation, concerning the business, operations and financial performance and condition of NextSource Materials
Inc.
Forward-looking statements can generally be identified
by the use of statements that include such words as “believe”, “expect”, “anticipate”, “intend”,
“plan”, “forecast”, “likely”, “may”, “will”, “could”, “should”,
“suspect”, “outlook”, “potential”, “projected”, “continue” or other
similar words or phrases. Specifically, forward-looking statements in this document include, but are not limited to, statements,
certain expectations regarding obtaining necessary mining or other permits, construction timelines and costs, anticipated production
volumes, anticipated operating costs and capital spending; supply, demand and pricing outlook in the graphite and vanadium markets;
sources of funding for the Molo Graphite Project; sources of funding for the Green Giant Vanadium Project; exploration drill results;
metallurgical drill results; environmental assessment and rehabilitation costs and amounts of certain other commitments.
Forward-looking statements are not based on historic
facts, but rather on current expectations, assumptions and projections about future events. By their nature, forward-looking statements
require the Company to make assumptions and are subject to inherent risks and uncertainties. There is significant risk that predictions,
forecasts, conclusions or projections will not prove to be accurate, that those assumptions may not be correct and that actual
results may differ materially from such predictions, forecasts, conclusions or projections.
The Company cautions readers of this AIF not to place
undue reliance on any forward-looking statement as a number of factors could cause actual future results, conditions, actions or
events to differ materially from the targets, expectations, estimates or intentions expressed in the forward-looking statements.
These risks, uncertainties and other factors include but are not limited to: our ability to continue as a going concern; our primary
exploration efforts are in the African Country of Madagascar where new presidential elections will be held in October 2018; our
potential inability to enforce our legal rights in Madagascar; decreases in commodity prices could impact the feasibility of our
projects; our future profitability may be subject to fluctuations in commodity prices; we may not have access to sufficient capital
to pursue our business and therefore would be unable to achieve our planned future growth; we are a mineral exploration company
with limited operating history and expect to incur operating losses for the foreseeable future; due to the speculative nature of
mineral property exploration there is a substantial risk that our assets will not go into commercial production and our business
will fail; because of the inherent dangers involved in mineral exploration and development there is a risk that we may incur liability
or damages as we conduct our business, our operations are subject to strict environmental regulations which could result in added
costs of operations and operational delays; we do not have insurance for environmental problems; due to external market factors
in the mining business we may not be able to market any minerals that may be found; mining companies are increasingly required
to consider and provide benefits to the communities and countries in which they operate; mining companies are subject to environmental,
health and safety laws and regulations; should we lose the services of our key executives our financial condition and proposed
expansion may be negatively impacted; because access to our properties may be restricted by inclement weather or proper infrastructure
our exploration programs are likely to experience delays; compliance with changing regulation of corporate governance and public
disclosure will result in additional expenses and pose challenges for our management; climate change and related regulatory responses
may impact our business; changes in tax laws or tax rulings could materially affect our financial position and results of operations;
our business is subject to anti-corruption and anti-bribery laws a breach or violation of which could lead to civil and criminal
fines and penalties and loss of licenses or permits and reputational harm; we do not intend to pay dividends; because from time
to time we hold a significant portion of our cash reserves in Canadian dollars we may experience losses due to foreign exchange
translations; we are exposed to general economic conditions, which could have a material adverse impact on our business; operating
results and financial condition, the current financial environment may impact our business and financial condition that we cannot
predict; the market price for our common shares is particularly volatile given our status as a relatively unknown company with
a small and thinly traded public float and limited operating history and lack of profits which could lead to wide fluctuations
in our share price; uncertainty of resources and reserve estimates; risks related to the accuracy of capital and operating cost
estimates; legal contingencies; risks related to the Company’s accounting policies; uncertainty in the ability of the Company
to obtain necessary permits; failure to comply with, or changes to, applicable government regulations; bribery and corruption risks,
risks related to information technology systems; and certain corporate objectives, goals and plans for 2019; and the Company’s
ability to meet other factors listed from time to time in the Corporation’s continuous disclosure documents.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2018
Readers are cautioned that the foregoing list of factors
is not exhaustive and should be considered in conjunction with the risk factors described in this AIF and in the Company’s
other documents filed with the Canadian securities authorities.
The Corporation may, from time to time, make oral forward-looking
statements. The Corporation advises that the above paragraphs and the risk factors described in this AIF and in the Corporation’s
other documents filed with the Canadian securities authorities should be read for a description of certain factors that could cause
the actual results of the Corporation to differ materially from those in the oral forward-looking statements.
|
|
2.
|
General Description of the Business
|
NextSource Materials Inc. (the "Company" or “NextSource”)
was continued under the Canada Business Corporations Act and has a fiscal year end of June 30. The Company's registered head office
and primary location of records is 145 Wellington Street West, Suite 1001, Toronto, Ontario, M5J 1H8.
The Company's principal business is the acquisition, exploration
and development of mineral resources. The Company accepts the risks which are inherent to mineral exploration programs and the
exposure to the cyclical nature of mineral prices. These risks are discussed in the
Risk Factors
section of this report.
The Company does not operate any mines and has not initiated construction
on any mines. The Company has yet to generate any revenue from mining operations and is unlikely to do so in the immediate future.
Corporate Redomicile
The Company completed a corporate redomicile from the State of Minnesota
to Canada on December 27, 2017.
Corporate Structure
NextSource owns 100% of NextSource Materials (Mauritius) Ltd. (“MATMAU”),
a Mauritius subsidiary, and 2391938 Ontario Inc., an Ontario Company.
MATMAU owns 100% of NextSource Minerals (Mauritius) Ltd. (“MINMAU”),
a Mauritius subsidiary, NextSource Graphite (Mauritius) Ltd (“GRAMAU”), a Mauritius subsidiary, and NextSource Materials
(Madagascar) SARL (“MATMAD”), a Madagascar subsidiary.
MINMAU owns 100% of NextSource Minerals (Madagascar) SARL (“MINMAD”),
a Madagascar subsidiary. MINMAD holds the Green Giant Vanadium Project exploration permits.
GRAMAU owns 100% of ERG Madagascar SARL (“ERGMAD”),
a Madagascar subsidiary. ERGMAD holds the Molo Graphite Project exploration permits.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2018
Principal Products
The Company is currently focused on developing a graphite mine.
Competitive Conditions
The mineral exploration and mining businesses are highly competitive.
We compete with numerous other companies and individuals in the search for and the acquisition of financially attractive mineral
properties. Our ability to acquire precious metal mineral properties in the future will depend not only on our ability to develop
our present properties, but also on our ability to select and acquire suitable producing properties or prospects for precious metal
development or mineral exploration.
In addition, we also compete with other companies over retaining
skilled experienced workers and sourcing raw materials and supplies used in connection with eventual development and mining operations.
Foreign Operations
The Company, through its wholly-owned foreign subsidiaries, is currently
focused on obtaining the necessary permits to begin construction on the Molo Graphite Project in Madagascar. Although we have determined
through a NI 43-101 Technical Report Feasibility Study dated July 13, 2017 that Phase 1 of our Molo Graphite Project contains mineralization
that is economically recoverable, we do not have the necessary permits or capital to begin construction at this time.
Our foreign operations are exposed to various levels of political,
economic and social risks and uncertainties. These risks and uncertainties vary from country to country and include, but are not
limited to: terrorism; hostage taking; military repression; expropriation; political corruption, extreme fluctuations in currency
exchange rates; high rates of inflation; labour unrest; war or civil unrest; renegotiation or termination of existing concessions,
licenses, permits and contracts; ability of governments to unilaterally alter agreements; surface land access issues; illegal mining;
changes in taxation policies, laws and regulations; restrictions on foreign exchange and repatriation; and changing political conditions,
currency controls and governmental regulations that favour or require the awarding of contracts to local contractors or require
foreign contractors to employ citizens of, or purchase supplies from, a particular jurisdiction. Any changes in regulations or
shifts in political attitudes in such foreign countries are beyond our control and may adversely affect our business. Future development
and operations may be affected in varying degrees by such factors as government regulations (or changes thereto) with respect to
restrictions on production, export controls, import restrictions, such as restrictions applicable to, among other things, equipment,
services and supplies, taxes, expropriation of property, repatriation of profits, environmental legislation, land use, water use,
surface land access, land claims of local people and mine safety.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2018
Employees and Contractors
The Company relies on the geological and industry expertise of its
Toronto-based management team and engages contractors to complete certain aspects of its exploration programs.
As of June 30, 2018, we had two employees and several contractors
in addition to the President & Chief Executive Officer and the Chief Financial Officer. Certain professional, administrative
and geological services are provided to the Company by independent contractors, including corporations and/or individuals who may
be officers or directors of NextSource. No assurance can be given that qualified employees can be retained by NextSource when necessary.
Sustainability
The Company is committed to the health and safety of our workers
and communities, the protection of the environment, and to the rights, culture and development of local communities.
Capital Structure
The Company’s common shares have no par value and the authorized
share capital is composed of an unlimited number of common shares. As of June 30, 2018, the Company had 469,933,611 common shares
issued and outstanding.
As of June 30, 2018, the Company had 37,630,000 stock options issued
and outstanding with a weighted average expiration of 2.9 years, which are exercisable into 37,630,000 common shares at a weighted
average exercise price of $0.09. All stock options that are currently outstanding vested on the grant date.
As of June 30, 2018, the Company had 3,500,000 common share purchase
warrants issued and outstanding with a weighted average expiration of 0.8 years, which are exercisable into 3,500,000 common shares
at a weighted average exercise price of $0.14. All warrants that are currently outstanding vested on the issue date.
Dividends and Distributions
The Company has yet to generate any revenue from mining operations
or pay dividends since inception and is unlikely to do so in the immediate or foreseeable future. Our continued operations are
dependent upon the ability of the Company to obtain financing through the proceeds of securities subscriptions for the continued
exploration and development of its mineral properties. See “
Risk Factors – We do not intend to pay dividends
”
The value of a mineral project is highly dependent upon the discovery
of economically recoverable mineralization, the long-term preservation of the Company’s ownership interest in the underlying
mineral property, the ability of the Company to obtain the necessary funding to complete sufficient exploration activities on the
property, and the prospects of any future profitable production therefrom, or alternatively upon the Company’s ability to
dispose of its property interests on an advantageous basis.
Indebtedness
As of June 30, 2018, the Company did not have any outstanding debt,
loans or credit facilities.
Three-Year History
In July 2015, we announced that UK-Based Haydale Graphene Industries
PLC, a global leader a global leader in the processing and application of graphene nanomaterials, has verified that the Company’s
Molo flake graphite has passed initial testing to be a viable source of graphene nanoplatelets for development of graphene inks
for printed and flexible electronics. Using Haydale’s patent-pending plasma treatment process and ink formulation expertise,
Molo flake graphite concentrate was successfully functionalized into graphene nanoplatelets, which were then used to successfully
produce a prototype graphene ink. Graphene is a single-atom-thick sheet of flake graphite and is the lightest, thinnest and strongest
material ever discovered in addition to being chemically stable, flexible and extremely conductive.
In July 2015, the Company announced the appointment of Craig Scherba
as CEO, who was previously VP Exploration since January 2010 and was responsible for the discovery of the Molo Graphite deposit.
In August 2015, the Company announced that independent third parties
have successfully manufactured spherical graphite from the Company’s Molo flake graphite concentrate and that initial test
results indicate it has met all specifications and quality requirements for battery anode material production. Testing was performed
independently by both a leading Japanese manufacturer of battery anode material and a leading European supplier of spherical graphite
for electric vehicles (EVs).
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2018
In October 2015, the Company announced the appointment of Marc Johnson
as CFO.
In October 2015, the Company announced the confirmation that an
independent third party has successfully manufactured a graphite foil from the Company’s Molo flake graphite concentrate
and that initial test results indicate it has met all specifications and quality requirements for specialty graphite foil applications.
Independent advanced testing was performed by a leading European manufacturer of carbon-based products, who is recognized as a
global leader in the use of natural flake graphite for the production of graphite foils for smartphones and tablets, gasket materials
in automotive, petroleum, chemical and nuclear industries, and conductive plates in fuel cells and vanadium redox batteries.
In February 2016, the Company announced a non-brokered private placement
of CAD$450,653.
In April 2016, the Company announced a non-brokered private placement
of CAD$224,550.
In May 2016, the Company announced a non-brokered private placement
of CAD$1,003,500.
In July 2016, we appointed UK-based HCF International Advisers Limited
("HCF") as advisor in negotiating and structuring strategic partnerships, off take agreements and debt financing for
our Molo Graphite Project in Madagascar.
In August 2016, the Company announced a non-brokered private placement
of CAD$6,724,500.
In August 2016, we initiated a Front-End Engineering Design Study
(the “FEED Study”) and value engineering for our Molo Graphite Project in Madagascar. The FEED Study was undertaken
in order to optimize the mine plan as envisioned in the technical report titled "Molo Feasibility Study – National Instrument
43-101 Technical Report on the Molo Graphite Project located near the village of Fotadrevo in the Province of Toliara, Madagascar",
dated July 13, 2017, effective as of July 13, 2017 (the “Molo Feasibility Study”) and determine the optimal development
path based on discussions with prospective strategic partners. All costing aspects were examined with the goal of providing a method
to produce meaningful, multi-tonne test samples of Molo graphite concentrate to potential off-takers while reducing the CAPEX and
time required to the commencement of commercial production.
On November 7, 2016, we outlined a phased mine development plan
for the Molo Graphite Project based on the FEED Study and value engineering. The results supported the construction of a plant
to test and verify the flow sheet design from the Molo Feasibility Study. Under the existing Exploration Permit, the Company is
limited to an ore input of 20,000 cubic meters (or approximately 50,000 tonnes) of front-end feed into the demonstration plant.
Upon approval of a full mining permit, the 20,000-cubic meter test limit would be removed and at full capacity, the demonstration
plant would be capable of processing up to 240,000 tonnes of feed per annum, which equates to 30 tonnes per hour of ore feed and
roughly 1 to 3 tonnes of flake graphite concentrate production per hour.
Phase 1
Phase 1 would consist of a fully operational and sustainable
graphite mine with a permanent processing plant capable of producing, in our estimation, approximately 17,000 tpa of high-quality
SuperFlake™ graphite concentrate with a mine life of 30 years (as discussed below). The fully-modularized mining operation
in this phase will use a 100% owner-operated fleet that we believe will process an average of 240,000 tonnes of ore per year (or
30 tonnes per hour) of mill feed (ore) that will be processed on site. Phase 1 will provide “proof of concept” for
the modular methodology and allow NextSource the flexibility to optimize further the process circuit while being capable of supplying
a true “run-of-mine” flake concentrate to potential off-takers and customers for final product validation. All supporting
infrastructure including water, fuel, power, dry-stack tailings and essential buildings will be constructed during Phase 1 to sustain
the fully operational and permanent processing plant. The plant will utilize dry-stack tailings in order to eliminate the up-front
capital costs associated with a tailings dam. NextSource’s existing camp adjacent to the nearby town of Fotadrevo will be
used to accommodate employees and offices, with additional housing available within the town for additional employees.
Phase 2
Phase 2 would consist of a modular expansion to plant
capable of producing approximately 50,000 tpa of high-quality SuperFlake™ graphite concentrate. Timing of the implementation
of Phase 2 will be determined by market demand for SuperFlake™ graphite and will incorporate the unique full-modular build
approach used in Phase 1. This phase will include the construction of additional on-site accommodation and offices, upgrading of
road infrastructure, port facility upgrades, a wet tailings dam facility and further equipment purchases to provide redundancy
within the processing circuit. The costs for these capital expenditures are unknown at this time but will be assessed as part of
an economic analysis completed in parallel with Phase 1 development.
On June 1, 2017, we released the results of a positive updated Molo
Feasibility Study for Phase 1 of the mine development plan utilizing a fully modular build-out approach which was based on the
FEED Study and subsequent detailed engineering studies. Phase 1 would consist of a fully operational and sustainable graphite mine
with a permanent processing plant capable of producing, in our estimation, approximately 17,000 tpa of high-quality SuperFlake™
graphite concentrate per year with a mine life of 30 years. The Phase 1 production costs were estimated at $433 per tonne at the
plant and $688 per tonne delivered CIF port of Rotterdam. CIF refers to cost, insurance and freight included. The Phase 1 capital
costs were estimated at $18.4 million with a construction projected but not guaranteed timeline of approximately 9 months. Based
on an average selling cost of $1,014 per tonne, the Phase 1 was estimated to have a pre-tax NPV of $34 million using an 8% discount
rate, a pre-tax internal rate of return (“IRR”) of 25.2%, and a post-tax IRR of 21.5%.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2018
On December 27, 2017, the Company completed a corporate redomicile
from Minnesota to Canada. This is expected to reduce our legal and regulatory compliance costs and improve our financing opportunities.
The Company does not have any offices, personnel or mineral projects in the US. The presentation and functional currency of the
Company will continue to be the US dollar. Upon completing the redomicile, the Company adopted International Financial Reporting
Standards (“IFRS”).
On April 13, 2018, the Company issued 1,000,000 common shares upon the exercise of 1,000,000
common share purchase warrants for gross proceeds of $110,000.
Discussions in respect of negotiating and structuring strategic
partnerships, off take agreements and debt financing for our Molo Graphite Project in Madagascar are ongoing and are expected to
continue during the coming months with no assurances as to the conclusion or results of these discussions.
On August 17, 2018, the Company closed a non-brokered
private placement offering of 21,059,270 units at a price of $0.053 (CAD$0.07) per unit for aggregate gross proceeds of $1,120,353
(CAD$1,474,149). Each unit consisted of one common share and one-half common share purchase warrant, with each warrant exercisable
into one common share at an exercise price of $0.076 (CAD$0.10) for a period of two years. The share issue costs consisting of
finder’s fees totaled $16,576 plus the issuance of 337,714 common shares and 123,000 common share purchase warrants, with
each warrant exercisable into one common share at an exercise price of $0.076 (CAD$0.10) for a period of two years.
|
|
4.
|
Molo Graphite Property, Southern Madagascar Region, Madagascar
|
Overview
On December 14, 2011, the Company entered into a Definitive Joint
Venture Agreement ("JVA") with Malagasy Minerals Limited ("Malagasy"), a public company listed on the Australian
Stock Exchange, to acquire a 75% interest in a property package for the exploration and development of industrial minerals, including
graphite, vanadium and 25 other minerals. The land position consisted of 2,119 permits covering 827.7 square kilometers and is
mostly adjacent towards the south and east with the Company's 100% owned Green Giant Vanadium Project. Pursuant to the JVA, the
Company paid $2,261,690 and issued 7,500,000 common shares that were valued at $1,350,000.
On April 16, 2014, the Company signed a Sale and Purchase Agreement
and a Mineral Rights Agreement (together “the Agreements”) with Malagasy to acquire the remaining 25% interest. Pursuant
to the Agreements, the Company paid $364,480 (CAD$400,000), issued 2,500,000 common shares subject to a 12-month voluntary vesting
period that were valued at $325,000 and issued 3,500,000 common share purchase warrants, which were valued at $320,950 using Black-Scholes,
with an exercise price of $0.14 and an expiry date of April 15, 2019. On May 20, 2015 and upon completion of a bankable feasibility
study (“BFS”) for the Molo Graphite Property, the Company paid $546,000 (CAD$700,000) and issued 1,000,000 common shares,
which were valued at $100,000. Malagasy retains a 1.5% net smelter return royalty ("NSR") on the property. A further
cash payment of approximately $771,510 (CAD$1,000,000) will be due within five days of the commencement of commercial production.
The Company also acquired a 100% interest in the industrial mineral
rights on approximately 1 ½ additional claim blocks covering 10,811 hectares adjoining the east side of the Molo Graphite
Property.
The Molo Graphite Project is located within Exploration Permit #3432
(“PR 3432”) as issued by the Bureau de Cadastre Minier de Madagascar (“BCMM”) pursuant to the Mining Code
1999 (as amended) and its implementing decrees. The Molo Graphite Project exploration permit PR 3432 is currently held by our Madagascar
subsidiary ERG Madagascar SARLU. Our Madagascar subsidiary has paid all taxes and administrative fees to the Madagascar government
and its mining ministry with respect to all the mining permits held in country. These taxes and administrative fee payments have
been acknowledged and accepted by the Madagascar government.
During fiscal 2017, the Company applied to the BCMM to have the
exploration permit for the Molo Graphite Project converted into a mining permit. Despite repeated assurances by Ministers in the
Madagascar government and from BCMM that the Company has followed all the regulations and that the application contained no deficiencies,
the BCMM has not yet issued the mining permit to the Company. Our situation does not appear to be unique, since according to the
Madagascar Chamber of Mines, the Madagascar government has not granted any new mining permits to any members during the past 18
months. Although Global Affairs Canada has been providing advocacy support for dealing with Madagascar government officials, it
is believed the Company will have to await the outcome of the Presidential election scheduled for November 2018 before our permit
is granted.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2018
Following an Environmental Legal Review and an Environmental and
Social Screening Assessment, which provided crucial information to align the project’s development and design with international
best practice on sustainable project development, the Company completed a comprehensive Environmental and Social Impact Assessment
("ESIA"), which was developed to local Madagascar (“Malagasy”), Equator Principles, World Bank and International
Finance Corporation (“IFC”) standards. The ESIA was submitted to the Office National d’Environment (“ONE”)
during fiscal 2018. The Company expects it will receive a notice of provisional approval of its global environmental permit (the
“environmental permit”) in October of 2018.
Application for all other necessary permits to construct and operate
the mine, including water use, construction, mineral processing, transportation, export, and labour will be undertaken upon receipt
of the environmental permit. The Company is currently compiling a comprehensive legal register and will complete the security of
land tenure process upon receipt of the environmental permit, which is expected to take 1-2 months.
The Company cannot provide any assurance as to the timing of the
receipt of any of the permits and licenses necessary to initiate construction of the mine.
Graphite Prices
Graphite prices are highly variable depending on the flake size,
carbon content and level of processing.
Natural flake graphite prices rose steeply in 2010 and 2011 before
declining steadily until mid-2016. This price peak was the result of graphite consumer fears that Chinese consolidation in the
flake graphite sector, coupled with bullish forecasts for demand growth for use in lithium-ion batteries, would create an eventual
shortage of supply and encouraged producers to hoard stocks and traders to speculate on prices. Instead, Chinese flake graphite
consolidation continued but at a slower than expected pace and lithium-ion-based electric vehicle (“EV”) adoption rates
were also been slower than first predicted.
This is expected to change over the next decade as the market for
lithium-ion battery components increases graphite demand, resulting in price increases for battery grades.
Larger flake sizes and higher carbon grades have always achieved
the highest price. The jumbo flake price premium is justified because of the use of the larger fractions in specialist applications.
The actual market size for these larger fractions is relatively small but is forecast to grow over the next ten years.
The 3-year historic average price for global flake graphite across
different flake sizes were as follows:
|
Global Flake Graphite Weighted Average Selling Price
|
|
|
2014
|
2015
|
2016
|
3-Year Average
|
|
Jumbo Flake
|
$1,821
|
$1,530
|
$1,470
|
$1,607
|
|
Large Flake
|
$1,317
|
$1,183
|
$861
|
$1,120
|
|
Medium Flake
|
$1,042
|
$1,025
|
$770
|
$946
|
|
Fine Flake
|
$965
|
$846
|
$668
|
$826
|
|
Source: Flake graphite average prices provided by Roskill Consulting Group Ltd.
|
The rapid uptake of lithium-ion batteries between 2017 and 2030
is expected to encourage growth in the demand for fine and medium size flake graphite. The future price of flake graphite from
2017 until 2030 will be influenced by several factors until 2030, including:
Amount of graphite supply from new projects and expansions of existing
projects in China and ROW
Curtailment of flake graphite production in China as the government
imposes environmental controls
Demand and supply balance by graphite flake size
Growth of the lithium-ion battery market
Competition from synthetic graphite
Recycling of refractory graphite products
Madagascar has been a traditional producer of flake graphite for
over a century but has never exceeded 12,000 tonnes of production annually. Currently, Madagascar’s annual production of
flake graphite averages about 5,000 tonnes. The Molo Graphite Project deposit represents the first new and substantial graphite
discovery in the country in over 50 years.
Project Exploration Timeline
The Molo Graphite Project is one of seven surficial graphite trends
discovered and drill tested by NextSource in late 2011 and announced to the market in early January 2012. The Molo deposit itself
occurs in a flat, sparsely populated and dry savannah grassland region that has easy access via a network of seasonal secondary
roads.
The Molo Graphite Project graphitic zone consists of multi-folded
graphitic strata with a surficially exposed strike length of over two kilometres. Outcrop mapping and trenching on the Molo Graphite
Project has shown the surface geology to be dominated by resistant ridges of graphitic schist and graphitic gneiss, as well as
abundant graphitic schist float. Geological modeling has shown that the Molo Graphite Project deposit consists of various zones
of mineralized graphitic gneiss, with a barren footwall composed of garnetiferous gneiss. The host rock of the mineralized zones
on the Molo Graphite Project is graphitic gneiss.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2018
Resource delineation, drilling and trenching on the Molo Graphite
Project took place between May and November of 2012, which resulted in a maiden mineral resource estimate to be released in early
December of the same year. This maiden mineral resource estimate formed the basis for the Company’s Preliminary Economic
Assessment (the “PEA”), which was undertaken by DRA Mineral Projects and released in 2013.
The positive outcome of the PEA led NextSource to undertake another
phase of exploratory drilling and sampling in 2014 to upgrade the deposit and its contained mineral resources to mineral reserves.
The process included an additional 32 diamond drill holes (totaling 2,063 metres) and 9 trenches (totaling 1,876 metres). The entire
database upon which the upgraded resource estimate was based contained 80 drill holes (totaling 11,660 metres) and 35 trenches
(totaling 8,492 metres). This new mineral resource formed the basis of the Molo Feasibility Study, which was originally released
in February 2015.
In August 2016, we initiated the FEED Study and value engineering
for our Molo Graphite Project in Madagascar. The FEED Study was undertaken in order to optimize the mine plan as envisioned in
the Molo Feasibility Study and determine the optimal development path based on discussions with prospective strategic partners.
All costing aspects were examined with the goal of providing a method to produce meaningful, multi-tonne test samples of Molo graphite
concentrate to potential off-takers while reducing the CAPEX and time required to the commencement of commercial production.
On November 7, 2016, we outlined a phased mine development plan
for the Molo Graphite Project based on the FEED Study and value engineering. The results supported the construction of a cost-effective
demonstration plant to test and verify the flow sheet design from the Molo Feasibility Study. Under the Exploration Permit, the
Company would initially be limited to an ore input of 20,000 cubic meters (or approximately 50,000 tonnes) of front-end feed into
the demonstration plant. Upon approval of a full mining permit, the 20,000 cubic meter test limit would be removed and at full
capacity, the demonstration plant would be capable of processing up to 240,000 tonnes of feed per annum, which equates to 30 tonnes
per hour of ore feed and roughly 1 to 3 tonnes of flake graphite concentrate production per hour.
On June 1, 2017, we released the results of a positive updated Molo
Feasibility Study for Phase 1 of the mine development plan utilizing a fully modular build-out approach and based on the FEED Study
and subsequent detailed engineering studies. Phase 1 would consist of a fully operational and sustainable graphite mine with a
permanent processing plant capable of producing approximately 17,000 tpa of high-quality SuperFlake™ graphite concentrate
per year with a mine life of 30 years. The Phase 1 production costs were estimated at $433 per tonne at the plant and $688 per
tonne delivered CIF port of Rotterdam. The Phase 1 capital costs were estimated at US$18.4 million with a construction timeline
of approximately 9 months. Based on an average selling cost of $1,014 per tonne, the Phase 1 financials were estimated to have
a pre-tax NPV of $34M using an 8% discount rate, a pre-tax internal rate of return (IRR) of 25.2%, and a post-tax IRR of 21.5%.
The average selling price of $1,014 per tonne is the weighted average selling price for the different graphite sizes that we expect
to sell. The average selling price is less than the comparable 3-year historic weighted average price
.
Molo Feasibility Study for Phase 1
The following information is extracted from the Molo Feasibility
Study dated July 13, 2017 and prepared by J.K. de Bruin Pr.Eng of Erudite Strategies (Pty) Ltd., J. Hancox of Caracle Creek International
Consulting (Pty) Ltd., D. Subrumani of Caracle Creek International Consulting (Pty) Ltd., D. Thompson of DRA Projects (Pty) Ltd.,
O. Peters of Metpro Management Inc., P. Harvey of Met63 (Pty) Ltd., H. Smit of Erudite Projects (Pty) Ltd., E.V. Heerden of EVH
Consulting (Pty) Ltd., G. Pappagiorgio of Epoch Resources (Pty) Ltd. and A. Marais of GCS Consulting (Pty) Ltd., each of whom is
a “qualified person” and “independent”, as such terms are defined in NI 43-101.
The extract below is subject to all the assumptions, qualifications
and procedures set out in the Molo Feasibility Study and is qualified in its entirety with reference to the full text of the Molo
Feasibility Study. It is advised that this extract should be read in conjunction with the entire Molo Feasibility Study.
1 Summary
1.1 Introduction
Next Source Materials Incorporated (formerly Energizer
and Uranium Star) is a mineral exploration and development Company based in Toronto, Canada, which is currently focused on the
exploration and development of its 100% owned, flagship Molo Project.
The Molo deposit is situated 160 km southeast of the city
of Toliara, in the Tulear region of south-western Madagascar. The deposit occurs in a sparsely populated, dry savannah grassland
region, which has easy access via a network of seasonal secondary roads radiating outward from the village of Fotadrevo. Fotadrevo
in turn has an all-weather airstrip and access to a road system that leads to the regional capital (and port city) of Toliara and
the Port of Ehoala at Fort Dauphin via the RN10, or RN13.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2018
Geologically Molo is situated in the Bekikiy block (Tolagnaro-Ampanihy
high grade metamorphic province) of southern Madagascar. The Molo deposit is underlain predominantly by moderately to highly metamorphosed
and sheared graphitic (biotite, chlorite and garnet- rich) quartzo-feldspathic schists and gneisses, which are variably mineralised.
Near surface rocks are oxidised, and saprolitic to a depth, usually of less than 5m.
Molo is one of several surficial graphite trends discovered
by the Company in late 2011 and announced in early January 2012. The deposit was originally drill tested in 2012, with an initial
seven holes being completed. Resource delineation, drilling and trenching on Molo took place between May and November of 2012,
and allowed for a maiden Indicated and Inferred Resource to be stated in early December of the same year. This maiden mineral resource
estimate formed the basis for a Preliminary Economic Assessment (the “PEA”), which was undertaken by DRA Mineral Projects
in 2013. The positive outcome of this assessment lead the Company to undertake another phase of exploratory drilling and sampling
in 2014, which was done under the supervision of Caracle Creek International Consulting (Proprietary) Limited. This phase of exploration
was aimed at improving the geological confidence of the deposit and it’s contained mineral resources, and included an additional
32 diamond drill holes (totalling 2,063 metres) and 9 trenches (totalling 1,876 metres). Caracle Creek were subsequently engaged
to update the geological model and resource estimate. The entire database on which this new model and resource estimate is based
contains 80 drill holes (totalling 11,660 metres) and 35 trenches (totalling 8,492 metres). This new resource forms the basis for
the Molo 2015 FS which targeted 860ktpa of ore processing capacity.
The Molo 240ktpa 2017 FS utilises the knowledge base of
the Molo 2015 FS on a smaller scale low capital cost 240ktpa process capacity option.
Project Location
The Molo deposit is located some 160 km southeast of Madagascar’s
administrative capital (and port city) of Toliara, in the Tulear region and about 220 km NW of Fort Dauphin. It is approximately
13 km NE of the local village of Fotadrevo. See Figure 1 below.
Figure 1: Project Location
1.2 Project Description
The proposed development of the Molo graphite project
includes the construction of a green fields open pit mine, a processing plant with a capacity of 240,000 tonnes of ore per annum
and all supporting infrastructure including water, fuel, power, tailings, buildings and permanent accommodation.
See Figure 2 below for the proposed layout of the site.
Figure 2.2: Site Layout
1.3 Summary of financial results
Table 1 below summarizes the financial results of the
Molo 240ktpa 2107 FS. These are based on a discounted flow analysis of the project using nominal cash flows, which include the
effect of inflation.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2018
Table 1: Summary of Financial Results
|
Description
|
Pre-Tax
|
Post-Tax
|
|
Post-tax: Flow)(1)(2)
|
NPV
|
(8%
|
Discount
|
Cash
|
$34.0m
|
$25.5m
|
|
Post-tax: IRR (1)(2)
|
25.2%
|
21.5%
|
|
Payback (2)
|
4.2 years
|
4.8 years
|
|
Capital cost ("CAPEX")
|
$16,725,869
|
|
|
Owners Contingency
|
$1,672,587
|
|
On-site Operating Costs ("OPEX") per tonne of concentrate, (year 3 onward)
|
Mining
$102.81
|
|
On-site Operating Costs ("OPEX") per tonne of concentrate, (year 3 onward)
|
Processing
$265,82
|
|
Transportation per tonne of concentrate (from mine site to Madagascar Port year 3 onward)
|
$133.01
|
|
Transportation per tonne of concentrate (from Madagascar Port to European Customer Port from year 3 onward)
|
$122.50
|
|
Average annual production of concentrate
|
17,000 tonne
|
|
Life of Mine ("LOM")
|
30 years
|
|
Graphite concentrate sale price (US$/tonne at Start Up - 2017)
|
$1,014
|
|
Average Head Grade
|
8.05%
|
|
Average ore mined per annum over Life of Mine
|
240,000 tonne
|
|
Average stripping ratio
|
0.53:1
|
|
Average carbon recovery
|
88.3%
|
|
|
|
|
|
|
|
|
Notes
|
•
|
|
Note 1: Assumes project is financed with 100% equity
|
|
•
|
|
Note 2: Values shown are based on nominal graphite sales pricing
|
Table 2 below summarizes key mine and process data.
Table 2: Mine & Process Data
|
Proven reserves (t)
|
5,881,243
|
|
Probable reserves (t)
|
1,278,757
|
|
Grade (% graphitic carbon)
|
8.05%
|
|
Waste to ore ratio
|
0.53:1
|
|
Processing rate (tpa)
|
240,000
|
|
Mine life (years)
|
30
|
|
Recovery (%)
|
88.3%
|
|
Average annual product tonnes
|
17,164
|
1.4 Property Description and Ownership
1.4.1 Property
description
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2018
The Molo Graphite Project is contained in a portion of
Exploration Permit #3432. The Project is centred on UTM coordinates 413,390 Easting 7,345,713 Northing (UTM 38S, WGS 84 datum).
The Molo Graphite Project is located 11.5 km ENE of the town of Fotadrevo and covers an area of 62.5 hectares (“ha”).
The Government of Madagascar designates individual claims by a central LaBorde UTM location point, comprising a square with an
area of 6.25 km2
1.4.2 Ownership
On December 14, 2011, the Company entered into a Definitive
Joint Venture Agreement ("“JVA"”) with Malagasy Minerals Limited ("“Malagasy"”), a
public company on the Australian Stock Exchange, to acquire a 75% interest to explore and develop a group of industrial minerals,
including graphite, vanadium and approximately 25 other minerals. On October 24, 2013, the Company signed a Memorandum of Understanding
("“MOU"”) with Malagasy to acquire the remaining 25% interest in the land position.
On April 16, 2014, the Company signed a Sale and Purchase
Agreement and a Mineral Rights Agreement with Malagasy to acquire the remaining 25% interest. Malagasy retains a 1.5% net smelter
return royalty ("“NSR"”).
The Molo Graphite Project is located within Exploration
Permit #3432 as issued by the Bureau de Cadastre Minier de Madagascar (““BCMM””) pursuant to the Mining
Code 1999 (as amended) and its implementing decrees.
CCIC has had sight of and reviewed a copy of the “Contrat
d’amodiation” pertaining to this right and are satisfied that the rights to explore this permit have been ceded to
the Company or one of its Madagascar subsidiaries.
The Company holds the exclusive right to explore for a
defined group of industrial minerals within the permits listed above. These industrial minerals include the following: Vanadium,
Lithium, Aggregates, Alunite, Barite, Bentonite, Vermiculite, Carbonatites, Corundum, Dimensional stone (excluding labradorite),
Feldspar (excluding labradorite), Fluorspar, Granite, Graphite, Gypsum, Kaolin, Kyanite, Limestone / Dolomite, Marble, Mica, Olivine,
Perlite, Phosphate, Potash–Potassium minerals, Pumice Quartz, Staurolite, and Zeolites.
Reporting requirements of exploration activities carried
out by the titleholder on an Exploration Permit are minimal. A titleholder must maintain a diary of events and record the names
and dates present of persons active on the project. In addition, a site plan with a scale between 1/100 and 1/10,000 showing ““a
map of the work completed”” must be presented. Upon establishment of a mineral resource, Exploration Permits may be
converted into Exploitation Permits by application. CCIC is of the opinion that the Company is compliant in terms of its commitments
under these reporting requirements.
The Molo Graphite Project has not been legally surveyed;
however, since all claim boundaries conform to the predetermined rectilinear LaBorde Projection grid, these can be readily located
on the ground by use of Global Positioning System (“GPS”) instruments. Most current GPS units and software packages
do not however offer LaBorde among their available options, and therefore defined shifts have to be employed to display LaBorde
data in the WGS 84 system. For convenience, all the Company’s positional data is collected in WGS 84, and if necessary converted
back to LaBorde Royalties.
1.4.3 Royalties
Malagasy retains a 1.5% net smelter return royalty on
the Molo Graphite Project.
1.4.4 Permits
Exploration Permit PR 3432 is currently held under the
name of a subsidiary of the Company, called ERG Madagascar SARLU. The Company’s Madagascar domiciled subsidiary have continued
to pay all taxes and administrative fees to the Madagascar government and its mining ministry with respect to all the mining permits
held in country. These taxes and administrative fee payments have been acknowledged and accepted by the Madagascar government.
In addition, the Company continues to diligently work with the Madagascar government to obtain the necessary permits in its name
as the country clears its backlog of applications and amendments.
The exploration permit will be converted into an exploitation
permit in due course. When the permit is transformed from an exploration permit to an exploitation permit, the exploitation permit
will be issued in the name of the Company’s local subsidiary, ERG Madagascar SARLU. The exploitation permit is required to
advance the Molo Project to the developmental stage.
1.6 Mineral
Resource Estimate
The Molo project hosts the following resources:
|
|
•
|
Measured mineral resource of 23.62 MT grading 6.32% Carbon ("C")
|
|
|
•
|
Indicated mineral resource of 76.75 MT grading 6.25% C
|
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2018
|
|
•
|
Inferred mineral resource of 40.91 MT at 5.78% C
|
|
|
•
|
The effective date of the Mineral Resource tabulation is the 14th August 2014. The Mineral Resources
are classified according to the Canadian Institute of Mining, Metallurgy and Petroleum definitions. A cut-off grade of 4% C was
used for the “higher grade” zones and 2% C for the “lower grade” zones. It is important to note that while
the ‘high’ grade resource occurs within the ‘low’ grade resource, each was estimated and reported separately.
|
|
|
•
|
A relative density of 2.36 tonnes per cubic meter was assigned to the mineralized zones for the
resource estimation. The resource remains open along strike and to depth. The Mineral Resources above are inclusive of the Mineral
Reserves below.
|
|
|
•
|
The current mineral resource estimate for Molo is summarized in Table 3 below. The mineral resources
are classified in the Measured, Indicated and Inferred categories as defined by the Canadian Institute of Mining, Metallurgy and
Petroleum definition standards.
|
Table 3: Mineral Resource Statement for the Molo Graphite Deposit - September
2014
|
Classification
|
Material Type
|
Tonnes
|
Grade - C%
|
Graphite - T
|
|
Measured
|
"Low Grade"
|
13 048 373
|
4.64
|
605 082
|
|
Measured
|
"High Grade"
|
10 573 137
|
8.4
|
887 835
|
|
Total Measured
|
|
23 621 510
|
6.32
|
1 492 916
|
|
Indicated
|
"Low Grade"
|
39 539 403
|
4.73
|
1 871 075
|
|
Indicated
|
"High Grade"
|
37 206 550
|
7.86
|
2 925 266
|
|
Total Indicated
|
|
76 745 953
|
6.25
|
4 796 341
|
|
Measured + Indicated
|
"Low Grade"
|
52 587 776
|
4.71
|
2 476 157
|
|
Measured + Indicated
|
"High Grade"
|
47 779 687
|
7.98
|
3 813 101
|
|
Total Measured + Indicated
|
100 367 464
|
6.27
|
6 289 257
|
|
Inferred
|
"Low Grade"
|
24 233 267
|
4.46
|
1 080 677
|
|
Inferred
|
"High Grade"
|
16 681 453
|
7.70
|
1 285 039
|
|
Total Inferred
|
|
40 914 721
|
5.78
|
2 365 716
|
|
Total Measure + Indicated + Inferred
|
"Low Grade"
|
76 821 044
|
4.63
|
3 556 834
|
|
Total Measure + Indicated + Inferred
|
"High Grade"
|
64 461 141
|
7.91
|
5 098 140
|
|
Grand - Total
|
|
141 282 184
|
6.13
|
8 654 974
|
C% = carbon percentage; Graphite – T = Tonnes of graphite
|
|
•
|
Mineral Resources are classified according to the Canadian Institute of Mining definitions.
|
|
|
•
|
“Low Grade” Resources are stated at a cut-off grade of 2% C.
|
|
|
•
|
“High grade” Resources are stated at a cut-off grade of 4% C.
|
|
|
•
|
Eastern and Western high grade assays are capped at 15% C.
|
|
|
•
|
A relative density of 2.36 tonnes per cubic metre (t/m3) was assigned to the mineralized zones
for the resource tonnage estimation.
|
The total Measured and Indicated Resource is estimated
at 100.37 million tonnes, grading at 6.27% carbon. Additionally, an Inferred Resource of 40.91 million tonnes, grading at 5.78%
carbon is stated. When compared to the November 2012 resource statement, (Hancox and Subramani, 2013), this shows a 13.7% increase
in tonnage, a 3.4% decrease in grade and a 9.8% increase in graphite content. The reason for the increase in tonnage is due to
the 2014 drilling on the previously untested north eastern limb of the deposit, which added additional new resources. Additionally,
23.62 million tonnes, grading at 6.32% carbon, have been upgraded by infill drilling from the Indicated to Measured Resource category.
1.7 Exploration
No further exploration is currently planned.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2018
1.8 Mineral
Reserve Estimate
As a result of the Molo 240ktpa FS 2017, the following
maiden proven and probable mineral reserves are declared, see Table 4 below.
Table 4: Mineral Reserves
|
Category
|
Tonnage
|
C Grade (%)
|
|
Proven
|
5 881 243
|
8.04
|
|
Probable
|
1 278 757
|
8.07
|
|
Proven and Probable
|
7 160 000
|
8.05
|
Proven reserves are reported as the Measured Resources
inside the designed open pit and above the grade cut off of 5.5% C. Similarly, the Probable Reserves are reported as the Indicated
Resources inside the designed open pit and above the grade cut-off of 5.5% C.
1.9 Metallurgical
Test Work
The Molo 240ktpa FS 2017 is based on a full suite of metallurgical
test work performed by SGS Canada Metallurgical Services Inc. in Lakefield, Ontario, Canada. These tests included laboratory scale
metallurgical work and a 200 tonne bulk sample / pilot plant program. The laboratory scale work included comminution tests, process
development and optimization tests, variability flotation, and concentrate upgrading tests.
Comminution test results place the Molo ore into the very
soft to soft category with low abrasivity. A simple reagent regime consists of fuel oil number 2 and methyl isobutyl carbinol at
dosages of approximately 120 g/t and 195 g/t, respectively. A total of approximately 150 open circuit and locked cycle flotation
tests were completed on almost 70 composites as part of the process development, optimization, and variability flotation program.
The metallurgical programs culminated in a process flowsheet that is capable of treating the Molo ore using proven mineral processing
techniques and its robustness has been successfully demonstrated in the laboratory and pilot plant campaigns.
The metallurgical programs indicated that variability
exists with regards to the metallurgical response of the ore across the deposit, which resulted in a range of concentrate grades
between 88.8% total carbon and 97.8% total carbon. Optical mineralogy on representative concentrate samples identified interlayered
graphite and non-sulphide gangue minerals as the primary source of impurities. The process risk that was created by the ore variability
was mitigated with the design of an upgrading circuit, which improved the grade of a concentrate representing the average mill
product of the first five years of operation from 92.1% total carbon to 97.1% total carbon.
The overall graphitic carbon recovery into the final concentrate
is 87.8% based on the metallurgical response of composites using samples from all drill holes within the five year pit design of
the original feasibility study at the higher concentrate production rate of 53,000 tpa. The average composition of the combined
concentrate grade is presented in Table 5. The size fraction analysis results were converted into a grouping reflecting a typical
pricing matrix, which is shown in Table 6.
All assays were completed using control quality analysis
and cross checks were completed during the mass balancing process to verify that the results were within the estimated measurement
uncertainly of up to 1.7% relative for graphite concentrate grades greater than 90% total carbon
Table 5: Metallurgical Data - Flake Size Distribution
and Product Grade
|
Product Size
|
% Distribution
|
Product Grade (%) Carbon
|
|
+48 mesh (jumbo flake)
|
23.6
|
96.9
|
|
+65 mesh (coarse flake)
|
14.6
|
97.1
|
|
+80 mesh (large flake)
|
8.2
|
97.0
|
|
+100 mesh (medium flake)
|
6.9
|
97.3
|
|
+150 mesh (medium flake)
|
15.5
|
98.1
|
|
+200 mesh (small flake)
|
10.1
|
98.1
|
|
-200 mesh (fine flake)
|
21.1
|
97.5
|
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2018
Table 6: Pricing Matrix - Flake Size Distribution
Grouping and Product Grade
|
Product Size
|
% Distribution
|
Product Grade (%) Carbon
|
|
>50 mesh
|
23.6
|
96.9
|
|
-50 to +80 mesh
|
22.7
|
97.1
|
|
-80 to +100 mesh
|
6.9
|
97.2
|
|
-100 mesh
|
46.8
|
97.6
|
Vendor testing including solid-liquid separation of tailings
and concentrate, screening and dewatering of concentrate, and drying of concentrate was completed successfully.
1.10 Recovery
Methods
The process design is based on an annual feed plant throughput
capacity of 240 kilotonnes at a nominal head grade of 7.04% C(t) producing an estimated average of 15-17 kilotonnes per annum (ktpa)
of final concentrate.
The ore processing circuit consists of three stages of
crushing which comprises jaw crushing in the primary circuit, followed by secondary cone crushing and tertiary cone crushing; the
secondary and tertiary crushers operate in closed circuit with a double deck classification screen. Crushing is followed by primary
milling and screening, graphite recovery by froth flotation and concentrate upgrading circuit, and graphite product and tailings
effluent handling unit operations. The crusher circuit is designed to operate 365 days per annum for 24 hours per day at ±55%
utilization. The crushed product (P80 of approximately 13 mm) passes through a surge bin from where it is fed to the milling circuit.
The milling and flotation circuits are designed to operate
365 days per annum for 24 hours per day at 92% utilization. A single stage primary ball milling circuit is employed, incorporating
a closed-circuit classifying screen and a scalping screen ahead of the mill. The scalping screen undersize feeds into a flash flotation
cell before combining with the mill discharge material. Scalping and classification screen oversize are the fed to the primary
mill.
Primary milling is followed by rougher flotation which,
along with flash flotation, recovers graphite to concentrate from the main stream. Rougher flotation employs six forced-draught
trough cells. The primary, fine-flake and attritioning cleaning circuits upgrade the concentrate to the final product grade of
above 94% C(t). Concentrate from the main stream feeds into the primary cleaning circuit consisting essentially of a dewatering
screen, a polishing ball mill, a column flotation cell and flotation cleaner/cleaner scavenger trough cells.
The primary cleaner column cell concentrate gravitates
to a 212 µm classifying screen, from where the large-flake oversize stream is pumped to a high rate thickener located in
the concentrate attritioning circuit whilst the undersize is pumped to the fine-flake cleaning circuit.
The fine flake cleaning circuit consists primarily of
a dewatering screen, a polishing ball mill, a column flotation cell and flotation cleaner/cleaner scavenger trough cells. The attritioning
cleaning circuit employs a high rate thickener, an attritioning stirred media mill, a column flotation cell and flotation cleaner/cleaner
scavenger trough cells. Fine flake column concentrate is combined with the +212 µm primary cleaner classifying screen oversize
as it feeds the attritioning circuit thickener.
Concentrate from the attrition circuit is pumped to the
final concentrate thickener.
The combined fine flake cleaner concentrate and the +212
µm may also be processed through the secondary attrition circuit which consists of a dewatering screen, an attrition scrubber,
column flotation cell and cleaner/cleaner scavenger trough cells. Concentrate from this circuit is pumped to the final concentrate.
The secondary attrition circuit is optimal.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2018
Combined rougher and cleaner flotation final tailings
are pumped to the final tailings thickener. Thickened final concentrate is pumped to a filter press for further dewatering before
the filter cake is stockpiled prior to load and haul.
The concentrate thickener underflow is pumped to a linear
belt filter for further dewatering and fed to a diesel-fired rotary kiln for drying. The dried concentrate is then screened into
four size fraction:
The various product sizes are bagged and readied for shipping.
Chemical reagents are used throughout the froth flotation
circuits and thickeners. Diesel fuel is used as collector and liquid MIBC (methyl isobutyl carbinol) frother are used within the
flotation circuits. Diesel collector is pumped from a diesel storage isotainer, from where it enters a manifold system which supplies
multiple variable speed peristaltic pumps which discretely pump the collector at set rates to the various points-of-use within
the flotation circuits.
MIBC (methyl isobutyl carbinol) frother is delivered by
road to an isotainer. A manifold system on the storage isotainer supplies multiple variable speed peristaltic pumps, which discretely
pump the frother at set rates to the various points-of-use within the flotation circuits.
Flocculant powder (Magnafloc 24) is delivered by road
to the plant reagent store in 25 kg bags. The bags are collected by forklift as required and delivered to a flocculant mixing and
dosing area. Here the flocculant is diluted as required using parallel, duplicate vendor-package automated make-up plants, each
one being dedicated to supplying the concentrate and tailings thickeners due to the flocculant types required being different for
each application. Variable speed peristaltic pumps discretely pump the flocculant at set rates to the thickeners’ points-of-
use.
Coagulant powder (Magnafloc 1707) for thickening enhancement
is handled similarly to the flocculant as described above, the exception being that a single make-up system is provided to supply
both the concentrate and tailings thickeners. Again, variable speed peristaltic pumps discretely pump the coagulant at set rates
to the thickeners’ points-of-use. Figure 3 below shows a block flow diagram of the Molo Graphite concentrator process plant.
Figure 3: Block flow diagram
1.11 Infrastructure
The project is located in a relatively remote part of
South Western Madagascar, approximately 13 km NE of the local village of Fotadrevo. There is currently limited infrastructure on
site and project infrastructure will have to be constructed.
The following elements are all part of the project scope:
|
|
•
|
Raw water supply (from a network of bore holes extracting ground water)
|
|
|
•
|
Power supply (temporary during construction) and then a permanent diesel power station to supply
the plant and permanent camp
|
|
|
•
|
Sanitation for the plant, permanent camp, and temporary during construction
|
|
|
•
|
Storm water control and management
|
|
|
•
|
All permanent buildings (offices, workshops, stores, laboratory)
|
|
|
•
|
All buried services (potable water, sewage, stormwater, electrical reticulation)
|
|
|
•
|
Waste, high and low grade -Rock dumps. See Figure 2 in section 1.3 for the site layout.
|
The following section describes the methods, assumptions
and specifications used in the preliminary design of the civil, structural and infrastructure portions of the proposed new modular
graphite plant. As the proposed new plant is a temporary pilot plant for a potentially much larger process plant and mining operation,
the brief form the client was to develop a “fit for purpose” and cost-effective design without compromising on safety
or quality.
A desktop review was carried out on relevant portions
of The Molo Feasibility Study carried out by DRA in 2015. The following sections from this document are listed as reference documents
for this study and are treated as relied upon information.
|
|
•
|
C8375-RPT-1 - Molo Feasibility Study Section 1 Executive Summary
|
|
|
•
|
C8375-RPT-9 - Molo Feasibility Study Section 9 Infrastructure
|
|
|
•
|
C8375-EDC-PM-001 – Engineering Design Criteria
|
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2018
|
|
•
|
Feasibility Geotechnical Investigations Report (SRK Report 479297/Plant Geotech/Final) The most
critical aspects of the design criteria will also be listed hereunder.
|
1.11.1 Drawings
The drawings in the table below were produced for the
civil, structural and infrastructure portions of this phase of the project. Infrastructure areas were laid out to minimize earthworks
requirements and footprint requirements.
|
Drawing Number Drawing Description
|
|
Blockplan Drawings
|
|
|
17038-BP-0001
|
Site Layout Plan A
|
|
17038-BP-0002
|
Site Layout Plan B
|
|
|
|
|
General Arrangements
|
|
|
17038-GA-0001
|
Plant & Infrastructure GA
|
|
17038-EW-0001
|
Terrace Details
|
|
17038-SW-0001
|
Storm Water Drainage Plan
|
|
EVHP-17038-GN-0001
|
General Notes & Specifications
|
|
|
|
|
Concrete Drawings
|
|
|
EVHP-17038-C-0001
|
Process Plant Concrete Layout GA
|
|
EVHP-17038-C-0002
|
Concrete Base & Plinth Details P1, B1, B2, B3, B4
|
|
EVHP-17038-C-0003
|
Concrete Base & Plinth Details P1, B5, B6, B7
|
|
EVHP-17038-C-0004
|
Concrete Base & Plinth Details P1, P2, P3, B8, B9
|
|
EVHP-17038-C-0005
|
Concrete Base & Plinth Details P2, P4, B10, B11
|
|
EVHP-17038-C-0006
|
Concrete Base & Plinth Details P5, B11
|
|
EVHP-17038-C-0007
|
Concrete Base & Plinth Details P1, B13
|
|
EVHP-17038-C-0008
|
Concrete Base & Plinth Details P6-9, P13-15, B14, B15
|
|
EVHP-17038-C-0009
|
Concrete Base & Plinth Details P1, B16-20
|
|
EVHP-17038-C-0010
|
Concrete Base & Plinth Details P1, P10, B21-27
|
|
EVHP-17038-C-0011
|
Concrete Bund Details 1,2 & 3
|
|
EVHP-17038-C-0012
|
Concrete Bund Details 4 & 5
|
|
EVHP-17038-C-0013
|
Gabion Retaining Wall Details
|
|
EVHP-17038-C-0014
|
Civil Typical Details
|
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2018
1.11.2 Basis
of Civil, Structural and Infrastructure Design
The scope of the civil and structural design covers the
following facilities and areas:
|
|
•
|
Bulk earthworks and terraces for the process plant, administration and workshop areas
|
|
|
•
|
Earthworks for laydown areas
|
|
|
•
|
Bulk earthworks and retaining walls for the Run of Mine (ROM) tip ramp
|
|
|
•
|
Foundations and slabs for:
|
|
|
-
|
Front end crushing circuit
|
|
|
-
|
Conveyors, transfer stations and bins
|
|
|
-
|
Complete modular process plant
|
|
|
-
|
Workshops, offices, change-house, laboratory and stores
|
|
|
-
|
Security and access control buildings
|
|
|
-
|
Modular water treatment plant
|
|
|
-
|
Modular sewer treatment plant
|
|
|
•
|
In plant roads and access
|
|
|
•
|
Fuel storage and bund area
|
|
|
•
|
Storm water drainage (Concrete lined v-drains) and protection berms
|
|
|
•
|
Plant pollution control dam
|
As the process plant is supplied in modular units by a
vendor, the design of these structures are not included in this section. Critical structural design criteria is however still included.
1.11.3 Standards
The Design shall be based on the technical standards of
South Africa (SANS) prevailing at the time when the Works are being executed.
Table 7: Standards to be used in Structural Design
|
Number
|
Name
|
|
SANS 282
|
Bending dimensions and scheduling of steel reinforcement for concrete
|
|
SANS 10104
|
Handrailing and balustrading (safety aspects).
|
|
SANS 10100-1
|
The structural use of concrete – Part 1: Design
|
|
SANS 10160-1
|
Basis of structural design and actions for buildings and industrial structures Part 1: Basis of structural design
|
|
SANS 10160-2
|
Part 2: Self-weight and imposed loads
|
|
SANS 10160-3
|
Part 3: Wind actions
|
|
SANS 10160-4
|
Part 4: Seismic actions and general requirements for buildings
|
|
SANS 10160-5
|
Part 5: Basis for geotechnical design and actions
|
|
SANS 10160-6
|
Part 6: Actions induced by cranes and machinery
|
|
SANS 10160-7
|
Part 7: Thermal actions
|
|
SANS 10160-8
|
Part 8: Actions during execution
|
|
SANS 10161
|
The design of foundations for buildings
|
|
SANS 10162-1
|
The structural use of steel – Part 1: Limit-states design of hot-rolled steelwork
|
|
SANS 10162-2
|
The structural use of steel – Part 2: Limit-states design of cold-formed steelwork
|
|
SANS 10400
|
The Application of the National Building Regulations (All Parts)
|
|
SANS 10094
|
The use of high-strength friction-grip bolts.
|
|
BS 8007
|
Design of Concrete Structures for Retaining Aqueous Liquids (British Standard)
|
The works are to be executed to the following specifications
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2018
Table 8 - Construction Specifications
|
Number
|
Name
|
|
SANS 2001-CC1:2012
|
Construction
Works Part CC1: Concrete Works (Structural)
|
|
SANS 2001-CS1:2012
|
Construction Works Part CS1: Structural Steelwork
|
|
SANS 2001-BE1:2008
|
Construction Works Part BE1: Earthworks (General)
|
|
SANS 2001-BS1:2008
|
Construction Works Part BS1: Site Clearance
|
1.11.4 Design
Loads
The below conditions and loads were considered in the
design:
|
Wind Speed:
|
40m/s
|
|
Temperature Variations
|
10 Degrees Celsius Minimum 35 Degrees Celsius Maximum
|
|
Terrain Category:
|
Category B – Open terrain with scattered obstructions having
heights between 1.5m and 10m.
|
|
Class of structure:
|
Class B
|
|
Mean Return Period:
|
50 years
|
|
Site altitude:
|
500m amsl
|
|
Steel Grades:
|
S355JR (350W) Hot Rolled Sections
|
|
Soil Bearing Capacity
|
150kPa
|
|
Equipment Loading
|
As per vendor information
|
The following floor live loads were considered in the
design:
Table 9. Floor Live loads
|
Location
|
Design Loading
|
|
All plant areas that are to be used for maintenance and major access
|
5 kN/m2 or 4.5 kN at any point
with maintenance areas
|
|
Stairways, landings and walkways in plant
|
2.5 kN/m2
|
|
Minor platform access only
|
2.5 kN/m2
|
|
|
1.25kN/m2 full length (global design) or
|
|
Conveyor walkways (not exceeding
|
2.5kN/m2 over a 4m length (local member
|
|
800mm wide)
|
design)
|
|
|
1 kN/m2 for spill trays
|
|
Ground vehicles
|
floor
|
areas
|
accessible
|
to
|
Applicable vehicle wheel load or 10 kN/m2 whichever is greater
|
|
Ground floor areas not accessible to vehicles
|
7.5 kN/m2
|
|
Floor spillage
|
1 kN/m2 not to be used simultaneously with above nominated floor loadings
|
|
Handrails
|
0.33 kN/m or 0.55kN acting vertically, or horizontally outwards on the top
rail or edge, but
not concurrently
|
|
|
|
|
|
|
|
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2018
1.12 Bulk
Earthworks
1.12.1 Geotechnical
The geotechnical investigation conducted by SRK Consulting
in 2014 was used as reference document for the design and planning of this phase of the project. (Report 479297/Plant Geotech/Final)
In summary, transported soils are present across all areas
investigated to shallow depths not exceeding a maximum depth of 0.6 m. From the consistencies noted during test pit excavations
the transported soils are anticipated to have a maximum allowable bearing capacity of 100 kPa, limiting total consolidation settlement
to 25 mm.
Residual soils were noted in the majority of the test
pits excavated and comprised dense to very dense silty and/ or clayey sands. The residual soils are expected to have a maximum
allowable bearing capacity of 200 kPa, limiting total consolidation settlement to 25 mm (differential settlement expected to be
half this value).
As rock is located at a shallow depth at most locations
it is recommended that structures generally be founded on rock rather than the overlying thin soils. However, light structures
with loads of less than 100 kPa could be founded on the soils if necessary.
1.12.2 Site
Clearance
The entire plant area is to be cleared and grubbed. Topsoil
shall be stripped nominally 150mm deep after clearing and grubbing and stockpiled in designated areas for possible re-use in accordance
with the recommendations of the EIA. Topsoil may also be used for screen and drainage berms.
1.12.3 Terrace
Design
Bulk earthworks are required for the process plant and
building platforms, plant roads, storm water drainage, access ramps and laydown areas.
Finished surface levels for bulk earthworks at all plant
will be 200 mm below the nominated top of concrete of all footings and foundation slabs with grading of the surface surrounding
the foundation to ensure runoff is directed away from the foundations.
All fill areas will be compacted to a minimum modified
AASHTO density of at least 95%. The terraces will be formed using a cut to fill operation with suitable in-situ material after
all unsuitable topsoil has been removed. A borrow pit has been identified for any shortfall fill material.
The terrace design has been done to allow for a minimum
load bearing capacity of 150kPa for concrete foundations and structures.
All fill slopes will be between 1:1.5 and 1:3 in accordance
with the geotechnical report.
1.12.4 Plant
Roads
Site roads will be formed from existing site material
and be shaped to assist rainfall runoff. In plant roads will be 6m wide and constructed of in situ material. Borrow pit material
is to be used for heavy vehicle haul roads.
1.12.5 Run
of Mine (ROM) Ramp
The ROM ramp will be constructed from borrow pit material
with a ramp slope of 10 degrees. The ROM ramp retaining walls will be constructed with gabion baskets on a concrete footing.
1.12.6 Soil
and Compaction Testing
All tests test work shall be done in accordance with the
latest and applicable SANS 1200 specification.
1.13 Concrete
1.13.1 Foundation
Design
Concrete foundations were designed according to the specifications
and standards listed in section 1.11.3
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2018
All foundations were designed as pad or raft type foundations
with load bearing pressures not exceeding 150kPa. Foundations were designed to minimize settlement. A load diagram drawing was
supplied by the modular process plant supplier which was used in the design analysis of foundations and slabs.
Heavy equipment to be found on the residual soils with
a load bearing capacity 200kPa at approximately 1m below natural ground level as per the geotechnical report, or on engineered
fill. Equipment with potentially high dynamic loadings such as the mills, were placed on pad foundations with a weight of 3 times
the operating weight of the mill to ensure that the equipment will not vibrate or shake.
Administration buildings will be modular prefabricated
buildings with low loading. These building will be placed on lightly reinforced ground slabs or light raft structures.
1.13.2 Concrete
Grades
Concrete grades and mix design will be selected taking
into consideration durability requirements. Particular attention will be given to wet process plant areas and wash down slabs.
The concrete grades specified in Table 10 will be taken as a minimum requirement.
Table 10. Concrete Grades
|
Element
|
Concrete Strength
|
|
Blinding
|
10 MPa / 9.5 mm
|
|
Footings/Ground Slabs
|
30 MPa / 19 mm
|
|
Suspended Slabs
|
30 MPa / 19 mm
|
|
Other Concrete
|
30 MPa / 19 mm
|
Where the characteristic strength is denoted by strength
followed by maximum aggregate size, e.g. 25 MPa / 19 mm refers to grade 25 mixed with 19 mm aggregate.
1.13.3 Reinforcement
Cover
Cover to concrete reinforcing will be specified on the
drawings. The concrete covers specified in Table 11 will be taken as a minimum requirement.
Table 11: Concrete Cover Specifications
|
Location Cover (mm)
|
|
In-situ concrete cast against forms, unless specified otherwise
|
50
|
|
Pre-cast concrete cast in rigid forms with intense vibration, unless specified otherwise
|
30
|
|
Concrete cast against ground
|
75
|
|
Bored piers
|
75
|
|
Pre-cast piles
|
40
|
|
Top cover to footings, walls, pedestals, plinths
|
50
|
|
Bottom cover to slabs, cast against ground
|
75
|
|
Top cover to slabs in wash down and process areas
|
50
|
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2018
1.13.4 Reinforcing
Bars
Reinforcing shall be high strength deformed steel bar
in accordance with SANS 920 with the following properties:
|
Minimum yield strength, fy:
|
|
450 MPa
|
|
Minimum elongation at yield:
|
|
14%
|
|
Minimum tensile strength, fu:
|
|
1.15 x fy
|
1.13.5 Reinforcing
Mesh
Fabric shall be in accordance with SANS 1024 with minimum
material properties as listed below:
|
Characteristic Strength (0.43% elongation proof stress):
|
|
485 MPa
|
|
Tensile Strength:
|
|
510 MPa
|
1.13.6 Plinths
Plinths will be set nominally at heights given in Table
12.
Plinth heights may be dependent on layout and equipment
selection. Plinths inside bund areas shall be at least 50mm higher than the bund wall height to ensure that equipment supports
and structural steel does not stand in liquid in the event of a spill.
Table 12: Plinth Heights
|
Location
|
Height (mm)
|
|
Conveyor trestles
|
500
|
|
Equipment plinths
|
300
|
|
Pump plinths
|
> 100
|
|
Columns inside fully clad workshops and infrastructure
|
0
|
|
External columns to workshops and infrastructure buildings
|
300
|
1.13.7 Bund
Areas and Slabs
Bund areas containing tanks will contain at least 110%
of the volume of the largest tank in the bund area. Concrete floors will be wood float finished with a slope to a sump, containing
an automated mechanical pump to pump spills to a pollution control dam.
1.14 Storm
Water Layout
1.14.1 Storm
Water Runoff
Storm water runoff within the process plant areas are
dealt with by a minimum slope on the terrace platform. Runoff is then collected in concrete lined V-drains. All V-drains form the
process plant area will be routed to the plant pollution control dam.
Earth berms are proposed on the high sides of the process
plant to prevent rainwater runoff from entering the process plant area and possibly becoming contaminated by plant spills or materials.
All runoff not affected by possibly contaminated areas
will be routed to local low areas and natural seasonal watercourses.
1.14.2 Plant
Pollution Control Dam
A pollution control dam will be constructed on the low
side of the plant. All potentially contaminated water runoff from the process plant will be routed to this dam. The dam will be
an earth wall dam constructed from in situ materials. If required by the EIA the dam will be lit.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2018
1.14.3 Raw
Water Supply
Water is supplied by a network of boreholes. A detailed
water demand and supply analysis was done as part of the feasibility study, and this has shown that the water demands of the plant
can be accommodated by boreholes within a radius of 5km from the plant. The daily maximum raw water make-up requirement is estimated
to be 561m3 per day, decreasing to 222m
3
per day for latter part of the life of mine.
1.14.4 Power
Supply
Due to the remote location of the Molo site, no other
power or electrical infrastructure is available on the site, hence the supply to the Molo Graphite plant shall be independent by
stand-alone diesel generators and not grid tied.
The total installed generation capacity equals to 2.8MW.
Power to the plant and infrastructure shall be supplied by 2 x 1.4 MW, 3-ph, 400Vac diesel generators, interlocked and operating
either in parallel or independently. Power to remote areas, such as the water wells shall be supplied via independent stand - alone
15kVA, 3-ph, 400Vac diesel generators.
Subject to the sequential starting of the larger loads
for e.g. the Mill, it might be required during an ore loaded start-up, that both generators run in parallel. Once the plant has
reached equilibrium the standby generator shall be stepped back. During continuous normal operation of the plant, one generator
will suffice. The second unit shall primarily be used during maintenance and operational rotations.
1.15 Product
Pricing
Graphite prices are based on current quotes and projected
estimates provided by UK-based Roskill Consulting Group Ltd ("Roskill"), recognized as a leader in providing independent
and unbiased market research, pricing trends, and demand and supply analysis for the natural flake graphite market.
The weighted average price per tonne of graphite concentrate
used for this study is based on the findings of Roskill, a copy of which is attached in “Appendix A” and yielded $1,014/tonne.
This is a basket price and reflects the contribution of the different flake sizes and carbon grades to the overall price. The start-
up price (in 2018 terms) for a tonne of Molo graphite concentrate is a projection based on Roskill information. The nominal graphite
price was used in the financial model, which in essence ‘flat-lines’ the price forecast over the life of mine. The
reader is cautioned that these are forecasts and may change subject to market dynamics, and is directed to Appendix A for more
detailed information.
1.16 Logistics
The cost to transport one tonne of dry concentrate (0.5%
moisture content) from Molo to Rotterdam via Fort Dauphin, Madagascar, in December 2014 terms is 337 USD / tonne. This is based
on shipping 26 tonnes of concentrate in 1 m3 bags placed inside a 40 ft. container.
The route from Molo to Fort Dauphin runs either via the
RN 10 or the RN 13. Both these routes are in relatively poor condition and trucks are expected to take between four and five days
to make the round trip. A truck was run over the route by a Madagascan trucking contractor to gauge cycle times and they managed
to complete the journey in two long days each way. This was in the dry season and in the wet season there may be periods of time
when the roads become impassable. No money has been budgeted for roads repairs or upgrades.
The Port of Ehoala at Fort Dauphin is a modern (2009)
port developed by Rio Tinto for the QMM project. It has a 15m draft with shipping lines calling on a regular basis. There are however
no crane facilities and vessels require their own cranes.
Figure 4 below shows a picture of the Port of Ehoala at
Fort Dauphin.
Figure 4: Port of Ehoala at Fort Dauphin
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2018
Figure 5 below gives some insight into the road conditions
between Molo and Fort Dauphin.
Figure 5: Typical Road Conditions
1.17 CAPEX
and OPEX
The capital cost for the project is estimated to be 18.4
million USD, including a contingency of 1.7 million USD. A firm offer was obtained for the beneficiation facility, and supporting
earthworks and civils have been quantified based on detailed designs and firm price offers from contractors established on the
island.
The base date for the capital costs is April 2017 and
no provision has been made for escalation. The accuracy of capital costs is considered to be with +/- 10%.
Table 13: Construction Capital Costs
|
Category
|
Cost (USD Million)
|
|
Capital Cost
|
16,669,871
|
|
Contingency (10%)
|
1,669,287
|
|
Total
|
18,362,158
|
|
*Excludes taxes, tariffs, duties and interest
|
Table 14: Initial Capital Cost Summary
|
Capital Cost Breakdown
|
|
|
Process Equipment
|
$ 8,072,750
$ 1,842,450
$ 2,292,885
$ 322,998
$ 89,670
$ 832,041
$ 1,050,000
$ 355,000
$ 695,074
$ 1,140,000
|
|
Civil & Infrastructure
|
|
Mining
|
|
Buildings
|
|
Electrical Infrastructure
|
|
Project Services
|
|
Construction Services
|
|
Indirect Costs
|
|
Environmental & Permitting costs
|
|
Owner's Costs
|
|
Sub-total
|
$ 16,692,871
|
|
Contingency (10%)
|
$ 1,669,287
|
|
TOTAL
|
$ 18,362,158
|
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2018
Sustaining capital expenditure expected to be incurred
has been allowed for in the financial model to cover replacement of the:
|
|
•
|
replacement of the power plant,
|
|
|
•
|
process plant replacement items,
|
|
|
•
|
administration facilities maintenance
|
|
|
•
|
and for rehabilitation at the end of the project.
|
Over the life of mine the sustaining capital accounts
for 3.3 million USD. Additionally, three months working capital is estimated at 3.1 million USD.
The operating costs per tonne of finished graphite flake
concentrate delivered on a CIF basis in Rotterdam are outlined in Table 15.
Table 15: Operating Costs per Tonne of Finished
Graphite Concentrate
|
Category
|
|
|
Mining (US$/T)
|
102.81
|
|
Processing (US$/T)
|
265.82
|
|
Trucking to local port / Ft. Dauphin (US$/T)
|
133.01
|
|
Shipping to customer port; CIF Rotterdam (US$/T)
|
122.50
|
|
General and Administration (US$/T)
|
64.29
|
|
Total
|
$688.43
|
The operating costs expressed above are considered to
be accurate to +/- 10%, and assume a varying USD inflation rate of 1.6% in 2015 and escalating to 2.0% from 2017 onward. Currency
inflation rates were also considered in the financial model and were applied to the South African Rand and Malagasy Ariary portions
of the operating costs.
Please note that these operating costs assume that the
plant is able to successfully handle the variability in the ore body, as shown by the SGS test work discussed in detail in Section
13. Should the plant not perform as expected this could have a material impact on operating costs as:
|
|
•
|
The flake size distribution could be worse than expected
|
|
|
•
|
The product grade could be lower than expected
|
|
|
•
|
The recoveries could be lower than expected or a combination of all of these
|
1.18 Economic
Analysis
The Table below summarizes the economic analysis of the
project using discounted cash flow methods.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2018
Table 16: Economic Analysis of the Project
|
Category
|
Value
|
|
Average price / tonne of concentrate (at start up, 2018)
|
$1,014
|
|
Internal Rate of Return ("IRR") - Project Equity
|
25.2%
|
|
NPV @ 8% Discounted Cash Flow
|
$34m
|
|
NPV @ 10% Discounted Cash Flow
|
$24.8m
|
|
NPV @ 12% Discounted Cash Flow
|
$18m
|
|
Project Payback Period
|
4.2
|
|
* Assumes that the project is financed through 100% equity.
|
Note
All values in the above table do not account for inflation.
Also included in the above table are forecasted prices for 2018, which coincides with the year the Molo mine is expected to be
in production.
The exchange rates used in the financial model are as follows:
|
|
•
|
11.31 South African Rand (ZAR) to US$1, moving in line with purchasing power parity
|
|
|
•
|
0.833 Euro to US$1, fixed for the modelled period
|
|
|
•
|
2,746 Malagasy Ariary (MGA) to US$1, moving in line with purchasing power parity
|
1.19 Environmental
& Permitting
A comprehensive Environmental and Social Impact Assessment
("ESIA"), developed to local Malagasy, Equator Principles, World Bank and International Finance Corporation (IFC) standards,
is nearing completion. This process was preceded by an Environmental Legal Review and an Environmental and Social Screening Assessment;
both providing crucial information to align the project development and design with international best practice on sustainable
project development.
The ESIA submission is subject to approval of the investment
amount by Madagascar's Ministry of Mines, which is anticipated in July 2017. The investment application was submitted on the 21st
of June 2017. The Company will receive a Global Environmental Permit upon approval of the ESIA, a process which is expected to
take six months from date of submission.
A comprehensive permitting register is in place and additional
sectorial permit applications will form part of the early execution phase. Approval of the sectorial applications is expected within
the same six-month period as the ESIA review.
No material issues were identified in relation to Environmental,
Social and Permitting processes and through the stakeholder engagement process the local and regional community has expressed a
desire for the project to move forward.
Refer Annexure F (Section 13 – Permitting &
Stakeholders Report: Lana Vorster).
1.19.1 Environmental
& Social Impact Assessment
A comprehensive Environmental and Social Impact Assessment
is nearing completion and will be submitted to Malagasy government for approval in due course.
Refer Annexure E (Section 12 – Environmental &
Social - Rev Final : Ferdi Pieterse).
1.20 Conclusions
1.20.1 Geology
The Company’s 2011 exploration program delineated
a number of new graphitic trends in southern Madagascar. The resource delineation drilling undertaken during 2012-2014 focused
on only one of these, the Molo Deposit, and this has allowed for an Independent, CIM compliant, updated resource statement for
the Molo deposit.
The total Measured and Indicated Resource is estimated
at 100.37 Mt, grading at 6.27% C. Additionally, an Inferred Resource of 40.91 Mt, grading at 5.78% C is stated. When compared to
the November 2012 resource statement (Hancox and Subramani, 2013), this shows a 13.7% increase in tonnage, a 3.4 % decrease in
grade, and a 9.8% increase in graphite content. The reason for the increase in tonnage is due to the 2014 drilling on the previously
untested north eastern limb of the deposit, which added additional new resources. Additionally, 23.62 Mt, grading at 6.32% Carbon,
have been upgraded by infill drilling from the Indicated to Measured Resource category.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2018
1.20.2 Mining
Maiden mineral reserves of 7 160 000 tonnes have been
declared for the Molo 240ktpa FS 2017 at an average grade of 8.05% and based on the information contained in the feasibility study
it is possible to economically mine this deposit.
1.20.3 Tailings
Due to the substantially reduced tonnages for the project
as envisaged, tailings will be dried and co- disposed with the waste rock generated as part of the open cast mining. Despite this
co-disposal approach, a detailed design has been completed, complete with environmental and social impact assessment and closure
to allow for the upgrade to a more conventional, cyclone facility, should the throughput be increased during the life of the mine.
This approach has been pursued to ensure that sufficient flexibility is built into the project development strategy to accommodate
the anticipated increase in market demand.
1.20.4 Risks
In addition to the qualitative risk assessment completed
during the previous BFS, a comprehensive HAZID study was completed as part of this study and the findings summarized in the attached
document.
1.20.5 Permitting
Various permits will have to be obtained for the project
including an Environmental Permit, a Mining permit, land tenure and land use approvals and finally supplementary sectoral permits.
The most urgent permit is for the Company to obtain the exploitation permit for the right to mine and produce.
1.20.6 Metallurgical
Test Work
Comprehensive metallurgical test programs culminated in
a process flowsheet that is capable of treating the Molo ore using conventional and established mineral processing techniques.
Process risks associated with the variability with regards
to metallurgical performance have been mostly mitigated through the addition of an upgrading circuit. The upgrading circuit treated
the combined concentrate after the secondary cleaning circuit. Reduced flake degradation and an improved process flexibility may
be obtained by employing separate upgrading circuits for the coarse and fine flakes.
1.21 Recommendations
1.21.1 Geology
No further recommendations.
1.21.2 Mining
The Molo Graphite Project will allow for potential optimization
of drilling and blasting designs during execution that could reduce operating costs slightly.
From a pure mining perspective, the Molo Graphite Project
is very small and provided reasonable levels of short-term planning are applied it should have very few challenges in delivering
the required tonnages at the required grade to meet the production targets set out in this study.
1.21.3 Metallurgical
Test Work
The following recommendations are made for the detailed
engineering stage:
|
|
•
|
Investigate the metallurgical impact of different attrition mill technologies such as stirred media
mills or attrition scrubbers
|
|
|
•
|
Evaluate a range of different grinding media (e.g. different size, shape, material) to determine
if flake degradation can be reduced without affecting the concentrate grade;
|
|
|
•
|
Develop a grinding energy versus concentrate grade relationship for the best grinding media. This
will allow a more accurate prediction of the required attrition mill grinding energy as a function of the final concentrate grade;
|
|
|
•
|
Conduct attrition mill vendor tests to aid in the sizing of the equipment;
|
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2018
|
|
•
|
Carry out vendor testing on graphite tailings using the optimized reagent regime proposed by the
reagent supplier.
|
|
|
•
|
Complete a series of flotation tests on samples covering mine life intervals for the 2017 FS pit
design.
|
1.21.4 Recovery
Methods
The process plant has been designed to easily optimize
the final product grade, this is achieved by having two options in the attrition cleaning step. It is however recommended that
additional laboratory testwork be conducted to test the current plant configuration for treatment for higher feed grade material.
1.21.5 Infrastructure
The following are recommended prior to the detailed design
stage:
|
|
•
|
Additional geotechnical investigations at the proposed new construction and permanent camp site,
particularly at the location of the new potable water storage tanks
|
|
|
•
|
A detailed geotechnical investigation will need to be undertaken to identify and confirm suitable
sources of concrete aggregate and concrete sand materials at the location of the project site. This testing will need to include
for concrete material testing and the production of concrete trial mixes with the material identified
|
|
|
•
|
The geotechnical information will also need to confirm the suitability for construction of all
the material to be excavated from the Return Water Dam. It is proposed that all the material excavated from the Return Water Dam
is utilised in the works as processed fill material
|
|
|
•
|
Confirmation as to whether the material from the proposed borrow pit near Fotadrevo (which will
be used to supply all fill material for the TSF starter wall construction) can be utilised as fill material, or if this material
can be stabilized in some manner and used in the works
|
|
|
•
|
A detailed topographical survey will need to be undertaken of the proposed construction site, borrow
pit areas and the access road between Fotadrevo and the mine site. This information is required prior to the final detailed design
of the plant layout and associated earthworks.
|
1.21.6 Water
The following is recommended during the detailed design
phase:
|
|
•
|
Water quality and quantity data is required to provide a baseline for comparison once the Molo
Mine is commissioned. To provide the necessary baseline data, regular ground and surface water quality monitoring must be carried
out leading up to the date when the Molo Mine will be commissioned. Additionally, proposed monitoring boreholes must be installed.
This also should include the installation of flow meters on relevant pipelines to verify the dynamic water balance with measured
flow rates during operations.
|
|
|
•
|
The installation of a weather station on the Molo Graphite project site should be done as soon
as possible.
|
|
|
•
|
Quantitative and predictive water balance, groundwater and geochemical analyses should be undertaken
on regular intervals in order to update the water management plan.
|
1.21.7 Environmental
& Social
|
|
•
|
The installation of a suitable weather station at or as near as possible to the proposed project
site, even before construction commences, is recommended. Accurate, local weather data is almost non-existent in Madagascar. This
data will prove invaluable for model calibration, improvement in baseline understanding and for future energy supply options which
could utilize wind and or solar power generation.
|
|
|
•
|
Clean and or renewable energy supply should be considered as a medium to long term target.
|
|
|
•
|
Appointment of a community representative and the establishment of a mandate to sensitize the local
communities prior to any project activities.
|
|
|
•
|
Monitoring and auditing to commence at project preparation phase.
|
|
|
•
|
Compilation of Standard Operating Procedures for Environmental and Social aspects requiring direct
management and intervention.
|
|
|
•
|
It is recommended that actual activity data, (e.g. kilometres travelled, or litres of diesel consumed)
for a financial year is used when a GHG Assessment is being calculated. Given that this project involves an estimation of a future
GHG assessment for activities yet to begin, a series of assumptions have been made in order to obtain the activity data required
to undertake this calculation.
|
|
|
•
|
Community recruitment, skills development and training should begin at project preparation phase.
|
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2018
1.21.8 Permitting
|
|
•
|
The receipt of the exploitation permit is a critical step in the larger permitting and licensing
regime.
|
|
|
•
|
Security of land tenure is a process and is estimated to take 6-9 months, thus this process should
be commissioned as early as possible.
|
|
|
•
|
Application for all other necessary permits (water use, construction, mineral processing, transportation,
export, labour and so forth should be undertaken within the ESIA review period (6 months), which is expected to be from September
2017 till February 2018.
|
|
|
•
|
Compilation of a comprehensive legal register.
|
The permitting and licensing of the proposed Molo Project
requires dedicated attention to ensure consistent momentum in application for and delivery of permits and licenses. This is extremely
relevant within the Malagasy context.
Further details regarding the Molo Graphite Project, incorporated by reference, is
the Molo Graphite Project Feasibility Study dated July 17, 2017 prepared in accordance with Canada’s National Instrument
43-101 - Standards of Disclosure for Mineral Projects (“NI 43-101”), which can be found on the our website at
www.nextsourcematerials.com
(which website is expressly not incorporated by reference into this filing) or in our Canadian regulatory filings at www.sedar.com
(which website and content is expressly not incorporated by reference into this filing).
|
|
5.
|
Green Giant Vanadium Project, Southern Madagascar Region, Madagascar
|
In 2007, the Company entered into a joint venture agreement with
Madagascar Minerals and Resources Sarl ("MMR") to acquire a 75% interest in the Green Giant property. Pursuant to the
agreement, the Company paid $765,000 in cash, issued 2,500,000 common shares and issued 1,000,000 common share purchase warrants,
which have now expired.
On July 9, 2009, the Company acquired the remaining 25% interest
by paying $100,000. MMR retains a 2% NSR. The first 1% NSR can be acquired at the Company's option by paying $500,000 in cash or
common shares and the second 1% NSR can be acquired at the Company’s option by paying $1,000,000 in cash or common shares.
On April 16, 2014, the Company signed a Joint Venture Agreement
with Malagasy, whereby Malagasy acquired a 75% interest in non-industrial minerals on the Company's 100% owned Green Giant Property.
On May 21, 2015, Malagasy terminated the Joint Venture Agreement, which as a result, the Company reverted to its original 100%
interest in all minerals on the property.
The Green Giant property is located within exploration permits issued
by the Bureau de Cadastre Minier de Madagascar (“BCMM”) pursuant to the Mining Code 1999 (as amended) and its implementing
decrees. The Green Giant property exploration permits are currently held under the name of our Madagascar subsidiary NextSource
Minerals (Madagascar) SARLU. Our Madagascar subsidiary has paid all taxes and administrative fees to the Madagascar government
and its mining ministry with respect to all the mining permits held in country. These taxes and administrative fee payments have
been acknowledged and accepted by the Madagascar government.
Since early 2012, the Company has focused its efforts on the Molo
Graphite Project and as such only limited work has been completed on the Green Giant Vanadium Project since that time.
|
|
6.
|
Sagar Property, Labrador Trough Region, Quebec, Canada
|
In 2006, the Company purchased from Virginia Mines Inc. ("Virginia")
a 100% interest in 369 claims located in northern Quebec, Canada. Virginia retains a 2% net smelter return royalty ("NSR")
on certain claims within the property. Other unrelated parties also retain a 1% NSR and a 0.5% NSR on certain claims within the
property, of which half of the 1% NSR can be acquired by the Company by paying $200,000 and half of the 0.5% NSR can be acquired
by the Company by paying $100,000.
On February 28, 2014, the Company signed an agreement to sell a
35% interest in the Sagar property to Honey Badger Exploration Inc. (“Honey Badger”), a public company that is a related
party through common management. The terms of the agreement were subsequently amended on July 31, 2014 and again on May 8, 2015.
To earn the 35% interest, Honey Badger was required to complete a payment of $36,045 (CAD$50,000) by December 31, 2015, incur exploration
expenditures of $360,450 (CAD$500,000) by December 31, 2016 and issue 20,000,000 common shares to the Company by December 31, 2015.
Honey Badger did not complete the earn-in requirements by December 31, 2015 resulting in the termination of the option agreement.
Since early 2012, the Company has focused its efforts on the Molo
Graphite Project and as such only minimal work has been completed on the Sagar Property since that time. As of June 30, 2018, the
Sagar property consisted of 234 claims covering a total area of 10,736.59 ha.
The Company manages risks inherent to its business and
has procedures to identify and manage significant operational and financial risks. The reader is cautioned to carefully review
the risk factors in our financial statements for the year ended June 30, 2018.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2018
SHOULD ONE OR MORE OF THE FOREGOING RISKS OR UNCERTAINTIES
MATERIALIZE OR SHOULD THE UNDERLYING ASSUMPTIONS OF OUR BUSINESS PROVE INCORRECT, ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM
THOSE ANTICIPATED, BELIEVED, ESTIMATED, EXPECTED, INTENDED OR PLANNED.
Going Concern
The independent auditor’s report on our financial
statements contains explanatory language that substantial doubt exists about our ability to continue as a going concern. Due to
our lack of operating history and present inability to generate revenues, we have sustained operating losses since our inception.
If we are unable to obtain sufficient financing in
the near term as required or achieve profitability, then we would, in all likelihood, experience severe liquidity problems and
may have to curtail our operations. If we curtail our operations, we may be placed into bankruptcy or undergo liquidation, the
result of which will adversely affect the value of our common shares.
Our primary exploration efforts are in the African
country of Madagascar, where new presidential elections will be held in October 2018.
Any adverse developments to the political situation in
Madagascar could have a material effect on the Company’s business, results of operations and financial condition. New Presidential
elections are scheduled to be held on November 7, 2018 (first round) and December 19, 2018 (second round).
The Company is actively monitoring the political climate
in Madagascar and continues to hold meetings with representatives of the government and the Ministries in charge of mining.
Depending on future actions taken by the newly elected government, or any future government, the Company’s business operations
could be impacted.
Dependence
on Molo Graphite Project
Our
principal mineral property is the Molo Graphite Project. As a result, unless we acquire or develop any additional material properties
or projects, any adverse developments affecting this project or our rights to develop the Molo Graphite Project could materially
adversely affect our business, financial condition and results of operations.
During fiscal 2017, the Company applied to the BCMM to
have the exploration permit for the Molo Graphite Project converted into a mining permit. Despite repeated assurances by Ministers
in the Madagascar government and from BCMM that the Company has followed all the regulations and that the application contained
no deficiencies, the BCMM has not yet issued the mining permit to the Company. Our situation does not appear to be unique, since
according to the Madagascar Chamber of Mines, the Madagascar government has not granted any new mining permits to any members during
the past 18 months. Although Global Affairs Canada has been providing advocacy support for dealing with Madagascar government officials,
it is believed the Company will have to await the outcome of the Presidential election scheduled for November 2018 before our permit
is granted.
Application for all other necessary permits to construct
and operate the mine, including water use, construction, mineral processing, transportation, export, and labour will be undertaken
upon receipt of the environmental permit.
The Company cannot provide any assurance as to the timing
of the receipt of any of the permits and licenses necessary to initiate construction of the mine.
Inability
to Enforce Legal Rights
Substantially all of our assets are located outside of the Canada, in Madagascar.
It may not be possible for investors to enforce judgments in Canada against our assets.
Decreases in commodity prices could impact the
feasibility of our projects.
Declining commodity prices can impact operations by
requiring a reassessment of the feasibility of a particular project. Such a reassessment may be the result of a management decision
or may be required under financing arrangements related to a particular project. Even if the project is ultimately determined to
be economically viable, the need to conduct such a reassessment may cause substantial delays or may interrupt operations until
the reassessment can be completed.
Our future profitability may be subject to fluctuations
in commodity prices.
The profitability of a mineral exploration project
could be significantly affected by future changes in the market price of the relevant minerals. A number of factors affect the
market prices of minerals. The aggregate effect of the factors affecting the prices of various minerals is impossible to predict
with accuracy. Fluctuations in mineral prices may adversely affect the value of any mineral discoveries made on the properties
with which we are involved, which may in turn affect the market price and liquidity of our common shares and our ability to pursue
and implement our business plan. In addition, the price of both graphite and vanadium can fluctuate significantly on a month-to-month
and year-to-year basis.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2018
We may not have access to sufficient capital to
pursue our business and therefore would be unable to achieve our planned future growth.
We intend to pursue a strategy that includes development
of our Company’s business plan. We will require significant additional funds in order to place the claims and interests into
commercial production.
The capital and operating cost estimates as disclosed
in the Molo Feasibility Study may not be accurate and actual capital and operating costs may be different due to many potential
factors.
Currently we have limited capital, which is insufficient
to pursue our plans for development and growth. Our ability to implement our Company’s plans will depend primarily on our
ability to obtain additional private or public equity or debt financing. Such financing may not be available, or we may be unable
to locate and secure additional capital on terms and conditions that are acceptable to us. This may occur for a number of reasons,
because we are unable to obtain any adequate funds or because we cannot obtain such funds on terms that we consider economically
feasible. Financing exploration plans through equity financing will have a dilutive effect on our common shares. Our failure to
obtain additional capital will have a material adverse effect on our business.
We will require additional capital in the future and no
assurance can be given that such capital will be available on terms acceptable to us or at all. Our currently available funds will
not be sufficient to finance the development capital costs of the Molo Graphite Project as disclosed in the Molo Feasibility Study.
Accordingly, we will need to raise further equity and/or debt financing to fund development of the Molo Graphite Project. The success
and the pricing of any such equity and/or debt financing will be dependent upon the prevailing market conditions at that time,
the outcomes of the permitting and development activities or any relevant studies and exploration programs at the Molo Graphite
Project. If additional capital is raised by an issue of securities, this may have the effect of diluting stockholders’ interests.
Any debt financing, if available, may involve financial covenants which limit our operations. If we cannot obtain such additional
capital, we may not be able to complete the development of the Molo Graphite Project which would have a materially adverse effect
on our business, operating results and financial condition.
We are a mineral exploration company with a limited
operating history and expect to incur operating losses for the foreseeable future.
We are a mineral exploration company. We have not
earned any revenues and we have not been profitable. Prior to completing exploration on our claims, we may incur increased operating
expenses without realizing any revenues. There are numerous difficulties normally encountered by mineral exploration companies,
and these companies experience a high rate of failure. The likelihood of success must be considered in light of the problems, expenses,
difficulties, complications and delays encountered in connection with the exploration of the mineral properties that we plan to
undertake. These potential problems include, but are not limited to, unanticipated problems relating to exploration and additional
costs and expenses that may exceed current estimates. We have no history upon which to base any assumption as to the likelihood
that our business will prove successful, and we can provide no assurance to investors that we will generate any operating revenues
or ever achieve profitable operations.
We reported negative cash flow from operations for the
year ended June 30, 2018. It is anticipated that we will continue to report negative operating cash flow in future periods, likely
until one or more of our mineral properties generate recurring revenues from being placed into production.
Due to the speculative nature of mineral property
exploration, there is substantial risk that our assets will not go into commercial production and our business will fail.
Exploration for minerals is a speculative venture
involving substantial risk. We cannot provide investors with any assurance that our claims and properties will ever enter into
commercial production. The exploration work that we have completed on our Molo Graphite Project claims may not result in the commercial
production of graphite. The exploration work that we have completed on our Green Giant Property may not result in the commercial
production of vanadium or other minerals.
Because of the inherent dangers involved in mineral
exploration, there is a risk that we may incur liability or damages as we conduct our business.
The search for valuable minerals involves numerous
hazards. As a result, we may become subject to liability for such hazards, including pollution, cave-ins and other hazards against
which we cannot, or may elect not, to insure against. We currently have no such insurance, but our management intends to periodically
review the availability of commercially reasonable insurance coverage. If a hazard were to occur, the costs of rectifying the hazard
may exceed our asset value and cause us to liquidate all our assets.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2018
Our operations are subject to strict environmental
regulations, which result in added costs of operations and operational delays.
Our operations are subject to environmental regulations,
which could result in additional costs and operational delays. All phases of our operations are subject to environmental regulation.
Environmental legislation is evolving in some countries and jurisdictions in a manner that may require stricter standards, and
enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects, and
a heightened degree of responsibility for companies and their officers, directors, and employees. There is no assurance that any
future changes in environmental regulation will not negatively affect our projects.
We have no insurance for environmental problems.
Insurance against environmental risks, including potential
liability for pollution or other hazards as a result of the disposal of waste products occurring from exploration and production,
has not been available generally in the mining industry. We have no insurance coverage for most environmental risks. In the event
of a problem, the payment of environmental liabilities and costs would reduce the funds available to us for future operations.
If we are unable to full pay for the cost of remedying an environmental problem, we might be required to enter into an interim
compliance measure pending completion of the required remedy.
Due to external market factors in the mining business,
we may not be able to market any minerals that may be found.
The mining industry, in general, is intensely competitive.
Even if commercial quantities of minerals are discovered, we can provide no assurance to investors that a ready market will exist
for the sale of these minerals. Numerous factors beyond our control may affect the marketability of any substances discovered.
These factors include market fluctuations, the sale price of the minerals, the proximity and capacity of markets and processing
equipment, and government regulations, including regulations relating to prices, taxes, royalties, land tenure, land use, mineral
importing and exporting and environmental protection. The effect of these factors cannot be accurately predicted, but any combination
of these factors may result in our not receiving an adequate return on invested capital.
Mining companies are increasingly required to consider
and provide benefits to the communities and countries in which they operate, and are subject to extensive environmental, health
and safety laws and regulations.
As a result of public concern about the real or perceived
detrimental effects of economic globalization and global climate impacts, businesses generally and large multinational corporations
in natural resources industries face increasing public scrutiny of their activities. These businesses are under pressure to demonstrate
that, as they seek to generate satisfactory returns on investment to shareholders, other stakeholders, including employees, governments,
communities surrounding operations and the countries in which they operate, benefit and will continue to benefit from their commercial
activities. Such pressures tend to be particularly focused on companies whose activities are perceived to have a high impact on
their social and physical environment. The potential consequences of these pressures include reputational damage, legal suits,
increasing social investment obligations and pressure to increase taxes and royalties payable to governments and communities.
In addition, our ability to successfully obtain key
permits and approvals to explore for, develop and operate mines and to successfully operate in communities around the world will
likely depend on our ability to develop, operate and close mines in a manner that is consistent with the creation of social and
economic benefits in the surrounding communities, which may or may not be required by law. Our ability to obtain permits and approvals
and to successfully operate in particular communities may be adversely impacted by real or perceived detrimental events associated
with our activities or those of other mining companies affecting the environment, human health and safety of communities in which
we operate. Delays in obtaining or failure to obtain government permits and approvals may adversely affect our operations, including
our ability to explore or develop properties, commence production or continue operations. Key permits and approvals may be revoked
or suspended or may be varied in a manner that adversely affects our operations, including our ability to explore or develop properties,
commence production or continue operations.
Our business operations are subject to extensive laws
and regulations governing worker health and safety and land use and the protection of the environment, which generally apply to
air and water quality, protection of endangered, protected or other specified species, hazardous waste management and reclamation.
Some of the countries in which we operate have implemented, and are developing, laws and regulations related to climate change
and greenhouse gas emissions. We have made, and expect to make in the future, significant expenditures to comply with such laws
and regulations. Compliance with these laws and regulations imposes substantial costs and burdens, and can cause delays in obtaining,
or failure to obtain, government permits and approvals which may adversely impact our closure processes and operations.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2018
Should we lose the services of our key executives,
our financial condition and proposed expansion may be negatively impacted.
We depend on the continued contributions of our executive
officers to work effectively as a team, to execute our business strategy and to manage our business. The loss of key personnel,
or their failure to work effectively, could have a material adverse effect on our business, financial condition, and results of
operations. Specifically, we rely on Craig Scherba, our President and Chief Executive Officer and Marc Johnson, our Chief Financial
Officer.
We do not maintain key man life insurance. Should
we lose any or all of their services and we are unable to replace their services with equally competent and experienced personnel,
our operational goals and strategies may be adversely affected, which will negatively affect our potential revenues.
Because access to our properties may be restricted
by inclement weather or proper infrastructure, our exploration programs are likely to experience delays.
Access to most of the properties underlying our claims
and interests is restricted due to their remote locations and because of weather conditions. Some of our properties are only accessible
by air. As a result, any attempts to visit, test, or explore the property are generally limited to those periods when weather permits
such activities. These limitations can result in significant delays in exploration efforts, as well as mining and production efforts
in the event that commercial amounts of minerals are found. This could cause our business to fail.
Compliance with changing regulation of corporate governance
and public disclosure will result in additional expenses and pose challenges for our management
.
Changing laws, regulations and standards relating to corporate
governance and public disclosure. Our management team needs to devote significant time and financial resources to comply with both
existing and evolving standards for public companies, which will lead to increased general and administrative expenses and
a diversion of management time and attention from revenue generating activities to compliance activities.
Climate change and related regulatory responses may impact our business.
Climate change as a result of emissions of greenhouse
gases is a current topic of discussion and may generate government regulatory responses in the near future. It is impracticable
to predict with any certainty the impact of climate change on our business or the regulatory responses to it, although we recognize
that they could be significant. However, it is too soon for us to predict with any certainty the ultimate impact, either directionally
or quantitatively, of climate change and related regulatory responses.
To the extent that climate change increases the risk of
natural disasters or other disruptive events in the areas in which we operate, we could be harmed. While we maintain rudimentary
business recovery plans that are intended to allow us to recover from natural disasters or other events that can be disruptive
to our business, our plans may not fully protect us from all such disasters or events.
Changes in tax laws or tax rulings could materially
affect our financial position and results of operations.
Changes in tax laws or tax rulings could materially
affect our financial position and results of operations. Certain proposals could include recommendations that would significantly
increase our tax obligations in many countries where we do business. Due to the large and expanding scale of our international
business activities, any changes in the taxation of such activities may increase our worldwide effective tax rate and harm our
financial position and results of operations.
Our business is subject to anti-corruption and
anti-bribery laws, a breach or violation of which could lead to civil and criminal fines and penalties, loss of licenses or permits
and reputational harm.
We operate in certain jurisdictions that have experienced
governmental and private sector corruption to some degree, and, in certain circumstances, strict compliance with anti-bribery laws
may conflict with certain local customs and practices. Anti-corruption and anti-bribery laws in certain jurisdictions generally
prohibit companies and their intermediaries from making improper payments for the purpose of obtaining or retaining business or
other commercial advantage. Our corporate policies mandate compliance with these anti-bribery laws, which often carry substantial
penalties. There can be no assurance that our internal control policies and procedures always will protect it from recklessness,
fraudulent behavior, dishonesty or other inappropriate acts committed by the Company’s affiliates, employees or agents. As
such, our corporate policies and processes may not prevent all potential breaches of law or other governance practices. Violations
of these laws, or allegations of such violations, could lead to civil and criminal fines and penalties, litigation, and loss of
operating licenses or permits, and may damage the Company’s reputation, which could have a material adverse effect on our
business, financial position and results of operations or cause the market value of our common shares to decline.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2018
We do not intend to pay dividends.
We do not anticipate paying cash dividends on our
common shares in the foreseeable future. We may not have sufficient funds to legally pay dividends. Even if funds are legally available
to pay dividends, we may nevertheless decide, in our sole discretion, not to pay dividends. The declaration, payment and amount
of any future dividends will be made at the discretion of our board of directors, and will depend upon, among other things, the
results of our operations, cash flows and financial condition, operating and capital requirements, and other factors our board
of directors may consider relevant. There is no assurance that we will pay any dividends in the future, and, if dividends are paid,
there is no assurance with respect to the amount of any such dividend.
Because from time to time we hold a significant
portion of our cash reserves in Canadian dollars, we may experience losses due to foreign exchange translations.
From time to time we hold a significant portion of
our cash reserves in Canadian dollars. Due to foreign exchange rate fluctuations, the value of these Canadian dollar reserves can
result in translation gains or losses in U.S. dollar terms. If there was a significant decline in the Canadian dollar versus the
U.S. dollar, our converted Canadian dollar cash balances presented in U.S. dollars on our balance sheet would significantly decline.
If the US dollar significantly declines relative to the Canadian dollar our quoted US dollar cash position would significantly
decline as it would be more expensive in US dollar terms to pay Canadian dollar expenses. We have not entered into derivative instruments
to offset the impact of foreign exchange fluctuations. In addition, certain of our ongoing expenditures are in South African Rand,
Madagascar Ariary and Euros requiring us to occasionally hold reserves of these foreign currencies with a similar risk of foreign
exchange currency translation losses.
We are exposed to general economic conditions, which could have a material
adverse impact on our business, operating results and financial condition.
Recently there have been adverse conditions and uncertainty
in the global economy as the result of unstable global financial and credit markets, inflation, and recession. These unfavorable
economic conditions and the weakness of the credit market may continue to have, an impact on our Company’s business and our
Company’s financial condition. The current global macroeconomic environment may affect our Company’s ability to access
the capital markets may be severely restricted at a time when our Company wishes or needs to access such markets, which could have
a materially adverse impact on our Company’s flexibility to react to changing economic and business conditions or carry on
our operations.
The current financial environment may impact our business
and financial condition that we cannot predict.
The continued instability in the global financial system
and related limitation on availability of credit may continue to have an impact on our business and our financial condition, and
we may continue to face challenges if conditions in the financial markets do not improve. Our ability to access the capital markets
has been restricted as a result of the economic downturn and related financial market conditions and may be restricted in the future
when we would like, or need, to raise capital. The difficult financial environment may also limit the number of prospects for potential
joint venture, asset monetization or other capital raising transactions that we may pursue in the future or reduce the values we
are able to realize in those transactions, making these transactions uneconomic or difficult to consummate.
The market price for our common shares is particularly
volatile given our status as a relatively unknown company with a small and thinly traded public float, limited operating history
and lack of profits which could lead to wide fluctuations in our share price.
The market for our common shares is characterized
by significant price volatility when compared to seasoned issuers, and we expect that our share price will continue to be more
volatile than a seasoned issuer. The volatility in our share price is attributable to a number of factors. First our common shares,
at times, are thinly traded. As a consequence of this lack of liquidity, the trading of relatively small quantities of shares by
our shareholders may disproportionately influence the price of those shares in either direction. The price for our common shares
could, for example, decline precipitously in the event that a large number of our common shares are sold on the market without
commensurate demand, as compared to a seasoned issuer which could better absorb those sales without adverse impact on its share
price. Second, we are a speculative or “risky” investment due to our limited operating history, lack of profits to
date and uncertainty of future market acceptance for our potential products. As a consequence, more risk-adverse investors may,
under the fear of losing all or most of their investment in the event of negative news or lack of progress, be more inclined to
sell their shares on the market more quickly and at greater discounts than would be the case with the stock of a seasoned issuer.
Many of these factors are beyond our control and may decrease the market price of our common shares, regardless of our performance.
We cannot make any predictions as to what the prevailing market price for our common shares will be at any time or as to what effect
that the sale of common shares or the availability of common shares for sale at any time will have on the prevailing market price.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2018
Securities of small-cap and mid-cap companies have experienced
substantial volatility in the recent past, often based on factors unrelated to the financial performance or prospects of the companies
involved. These factors include macroeconomic developments in North America and globally and market perceptions of the attractiveness
of particular industries. The price of our common shares is also likely to be significantly affected by short-term changes in graphite
prices and demand, the U.S. dollar, the Malagasy ariary, the Canadian dollar, and our financial condition or results of operations
as reflected in its financial statements. Other factors unrelated to the performance of our Company that may have an effect on
the price of the common shares include the following: the extent of analytical coverage available to investors concerning our business
may be limited if investment banks with research capabilities do not follow our Company’s securities; lessening in trading
volume and general market interest in our Company’s securities may affect an investor’s ability to trade significant
numbers of our common shares; the size of our public float may limit the ability of some institutions to invest in our securities;
and a substantial decline in the price of our common shares that persists for a significant period of time could cause our Company’s
securities, if listed on an exchange, to be delisted from such exchange, further reducing market liquidity.
As a result of any of these factors, the market price
of our common shares at any given point in time may not accurately reflect the long-term value of the Company. Class action litigation
often has been brought against companies following periods of volatility in the market price of their securities. We may in the
future be the target of similar litigation. Securities litigation could result in substantial costs and damages and divert management’s
attention and resources
Trading Price and Volume
The table below sets forth the high and low closing sale prices
and volume of our common shares on the TSX for each month of the most recently completed financial year. Over-the-counter market
quotations reflect inter-dealer prices, without retail mark-up, markdown or commission and may not necessarily represent actual
transactions.
|
|
TSX
(CDN$)
|
|
Month
|
High
|
Low
|
Volume
|
|
July 2017
|
$0.07
|
$0.06
|
6,149,800
|
|
August 2017
|
$0.07
|
$0.06
|
2,859,500
|
|
September 2017
|
$0.09
|
$0.06
|
6,236,400
|
|
October 2017
|
$0.08
|
$0.06
|
8,899,200
|
|
November 2017
|
$0.08
|
$0.06
|
7,882,300
|
|
December 2017
|
$0.09
|
$0.06
|
14,652,700
|
|
January 2018
|
$0.22
|
$0.06
|
69,316,200
|
|
February 2018
|
$0.18
|
$0.12
|
16,491,500
|
|
March 2018
|
$0.14
|
$0.11
|
10,916,300
|
|
April 2018
|
$0.13
|
$0.10
|
7,536,100
|
|
May 2018
|
$0.13
|
$0.11
|
4,561,600
|
|
June 2018
|
$0.13
|
$0.09
|
8,671,300
|
|
|
9.
|
Directors and Officers
|
The following are the directors and officers of the Company.
|
Name
|
Age
|
Company
Position
|
Principal
Occupation
(1)
|
Director Since
|
# and % of Common Shares Beneficially Owned, Controlled or Directed, Directly or Indirectly
(2)
|
|
John Sanderson
(1)(4)(5)(6)
(Vancouver, BC, Canada)
|
83
|
Chairman of the Board of Directors
|
Lawyer and arbitrator
|
January 2009
|
75,000
(<0.1%)
|
|
Craig Scherba
(2)
(Oakville, ON,
Canada)
|
45
|
Director,
President & Chief Executive Officer
|
|
January 2010
|
600,000
(0.1%)
|
|
Robin Borley
(2)
(Johannesburg,
South Africa)
|
50
|
Director,
Senior Vice President – Mine Development,
|
|
December 2013
|
3,787,857
(0.8%)
|
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2018
|
Quentin Yarie
(1)(5)
(Toronto, ON,
Canada)
|
53
|
Director
|
President & CEO of Red Pine Exploration Inc.,
Honey Badger Exploration Inc., and MacDonald Mines Exploration Inc.
|
December 2008
|
446,500
(0.01%)
|
|
Dean Comand
(1)(4)(6)
(Ancaster, ON,
Canada)
|
52
|
Director
|
Professional Engineer,
Consultant
|
October 2014
|
Nil
(0.0%)
|
|
Dalton Larson
(1)(4)(5)(6)
(Surrey, BC,
Canada)
|
78
|
Director
|
Lawyer and arbitrator
|
October 2014
|
1,000,000
(0.2%)
|
|
Marc Johnson
(Toronto, ON,
Canada)
|
42
|
Chief Financial Officer
|
|
|
300,000
(<0.1%)
|
|
Brent Nykoliation
(Toronto, ON,
Canada)
|
49
|
Senior Vice President – Corporate Development
|
|
|
Nil
(0.0%)
|
(1) If different than the Company position
and as furnished by the respective individual.
(2) The number of securities beneficially
owned or controlled or directed, directly or not directly, is not within the knowledge of the Company and has been furnished by
the respective individual.
(3) Messrs. Sanderson, Comand, Larson
and Yarie are independent directors of the Company.
(4) Member of the Audit Committee are
Dean Comand (Chair), John Sanderson and Dalton Larson.
(5) Member of the Nomination Committee
are Quentin Yarie (Chair), John Sanderson and Dalton Larson.
(6) Member of the Compensation Committee
are Dalton Larson (Chair), John Sanderson and Dean Comand.
The following is a brief biography of each of our directors:
John Sanderson, Q.C. (Vancouver,
Canada)
Mr. Sanderson has been the Company’s Vice Chairman
of the Board since October 2009 and a director of our Company since January 2009. Mr. Sanderson was Chairman of the Board of the
Company from January 2009 to September 2009. Mr. Sanderson is a chartered mediator, chartered arbitrator, consultant and lawyer
called to the bar in the Canadian provinces of Ontario and British Columbia. Mr. Sanderson’s qualifications to serve as a
director include his many years of legal and mediation experience in various industries. Mr. Sanderson is a Queen’s Counsel
(Q.C.). He has acted as mediator, facilitator and arbitrator across Canada, and internationally, in numerous commercial transactions,
including insurance claims, corporate contractual disputes, construction matters and disputes, environmental disputes, inter-governmental
disputes, employment matters, and in relation to aboriginal claims. He has authored and co-authored books on the use and value
of dispute resolution systems as an alternative to the courts in managing business and legal issues.
Craig Scherba, P.Geol. (Oakville, Canada)
Mr. Scherba was appointed as the President and Chief Executive
Officer of the Company in August 2015 and has served as a director since January 2010. Mr. Scherba served as President and Chief
Operating Officer from September 2012 to August 2015 and Vice President, Exploration of the Company from January 2010 to September
2012. Mr. Scherba has been a professional geologist (P. Geol.) since 2000, and his expertise includes supervising large Canadian
and international exploration. Mr. Scherba also serves as Vice President, Exploration of MacDonald Mines Exploration Ltd, Red Pine
Exploration Inc. and Honey Badger Exploration Inc. which are resource exploration companies trading on the TSX Venture Exchange.
In addition, Mr. Scherba was professional geologist with Taiga Consultants Ltd. (“
Taiga
”), a mining exploration
consulting company from March 2003 to December 2009. He was a managing partner of Taiga between January 2006 and December 2009.
Mr. Scherba was an integral member of the exploration team that developed Nevsun Resources’ high grade gold, copper and zinc
Bisha project in Eritrea. While at Taiga, Mr. Scherba served as the Company's Country and Exploration Manager in Madagascar during
its initial exploration stage.
Robin Borley (Johannesburg, South Africa)
Mr. Borley was appointed our Senior Vice President (“SVP”)
of Mine Development in December 2013 and has served as a director since December 2013. Mr. Borley is a Graduate mining engineering
professional and a certified mine manager with more than 25 years of international mining experience building and operating mining
ventures. He has held senior management positions both internationally and within the South African mining industry. Until October
2014, Mr. Borley served as Mining Director for DRA Mineral Projects. In addition, Mr. Borley was instrumental as the COO of Red
Island Minerals in a developing a Madagascar coal venture. His diverse career has spanned resource project management, evaluation,
exploration and mine development. Robin has completed several mine evaluations including operational and financial evaluations
of new and existing operations across a diverse range of resource sectors. He has experience in the management of underground and
surface mining operations from both the contractor and owner miner environments. From 2006 through to 2012, Robin participated
in the BEE management buy-out transaction of the Optimum Colliery mining property from BHP, through its independent listing and
its ultimate sale to Glencore in December 2012.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2018
Quentin Yarie, P.Geo. (Toronto, Canada)
Mr. Yarie has served as a director of the Company since
2008. Mr. Yarie is an experienced geophysicist and a successful entrepreneur with over 25 years’ experience in mining and
environmental/engineering. Mr. Yarie has project management and business development experience as he has held positions of increasing
responsibility with a number of Canadian-based geophysical service providers. He is currently CEO and President of Red Pine Exploration
Inc., and Honey Badger Exploration Inc. and President of MacDonald Mines Exploration Inc. From January 2010, Mr. Yarie was Senior
Vice President Exploration for MacDonald Mines Exploration Ltd, Red Pine Exploration Inc. and Honey Badger Exploration Inc. all
listed on the TSX Venture Exchange headquartered in Toronto, Canada. From October 2007 to December 2009, Mr. Yarie was a business
development officer with Geotech Ltd, a geophysical airborne survey company. From September 2004 to October 2007, Mr. Yarie was
a senior representative of sales and business development for Aeroquest Limited. From 1992-2001, he was a partner of a specialized
environmental and engineering consulting group where he managed a number of large projects including the ESA of the Sydney Tar
Ponds, the closure of the Canadian Forces Bases in Germany and the Maritime and Northeast Pipeline project.
Dean Comand P. Eng, CET MMP CDir. (Ancaster, Canada)
Mr. Comand has served as a director of the Company since
October 2014. He is a Mechanical Engineer and holds his P. Eng designation in the province of Ontario as well as designation as
a Certified Engineering Technologist. Mr. Comand earned his Maintenance Manager Professional Designation (MMP) license in 2006
and his Charter Director designation (CDir) in 2012. Mr. Comand is currently the President and Chief Executive Officer of Hamilton
Utilities Corporation and continues to provide strategic advice to numerous clients around the world in the mining and energy sectors.
From 2009 – 2014, Mr. Comand worked for Sherritt International as Vice President of Operations of Ambatovy, a large scale
nickel project in Madagascar. He successfully led the construction and commissioning of Ambatovy, and led the operations to commercial
production. He has extensive business and financial acumen in large-scale energy, power, and mining industries. He has consistently
held senior positions in operations, business, project development, environmental management, maintenance, and project construction.
He has managed a variety of complex operations, including one of the world’s largest mining facilities, industrial facilities,
numerous power plants, renewable energy facilities and privately held municipal water treatment facilities across Canada and the
United States.
Dalton Larson (Surrey, Canada)
Mr. Larson has served as a director of our Company since
October 2014. Mr. Larson is a Canadian attorney with more than 35 years as a member of the Law Society of British Columbia. He
commenced practice as a member of the Faculty of Law, University of British Columbia, subsequently becoming a partner of a major
Vancouver Law firm, now McMillan LLP. Currently, he maintains a private practice along with a vigorous investment business. He
is a recognized expert in alternate dispute resolution and has extensive experience as a professional arbitrator and mediator.
He has three degrees, including a Master’s degree in law from the University of London, England. His business activities
include more than 25 years as a director of several investment funds managed by the CW Funds group of companies, affiliated with
Ventures West Management Inc., which is one of the largest venture capital firms in Canada. The CW Funds raised and invested in
a wide variety of businesses totaling more than $130 million, primarily from overseas investors. In that period, he served as Chairman
of the Board of Directors of a Philippine ethanol company. He was the founding shareholder of the First Coal Corporation, which
started operations in 2014. He served as the first Chairman of the Board of Directors for two years and then participated closely
in its governance and management including serving as the Chair of the Compensation Committee. During his tenure, the Company raised
in excess of $65 million in equity to finance its development activities, all by way of private placements. First Coal Corporation
was sold to Xstrata in excess of $150 million. He currently serves as the Chairman of the Board of Directors of Cloud Nine Education
Group (CSE:CNI) and on the Board of Directors of SmartCool Systems Inc. (TSX-V: SSC).
The following is a brief biography of each of our executive officers:
Craig Scherba, P.Geol. (Oakville, Canada) – President
and Chief Executive Officer
Mr. Scherba was appointed as the President and Chief Executive
Officer of the Company in August 2015 and has served as a director since January 2010. Mr. Scherba served as President and Chief
Operating Officer from September 2012 to August 2015 and Vice President, Exploration of the Company from January 2010 to September
2012. Mr. Scherba has been a professional geologist (P. Geol.) since 2000, and his expertise includes supervising large Canadian
and international exploration. Mr. Scherba also serves as Vice President, Exploration of MacDonald Mines Exploration Ltd, Red Pine
Exploration Inc. and Honey Badger Exploration Inc. which are resource exploration companies trading on the TSX Venture Exchange.
In addition, Mr. Scherba was professional geologist with Taiga Consultants Ltd. (“
Taiga
”), a mining exploration
consulting company from March 2003 to December 2009. He was a managing partner of Taiga between January 2006 and December 2009.
Mr. Scherba was an integral member of the exploration team that developed Nevsun Resources’ high grade gold, copper and zinc
Bisha project in Eritrea. While at Taiga, Mr. Scherba served as the Company's Country and Exploration Manager in Madagascar during
its initial exploration stage.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2018
Marc Johnson, CFA, CPA (Toronto, Canada) - Chief Financial
Officer
Mr. Johnson is a bilingual senior executive with over
20 years of business experience, including 10 years at public corporations as CFO, VP Corporate Development and other financial
management positions, and 10 years in capital markets in investment banking and equity research. Mr. Johnson is a Chartered Financial
Analyst (CFA) and a Chartered Professional Accountant (CPA) and joined as CFO in October 2015. He also holds a Bachelor of Commerce
(Finance) from the John Molson School of Business at Concordia University in Montreal.
Brent Nykoliation (Toronto, Canada) – SVP Corporate
Development
Mr. Nykoliation joined the senior management team at NextSource
Materials as Vice President, Corporate Development in 2007 and oversees all fundraising and communication initiatives with analysts
and investors for the Company. He brings over 20 years of management experience, having held senior marketing and strategic development
positions with several Fortune 500 corporations in Canada, notably Nestlé, Home Depot and Whirlpool.
Mr. Nykoliation holds a Bachelor of Commerce with Honours
degree from Queen's University and also serves as a director of Red Pine Exploration Inc., (TSX.V:RPX) a publicly listed gold resource
exploration company headquartered in Toronto, Canada.
Robin Borley (Johannesburg, South Africa) – SVP
Mine Development
Mr. Borley was appointed our Senior Vice President (“SVP”)
of Mine Development in December 2013 and has served as a director since December 2013. Mr. Borley is a Graduate mining engineering
professional and a certified mine manager with more than 25 years of international mining experience building and operating mining
ventures. He has held senior management positions both internationally and within the South African mining industry. Until October
2014, Mr. Borley served as Mining Director for DRA Mineral Projects. In addition, Mr. Borley was instrumental as the COO of Red
Island Minerals in a developing a Madagascar coal venture. His diverse career has spanned resource project management, evaluation,
exploration and mine development. Robin has completed several mine evaluations including operational and financial evaluations
of new and existing operations across a diverse range of resource sectors. He has experience in the management of underground and
surface mining operations from both the contractor and owner miner environments. From 2006 through to 2012, Robin participated
in the BEE management buy-out transaction of the Optimum Colliery mining property from BHP, through its independent listing and
its ultimate sale to Glencore in December 2012.
Director Term Limits and Female Representation in Management
and on the Board
The Company has not instituted director term limits. The Company
believes that in taking into account the nature and size of the Board and the Company, it is more important to have relevant experience
than to impose set time limits on a director’s tenure, which may create vacancies at a time when a suitable candidate cannot
be identified and as such would not be in the best interests of the Company. In lieu of imposing term limits, the Company regularly
monitors director performance through annual assessments and regularly encourages sharing and new perspectives through regularly
scheduled Board meetings, meetings with only independent directors in attendance, as well as through continuing education initiatives.
On a regular basis, the Company analyzes the skills and experience necessary for the Board and evaluates the need for director
changes to ensure that the Company has highly knowledgeable and motivated Board members, while ensuring that new perspectives are
available to the Board.
The Company has not implemented a diversity policy; however, the
Company believes that it currently promotes the benefits of, and need for, extending opportunities to all candidates, without distinction
as to gender, race, colour, religion, sexual orientation, family or marital status, political belief, age, national or ethnic origin,
citizenship, disability, or any other basis and will strive for diversity of experience, perspective and education. The Company
believes that it currently focuses on hiring the best quality individuals for the position and also encourages representation of
women on the Board and in executive officer positions.
While the Nomination Committee does not have a formal diversity
policy for Board membership, the Nomination Committee seeks directors who represent a mix of backgrounds and experiences that will
enhance the quality of the Board’s deliberations and decisions. The Nomination Committee considers, among other factors,
diversity with respect to viewpoint, skills, experience, character and behavior qualities in its evaluation of candidates for Board
membership. The Company currently has six Board members and four executive officers, none of whom are female. The Nomination Committee
has been tasked with identifying and nominating a woman as an eventual seventh director. The Company has not considered the level
of representation of women in its executive officer positions or on its Board in previous nominations or appointments (including
a targeted number or percentage).
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2018
As noted above, the Company’s focus has always been, and will
continue to be, working to attract the highest quality executive officers and Board candidates with special focus on the skills,
experience, character and behavioral qualities of each candidate. The Company will continue to monitor developments in the area
of diversity.
Cease Trade Orders, Bankruptcies, Penalties and Sanctions
No directors or executive officers of the Company: (i) is, as at
the date hereof, or has been, within 10 years before the date hereof, a director, chief executive officer or chief financial officer
of any company (including the Company) that (a) was subject to a cease trade order; an order similar to a cease trade order; or
an order that denied the relevant company access to any exemption under securities legislation, that was in effect for a period
of more than 30 consecutive days (collectively, an “Order”) that was issued while the proposed director was acting
in the capacity as director, chief executive officer or chief financial officer, or (b) was subject to an Order that was issued
after the proposed director ceased to be a director, chief executive officer or chief financial officer and which resulted from
an event that occurred while that person was acting in the capacity as director, chief executive officer or chief financial officer;
(ii) is, as at the date hereof, or has been within 10 years before the date hereof, a director or executive officer of any company
(including the Company) that, while that person was acting in that capacity, or within a year of that person ceasing to act in
that capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or
instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to
hold its assets; or (iii) has, 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 compromise with creditors,
or had a receiver, receiver manager or trustee appointed to hold the assets of the proposed director.
As at the date hereof, No directors or executive officers of the
Company has been subject to: (i) any penalties or sanctions imposed by a court relating to securities legislation or by a securities
regulatory authority or has entered into a settlement agreement with a securities regulatory authority; or (ii) any other penalties
or sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable Stockholder in deciding
whether to vote for a proposed director.
Conflicts of Interest
To the best of our knowledge, and other than as disclosed in this
annual information form, there are no known existing or potential conflicts of interest between us and any of our directors or
officers, except that certain of the directors and officers serve as directors and officers of other public companies and therefore
it is possible that a conflict may arise between their duties as a director or officer of NextSource and their duties as a director
or officer of such other companies. See “Risk Factors — Certain of our directors and officers also serve as directors
and/or officers of other companies involved in natural resource exploration and development and consequently there exists the possibility
for these directors and officers to be in a position of conflict” above.
Audit Committee
The Audit Committee consists of Dean Comand (Chair), Dalton L. Larson
and John Sanderson, each of whom is financially literate as per the meaning of NI 52-110 and independent as per the independence
standards of NI 58-101 (each is an independent director as each is not involved in the day-to-day operations of the Company).
The following is a brief description of the education and experience
of each of the committee members:
Dean Comand P. Eng, CET MMP CDir. (Ancaster, Canada)
Mr. Comand has served as a director of the Company since
October 2014. He is a Mechanical Engineer and holds his P. Eng designation in the province of Ontario as well as designation as
a Certified Engineering Technologist. Mr. Comand earned his Maintenance Manager Professional Designation (MMP) license in 2006
and his Charter Director designation (CDir) in 2012. Mr. Comand is currently the President and Chief Executive Officer of Hamilton
Utilities Corporation and continues to provide strategic advice to numerous clients around the world in the mining and energy sectors.
From 2009 – 2014, Mr. Comand worked for Sherritt International as Vice President of Operations of Ambatovy, a large scale
nickel project in Madagascar. He successfully led the construction and commissioning of Ambatovy, and led the operations to commercial
production. He has extensive business and financial acumen in large-scale energy, power, and mining industries. He has consistently
held senior positions in operations, business, project development, environmental management, maintenance, and project construction.
He has managed a variety of complex operations, including one of the world’s largest mining facilities, industrial facilities,
numerous power plants, renewable energy facilities and privately held municipal water treatment facilities across Canada and the
United States.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2018
John Sanderson, Q.C. (Vancouver,
Canada)
Mr. Sanderson has been the Company’s Vice Chairman
of the Board since October 2009 and a director of our Company since January 2009. Mr. Sanderson was Chairman of the Board of the
Company from January 2009 to September 2009. Mr. Sanderson is a chartered mediator, chartered arbitrator, consultant and lawyer
called to the bar in the Canadian provinces of Ontario and British Columbia. Mr. Sanderson’s qualifications to serve as a
director include his many years of legal and mediation experience in various industries. Mr. Sanderson is a Queen’s Counsel
(Q.C.).
Dalton Larson (Surrey, Canada)
Mr. Larson has served as a director of our Company since
October 2014. Mr. Larson is a Canadian attorney with more than 35 years as a member of the Law Society of British Columbia. He
commenced practice as a member of the Faculty of Law, University of British Columbia, subsequently becoming a partner of a major
Vancouver Law firm, now McMillan LLP. Currently, he maintains a private practice along with a vigorous investment business. He
has three degrees, including a Master’s degree in law from the University of London, England. His business activities include
more than 25 years as a director of several investment funds managed by the CW Funds group of companies, affiliated with Ventures
West Management Inc., which is one of the largest venture capital firms in Canada. He served as Chairman of the Board of Directors
of a Philippine ethanol company. He was the founding shareholder of the First Coal Corporation, which started operations in 2014.
He served as the first Chairman of the Board of Directors for two years and then participated closely in its governance and management
including serving as the Chair of the Compensation Committee. He currently serves as the Chairman of the Board of Directors of
Cloud Nine Education Group (CSE:CNI) and on the Board of Directors of SmartCool Systems Inc. (TSX-V: SSC).
During fiscal 2018, the Audit Committee met four times in person
or by telephone.
The Audit Committee is responsible for monitoring our systems and
procedures for financial reporting and internal control, reviewing certain public disclosure documents and monitoring the performance
and independence of our external auditors. The Audit Committee is also responsible for reviewing our audited annual consolidated
financial statements, unaudited interim consolidated financial statements and management’s discussion and analysis of financial
results of operations for both annual and interim consolidated financial statements and review of related operations prior to their
approval by the Board.
The Audit Committee’s charter sets out its responsibilities
and duties, qualifications for membership, procedures for committee member removal and appointments and reporting to the Board.
A copy of the charter is attached as Schedule “A”.
|
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10.
|
Legal Proceedings and Regulatory Actions
|
We are not currently involved in any litigation
that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit,
proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body
pending or, to the knowledge of the executive officers of our Company or any of our subsidiaries, threatened against or affecting
our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries' officers or directors in their
capacities as such, in which an adverse decision could have a material adverse effect.
We are not currently involved in any regulatory actions and no penalties,
sanctions, or settlements have been imposed against the Company by a court or by a securities regulatory authority during the financial
year.
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|
11.
|
Interest of Management and Others in Material Transactions
|
No director or executive officer of the Company, no person owning
or exercising control over more than 5% of the Company’s issued and outstanding Shares, and no associate or affiliate of
any such person has had any material interest, direct or indirect, in any material transaction involving the Company within the
fiscal year ended June 30, 2018.
Craig Scherba, P.Geo., the Company’s President and Chief Executive
Officer is the Qualified Person, as defined by NI 43-101, and has reviewed and approved the scientific and technical information
disclosed in this Annual Information Form. See “
Directors and Officers
”
Johann Knipe de Bruin, Pr. Eng, has acted as a qualified person
on the Molo Feasibility Study and has reviewed and approved the information related to the Molo Feasibility Study in this Annual
Information Form. Johann Knipe de Bruin, Pr. Eng, is independent of the Company in accordance with NI 43-101. As at the date hereof,
Johann Knipe de Bruin hold less than one percent of the Company’s outstanding securities.
MNP LLP (“MNP”) was engaged to audit our consolidated
financial statements and is independent within the meaning of the Rules of
Professional Conduct of the Institute of Chartered Professional
Accountants of Ontario.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2018
Other than contracts entered into in the ordinary course of business,
we have not entered into any material contracts within the financial year ended June 30, 2018 or before such time that are still
in effect.
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|
14.
|
Transfer Agent and Registrar
|
The Company’s principal transfer agent and registrar for our
common shares is TSX Trust Company and its principal offices are in Toronto, Canada.
The Board considers that the work done in the year ended June 30,
2018 by the Company’s external auditors, MNP LLP is compatible with maintaining MNP LLP. All of the work expended by MNP
LLP on our June 30, 2018 audit was attributed to work performed by MNP LLP’s full-time, permanent employees. The Audit Committee
reviews and must approve all engagement agreements with external auditors.
During the year ended June 30, 2017, the Audit Committee pre-approved
all of the fees invoiced by MNP LLP.
Audit Fees:
The aggregate fees, including expenses, billed by the
Company’s auditor in connection with the audit of our financial statements for the most recent fiscal year and for the review
of our financial information included in our Annual Report and our quarterly reports during the fiscal year ending June 30, 2018
was CAD$32,100 (June 30, 2017: CAD$47,800).
Non-Audit Assurance Fees:
The aggregate fees, including expenses, billed by the
Company’s auditor for assurance services unrelated to the audit for the year ended June 30, 2018 were CAD$23,647 (June 30,
2017: CAD$nil).
Non-Audit Taxation Fees:
The aggregate fees, including expenses, billed by the
Company’s auditor for tax compliance services during the year ended June 30, 2018 were CAD$6,527 (June 30, 2017: CAD$23,647).
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16.
|
Additional Information
|
Additional information related to the Company, including the financial
statements and management discussion and analysis (MD&A) for the most recently completed financial year, is available on SEDAR
at www.sedar.com or on the Company website at www.nextsourcematerials.com.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2018
SCHEDULE A
AUDIT COMMITTEE CHARTER
GENERAL AND AUTHORITY
The Board of Directors of NextSource Materials Inc. (the “Company)
appoints the Audit Committee (the “Committee). The Committee is a key component of the Company’s commitment to maintaining
a higher standard of corporate responsibility. The Committee shall review the Company’s financial reports, internal control
systems, the management of financial risks and the external audit process. It has the authority to conduct any investigation appropriate
to its responsibilities. The Committee has the authority to: engage independent counsel and other advisors as it necessary to carry
out its duties; set and pay the compensation for advisors employed by the Committee; and communicate directly with the internal
and external auditors.
RESPONSIBILITIES
Overseeing the External Audit Process - The Committee shall recommend
to the Board the external auditor to be nominated, shall set the compensation for the external auditor and shall ensure that the
external auditor reports directly to the Committee. (b) The Committee shall be directly responsible for overseeing the work of
the external auditor, including the resolution of disagreements between management and the external auditor regarding financial
reporting. (c) The Committee shall review the external auditor’s audit plan, including scope, procedures and timing of the
audit. (d) The Committee shall pre-approve all non-audit services to be provided by the external auditor. (e) The Committee shall
review and approve the Company’s hiring policies regarding partners, employees and former partners and employers of the present
and former external auditor. (f) The Committee shall review fees paid by the Company to the external auditor and other professionals
in respect of audit and non-audit services on an annual basis.
Financial Reporting and Internal Controls - (a) The Committee shall
review the annual audited financial statements to satisfy itself that they are presented in accordance with generally accepted
accounting principles, that the information contained therein is not erroneous, misleading or incomplete and that the audit function
has been effectively carried out. (b) The Committee shall report to the Board with respect to its review of the annual audited
financial statements and recommend to the Board whether or not same should be approved prior to their being publicly disclosed.
(c) The Committee shall review the Company’s annual and interim financial statements, management’s discussion and analysis
relating to annual and interim financial statements, and earnings press releases prior to any of the foregoing being publicly disclosed
by the Company. (d) The Committee shall satisfy itself that adequate procedures are in place for the review of the Company’s
public disclosure of financial information extracted or derived from the Company’s financial statements other than the disclosure
referred to in Section 3.2(c) of this Charter, and periodically assess the adequacy of these procedures. (e) The Committee shall
oversee any investigations of alleged fraud and illegality relating to the Company’s finances. (f) The Committee shall establish
procedures for: (1) the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting
controls or auditing matters; and (2) the confidential, anonymous submission by employees of the Company or concerns regarding
questionable accounting or auditing matters. (g) The Committee shall meet no less frequently than annually with the external auditor
and the Chief Financial Officer or, in the absence of a Chief Financial Officer, with the officer of the Company in charge of financial
matters, to review accounting practices, internal controls, auditing matters and such other matters as the Committee deems appropriate.
Risk Management - The Committee shall inquire of management and
the external auditor regarding significant risks or exposures to which the Company may be subject, and shall assess the adequacy
of the steps management has taken to minimize such risks.
Other Responsibilities - The Committee shall perform any other responsibilities
consistent with this Charter and any applicable laws as the Committee or Board deems appropriate.
COMPOSITION AND MEETINGS
Composition - (a) The Committee shall be composed of three or more
directors, all of whom are independent as per the independence standards of NI 58-101 in Canada (each are independent directors
as they do not have involvement in the day-to-day operations of the Company). (b) If at any time, the Company ceases to be exempt
from Part 3 of National Instrument 52-110 - Audit Committees, every audit committee member shall be Independent, as such term is
defined in said Instrument. (c) Notwithstanding Sections 4.1(a) and 4.1(b) of this Charter, the Committee and its membership shall
at all times be so constituted as to meet all current, applicable legal, regulatory and listing requirements, including, without
limitation, securities laws and the requirements of the TSX and of all applicable securities regulatory authorities. (d) Committee
members will be appointed by the Board. One member shall be designated by the Board to serve as Chair.
Meetings - (a) The Committee shall meet at least quarterly, at the
discretion of the Chair or a majority of its members, as circumstances dictate or are required. A minimum of two and at least 50%
of the members present in person or by telephone shall constitute a quorum. For quorum to exist, the majority of members’
present must not be Company’ employees, Control Persons or officers or any of its Associates or Affiliates, (capitalized
terms as defined by the TSX). (b) If a vacancy in the Committee exists, the remaining members may exercise all of its powers and
responsibilities provided that a quorum (as herein defined) remains in office. (c) The time and place at which meetings of the
Committee shall be held, and the procedures at such meetings, shall be determined by the Committee. A meeting of the Committee
may be called by letter, telephone, facsimile or electronic means, by giving 48 hours’ notice, or such greater notice as
may be required under the Company’s By-Laws, provided that no notice shall be necessary if all the members are present either
in person or by telephone or if those absent have waived notice. (d) The Committee shall keep minutes of its meetings which shall
be submitted to the Board. The Committee may, from time to time, appoint any person, who need not be a member, to act as a secretary
at any meeting. (e) The Committee may invite such officers, directors and employees of the Company as it deems appropriate, from
time to time, to attend meetings of the Committee. Any matters to be determined by the Committee shall be decided by a majority
of the votes cast at a meeting of the Committee called for such purpose. Actions of the Committee may be taken by an instrument
or instruments in writing signed by all members of the Committee, and such actions shall be effective as though they had been decided
by a majority of the votes cast at a meeting of the Committee called for such purpose.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2018
REPORTING TO THE BOARD
The Committee shall report regularly to the Board on Committee activities,
findings and recommendations. The Committee is responsible for ensuring that the Board is aware of any matter that may have a significant
impact on the financial condition or affairs of the Company.
CONTINUED REVIEW OF CHARTER
The Committee shall review and assess the continued adequacy of
this Charter annually and submit such proposed amendments as the Committee sees fit to the Board for its consideration.
44
Exhibit 99.2
NextSource Materials Inc.
Consolidated Financial Statements
For the years ended June 30, 2018 and 2017
Expressed in US Dollars
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the Shareholders and Directors of NextSource Materials Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated
financial statements of NextSource Materials Inc. (the “Company”), which comprise the consolidated statements of financial
position as at June 30, 2018 and 2017, and the consolidated statements of operations and comprehensive loss, changes in shareholders’
equity and cash flows for each of the two years in the period ended June 30, 2018, including the related notes, comprising a summary
of significant accounting policies and other explanatory information (collectively referred to as the “consolidated financial
statements”).
In our opinion, the consolidated financial
statements present fairly, in all material respects, the consolidated financial position of the Company as at June 30, 2018 and
2017 and its consolidated financial performance and its consolidated cash flows for each of the two years in the period ended June
30, 2018 in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Material Uncertainty Related to Going
Concern
Without modifying our opinion, we draw
attention to Note 1 to the consolidated financial statements which highlights the existence of a material uncertainty relating
to conditions that cast significant doubt on the entity's ability to continue as a going concern.
Basis for Opinion
Management’s Responsibility for the Consolidated Financial
Statements
Management is responsible for the preparation
and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards
as issued by the International Accounting Standards Board, and for such internal control as management determines is necessary
to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to error or
fraud.
Auditors’ Responsibility
Our responsibility is to express an opinion
on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted
auditing standards and the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements
are free from material misstatement, whether due to error or fraud. Those standards also require that we comply with ethical requirements,
including independence. We are required to be independent with respect to the Company in accordance with the ethical requirements
that are relevant to our audit of the consolidated financial statements in Canada, the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB. We are a public accounting firm registered with
the PCAOB.
An audit includes performing procedures
to assess the risks of material misstatements of the consolidated financial statements, whether due to error or fraud, and performing
procedures to respond to those risks. Such procedures include obtaining and examining, on a test basis, audit evidence regarding
the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including
the assessment of the risks of material misstatement of the consolidated financial statements, whether due to error or fraud. In
making those risk assessments, we consider internal control relevant to the entity’s preparation and fair preparation of
the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for
the purpose of expressing an opinion on the effectiveness of the entity’s internal control. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over financial reporting. Accordingly, we express no such
opinion.
An audit also includes evaluating the appropriateness
of accounting policies and principles used and the reasonableness of accounting estimates made by management, as well as evaluating
the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have
obtained in our audits is sufficient and appropriate to provide a reasonable basis for our audit opinion.
|
|
|
|
|
|
We have served as the Company’s auditor since 2012.
|
|
|
|
Mississauga, Canada
|
|
|
|
October 31, 2018
|
NextSource Materials Inc.
Consolidated Statements of Financial Position
Expressed
in US Dollars
|
|
|
June 30,
2018
|
|
|
June 30,
2017
(note 16)
|
|
|
July 1,
2016
(note 16)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents (note 4)
|
|
$
|
338,702
|
|
|
$
|
1,964,948
|
|
|
$
|
544,813
|
|
|
Amounts receivable
|
|
|
13,241
|
|
|
|
39,441
|
|
|
|
13,955
|
|
|
Prepaid expenses (note 15)
|
|
|
42,540
|
|
|
|
39,096
|
|
|
|
11,545
|
|
|
Total current assets
|
|
|
394,483
|
|
|
|
2,043,485
|
|
|
|
570,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment (note 5)
|
|
|
-
|
|
|
|
27,805
|
|
|
|
21,911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
394,483
|
|
|
$
|
2,071,290
|
|
|
$
|
592,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable (note 15)
|
|
$
|
140,865
|
|
|
$
|
159,147
|
|
|
$
|
215,391
|
|
|
Accrued liabilities
|
|
|
197,834
|
|
|
|
68,241
|
|
|
|
24,743
|
|
|
Provision (note 9)
|
|
|
180,652
|
|
|
|
182,883
|
|
|
|
182,742
|
|
|
Warrant liability
|
|
|
-
|
|
|
|
-
|
|
|
|
111,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
519,351
|
|
|
|
410,271
|
|
|
|
533,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share capital (note 10)
|
|
|
100,544,293
|
|
|
|
99,621,124
|
|
|
|
94,019,046
|
|
|
Accumulated deficit
|
|
|
(100,744,927
|
)
|
|
|
(97,960,105
|
)
|
|
|
(93,960,747
|
)
|
|
Accumulated other comprehensive income
|
|
|
75,766
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Shareholder’s Equity
|
|
|
(124,868
|
)
|
|
|
1,661,019
|
|
|
|
58,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholder’s Equity
|
|
$
|
394,483
|
|
|
$
|
2,071,290
|
|
|
$
|
592,224
|
|
The accompanying notes are an integral part of these consolidated
financial statements.
Nature of Operations (note 1)
Mineral
Exploration Properties (note 3)
Subsequent
Events (note 18)
NextSource Materials Inc.
Consolidated Statements of Operations and Comprehensive Loss
Expressed
in US Dollars
|
|
|
For the year ended
|
|
|
For the year ended
|
|
|
|
|
June 30, 2018
|
|
|
June 30, 2017
(note 16)
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration and evaluation expenses (notes 3, 5)
|
|
|
920,998
|
|
|
|
1,839,659
|
|
|
Management and professional fees (notes 6, 15)
|
|
|
1,382,925
|
|
|
|
770,397
|
|
|
Stock options
|
|
|
-
|
|
|
|
794,864
|
|
|
General and administrative expenses (note 7)
|
|
|
405,580
|
|
|
|
458,780
|
|
|
Depreciation (note 8)
|
|
|
-
|
|
|
|
21,911
|
|
|
Impairment (note 8)
|
|
|
27,805
|
|
|
|
-
|
|
|
Foreign currency translation (gain) loss
|
|
|
104,387
|
|
|
|
93,476
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
2,841,695
|
|
|
|
3,979,087
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss before change in fair value, reversal of impairment of amount receivable and part XII.6 taxes
|
|
|
(2,841,695
|
)
|
|
|
(3,979,087
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses)
|
|
|
|
|
|
|
|
|
|
Change in value of warrant liability
|
|
|
-
|
|
|
|
111,049
|
|
|
Reversal of impairment of amount receivable
|
|
|
45,132
|
|
|
|
-
|
|
|
Part XII.6 taxes
|
|
|
11,741
|
|
|
|
(131,320
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the year
|
|
$
|
2,784,822
|
|
|
$
|
3,999,358
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
Items that will be reclassified subsequently to loss
|
|
|
|
|
|
|
|
|
|
Translation adjustment for foreign operations
|
|
|
75,766
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and comprehensive loss for the year
|
|
$
|
(2,709,056
|
)
|
|
$
|
(3,999,358
|
)
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares,
- basic and diluted
|
|
|
468,252,639
|
|
|
|
448,187,140
|
|
Net loss per common shares,
- basic and diluted
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
The accompanying notes are an integral part of these consolidated
financial statements.
NextSource Materials Inc.
Consolidated Statements of Cash Flows
Expressed
in US Dollars
|
|
|
For the year ended
June 30, 2018
|
|
|
For the year ended
June 30, 2017
(note 16)
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and comprehensive loss for the year
|
|
$
|
(2,709,056
|
)
|
|
$
|
(3,999,358
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Items not affecting cash:
|
|
|
|
|
|
|
|
|
|
Depreciation and impairment of property, plant and equipment
|
|
|
27,805
|
|
|
|
21,911
|
|
|
Change in value of warrant derivative liability
|
|
|
-
|
|
|
|
(111,049
|
)
|
|
Stock-based compensation
|
|
|
-
|
|
|
|
794,864
|
|
|
Change in non-cash working capital items:
|
|
|
|
|
|
|
|
|
|
Amounts receivable and prepaid expenses
|
|
|
22,756
|
|
|
|
(53,037
|
)
|
|
Accounts payable and accrued liabilities
|
|
|
111,311
|
|
|
|
(12,746
|
)
|
|
Provision
|
|
|
(2,231
|
)
|
|
|
141
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(2,549,415
|
)
|
|
|
(3,359,274
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment purchases
|
|
|
-
|
|
|
|
(27,805
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
-
|
|
|
|
(27,805
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common shares
|
|
|
-
|
|
|
|
5,177,885
|
|
|
Proceeds from exercise of warrants
|
|
|
923,169
|
|
|
|
-
|
|
|
Common share issue costs
|
|
|
-
|
|
|
|
(370,671
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
923,169
|
|
|
|
4,807,214
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
(1,626,246
|
)
|
|
|
1,420,135
|
|
|
Cash and cash equivalents - beginning of year
|
|
|
1,964,948
|
|
|
|
544,813
|
|
|
Cash and cash equivalents - end of year
|
|
$
|
338,702
|
|
|
$
|
1,964,948
|
|
The accompanying notes are an integral part of these consolidated
financial statements.
NextSource Materials Inc.
Consolidated Statements of Changes in Shareholders’
Equity
Expressed
in US Dollars
|
|
|
Shares
#
|
|
|
Share
Capital
$
|
|
|
Accumulated
Deficit
$
|
|
|
Accumulated Other
Comprehensive
Income (Loss)
$
|
|
|
Total
Equity
$
|
|
|
Balance – July 1, 2016 (note 16)
|
|
|
364,931,425
|
|
|
|
94,019,046
|
|
|
|
(93,960,747
|
)
|
|
|
-
|
|
|
|
58,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private placement of common shares
|
|
|
96,064,286
|
|
|
|
5,177,885
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,177,885
|
|
|
Cost of issue of private placement of common shares
|
|
|
-
|
|
|
|
(370,671
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(370,671
|
)
|
|
Share-based compensation
|
|
|
-
|
|
|
|
794,864
|
|
|
|
-
|
|
|
|
-
|
|
|
|
794,864
|
|
|
Net loss for the year
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,999,358
|
)
|
|
|
-
|
|
|
|
(3,999,358
|
)
|
|
Exchange differences on translation of foreign operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - June 30, 2017 (note 16)
|
|
|
460,995,711
|
|
|
|
99,621,124
|
|
|
|
(97,960,105
|
)
|
|
|
-
|
|
|
|
1,661,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of warrants
|
|
|
8,937,900
|
|
|
|
923,169
|
|
|
|
|
|
|
|
|
|
|
|
923,169
|
|
|
Net loss for the year
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,784,822
|
)
|
|
|
-
|
|
|
|
(2,784,822
|
)
|
|
Cumulative translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
75,766
|
|
|
|
75,766
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - June 30, 2018
|
|
|
469,933,611
|
|
|
|
100,544,293
|
|
|
|
(100,744,927
|
)
|
|
|
75,766
|
|
|
|
(124,868
|
)
|
The accompanying notes are an integral part of these consolidated
financial statements.
|
NextSource Materials Inc.
|
|
Notes to Consolidated Financial Statements
|
|
|
|
Expressed in US Dollars
|
1. Nature of Operations
NextSource Materials Inc. (the "Company"
or “NextSource”) is incorporated under the laws of Canada and has a fiscal year end of June 30. The Company's registered
head office and primary location of records is 145 Wellington Street West, Suite 1001, Toronto, Ontario, M5J 1H8.
The Company's principal business is the
acquisition, exploration and development of mineral resources. The Company has yet to generate any revenue from mining operations
or pay dividends and is unlikely to do so in the immediate or foreseeable future.
The Company, through its wholly-owned foreign
subsidiaries, is currently focused on obtaining the necessary permits to begin construction on the Molo Graphite Project in Madagascar.
Although we have determined through a NI 43-101 Technical Report Feasibility Study dated July 13, 2017 that Phase 1 of our Molo
Graphite Project contains mineralization that is economically recoverable, we do not have the necessary permits or capital to begin
construction at this time.
These consolidated financial statements
were approved by the Board of Directors on September 28, 2018.
Corporate Redomicile
The Company completed a corporate redomicile
from the State of Minnesota to Canada on December 27, 2017.
Corporate Structure
NextSource owns 100% of NextSource Materials
(Mauritius) Ltd. (“MATMAU”), a Mauritius subsidiary, and 2391938 Ontario Inc., an Ontario Company.
MATMAU owns 100% of NextSource Minerals
(Mauritius) Ltd. (“MINMAU”), a Mauritius subsidiary, NextSource Graphite (Mauritius) Ltd (“GRAMAU”), a
Mauritius subsidiary, and NextSource Materials (Madagascar) SARL (“MATMAD”), a Madagascar subsidiary.
MINMAU owns 100% of NextSource Minerals
(Madagascar) SARL (“MINMAD”), a Madagascar subsidiary. MINMAD holds the Green Giant Vanadium Project exploration permits.
GRAMAU owns 100% of ERG Madagascar SARL
(“ERGMAD”), a Madagascar subsidiary. ERGMAD holds the Molo Graphite Project exploration permits.
Going Concern Assumption
The accompanying consolidated financial
statements have been prepared on the basis of a going concern, which contemplates the realization of assets and liquidation of
liabilities in the normal course of business.
As of June 30, 2018, the Company had an
accumulated deficit of $100,744,927 (June 30, 2017: $97,960,105), has experienced recurring net losses and has negative operating
cash flows. As such, conditions exist that may raise substantial doubt regarding the Company's ability to continue as a going concern.
In assessing whether the going concern
assumption is appropriate, management considers all available information about the future, which is at least, but not limited
to, twelve months from the end of the reporting period. The Company's ability to continue operations and fund its exploration and
development expenditures is dependent on management's ability to secure additional financing. Management is actively pursuing such
additional sources of financing, and while it has been successful in doing so in the past, there can be no assurance it will be
able to do so in the future. The Company has not obtained the necessary permits to begin construction and has not commenced commercial
operation of a mine. These conditions cast significant doubt about the Company’s ability to continue as a going concern.
Theses consolidated financial statements
do not give effect to adjustments that would be necessary should the Company be unable to continue as a going concern and therefore
need to realize its assets and liquidate its liabilities and commitments in other than the normal course of business and at amounts
different from those in the accompanying consolidated financial statements.
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NextSource Materials Inc.
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|
Notes to Consolidated Financial Statements
|
|
|
|
Expressed in US Dollars
|
2. Significant Accounting
Policies
Statement of compliance and first-time
adoption of IFRS
The Company’s consolidated financial
statements for the year ending June 30, 2018 are the first annual consolidated financial statements that comply with International
Financial Reporting Standards (“IFRS”), as issued by the IASB. The Company has prepared its opening IFRS statement
of financial position by applying existing IFRS standards with an effective date of June 30, 2018 or prior.
The Company has applied IFRS in its financial
reporting with effect from July 1, 2016, the transition date, in accordance with the transitional provisions set out in IFRS 1,
“First-time adoption of International Financial Reporting Standards”. IFRS 1 requires that first-time adopters retrospectively
apply all IFRS standards effective at the end of its first IFRS reporting period, which is June 30, 2017. However, IFRS 1 also
provides for certain optional exemptions and certain mandatory exceptions for first-time IFRS adopters. The items relevant to the
Company’s IFRS reporting are disclosed in Note 16.
Basis of measurement
These consolidated financial statements
have been prepared under the historical cost basis except for certain financial instruments that are measured at fair values, as
explained in the accounting policies below.
Basis of consolidation
These consolidated financial statements
include the financial position, results of operation and cash flows of the Company and its wholly-owned subsidiaries. Intercompany
balances, transactions, income and expenses, profits and losses, including gains and losses relating to subsidiaries have been
eliminated on consolidation.
Significant accounting estimates,
judgments and assumptions
To prepare financial statements in conformity
with IFRS, the Company must make estimates, judgements and assumptions concerning the future that affect the carrying values of
assets and liabilities as of the date of the financial statements and the reported values of revenues and expenses during the reporting
period. By their nature, these are uncertain and actual outcomes could differ from the estimates, judgments and assumptions.
The impacts of such estimates are pervasive
throughout the financial statements and may require accounting adjustments based on future occurrences. Revisions to accounting
estimates are recognized in the period in which the estimate is revised and also in future periods when the revision affects both
current and future periods. Significant accounting judgments, estimates and assumptions are reviewed on an ongoing basis.
Significant assumptions about the future
and other sources of estimation uncertainty that management has made at the end of the reporting period, that could have an effect
on the amounts recognized in the consolidated financial statements relate to the following:
Going concern:
The preparation of
the consolidated financial statements requires management to make judgments regarding the ability to continue as a going concern.
Share-based compensation:
Estimating
fair value for granted stock options requires determining the most appropriate valuation model which is dependent on the terms
and conditions of the grant. This estimate also requires determining the most appropriate inputs to the valuation model including
the expected life of the option, volatility, dividend yield, and rate of forfeitures and making assumptions about them. The value
of the share-based payment expense along with the assumptions and model used for estimating fair value for share-based compensation
transactions are disclosed in Note 12.
Flow-Through Provision Estimates:
The
estimation of the value of the provision for the Part XII.6 taxes for the indemnification liability to subscribers of the flow-through
shares issued in fiscal 2014 for the additional taxes payable by such subscribers related to the CEE renunciation shortfall that
occurred in fiscal 2015 is based on applying a blended tax rate of approximately 35% against the CEE renunciation shortfall. The
assumptions and calculations used for estimating the value attributed to the flow-through provision are disclosed in Note 9.
Deferred taxes:
The estimation of
income taxes includes evaluating the recoverability of deferred tax assets based on an assessment of the Company’s ability
to utilize the underlying future tax deductions against future taxable income prior to expiry of those deductions. Management assesses
whether it is probable that some or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income, which in turn is dependent upon the successful discovery, extraction,
development and commercialization of mineral reserves. To the extent that management’s assessment of the Company’s
ability to utilize future tax deductions changes, the Company would be required to recognize more or fewer deferred tax assets,
and deferred tax provisions or recoveries could be affected.
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NextSource Materials Inc.
|
|
Notes to Consolidated Financial Statements
|
|
|
|
Expressed in US Dollars
|
Cash equivalents
The Company considers cash equivalents
to be cash and highly liquid investments with original maturities of three months or less.
Prepayments and deposits
The Company makes prepayments and deposits
to suppliers of services. These are recognized as prepayments when made and recognized as expenses when received. Prepayments and
deposits on assets that are long term in nature are recorded as long-term prepayments and deposits.
Financial instruments
Management determines the classification
of financial assets and financial liabilities at initial recognition and, except in very limited circumstances, the classification
is not changed subsequent to initial recognition. The classification depends on the purpose for which the financial instruments
were acquired, their characteristics and/or management’s intent. Transaction costs with respect to instruments not classified
as fair value through profit or loss are recognized as an adjustment to the cost of the underlying instruments and amortized using
the effective interest method.
The Company’s financial instruments
were classified in the following categories:
Financial assets
Financial assets, measured at
fair value through profit or loss:
An instrument is classified as
fair value through profit or loss if it is held for trading or is designated as such upon initial recognition. A financial asset
is classified as fair value through profit or loss if acquired principally for the purpose of selling in the short term or if so
designated by management. Financial instruments included in this category are initially recognized at fair value and transaction
costs are taken directly to earnings along with gains and losses arising from changes in fair value.
Derivative instruments, including
embedded derivatives, are recorded at fair value unless exempted from derivative treatment as normal purchase and sale. All changes
in their fair value are recorded through profit or loss.
Loans and receivables, measured
at amortized cost:
|
|
·
|
Cash on hand and balances at bank
|
Cash on hand and balances at
bank and advances and loans receivable are initially recognized at fair value net of transaction costs and are subsequently measured
at amortized cost. Interest revenue on advances and loans receivable are recognized using the effective interest method.
Financial liabilities
Other financial liabilities,
measured at amortized cost:
|
|
·
|
Accounts payable and accrued liabilities
|
Accounts payable and accrued
liabilities are initially recognized at fair value net of transaction costs and are subsequently measured at amortized cost using
the effective interest method.
Derivative instruments, including
embedded derivatives, are recorded at fair value unless exempted from derivative treatment as normal purchase and sale. All changes
in their fair value are recorded through profit or loss.
Warrant liability is a level
3 instrument with fair value of $Nil as of June 30, 2018 (June 30, 2017 - $NIL and July 1, 2016 - $111,049).
The financial instrument measurement hierarchy,
for financial assets and liabilities measured at fair value through profit and loss at each reporting date, is as follows:
All financial instruments are
required to be measured at fair value on initial recognition. For those financial assets or liabilities measured at fair value
through profit and loss at each reporting date, financial instruments and liquidity risk disclosures require a three-level hierarchy
that reflects the significance of the inputs used in making the fair value measurements. These levels are defined below:
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NextSource Materials Inc.
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Notes to Consolidated Financial Statements
|
|
|
|
Expressed in US Dollars
|
|
·
|
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Level 1: Determined by reference to unadjusted quoted prices in active markets for
identical assets and liabilities that the entity can access at the measurement date; or
|
|
·
|
|
Level 2: Valuations using inputs other than the quoted prices for which all significant
inputs are based on observable market data, either directly or indirectly; or
|
|
·
|
|
Level 3: Valuations using inputs that are not based on observable market data.
|
Both the binomial and Black Scholes
valuation techniques are permitted under IFRS.
The impairment of financial assets, carried
at amortized costs, is as follows:
At each reporting date, the Company
assesses whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial
asset or a group of financial assets is impaired if there is objective evidence that the estimated future cash flows of the financial
asset or the group of financial assets have been negatively impacted. Evidence of impairment may include indications that debtors
are experiencing financial difficulty, default or delinquency in interest or principal payments, or other observable data which
indicates that there is a measurable decrease in the estimated future cash flows.
If an impairment loss has occurred,
the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash
flows (excluding future expected credit losses that have not yet been incurred). The present value of the estimated future cash
flows is discounted at the financial asset’s original effective interest rate. If a financial asset has a variable interest
rate, the discount rate for measuring any impairment loss is the current effective interest rate.
The carrying amount of the asset
is reduced through the use of an allowance account, and the loss is recognized in financing expense. Interest income continues
to be accrued on the reduced carrying amount using the rate of interest used to discount the future cash flows for the purpose
of measuring the impairment loss. The interest income is recorded as part of financing income. Loans together with the associated
allowance are written off when there is no realistic prospect of future recovery and all collateral has been realized or has been
transferred to the Company.
If, in a subsequent year, the
amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognized,
the previously recognized impairment loss is increased or reduced by adjusting the allowance account. If an impairment is later
recovered, the recovery is credited to financing income.
The derecognition of financial assets and
liabilities is as follows:
A financial asset is derecognized
when its contractual rights to the cash flows that compose the financial asset expire or substantially all the risks and rewards
of the asset are transferred.
A financial liability is derecognized
when the obligation under the liability is discharged, cancelled or expired. Gains and losses on derecognition are recognized within
financing income and financing expense, respectively.
Exploration and evaluation expenditures
Exploration and evaluation expenses include
all costs relating to mineral property acquisition costs, exploration camp operating costs, local payroll and consultants in Madagascar
and Mauritius, directly attributable overhead, exploration permits and licenses, technical services, exploration drilling, seismic,
geological, geophysical and metallurgical studies, testing and sampling.
Once a mineral project has been established
as being technically feasible and commercially viable, the related development expenditures are capitalized. This includes costs
incurred in preparing the site for mining operations. Assessing commercial viability requires management to make certain judgments
as to future events and circumstances, in particular whether an economically viable operation can be established. Any such judgments
may change as new information becomes available. If after having capitalized the expenditure, a decision is made that recovery
of the expenditure is unlikely, the amount capitalized is recognized in cost of sales in the consolidated statements of comprehensive
income (loss).
Capitalization of development expenditures
ceases when the mine is capable of commercial production, with the exception of development costs that give rise to a future benefit.
Equipment
Equipment is stated at cost less accumulated
depreciation and any impairment losses. Equipment is depreciated using the straight-line method based on estimated useful lives,
once the assets are available for use. The estimated useful lives, residual values and depreciation method are reviewed at each
reporting period, with the effect of any changes in estimated accounted for on a prospective basis. The useful lives of the equipment
are as follows:
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NextSource Materials Inc.
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Notes to Consolidated Financial Statements
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|
|
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Expressed in US Dollars
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·
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Exploration vehicles and equipment
|
3 to 5 years
|
The carrying values of equipment are reviewed
for impairment at each reporting period and when events or changes in circumstances indicate that the carrying values may not be
recoverable. Gains and losses on disposals are determined by comparing net proceeds with carrying amounts.
Provisions
Provisions are recognized when the Company
has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources will
be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where appropriate, the
future cash flow estimates are adjusted to reflect risks specific to the obligation If the effect of the time value of money is
material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market
assessments of the time value of money. Where discounting is used, the increase in the provision due to the passage of time is
recognized as financing expense. A contingent liability is disclosed where the existence of an obligation will only be confirmed
by future events or where the amount of the obligation cannot be measured with reasonable reliability. Contingent assets are not
recognized but are disclosed where an inflow of economic benefits is probable.
Warrant liabilities
The Company issued share purchase warrants with an exercise price denominated in a currency other than
its functional currency. As a result, the warrants are no longer considered solely indexed to the Company’s common shares
and are classified as financial liabilities and recorded at the estimated fair value at each reporting date using Level 3 inputs
on the financial instrument hierarchy. The Company records the change in fair value of the warrant liability as a component of
other income and expense on the statement of operations.
Environmental rehabilitation and
asset retirement obligations
An obligation to incur restoration, rehabilitation
and environmental costs arises when environmental disturbance is caused by the exploration, development or ongoing production of
a mineral property interest. Such costs arising for the decommissioning of plant and other site preparation work, discounted to
their net present value, are provided for and charged to expenses as an exploration cost, as soon as the obligation to incur such
costs arises. Discount rates using a pretax rate that reflect the time value of money are used to calculate the net present value.
The related liability is adjusted each period for the unwinding of the discount rate and for changes to the current market-based
discount rate, amount or timing of the underlying cash flows needed to settle the obligation.
The Company’s operations are subject
to environmental regulations in Madagascar. As at the date of these financial statements, the Company did not have any environmental
rehabilitation obligations and had no asset retirement obligations.
Share-based compensation
The Company operates a stock option plan,
which measures equity-settled share-based payments to eligible participants at the fair value of the equity instruments at the
grant date. Eligible participants are the Company’s directors, officers, employees and consultants. The fair value of grants
issued under the stock option plan are determined at the date of grant using the Black-Scholes option valuation model. Equity-settled
share-based payment transactions with parties other than employees are measured at the fair value of the goods or services received,
except where this fair value cannot be measured reliably, in which case they are measured at the fair value of the equity instruments
granted, as at the date the Company obtains the goods or the counterparty renders the service. The fair value of the stock option
grants is only re-measured if there is a modification to the terms of the option, such as a change in exercise price or legal life.
The fair value of the stock option grants is recognized as an expense over the expected vesting period with a corresponding entry
to shareholders’ equity.
Foreign currencies
The presentation and functional currency
of the Company is the US dollar. The Company has primarily expended its cash on international exploration projects and historically
generated its equity funding in US dollars. The Company expects to sell graphite priced in US dollars once the Molo Graphite Project
achieves production.
The Company offices are in Canada and the
Company expends a portion of its payroll, professional and general and administrative costs in Canadian dollars, which are translated
at the average exchange rates for the period, unless exchange rates fluctuated significantly during that period, in which case
the exchange rates at the dates of transactions are used.
The functional currency of the Mauritius
subsidiaries is the United States dollar.
The functional currency of the Madagascar
subsidiaries is the Madagascar Ariary. Transfers of cash from the Company to its subsidiaries is typically completed using US dollars.
All Ariary transactions are translated at the average exchange rates for the period, unless exchange rates fluctuated significantly
during that period, in which case the exchange rates at the dates of transactions are used.
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NextSource Materials Inc.
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|
Notes to Consolidated Financial Statements
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|
|
|
Expressed in US Dollars
|
For the purpose of presenting consolidated
financial statements, the subsidiaries’ assets and liabilities are expressed in United States dollars using the prevailing
exchange rates at the end of the reporting period. Any exchange differences that arise are recognized in other comprehensive income
and accumulated as foreign currency translation reserve in equity.
Foreign currency transactions are translated
into the functional currency using the exchange rates prevailing at the date of the transactions. Generally, foreign exchange gains
and losses resulting from the settlement of foreign currency transactions and from the translation at year-end exchange rates of
monetary assets and liabilities denominated in currencies other than the operation’s functional currency are recognized in
the consolidated statement of operations.
Income taxes
Income tax expense consists of current
and deferred tax expense. Current and deferred tax are recognized in profit or loss except to the extent they relate to items recognized
directly in equity or other comprehensive income.
Current tax is recognized and measured
at the amount expected to be recovered from or payable to the taxation authorities based on the income tax rates enacted or substantively
enacted at the end of the reporting period and includes any adjustment to taxes payable in respect of previous years.
Deferred tax is recognized on any temporary
differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding
tax bases used in the computation of taxable earnings. Deferred tax assets and liabilities are measured at the tax rates that
are expected to apply in the period when the asset is realized, and the liability is settled. The effect of a change in the enacted
or substantively enacted tax rates is recognized in net earnings and comprehensive income or equity depending on the item to which
the adjustment relates.
Deferred tax assets are recognized to the
extent future recovery is probable. At each reporting period end, deferred tax assets are reduced to the extent that it is no longer
probable that sufficient taxable earnings will be available to allow all or part of the asset to be recovered.
Loss per share
Basic loss per share is computed using
the weighted average number of common shares outstanding during the period. Dilute earnings per share is computed, using the treasury
stock method, to show the potential reduction in earnings per share that would occur if securities or other contracts to issue
common shares were exercised or converted to common shares. The treasury stock method assumes that proceeds received from the exercise
of stock options and warrants are used to repurchase common shares at the prevailing market rate.
Accounting standards adopted
Accounting standards effective for the
period beginning on or after July 1, 2017 have been adopted as part of the transition to IFRS.
Accounting standards issued but not
yet applied
Certain new accounting standards and interpretations
have been published that are not mandatory for the June 30, 2018 reporting period. Management believes the following standards
will not have a significant impact on the Company’s consolidated financial statements:
|
·
|
|
IFRS 9 Financial Instruments (“IFRS 9”) was initially issued by the IASB
in November 2009 and issued in its completed version in July 2014 and will replace IAS 39 Financial Instruments: Recognition and
Measurement (“IAS 39”). IFRS 9 replaces the multiple rules in IAS 39 with a single approach to determine whether a
financial asset is measured at amortized cost or fair value and a new mixed measurement model for debt instruments having only
two categories: amortized cost and fair value. The approach in IFRS 9 is based on how an entity manages its financial instruments
in the context of its business model and the contractual cash flow characteristics of the financial assets. The new standard also
requires a single impairment method to be used, replacing the multiple impairment methods in IAS 39. IFRS 9 is effective for annual
periods beginning on or after January 1, 2018.
|
|
·
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|
In January 2016, the IASB issued IFRS 16, Leases (“IFRS 16”). IFRS 16
eliminates the current dual model for lessees, which distinguishes between on-statement of financial position finance leases and
off- statement of financial position operating leases. Instead, there is a single, on-statement of financial position accounting
model that is similar to current finance lease accounting. The extent of the impact of adoption of IFRS 16 has not yet been determined.
IFRS 16 is effective for periods beginning on or after January 1, 2019, with early adoption permitted.
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NextSource Materials Inc.
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|
Notes to Consolidated Financial Statements
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|
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Expressed in US Dollars
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3. Mineral
Exploration Properties
The Company has not capitalized any acquisition and exploration
costs for its mineral properties.
Molo Graphite Property, Southern Madagascar Region, Madagascar
On December 14, 2011, the Company entered
into a Definitive Joint Venture Agreement ("JVA") with Malagasy Minerals Limited ("Malagasy"), a public company
listed on the Australian Stock Exchange, to acquire a 75% interest in a property package for the exploration and development of
industrial minerals, including graphite, vanadium and 25 other minerals. The land position consisted of 2,119 permits covering
827.7 square kilometers and is mostly adjacent towards the south and east with the Company's 100% owned Green Giant Vanadium Project.
Pursuant to the JVA, the Company paid $2,261,690 and issued 7,500,000 common shares that were valued at $1,350,000.
On April 16, 2014, the Company signed a
Sale and Purchase Agreement and a Mineral Rights Agreement (together “the Agreements”) with Malagasy to acquire the
remaining 25% interest. Pursuant to the Agreements, the Company paid $364,480 (CAD$400,000), issued 2,500,000 common shares subject
to a 12-month voluntary vesting period that were valued at $325,000 and issued 3,500,000 common share purchase warrants, which
were valued at $320,950 using Black-Scholes, with an exercise price of $0.14 and an expiry date of April 15, 2019. On May 20, 2015
and upon completion of a bankable feasibility study (“BFS”) for the Molo Graphite Property, the Company paid $546,000
(CAD$700,000) and issued 1,000,000 common shares, which were valued at $100,000. Malagasy retains a 1.5% net smelter return royalty
("NSR") on the property. A further cash payment of approximately $771,510 (CAD$1,000,000) will be due within five days
of the commencement of commercial production.
The Company also acquired a 100% interest
in the industrial mineral rights on approximately 1 ½ additional claim blocks covering 10,811 hectares adjoining the east
side of the Molo Graphite Property.
On June 1, 2017, we released the results
of a positive updated Molo Feasibility Study for Phase 1 of the mine development plan utilizing a fully modular build-out approach
which was based on the FEED Study and subsequent detailed engineering studies. Phase 1 would consist of a fully operational and
sustainable graphite mine with a permanent processing plant capable of producing, in our estimation, approximately 17,000 tpa of
high-quality SuperFlake™ graphite concentrate per year with a mine life of 30 years. The Phase 1 production costs were estimated
at $433 per tonne at the plant and $688 per tonne delivered CIF port of Rotterdam. CIF refers to cost, insurance and freight included.
The Phase 1 capital costs were estimated at $18.4 million with a construction projected but not guaranteed timeline of approximately
9 months. Based on an average selling cost of $1,014 per tonne, the Phase 1 was estimated to have a pre-tax NPV of $34 million
using an 8% discount rate, a pre-tax internal rate of return (“IRR”) of 25.2%, and a post-tax IRR of 21.5%.
The Molo Graphite Project is located within
Exploration Permit #3432 (“PR 3432”) as issued by the Bureau de Cadastre Minier de Madagascar (“BCMM”)
pursuant to the Mining Code 1999 (as amended) and its implementing decrees. The Molo Graphite Project exploration permit PR 3432
is currently held under the name of our Madagascar subsidiary ERG Madagascar SARLU. Our Madagascar subsidiary has paid all taxes
and administrative fees to the Madagascar government and its mining ministry with respect to all the mining permits held in country.
These taxes and administrative fee payments have been acknowledged and accepted by the Madagascar government.
During fiscal 2017, the Company applied
to the BCMM to have the exploration permit for the Molo Graphite Project converted into a mining permit. Despite repeated assurances
by Ministers in the Madagascar government and from BCMM that the Company has followed all the regulations and that the application
contained no deficiencies, the BCMM has not yet issued the mining permit to the Company. Our situation does not appear to be unique,
since according to the Madagascar Chamber of Mines, the Madagascar government has not granted any new mining permits to any members
during the past 18 months. Although Global Affairs Canada has been providing advocacy support for dealing with Madagascar government
officials, it is believed the Company will have to await the outcome of the Presidential election scheduled for November 2018 before
our permit is granted.
Following an Environmental Legal Review
and an Environmental and Social Screening Assessment, which provided crucial information to align the project’s development
and design with international best practice on sustainable project development, the Company completed a comprehensive Environmental
and Social Impact Assessment ("ESIA"), which was developed to local Madagascar (“Malagasy”), Equator Principles,
World Bank and International Finance Corporation (“IFC”) standards. The ESIA was submitted to the Office National d’Environment
(“ONE”) during fiscal 2018. The Company expects it will receive a notice of provisional approval of its global environmental
permit (the “environmental permit”) in October of 2018.
Application for all other necessary permits
to construct and operate the mine, including water use, construction, mineral processing, transportation, export, and labour will
be undertaken upon receipt of the environmental permit. The Company is currently compiling a comprehensive legal register and will
complete the security of land tenure process upon receipt of the environmental permit, which is expected to take 1-2 months.
The Company cannot provide any assurance
as to the timing of the receipt of any of the permits and licenses necessary to initiate construction of the mine.
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NextSource Materials Inc.
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Notes to Consolidated Financial Statements
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Expressed in US Dollars
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Green Giant Vanadium Project, Southern
Madagascar Region, Madagascar
In 2007, the Company entered into a joint
venture agreement with Madagascar Minerals and Resources Sarl ("MMR") to acquire a 75% interest in the Green Giant property.
Pursuant to the agreement, the Company paid $765,000 in cash, issued 2,500,000 common shares and issued 1,000,000 common share
purchase warrants, which have now expired.
On July 9, 2009, the Company acquired the
remaining 25% interest by paying $100,000. MMR retains a 2% NSR. The first 1% NSR can be acquired at the Company's option by paying
$500,000 in cash or common shares and the second 1% NSR can be acquired at the Company’s option by paying $1,000,000 in cash
or common shares.
On April 16, 2014, the Company signed a
Joint Venture Agreement with Malagasy, whereby Malagasy acquired a 75% interest in non-industrial minerals on the Company's 100%
owned Green Giant Property. On May 21, 2015, Malagasy terminated the Joint Venture Agreement, which as a result, the Company reverted
to its original 100% interest in all minerals on the property.
The Green Giant property is located within
exploration permits issued by the Bureau de Cadastre Minier de Madagascar (“BCMM”) pursuant to the Mining Code 1999
(as amended) and its implementing decrees. The Green Giant property exploration permits are currently held under the name of our
Madagascar subsidiary NextSource Minerals (Madagascar) SARLU. Our Madagascar subsidiary has paid all taxes and administrative fees
to the Madagascar government and its mining ministry with respect to all the mining permits held in country. These taxes and administrative
fee payments have been acknowledged and accepted by the Madagascar government.
Since early 2012, the Company has focused
its efforts on the Molo Graphite Project and as such only limited work has been completed on the Green Giant Vanadium Project since
that time.
Sagar Property, Labrador Trough Region, Quebec, Canada
In 2006, the Company purchased from Virginia
Mines Inc. ("Virginia") a 100% interest in 369 claims located in northern Quebec, Canada. Virginia retains a 2% net smelter
return royalty ("NSR") on certain claims within the property. Other unrelated parties also retain a 1% NSR and a 0.5%
NSR on certain claims within the property, of which half of the 1% NSR can be acquired by the Company by paying $200,000 and half
of the 0.5% NSR can be acquired by the Company by paying $100,000.
On February 28, 2014, the Company signed
an agreement to sell a 35% interest in the Sagar property to Honey Badger Exploration Inc. (“Honey Badger”), a public
company that is a related party through common management. The terms of the agreement were subsequently amended on July 31, 2014
and again on May 8, 2015. To earn the 35% interest, Honey Badger was required to complete a payment of $36,045 (CAD$50,000) by
December 31, 2015, incur exploration expenditures of $360,450 (CAD$500,000) by December 31, 2016 and issue 20,000,000 common shares
to the Company by December 31, 2015. Honey Badger did not complete the earn-in requirements by December 31, 2015 resulting in the
termination of the option agreement.
Since early 2012, the Company has focused
its efforts on the Molo Graphite Project and as such only minimal work has been completed on the Sagar Property since that time.
As of June 30, 2018, the Sagar property consisted of 234 claims covering a total area of 10,736.59 ha.
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NextSource Materials Inc.
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Notes to Consolidated Financial Statements
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Expressed in US Dollars
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4. Segmented Reporting
The Company has one operating segment,
which involves the acquisition, exploration and development of mineral resources in Madagascar and Canada. The Canadian exploration
project is not a focus for the Company at this time. No commercial revenue has ever been generated by any mineral resource properties.
Limited amounts of cash and equipment are currently held in Madagascar. Substantially all of the Company assets are held in Canada.
The Company's President and Chief Executive Officer and Chief Financial Officer are the operating decision-makers and direct the
allocation of resources to its geographic segments.
The following is the segmented information
by geographic region:
|
Mineral Exploration Expenses
|
|
Madagascar
$
|
|
|
Canada
$
|
|
|
Total
$
|
|
|
Year ended June 30, 2018
|
|
|
918,763
|
|
|
|
2,235
|
|
|
|
920,998
|
|
|
Year ended June 30, 2017
|
|
|
1,763,223
|
|
|
|
76,436
|
|
|
|
1,839,659
|
|
|
Cash and Cash Equivalents
|
|
Madagascar
$
|
|
|
Canada
$
|
|
|
Total
$
|
|
|
As of June 30, 2018
|
|
|
17,958
|
|
|
|
320,744
|
|
|
|
338,702
|
|
|
As of June 30, 2017
|
|
|
44,085
|
|
|
|
1,920,863
|
|
|
|
1,964,948
|
|
|
NextSource Materials Inc.
|
|
Notes to Consolidated Financial Statements
|
|
|
|
Expressed in US Dollars
|
5. Exploration and
Evaluation Expenses
Exploration and evaluation expenses include
all costs relating to mineral property acquisition costs, exploration camp operating costs, payroll and consultants for staff located
in Madagascar and Mauritius, directly attributable overhead, exploration permits and licenses, technical services, exploration
drilling, seismic, geological, geophysical and metallurgical studies, testing and sampling.
The following is the breakdown by nature
of the expenses:
|
|
|
For the year ended
|
|
|
For the year ended
|
|
|
|
|
June 30, 2018
|
|
|
June 30, 2017
(note 16)
|
|
|
Consulting fees
|
|
$
|
522,341
|
|
|
$
|
344,749
|
|
|
Permits and licenses
|
|
|
249,714
|
|
|
|
156,634
|
|
|
Metallurgical Evaluation
|
|
|
107,185
|
|
|
|
1,120,045
|
|
|
Exploration Activities
|
|
|
-
|
|
|
|
50,717
|
|
|
Travel
|
|
|
26,902
|
|
|
|
82,288
|
|
|
Other
|
|
|
14,856
|
|
|
|
85,226
|
|
|
Total
exploration and evaluation expenses
|
|
|
920,998
|
|
|
|
1,839,659
|
|
|
NextSource Materials Inc.
|
|
Notes to Consolidated Financial Statements
|
|
|
|
Expressed in US Dollars
|
6. Management and
Professional Fees
Management and professional fees include
payroll for management, director fees and professional fees such as lawyer and auditor fees.
The following is the breakdown by nature
of the expenses:
|
|
|
For the year ended
|
|
|
For the year ended
|
|
|
|
|
June 30, 2018
|
|
|
June 30, 2017
(note 16)
|
|
|
Payroll
|
|
$
|
458,932
|
|
|
$
|
339,023
|
|
|
Consulting fees
|
|
|
381,713
|
|
|
|
160,916
|
|
|
Legal fees
|
|
|
502,463
|
|
|
|
224,938
|
|
|
Auditor fees
|
|
|
36,342
|
|
|
|
41,337
|
|
|
Other
|
|
|
3,475
|
|
|
|
4,183
|
|
|
Total
management and professional fees
|
|
|
1,382,925
|
|
|
|
770,397
|
|
|
NextSource Materials Inc.
|
|
Notes to Consolidated Financial Statements
|
|
|
|
Expressed in US Dollars
|
7. General and Administrative
Expenses
General and administrative expenses include
all bank fees, corporate travel, meals and entertainment, telecommunications, information technology, investor relations, exchange
listing fees and transfer agent fees.
The following is the breakdown by nature
of the expenses:
|
|
|
For the year ended
|
|
|
For the year ended
|
|
|
|
|
June 30, 2018
|
|
|
June 30, 2017
(note 16)
|
|
|
Travel
|
|
|
147,109
|
|
|
|
219,509
|
|
|
Exchange and transfer agent fees
|
|
|
105,461
|
|
|
|
71,979
|
|
|
Investor relations
|
|
|
86,946
|
|
|
|
112,263
|
|
|
Bank fees
|
|
|
5,300
|
|
|
|
4,469
|
|
|
Other
|
|
|
60,764
|
|
|
|
50,560
|
|
|
Total
general and administrative expenses
|
|
|
405,580
|
|
|
|
458,780
|
|
|
NextSource Materials Inc.
|
|
Notes to Consolidated Financial Statements
|
|
|
|
Expressed in US Dollars
|
8. Plant and Equipment
The Company owns metallurgical testing
equipment and several vehicles used for exploration purposes in Madagascar. The carrying values of equipment located in Madagascar
were reviewed for impairment and it was determined that the carrying values may not be recoverable and were impaired.
Changes in the carrying values were as
follows:
|
|
|
Equipment
Costs
$
|
|
|
Accumulated
Depreciation
$
|
|
|
Net Book
Value
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance June 30, 2016
|
|
|
195,561
|
|
|
|
(173,650
|
)
|
|
|
21,911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense
|
|
|
-
|
|
|
|
(21,911
|
)
|
|
|
(21,911
|
)
|
|
Derecognition of equipment
|
|
|
(195,561
|
)
|
|
|
195,561
|
|
|
|
-
|
|
|
Acquisition of equipment
|
|
|
27,805
|
|
|
|
-
|
|
|
|
27,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance June 30, 2017
|
|
|
27,805
|
|
|
|
-
|
|
|
|
27,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment expense
|
|
|
-
|
|
|
|
(27,805
|
)
|
|
|
(27,805
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance June 30, 2018
|
|
|
27,805
|
|
|
|
(27,805
|
)
|
|
|
-
|
|
|
NextSource Materials Inc.
|
|
Notes to Consolidated Financial Statements
|
|
|
|
Expressed in US Dollars
|
9. Provision and
Contingent Liability
During fiscal 2014, the
Company issued 17,889,215 flow-through shares to eligible Canadian taxpayer subscribers which included a contractual commitment
for the Company to incur $3,812,642 in eligible Canadian Exploration Expenditures (“CEEs”) by December 31, 2014 as
per the provision of the Income Tax Act of Canada. The CEEs were renounced as a tax credit to the flow-through share subscribers
on December 31, 2013. As at December 31, 2014, the Company had unfulfilled CEE obligations. During the year ended June 30, 2015,
the Company recorded a provision for the Part XII.6 taxes and related penalties payable to the Canada Revenue Agency and for the
indemnification liability to subscribers of the flow-through shares for the additional taxes payable related to the CEE renunciation
shortfall. During the year ended June 30, 2017, the Company paid $131,320 (2016: $nil) in Part XII.6 taxes, resulting in a reduction
in the provision, and following a reassessment of its obligation to subscribers the Company increased the provision by $131,320.
During the year ended June 30, 2018, the provision was adjusted due to foreign exchange fluctuations to $180,652 (June 30, 2017:
$182,883).
On April 16, 2014, the
Company signed a Sale and Purchase Agreement and a Mineral Rights Agreement (together “the Agreements”) with Malagasy
to acquire the remaining 25% interest in the Molo Graphite Property. Pursuant to the Agreements, a further cash payment of approximately
$771,510 (CAD$1,000,000) will be due within five days of the commencement of commercial production. Since this cash payment represents
a possible obligation that depends on the occurrence of an uncertain future event, it has been recognized as a contingent liability
and no amount has been recognized as a provision.
|
NextSource Materials Inc.
|
|
Notes to Consolidated Financial Statements
|
|
|
|
Expressed in US Dollars
|
10. Share Capital
The Company’s common
shares have no par value and the authorized share capital is composed of an unlimited number of common shares. As of June 30, 2018,
the Company had 469,933,611 common shares issued and outstanding (2017: 460,995,711).
The Company issued the
following common shares during the year ended June 31, 2018:
|
|
(a)
|
On September 30, 2017, the Company issued 1,500,000 common shares upon the exercise of 1,500,000
common share purchase warrants for gross proceeds of $105,000. There were no issue costs.
|
|
|
(b)
|
On February 1, 2018, the Company issued 6,437,900 common shares upon the exercise of 6,437,900
common share purchase warrants for gross proceeds of $708,169. There were no issue costs.
|
|
|
(c)
|
On April 13, 2018, the Company issued 1,000,000 common shares upon the exercise of 1,000,000 common
share purchase warrants for gross proceeds of $110,000. There were no issue costs.
|
The Company
issued the following common shares during the year ended June 30, 2017:
|
|
(a)
|
On August 18, 2016, the Company closed a non-brokered private placement offering of 96,064,286
common shares at a price of $0.05 (CAD$0.07) for aggregate gross proceeds of $5,177,885 (CAD$6,724,500). The share issue costs
totaled $370,671 for this issuance.
|
|
NextSource Materials Inc.
|
|
Notes to Consolidated Financial Statements
|
|
|
|
Expressed in US Dollars
|
11. Stock Options
The Company’s stock option plan is
restricted to a maximum of 46,000,000 common stock purchase options. Under the stock option plan, the Company may grant stock options
to directors, officers, employees and consultants. The Board of Directors administers the plan and determines the vesting and terms
of each grant.
The Black-Scholes option valuation model
is used by the Company to determine the fair value of stock option grants based on the market price, the exercise price, compound
risk free interest rate, annualized volatility and number of periods until expiration. Each stock option entitles the holder to
purchase one common share of the Company at the respective exercise price prior to or on the respective expiration date.
As
of June 30, 2018, the Company had 37,630,000 stock options issued and outstanding with a weighted average expiration of 2.9 years,
which are exercisable into 37,630,000 common shares at a weighted average exercise price of $0.09.
All stock options that
are currently outstanding vested on the grant date.
The following is a schedule of the outstanding
stock options for the year ending June 30, 2018:
|
Grant
Date
|
|
Expiration
Date
|
|
Exercise
Price
|
|
|
Balance
Outstanding
June 30,
2017
|
|
|
Options
Granted
(Expired or
Cancelled)
|
|
|
Options
Exercised
|
|
|
Balance
Outstanding
June 30,
2018
|
|
|
February 27, 2013
|
|
February 27, 2018
|
|
$
|
0.21
|
|
|
|
3,725,000
|
|
|
|
(3,725,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
July 9, 2013
|
|
July 9, 2018
|
|
$
|
0.11
|
|
|
|
880,000
|
|
|
|
(175,000
|
)
|
|
|
-
|
|
|
|
705,000
|
|
|
September 19, 2013
|
|
July 19, 2018
|
|
$
|
0.15
|
|
|
|
450,000
|
|
|
|
(75,000
|
)
|
|
|
-
|
|
|
|
375,000
|
|
|
January 10, 2014
|
|
January 10, 2019
|
|
$
|
0.18
|
|
|
|
3,775,000
|
|
|
|
(850,000
|
)
|
|
|
-
|
|
|
|
2,925,000
|
|
|
July 3, 2014
|
|
July 3, 2019
|
|
$
|
0.15
|
|
|
|
2,750,000
|
|
|
|
(500,000
|
)
|
|
|
-
|
|
|
|
2,250,000
|
|
|
February 26, 2015
|
|
February 26, 2020
|
|
$
|
0.20
|
|
|
|
4,100,000
|
|
|
|
(765,000
|
)
|
|
|
-
|
|
|
|
3,335,000
|
|
|
December 22, 2015
|
|
December 22, 2020
|
|
$
|
0.06
|
|
|
|
7,650,000
|
|
|
|
(750,000
|
)
|
|
|
-
|
|
|
|
6,900,000
|
|
|
June 9, 2017
|
|
June 9, 2022
|
|
$
|
0.07
|
|
|
|
21,140,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
21,140,000
|
|
|
Total Outstanding
|
|
|
|
|
|
|
|
|
44,470,000
|
|
|
|
(6,840,000
|
)
|
|
|
|
|
|
|
37,630,000
|
|
The following is a continuity schedule
of the Company's outstanding common stock purchase options:
|
|
|
Weighted-Average
Exercise Price ($)
|
|
|
Number of
Stock Options
|
|
|
Outstanding as of June 30, 2016
|
|
|
0.18
|
|
|
|
41,965,000
|
|
|
Granted
|
|
|
0.07
|
|
|
|
21,140,000
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
Expired
|
|
|
0.23
|
|
|
|
(18,635,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of June 30, 2017
|
|
|
0.11
|
|
|
|
44,470,000
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
Expired
|
|
|
0.18
|
|
|
|
(6,840,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of June 30, 2018
|
|
|
0.09
|
|
|
|
37,630,000
|
|
|
NextSource Materials Inc.
|
|
Notes to Consolidated Financial Statements
|
|
|
|
Expressed in US Dollars
|
12. Warrants
The Company has issued common share purchase
warrants as part of equity private placements.
The Black-Scholes option valuation model
is used by the Company to determine the fair value of warrants issued based on the market price, the exercise price, compound risk
free interest rate, annualized volatility and number of periods until expiration. Each warrant entitles the holder to purchase
one common share of the Company at the respective exercise price prior to or on the respective expiration date.
As
of June 30, 2018, the Company had 3,500,000 common share purchase warrants issued and outstanding with a weighted average expiration
of 0.8 years, which are exercisable into 3,500,000 common shares at a weighted average exercise price of $0.14.
All warrants
that are currently outstanding vested on the issue date.
The following is a schedule of the outstanding
common stock purchase warrants for the year ending on June 30, 2018:
|
Grant
Date
|
|
Expiration
Date
|
|
Exercise
Price
|
|
|
Balance
Outstanding
June 30,
2017
|
|
|
Warrants
Granted
(Expired)
|
|
|
Warrants
Exercised
|
|
|
Balance
Outstanding
June 30,
2018
|
|
|
October 7, 2015
|
|
October 6, 2017
|
|
$
|
0.07
|
|
|
|
7,100,000
|
|
|
|
(5,600,000
|
)
|
|
|
(1,500,000
|
)
|
|
|
-
|
|
|
February 4, 2016
|
|
February 4, 2018
|
|
$
|
0.11
|
|
|
|
6,437,900
|
|
|
|
-
|
|
|
|
(6,437,900
|
)
|
|
|
-
|
|
|
April 11, 2016
|
|
April 11, 2018
|
|
$
|
0.11
|
|
|
|
3,207,857
|
|
|
|
(2,207,857
|
)
|
|
|
(1,000,000
|
)
|
|
|
-
|
|
|
July 31, 2015
|
|
May 4, 2018
|
|
$
|
0.14
|
|
|
|
10,275,499
|
|
|
|
(10,275,499
|
)
|
|
|
-
|
|
|
|
-
|
|
|
June 23, 2014
|
|
April 15, 2019
|
|
$
|
0.14
|
|
|
|
3,500,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,500,000
|
|
|
Total Outstanding
|
|
|
|
|
|
|
|
|
30,521,256
|
|
|
|
(18,083,356
|
)
|
|
|
(8,937,900
|
)
|
|
|
3,500,000
|
|
The following is the continuity schedule of the Company's common
share purchase warrants:
|
|
|
Weighted-Average
Exercise Price ($)
|
|
|
Number of
Warrants
|
|
|
Outstanding as of June 30, 2016
|
|
|
0.13
|
|
|
|
65,242,431
|
|
|
Issued
|
|
|
-
|
|
|
|
-
|
|
|
Expired
|
|
|
0.14
|
|
|
|
(34,721,175
|
)
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of June 30, 2017
|
|
|
0.11
|
|
|
|
30,521,256
|
|
|
Issued
|
|
|
-
|
|
|
|
-
|
|
|
Expired
|
|
|
0.11
|
|
|
|
(18,083,356
|
)
|
|
Exercised
|
|
|
0.10
|
|
|
|
(8,937,900
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of June 30, 2018
|
|
|
0.14
|
|
|
|
3,500,000
|
|
|
NextSource Materials Inc.
|
|
Notes to Consolidated Financial Statements
|
|
|
|
Expressed in US Dollars
|
13. Capital Management
As at June 30, 2018, the Company had a
working capital deficit of $124,868 (June 30, 2017: surplus of $1,633,214).
There were no changes in the Company's
approach to capital management during the year ended June 30, 2018.
In managing liquidity, the Company’s
primary objective is to ensure the entity can continue as a going concern while raising additional funding to meet its obligations
as they come due. The Company’s operations to date have been funded by issuing equity. The Company expects to improve the
working capital position by securing additional financing.
The Company’s investment policy is
to invest excess cash in very low risk financial instruments such as term deposits or by holding funds in high yield savings accounts
with major Canadian banks. Financial instruments are exposed to certain financial risks, which may include currency risk, credit
risk, liquidity risk and interest rate risk.
The Company’s mineral property interests
are all in the exploration stage, as such the Company is dependent on external financing to fund its exploration activities and
administrative costs. Management continues to assess the merits of mineral properties on an ongoing basis and may seek to acquire
new properties or to increase ownership interests if it believes there is sufficient geologic and economic potential.
Management mitigates the risk and uncertainty
associated with raising additional capital in current economic conditions through cost control measures that minimizes discretionary
disbursements and reduces exploration expenditures that are deemed of limited strategic value.
The Company manages the capital structure
(consisting of shareholders’ deficiency) on an ongoing basis and adjusts in response to changes in economic conditions and
risks characteristics of its underlying assets. Adjustments to the Company’s capital structure may involve the issuance of
new shares, assumption of new debt, acquisition or disposition of assets, or adjustments to the amounts held in cash, cash equivalents
and short-term investments.
The Company is not subject to any externally
imposed capital requirements.
|
NextSource Materials Inc.
|
|
Notes to Consolidated Financial Statements
|
|
|
|
Expressed in US Dollars
|
14. Financial Instruments
and Risk Management
The following disclosures are to enable
users of the consolidated financial statements to evaluate the nature and extent of risks arising from financial instruments at
the end of the reporting period:
Credit risk
The Company does not currently have commercial
customers and therefore does not have any credit risk related to accounts receivables. The Company has credit risk arising from
the potential from counterparty default on cash and cash equivalents held on deposit with financial institutions. The Company manages
this risk by ensuring that deposits are only held with large Canadian banks and financial institutions.
Liquidity risk
Liquidity risk is the risk that the Company
will not be able to meet its obligations associated with financial liabilities. Liquidity risk arises from the Company’s
financial obligations and in the management of its assets, liabilities and capital structure. The Company manages this risk by
regularly evaluating its liquid financial resources to fund current and long-term obligations and to meet its capital commitments
in a cost-effective manner.
The main factors that affect liquidity
include working capital requirements, capital-expenditure requirements and equity capital market conditions. The Company’s
liquidity requirements are met through a variety of sources, including cash and cash equivalents and equity capital markets.
As at June 30, 2018, considering the Company’s
financial position and its intention to begin mine construction once the necessary permits have been obtained, the Company expects
to access public debt and equity capital markets for financing over the next 12 months. While the Company has been successful in
obtaining required funding in the past, there is no assurance that future financings will be available.
As at June 30, 2018, the Company had a
cash and cash equivalents balance of $338,702 (June 30, 2017: $1,964,948) to settle current liabilities of $519,351 (June 30, 2017:
$410,271). As a result, the Company is currently exposed to liquidity risk.
Based on management’s assessment
of its past ability to obtain required funding, the Company believes that it will be able to satisfy its current and long-term
obligations as they come due.
Market risks
Market risk is the potential for financial
loss from adverse changes in underlying market factors, including foreign exchange rates, commodity prices and interest rates.
|
|
·
|
Interest rate risk, is the sensitivity of the fair value or of the future cash flows of a financial
instrument to changes in interest rates. The Company does not have any financial assets or liabilities that are subject to variable
interest rates.
|
|
|
·
|
Commodity price risks, is the sensitivity of the fair value of, or of the future cash flows, from
mineral assets. The Company manages this risk by monitoring mineral prices and commodity price trends to determine the appropriate
timing for funding the exploration or development of its mineral assets, or for the acquisition or disposition of mineral assets.
The Company does not have any mineral assets at the development or production stage carried at historical cost. The Company has
expensed the acquisition and exploration costs of its exploration stage mineral assets.
|
|
|
·
|
Currency risk: This is the sensitivity of the fair value or of the future cash flows of financial
instruments to changes in foreign exchange rates. The Company transacts in currencies other than the US dollar, including the Canadian
dollar, the Madagascar Ariary, the Euro and the South African Rand. The Company purchases services and has certain salary commitments
in those currencies. The Company also has monetary and financial instruments that may fluctuate due to changes in foreign exchange
rates. Derivative financial instruments are not used to reduce exposure to fluctuations in foreign exchange rates. The Company
is not sensitive to foreign exchange exposure since it has not made any commitments to deliver products quoted in foreign currencies.
The Company is not sensitive to foreign exchange risk arising from the translation of the financial statements of subsidiaries
with a functional currency other than the US dollar since it does not have any material assets and liabilities measured through
other comprehensive income. The impact of a 10% strengthening of the Canadian Dollar as of June 30, 2018 would result in a foreign
exchange loss of $24,109 on the consolidated statement of loss and comprehensive loss (June 30, 2017: $32,080). The impact of a
10% strengthening of the Madagascar Ariary of June 30, 2018 would result in a foreign exchange gain of $1,605 on other comprehensive
income (June 30, 2017: $2,135). A 10% weakening of each currency would have the opposite impact. The impact of a strengthening
or weakening of any other foreign currency would not be material.
|
|
NextSource Materials Inc.
|
|
Notes to Consolidated Financial Statements
|
|
|
|
Expressed in US Dollars
|
15. Related Party
Transactions
Parties are related if one party has the
direct or indirect ability to control or exercise significant influence over the other party in making operating and financial
decisions. Parties are also related if they are subject to common control or common significant influence. A transaction is considered
to be a related party transaction when there is a transfer of economic resources or financial obligations between related parties.
Related party transactions that are in the normal course of business and have commercial substance are measured at the fair value.
Balances and transactions between the Company
and its wholly-owned subsidiaries, which are related parties of the Company, have been eliminated and are not disclosed in this
note.
Related parties include companies controlled
by key management personnel. Key management personnel are composed of the Board of Directors, Chief Executive Officer, Chief Financial
Officer and the Senior Vice Presidents of the Company.
The following key management personnel
related party transactions occurred during the years ended June 30, 2018 and June 30, 2017:
|
|
|
For the year ended
|
|
|
For the year ended
|
|
|
|
|
June 30, 2018
|
|
|
June 30, 2017
|
|
|
Management and professional fees
|
|
$
|
806,752
|
|
|
$
|
639,190
|
|
|
Stock options
|
|
|
-
|
|
|
|
680,560
|
|
|
Total
|
|
$
|
806,752
|
|
|
$
|
1,319,750
|
|
The following key management related party
balances existed as of June 30, 2018 and June 30, 2017:
|
|
|
As at
June 30, 2018
|
|
|
As at
June 30, 2017
|
|
|
Prepaid payroll to officers of the Company
|
|
$
|
26,632
|
|
|
$
|
29,746
|
|
|
Accounts payable balance due to officers of the Company
|
|
$
|
16,400
|
|
|
$
|
16,400
|
|
|
NextSource Materials Inc.
|
|
Notes to Consolidated Financial Statements
|
|
|
|
Expressed in US Dollars
|
16. Transition
to international financial reporting standards
As stated in Note 2, Significant Accounting
Policies, these are the Company’s first consolidated financial statements prepared in accordance with IFRS instead of with
US GAAP.
The accounting policies set out in Note
2 have been applied in preparing the comparative information presented in these financial statements and in the preparation of
an opening IFRS statement of financial position at July 1, 2016 (the Company’s date of transition).
The Company has followed the recommendations
in IFRS 1
First-time adoption of IFRS
, in preparing its transitional financial statements. An entity is required to use
the same accounting policies in its opening IFRS statement of financial position and throughout all periods presented in its first
IFRS financial statements.
IFRS exemption and choices
The adoption of IFRS requires the application
of IFRS 1, which provides guidance for an entity’s initial adoption of IFRS. IFRS 1 generally requires retrospective application
of IFRS as effective at the end of its first annual IFRS reporting date. However, IFRS 1 also provides certain optional exemptions
and mandatory exceptions to this retrospective treatment.
Optional exemption
|
|
·
|
Cumulative translation differences: IFRS 1 permits cumulative translation gains and losses to be
reset to zero at the transition date. This provides relief from determining cumulative currency translation differences in accordance
with IAS 21, ‘The Effects of Changes in Foreign Exchange Rates’, from the date a subsidiary or equity method investee
was formed or acquired. The Company elected to reset all cumulative translation gains and losses to zero in opening retained earnings
at its transition date.
|
Mandatory exceptions to retrospective
application
|
|
·
|
Estimates: Hindsight was not used to create or revise estimates. The estimates previously made
by the Company under US GAAP are consistent with their application under.
|
The transition to IFRS has resulted in
financial statement presentation changes with no change in shareholders’ equity:
|
|
·
|
Additional paid-in capital is combined with share capital in shareholders’ equity.
|
|
|
·
|
The statement of operations and comprehensive loss presents an analysis of expenses recognized
in profit or loss using a classification based on their function within the Company.
|
The following is the reconciliation of
equity for the effects of transition to IFRS from US GAAP as at June 30, 2017 and July 1, 2016 (date of IFRS transition):
|
|
|
June 30, 2017
|
|
|
July 1, 2016
|
|
|
|
|
US
GAAP
|
|
|
Effect of
transition
|
|
|
IFRS
|
|
|
US
GAAP
|
|
|
Effect of
transition
|
|
|
IFRS
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,964,948
|
|
|
|
-
|
|
|
$
|
1,964,948
|
|
|
$
|
544,813
|
|
|
|
-
|
|
|
$
|
544,813
|
|
|
Amounts receivable
|
|
|
39,441
|
|
|
|
-
|
|
|
|
39,441
|
|
|
|
13,955
|
|
|
|
-
|
|
|
|
13,955
|
|
|
Prepaid expenses
|
|
|
39,096
|
|
|
|
-
|
|
|
|
39,096
|
|
|
|
11,545
|
|
|
|
-
|
|
|
|
11,545
|
|
|
Total current assets
|
|
|
2,043,485
|
|
|
|
-
|
|
|
|
2,043,485
|
|
|
|
570,313
|
|
|
|
-
|
|
|
|
570,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, Plant and Equipment
|
|
|
27,805
|
|
|
|
-
|
|
|
|
27,805
|
|
|
|
21,911
|
|
|
|
-
|
|
|
|
21,911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
2,071,290
|
|
|
|
-
|
|
|
$
|
2,071,290
|
|
|
$
|
592,224
|
|
|
|
-
|
|
|
$
|
592,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
159,147
|
|
|
|
-
|
|
|
$
|
159,147
|
|
|
$
|
215,391
|
|
|
|
-
|
|
|
$
|
215,391
|
|
|
Accrued liabilities
|
|
|
68,241
|
|
|
|
-
|
|
|
|
68,241
|
|
|
|
24,743
|
|
|
|
-
|
|
|
|
24,743
|
|
|
Provision
|
|
|
182,883
|
|
|
|
-
|
|
|
|
182,883
|
|
|
|
182,742
|
|
|
|
-
|
|
|
|
182,742
|
|
|
Warrant liability
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
111,049
|
|
|
|
-
|
|
|
|
111,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
410,271
|
|
|
|
-
|
|
|
|
410,271
|
|
|
|
533,925
|
|
|
|
-
|
|
|
|
533,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share capital
|
|
|
460,996
|
|
|
|
99,160,128
|
|
|
|
99,621,124
|
|
|
|
364,932
|
|
|
|
93,654,114
|
|
|
|
94,019,046
|
|
|
Additional paid-in capital
|
|
|
99,160,128
|
|
|
|
(99,160,128
|
)
|
|
|
-
|
|
|
|
93,654,114
|
|
|
|
(93,654,114
|
)
|
|
|
-
|
|
|
Accumulated deficit
|
|
|
(97,960,105
|
)
|
|
|
-
|
|
|
|
(97,960,105
|
)
|
|
|
(93,960,747
|
)
|
|
|
-
|
|
|
|
(93,960,747
|
)
|
|
Accumulated other comprehensive income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Shareholder’s Equity
|
|
|
1,661,019
|
|
|
|
-
|
|
|
|
1,661,019
|
|
|
|
58,299
|
|
|
|
-
|
|
|
|
58,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholder’s Equity
|
|
$
|
2,071,290
|
|
|
|
-
|
|
|
$
|
2,071,290
|
|
|
$
|
592,224
|
|
|
|
-
|
|
|
$
|
592,224
|
|
|
NextSource Materials Inc.
|
|
Notes to Consolidated Financial Statements
|
|
|
|
Expressed in US Dollars
|
The following is the reconciliation of
statement of operations and comprehensive loss for the effects of transition to IFRS from US GAAP for the year ended June 30, 2017:
|
|
|
Year ended June 30, 2017
|
|
|
|
|
US
GAAP
|
|
|
Effect of
transition
|
|
|
IFRS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration and evaluation expenses
|
|
|
1,839,659
|
|
|
|
-
|
|
|
|
1,839,659
|
|
|
Management and professional fees
|
|
|
770,397
|
|
|
|
-
|
|
|
|
770,397
|
|
|
Stock options
|
|
|
794,864
|
|
|
|
-
|
|
|
|
794,864
|
|
|
General and administrative expenses
|
|
|
458,780
|
|
|
|
-
|
|
|
|
458,780
|
|
|
Depreciation
|
|
|
21,911
|
|
|
|
-
|
|
|
|
21,911
|
|
|
Foreign currency translation loss
|
|
|
93,476
|
|
|
|
-
|
|
|
|
93,476
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
3,979,087
|
|
|
|
-
|
|
|
|
3,979,087
|
|
|
Net loss from operations
|
|
|
(3,979,087
|
)
|
|
|
-
|
|
|
|
(3,979,087
|
)
|
|
Other income (expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in value of warrant liability
|
|
|
111,049
|
|
|
|
-
|
|
|
|
111,049
|
|
|
Part XII.6 taxes
|
|
|
(131,320
|
)
|
|
|
-
|
|
|
|
(131,320
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(3,999,358
|
)
|
|
|
-
|
|
|
|
(3,999,358
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and comprehensive loss
|
|
$
|
(3,999,358
|
)
|
|
|
-
|
|
|
$
|
(3,999,358
|
)
|
The reconciliation of the statement of
cash flows is not presented since the transition to IFRS from US GAAP had no significant impact on the statement of cash flows.
|
NextSource Materials Inc.
|
|
Notes to Consolidated Financial Statements
|
|
|
|
Expressed in US Dollars
|
17. Income Taxes
Below is a reconciliation of the income
tax provision, calculated using the combined Canadian federal and provincial statutory income tax rate of 26.5% as a result of
the corporate redomicile during the year. The 2017 reconciliation has been prepared at the statutory rate of 35% for the United
States:
|
|
|
June 30,
2018
|
|
|
June 30,
2017
|
|
|
Net Loss
|
|
|
(2,784,222
|
)
|
|
|
(3,999,358
|
)
|
|
Statutory rate
|
|
|
26.5
|
%
|
|
|
35.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Expected income tax recovery
|
|
|
(738,000
|
)
|
|
|
(1,399,775
|
)
|
|
Tax rate changes and other adjustments
|
|
|
68,710
|
|
|
|
(147,580
|
)
|
|
Stock based compensation
|
|
|
-
|
|
|
|
278,200
|
|
|
Change in tax benefits not recognized
|
|
|
684,500
|
|
|
|
1,260,325
|
|
|
Utilization of losses not previously recognized
|
|
|
(15,210
|
)
|
|
|
-
|
|
|
Non-deductible expenses
|
|
|
-
|
|
|
|
8,830
|
|
|
Income tax recovery
|
|
|
-
|
|
|
|
-
|
|
Deferred Tax
Deferred taxes are provided as a result
of temporary differences that arise due to the differences between the income tax values and the carrying amount of assets and
liabilities. Deferred tax assets have not been recognized in respect of the following deductible temporary differences:
|
|
|
June 30,
2018
|
|
|
June 30,
2017
|
|
|
Property, plant and equipment
|
|
|
189,750
|
|
|
|
189,750
|
|
|
Share issue costs
|
|
|
384,230
|
|
|
|
768,981
|
|
|
Non-capital losses
|
|
|
20,292,580
|
|
|
|
18,471,276
|
|
|
Capital losses carried forward
|
|
|
53,000
|
|
|
|
53,000
|
|
|
Exploration expenditures
|
|
|
3,291,810
|
|
|
|
2,676,289
|
|
|
Deferred tax assets
|
|
|
24,211,370
|
|
|
|
22,159,296
|
|
The Canadian non-capital loss carry-forwards
expire as noted in the table below. The net capital loss carry-forward may be carried forward indefinitely but can only be used
to reduce capital gains. Share issue and financing costs will be fully amortized in 2022. The remaining deductible temporary differences
may be carried forward indefinitely. Deferred tax assets have not been recognized in respect of these items because it is not probable
that future taxable profit will be available against which the group can utilize the benefits therefrom. This is an inverted company
for US tax purpose and therefore is subject to US Corporate Income Tax. As they are in a loss position, there is no US income tax
liabilities. Their US non-operating losses carryforward are $42,718,647 and expire between 2025 and 2038. The Company's Canadian
non-capital income tax losses expire as follows:
|
2027
|
|
$
|
833,560
|
|
|
2028
|
|
|
808,270
|
|
|
2029
|
|
|
817,410
|
|
|
2030
|
|
|
1,382,860
|
|
|
2031
|
|
|
1,948,650
|
|
|
2032
|
|
|
2,491,120
|
|
|
2033
|
|
|
2,077,470
|
|
|
2034
|
|
|
2,528,580
|
|
|
2035
|
|
|
2,013,770
|
|
|
2036
|
|
|
1,448,930
|
|
|
2037
|
|
|
1,837,300
|
|
|
2038
|
|
|
2,104,660
|
|
|
|
|
$
|
20,292,600
|
|
|
NextSource Materials Inc.
|
|
Notes to Consolidated Financial Statements
|
|
|
|
Expressed in US Dollars
|
18. Subsequent
event
The Company issued the
following common shares subsequent to June 30, 2018:
|
|
(a)
|
On August 17, 2018, the Company closed a non-brokered private placement offering of 21,059,270
units at a price of $0.053 (CAD$0.07) per unit for aggregate gross proceeds of $1,120,353 (CAD$1,474,149). Each unit consisted
of one common share and one-half common share purchase warrant, with each warrant exercisable into one common share at an exercise
price of $0.076 (CAD$0.10) for a period of two years. The share issue costs consisting of finder’s fees totaled $16,576 plus
the issuance of 337,714 common shares and 123,000 common share purchase warrants, with each warrant exercisable into one common
share at an exercise price of $0.076 (CAD$0.10) for a period of two years.
|
Exhibit 99.3
NextSource Materials Inc.
Management’s Discussion and Analysis (MD&A)
For the years ended June 30, 2018 and 2017
Expressed in US Dollars
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the year ended June 30, 2018
Introduction
This Management’s Discussion and Analysis (MD&A) is intended
to help the reader understand NextSource Materials Inc.’s operations, financial performance, financial condition and business
plans.
This MD&A, which has been prepared as of September 28, 2018,
should be read in conjunction with NextSource’s consolidated financial statements for the years ended June 30, 2018 and 2017.
References to “NextSource”, “Company”, “we”,
“us”, “our”, refer to NextSource Materials Inc. and its consolidated subsidiaries unless the context indicates
otherwise. All amounts are in US dollars, unless otherwise indicated. The term “NSR” stands for net smelter royalty.
The term “tpa” stands for tonnes per annum.
Qualified Person
Craig Scherba, P.Geo., the Company’s President and Chief Executive
Officer is the Qualified Person, as defined by NI 43-101, who has reviewed and approved the technical information disclosed in
this MD&A.
Forward-Looking Statements
Securities regulators encourage companies to disclose
forward-looking information to help investors understand a company’s future prospects. This MD&A contains forward-looking
information and statements (collectively, "forward-looking statements") within the meaning of applicable Canadian securities
legislation, concerning the business, operations and financial performance and condition of NextSource Materials Inc.
Forward-looking statements can generally be identified
by the use of statements that include such words as “believe”, “expect”, “anticipate”, “intend”,
“plan”, “forecast”, “likely”, “may”, “will”, “could”, “should”,
“suspect”, “outlook”, “potential”, “projected”, “continue” or other
similar words or phrases. Specifically, forward-looking statements in this document include, but are not limited to, statements,
certain expectations regarding construction timelines and costs, anticipated production volumes, anticipated operating costs and
capital spending; supply, demand and pricing outlook in the graphite and vanadium markets; sources of funding for the Molo Graphite
Project; sources of funding for the Green Giant Vanadium Project; exploration drill results; metallurgical drill results; environmental
assessment and rehabilitation costs and amounts of certain other commitments.
Forward-looking statements are not based on historic
facts, but rather on current expectations, assumptions and projections about future events. By their nature, forward-looking statements
require the Company to make assumptions and are subject to inherent risks and uncertainties. There is significant risk that predictions,
forecasts, conclusions or projections will not prove to be accurate, that those assumptions may not be correct and that actual
results may differ materially from such predictions, forecasts, conclusions or projections.
The Company cautions readers of this MD&A not to
place undue reliance on any forward-looking statement as a number of factors could cause actual future results, conditions, actions
or events to differ materially from the targets, expectations, estimates or intentions expressed in the forward-looking statements.
These risks, uncertainties and other factors include but are not limited to: our ability to continue as a going concern; our primary
exploration efforts are in the African Country of Madagascar where new presidential elections will be held in October 2018; our
potential inability to enforce our legal rights in Madagascar; decreases in commodity prices could impact the feasibility of our
projects; our future profitability may be subject to fluctuations in commodity prices; we may not have access to sufficient capital
to pursue our business and therefore would be unable to achieve our planned future growth; we are a mineral exploration company
with limited operating history and expect to incur operating losses for the foreseeable future; due to the speculative nature of
mineral property exploration there is a substantial risk that our assets will not go into commercial production and our business
will fail; because of the inherent dangers involved in mineral exploration and development there is a risk that we may incur liability
or damages as we conduct our business, our operations are subject to strict environmental regulations which could result in added
costs of operations and operational delays; we do not have insurance for environmental problems; due to external market factors
in the mining business we may not be able to market any minerals that may be found; mining companies are increasingly required
to consider and provide benefits to the communities and countries in which they operate; mining companies are subject to environmental,
health and safety laws and regulations; should we lose the services of our key executives our financial condition and proposed
expansion may be negatively impacted; because access to our properties may be restricted by inclement weather or proper infrastructure
our exploration programs are likely to experience delays; compliance with changing regulation of corporate governance and public
disclosure will result in additional expenses and pose challenges for our management; climate change and related regulatory responses
may impact our business; changes in tax laws or tax rulings could materially affect our financial position and results of operations;
our business is subject to anti-corruption and anti-bribery laws a breach or violation of which could lead to civil and criminal
fines and penalties and loss of licenses or permits and reputational harm; we do not intend to pay dividends; because from time
to time we hold a significant portion of our cash reserves in Canadian dollars we may experience losses due to foreign exchange
translations; we are exposed to general economic conditions, which could have a material adverse impact on our business; operating
results and financial condition, the current financial environment may impact our business and financial condition that we cannot
predict; the market price for our common shares is particularly volatile given our status as a relatively unknown company with
a small and thinly traded public float and limited operating history and lack of profits which could lead to wide fluctuations
in our share price; uncertainty of resources and reserve estimates; risks related to the accuracy of capital and operating cost
estimates; legal contingencies; risks related to the Company’s accounting policies; uncertainty in the ability of the Company
to obtain necessary permits; failure to comply with, or changes to, applicable government regulations; bribery and corruption risks,
risks related to information technology systems; and certain corporate objectives, goals and plans for 2019; and the Company’s
ability to meet other factors listed from time to time in the Corporation’s continuous disclosure documents.
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the year ended June 30, 2018
The Corporation may, from time to time, make oral forward-looking
statements. The Corporation advises that the above paragraphs and the risk factors described in this MD&A and in the Corporation’s
other documents filed with the Canadian securities authorities should be read for a description of certain factors that could cause
the actual results of the Corporation to differ materially from those in the oral forward-looking statements.
Core Business and Objectives
NextSource Materials Inc. (the "Company" or “NextSource”)
was continued under the Canada Business Corporations Act and has a fiscal year end of June 30. The Company's registered head office
and primary location of records is 145 Wellington Street West, Suite 1001, Toronto, Ontario, M5J 1H8.
The Company's principal business is the acquisition, exploration
and development of mineral resources. The Company does not operate any mines and has not initiated construction on any mines. The
Company has yet to generate any revenue from mining operations and is unlikely to do so in the immediate future.
The Company is currently focused on graphite.
The Company accepts the risks which are inherent to mineral exploration
programs and the exposure to the cyclical nature of mineral prices. These risks are discussed in the
Risk Factors
section
of this report.
Competitive Conditions
The mineral exploration and mining business is highly competitive.
We compete with numerous other companies and individuals in the search for and the acquisition of financially attractive mineral
properties. Our ability to acquire precious metal mineral properties in the future will depend not only on our ability to develop
our present properties, but also on our ability to select and acquire suitable producing properties or prospects for precious metal
development or mineral exploration.
In addition, we also compete with other companies over retaining
skilled experienced workers and sourcing raw materials and supplies used in connection with eventual development and mining operations.
Foreign Operations
The Company, through its wholly-owned foreign subsidiaries, is currently
focused on obtaining the necessary permits to begin construction on the Molo Graphite Project in Madagascar. Although we have determined
through a NI 43-101 Technical Report Feasibility Study dated July 13, 2017 that Phase 1 of our Molo Graphite Project contains mineralization
that is economically recoverable, we do not have the necessary permits or capital to begin construction at this time.
Our foreign operations are exposed to various levels of political,
economic and social risks and uncertainties. These risks and uncertainties vary from country to country and include, but are not
limited to: terrorism; hostage taking; military repression; expropriation; political corruption, extreme fluctuations in currency
exchange rates; high rates of inflation; labour unrest; war or civil unrest; renegotiation or termination of existing concessions,
licenses, permits and contracts; ability of governments to unilaterally alter agreements; surface land access issues; illegal mining;
changes in taxation policies, laws and regulations; restrictions on foreign exchange and repatriation; and changing political conditions,
currency controls and governmental regulations that favour or require the awarding of contracts to local contractors or require
foreign contractors to employ citizens of, or purchase supplies from, a particular jurisdiction. Any changes in regulations or
shifts in political attitudes in such foreign countries are beyond our control and may adversely affect our business. Future development
and operations may be affected in varying degrees by such factors as government regulations (or changes thereto) with respect to
restrictions on production, export controls, import restrictions, such as restrictions applicable to, among other things, equipment,
services and supplies, taxes, expropriation of property, repatriation of profits, environmental legislation, land use, water use,
surface land access, land claims of local people and mine safety.
Corporate Redomicile
The Company completed a corporate redomicile from the State of Minnesota
to Canada on December 27, 2017.
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the year ended June 30, 2018
Corporate Structure
NextSource owns 100% of NextSource Materials (Mauritius) Ltd. (“MATMAU”),
a Mauritius subsidiary, and 2391938 Ontario Inc., an Ontario Company.
MATMAU owns 100% of NextSource Minerals (Mauritius) Ltd. (“MINMAU”),
a Mauritius subsidiary, NextSource Graphite (Mauritius) Ltd (“GRAMAU”), a Mauritius subsidiary, and NextSource Materials
(Madagascar) SARL (“MATMAD”), a Madagascar subsidiary.
MINMAU owns 100% of NextSource Minerals (Madagascar) SARL (“MINMAD”),
a Madagascar subsidiary. MINMAD holds the Green Giant Vanadium Project exploration permits.
GRAMAU owns 100% of ERG Madagascar SARL (“ERGMAD”),
a Madagascar subsidiary. ERGMAD holds the Molo Graphite Project exploration permits.
Capital Structure
The Company’s common shares have no par value and the authorized
share capital is composed of an unlimited number of common shares. As of June 30, 2018, the Company had 469,933,611 common shares
issued and outstanding.
As of June 30, 2018, the Company had 37,630,000 stock options issued
and outstanding with a weighted average expiration of 2.9 years, which are exercisable into 37,630,000 common shares at a weighted
average exercise price of $0.09. All stock options that are currently outstanding vested on the grant date.
As of June 30, 2018, the Company had 3,500,000 common share purchase
warrants issued and outstanding with a weighted average expiration of 0.8 years, which are exercisable into 3,500,000 common shares
at a weighted average exercise price of $0.14. All warrants that are currently outstanding vested on the issue date.
Dividends and Distributions
The Company has yet to generate any revenue from mining operations
or pay dividends since inception and is unlikely to do so in the immediate or foreseeable future. Our continued operations are
dependent upon the ability of the Company to obtain financing through the proceeds of securities subscriptions for the continued
exploration and development of its mineral properties.
The value of a mineral project is highly dependent upon the discovery
of economically recoverable mineralization, the long-term preservation of the Company’s ownership interest in the underlying
mineral property, the ability of the Company to obtain the necessary funding to complete sufficient exploration activities on the
property, and the prospects of any future profitable production therefrom, or alternatively upon the Company’s ability to
dispose of its property interests on an advantageous basis.
Indebtedness
As of June 30, 2018, the Company did not have any outstanding debt,
loans or credit facilities.
Employees and Contractors
The Company relies on the geological and industry expertise of its
Toronto-based management team and engages contractors to complete certain aspects of its exploration programs.
As of June 30, 2018, we had two employees and several contractors
in addition to the President & Chief Executive Officer and the Chief Financial Officer. Certain professional, administrative
and geological services are provided to the Company by independent contractors, including corporations and/or individuals who may
be officers or directors of NextSource. No assurance can be given that qualified employees can be retained by NextSource when necessary.
Sustainability
The Company is committed to the health and safety of our workers
and communities, the protection of the environment, and to the rights, culture and development of local communities.
Cautionary Note Regarding Operating Losses
As of June 30, 2018, the Company had an accumulated deficit of $100,746,069
(June 30, 2017: $97,960,105), has experienced recurring net operating losses and has negative operating cash flows.
Based on the nature of our business, we anticipate incurring operating
losses for the foreseeable future. We base this expectation, in part, on the fact that very few mineral properties in the exploration
stage are ultimately developed into producing and profitable mines. Our future financial results are uncertain due to a number
of factors, some of which are outside our company’s control. These factors include, but are not limited to: (a) our ability
to raise additional funding; (b) the market price for graphite, vanadium, gold and/or uranium; (c) the results of the exploration
programs and metallurgical analysis of our mineral properties; (d) the political instability and/or environmental regulations that
may adversely impact costs and ability to operate in Madagascar; and (e) our ability to find joint venture and/or off-take partners
in order to advance the development of our mineral properties.
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the year ended June 30, 2018
Any future equity financing will cause existing shareholders to
experience dilution of their ownership interest in our company. In the event we are not successful in raising additional financing,
we anticipate our company will not be able to proceed with its business plan. In such a case, we may decide to discontinue or modify
our current business plan and seek other business opportunities in the resource sector.
During this period, we will need to maintain periodic filings with
the appropriate regulatory authorities and will incur legal, accounting, administrative and listing costs. In the event no other
such opportunities are available, and we cannot raise additional capital to sustain operations, we may be forced to discontinue
the business. We do not have any specific alternative business opportunities under consideration and have not planned for any such
contingency.
Due to the present inability to generate revenues, accumulated losses,
recurring losses and negative operating cash flows, the Company has stated its opinion in Note 1 of our audited financial statements
for the year ended June 30, 2018 that there currently exists substantial doubt regarding the Company’s ability to continue
as a going concern.
Corporate Highlights
Three-Year History
In July 2016, we appointed UK-based HCF International Advisers Limited
("HCF") as advisor in negotiating and structuring strategic partnerships, off take agreements and debt financing for
our Molo Graphite Project in Madagascar.
In August 2016, we initiated a Front-End Engineering Design Study
(the “FEED Study”) and value engineering for our Molo Graphite Project in Madagascar. The FEED Study was undertaken
in order to optimize the mine plan as envisioned in the technical report titled "Molo Feasibility Study – National Instrument
43-101 Technical Report on the Molo Graphite Project located near the village of Fotadrevo in the Province of Toliara, Madagascar",
dated July 13, 2017, effective as of July 13, 2017 (the “Molo Feasibility Study”) and determine the optimal development
path based on discussions with prospective strategic partners. All costing aspects were examined with the goal of providing a method
to produce meaningful, multi-tonne test samples of Molo graphite concentrate to potential off-takers while reducing the CAPEX and
time required to the commencement of commercial production.
On November 7, 2016, we outlined a phased mine development plan
for the Molo Graphite Project based on the FEED Study and value engineering. The results supported the construction of a plant
to test and verify the flow sheet design from the Molo Feasibility Study. Under the existing Exploration Permit, the Company is
limited to an ore input of 20,000 cubic meters (or approximately 50,000 tonnes) of front-end feed into the demonstration plant.
Upon approval of a full mining permit, the 20,000-cubic meter test limit would be removed and at full capacity, the demonstration
plant would be capable of processing up to 240,000 tonnes of feed per annum, which equates to 30 tonnes per hour of ore feed and
roughly 1 to 3 tonnes of flake graphite concentrate production per hour.
Phase 1
Phase 1 would consist of a fully operational and sustainable
graphite mine with a permanent processing plant capable of producing, in our estimation, approximately 17,000 tpa of high-quality
SuperFlake™ graphite concentrate with a mine life of 30 years (as discussed below). The fully-modularized mining operation
in this phase will use a 100% owner-operated fleet that we believe will process an average of 240,000 tonnes of ore per year (or
30 tonnes per hour) of mill feed (ore) that will be processed on site. Phase 1 will provide “proof of concept” for
the modular methodology and allow NextSource the flexibility to optimize further the process circuit while being capable of supplying
a true “run-of-mine” flake concentrate to potential off-takers and customers for final product validation. All supporting
infrastructure including water, fuel, power, dry-stack tailings and essential buildings will be constructed during Phase 1 to sustain
the fully operational and permanent processing plant. The plant will utilize dry-stack tailings in order to eliminate the up-front
capital costs associated with a tailings dam. NextSource’s existing camp adjacent to the nearby town of Fotadrevo will be
used to accommodate employees and offices, with additional housing available within the town for additional employees.
Phase 2
Phase 2 would consist of a modular expansion to plant
capable of producing approximately 50,000 tpa of high-quality SuperFlake™ graphite concentrate. Timing of the implementation
of Phase 2 will be determined by market demand for SuperFlake™ graphite and will incorporate the unique full-modular build
approach used in Phase 1. This phase will include the construction of additional on-site accommodation and offices, upgrading of
road infrastructure, port facility upgrades, a wet tailings dam facility and further equipment purchases to provide redundancy
within the processing circuit. The costs for these capital expenditures are unknown at this time but will be assessed as part of
an economic analysis completed in parallel with Phase 1 development.
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the year ended June 30, 2018
On June 1, 2017, we released the results of a positive updated Molo
Feasibility Study for Phase 1 of the mine development plan utilizing a fully modular build-out approach which was based on the
FEED Study and subsequent detailed engineering studies. Phase 1 would consist of a fully operational and sustainable graphite mine
with a permanent processing plant capable of producing, in our estimation, approximately 17,000 tpa of high-quality SuperFlake™
graphite concentrate per year with a mine life of 30 years. The Phase 1 production costs were estimated at $433 per tonne at the
plant and $688 per tonne delivered CIF port of Rotterdam. CIF refers to cost, insurance and freight included. The Phase 1 capital
costs were estimated at $18.4 million with a construction projected but not guaranteed timeline of approximately 9 months. Based
on an average selling cost of $1,014 per tonne, the Phase 1 was estimated to have a pre-tax NPV of $34 million using an 8% discount
rate, a pre-tax internal rate of return (“IRR”) of 25.2%, and a post-tax IRR of 21.5%.
On December 27, 2017, the Company completed a corporate redomicile
from Minnesota to Canada. This is expected to reduce our legal and regulatory compliance costs and improve our financing opportunities.
The Company does not have any offices, personnel or mineral projects in the US. The presentation and functional currency of the
Company will continue to be the US dollar. Upon completing the redomicile, the Company adopted International Financial Reporting
Standards (“IFRS”).
On April 13, 2018, the Company issued 1,000,000 common shares upon the exercise of 1,000,000
common share purchase warrants for gross proceeds of $110,000.
Discussions in respect of negotiating and structuring strategic
partnerships, off take agreements and debt financing for our Molo Graphite Project in Madagascar are ongoing and are expected to
continue during the coming months with no assurances as to the conclusion or results of these discussions.
Subsequent Events
On August 17, 2018, the Company closed a non-brokered
private placement offering of 21,059,270 units at a price of $0.053 (CAD$0.07) per unit for aggregate gross proceeds of $1,120,353
(CAD$1,474,149). Each unit consisted of one common share and one-half common share purchase warrant, with each warrant exercisable
into one common share at an exercise price of $0.076 (CAD$0.10) for a period of two years. The share issue costs consisting of
finder’s fees totaled $16,576 plus the issuance of 337,714 common shares and 123,000 common share purchase warrants, with
each warrant exercisable into one common share at an exercise price of $0.076 (CAD$0.10) for a period of two years.
Future Outlook and Business Plan
We have applied for a Molo mining permit from the Government of
Madagascar to begin construction of Phase 1 of the Molo Graphite Project. The receipt of the mining permit is a critical step in
the permitting and licensing regime. Although the Company believes it has complied with all permit requirements and has submitted
all necessary documents, there can be no assurances as to the timing of the receipt of a mining permit.
In anticipation of receiving the Molo mining
permit and achieving eventual production, we have continued to pursue negotiations in respect of potential off-take agreements
with graphite end-users and intermediaries with the intention of securing project financing alternatives, which may include debt,
equity and derivative instruments.
From the date of this report, and subject to receiving the mining
permit for the Molo Graphite Project, the availability of capital and unforeseen delays, our business plan during the next 12 months
is to incur between $2,000,000 to $22,800,000 on additional permits, engineering, construction, professional fees, G&A and
working capital costs to in order to achieve initial production at the Molo Graphite Project. No assurances can be provided that
we will achieve our Phase 1 production objective within 12 months of receiving the mining permit.
Subject to the availability of capital, the Company will pursue
further work on the Green Giant Vanadium Project in order to complete an updated technical report. The budget for this work during
the next 12 months is estimated to be up to $500,000.
The following is a summary of the amounts budgeted to be incurred
to advance the Molo Graphite Project and Green Giant Vanadium Project (presuming all $22,800,000 is required for the Molo Graphite
Project and all $500,000 is required for the Green Giant Vanadium Project):
|
Professional Fees and General and Administrative
|
|
$
|
1,500,000
|
|
|
Environmental and Permitting Fees
|
|
$
|
400,000
|
|
|
Phase 1 Processing Plant CAPEX
|
|
$
|
14,500,000
|
|
|
Phase 1 Infrastructure CAPEX
|
|
$
|
400,000
|
|
|
Construction Financing Costs
|
|
$
|
1,100,000
|
|
|
Construction Contingency Costs (10%)
|
|
$
|
1,700,000
|
|
|
Working Capital for Mine Startup
|
|
$
|
3,100,000
|
|
|
Molo Graphite Project Subtotal
|
|
$
|
22,700,000
|
|
|
Green Giant Project Technical Report
|
|
$
|
500,000
|
|
|
Total
|
|
$
|
23,200,000
|
|
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the year ended June 30, 2018
The above amounts may be updated based on actual costs and the start
of these expenditures may be delayed or adjusted based on several factors, including the date the mining and other necessary permit
are received to begin construction and the availability of capital to fund the budget. We anticipate that the source of funds required
to complete the budgeted items disclosed above will come from private placements in the capital markets and debt funding, but there
can be no assurance that sufficient financing will be available on terms favorable to the Company or at all.
We will also continue to assess the addition of back-end value-added
processing for lithium-ion battery and graphite foil applications in the classification portion of the plant. The costs for any
value-added processing is unknown at this time but will be assessed in parallel with the development of Phase 1.
Molo Graphite Property, Southern Madagascar Region, Madagascar
On December 14, 2011, the Company entered into a Definitive Joint
Venture Agreement ("JVA") with Malagasy Minerals Limited ("Malagasy"), a public company listed on the Australian
Stock Exchange, to acquire a 75% interest in a property package for the exploration and development of industrial minerals, including
graphite, vanadium and 25 other minerals. The land position consisted of 2,119 permits covering 827.7 square kilometers and is
mostly adjacent towards the south and east with the Company's 100% owned Green Giant Vanadium Project. Pursuant to the JVA, the
Company paid $2,261,690 and issued 7,500,000 common shares that were valued at $1,350,000.
On April 16, 2014, the Company signed a Sale and Purchase Agreement
and a Mineral Rights Agreement (together “the Agreements”) with Malagasy to acquire the remaining 25% interest. Pursuant
to the Agreements, the Company paid $364,480 (CAD$400,000), issued 2,500,000 common shares subject to a 12-month voluntary vesting
period that were valued at $325,000 and issued 3,500,000 common share purchase warrants, which were valued at $320,950 using Black-Scholes,
with an exercise price of $0.14 and an expiry date of April 15, 2019. On May 20, 2015 and upon completion of a bankable feasibility
study (“BFS”) for the Molo Graphite Property, the Company paid $546,000 (CAD$700,000) and issued 1,000,000 common shares,
which were valued at $100,000. Malagasy retains a 1.5% net smelter return royalty ("NSR") on the property. A further
cash payment of approximately $771,510 (CAD$1,000,000) will be due within five days of the commencement of commercial production.
The Company also acquired a 100% interest in the industrial mineral
rights on approximately 1 ½ additional claim blocks covering 10,811 hectares adjoining the east side of the Molo Graphite
Property.
The Molo Graphite Project is located within Exploration Permit #3432
(“PR 3432”) as issued by the Bureau de Cadastre Minier de Madagascar (“BCMM”) pursuant to the Mining Code
1999 (as amended) and its implementing decrees. The Molo Graphite Project exploration permit PR 3432 is currently held under the
name of our Madagascar subsidiary ERG Madagascar SARLU. Our Madagascar subsidiary has paid all taxes and administrative fees to
the Madagascar government and its mining ministry with respect to all the mining permits held in country. These taxes and administrative
fee payments have been acknowledged and accepted by the Madagascar government.
During fiscal 2017, the Company applied to the BCMM to have the
exploration permit for the Molo Graphite Project converted into a mining permit. Despite repeated assurances by Ministers in the
Madagascar government and from BCMM that the Company has followed all the regulations and that the application contained no deficiencies,
the BCMM has not yet issued the mining permit to the Company. Our situation does not appear to be unique, since according to the
Madagascar Chamber of Mines, the Madagascar government has not granted any new mining permits to any members during the past 18
months. Although Global Affairs Canada has been providing advocacy support for dealing with Madagascar government officials, it
is believed the Company will have to await the outcome of the Presidential election scheduled for November 2018 before our permit
is granted.
Following an Environmental Legal Review and an Environmental and
Social Screening Assessment, which provided crucial information to align the project’s development and design with international
best practice on sustainable project development, the Company completed a comprehensive Environmental and Social Impact Assessment
("ESIA"), which was developed to local Madagascar (“Malagasy”), Equator Principles, World Bank and International
Finance Corporation (“IFC”) standards. The ESIA was submitted to the Office National d’Environment (“ONE”)
during fiscal 2018. The Company expects it will receive a notice of provisional approval of its global environmental permit (the
“environmental permit”) in October of 2018.
Application for all other necessary permits to construct and operate
the mine, including water use, construction, mineral processing, transportation, export, and labour will be undertaken upon receipt
of the environmental permit. The Company is currently compiling a comprehensive legal register and will complete the security of
land tenure process upon receipt of the environmental permit, which is expected to take 1-2 months.
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the year ended June 30, 2018
The Company cannot provide any assurance as to the timing of the receipt of any of the
permits and licenses necessary to initiate construction of the mine.
Further details regarding the Molo Graphite Project, incorporated by reference, is
the Molo Graphite Project Feasibility Study dated July 17, 2017 prepared in accordance with Canada’s National Instrument
43-101 - Standards of Disclosure for Mineral Projects (“NI 43-101”), which can be found on the our website at
www.nextsourcematerials.com
(which website is expressly not incorporated by reference into this filing) or in our Canadian regulatory filings at www.sedar.com
(which website and content is expressly not incorporated by reference into this filing).
Green Giant Vanadium Project, Southern Madagascar Region,
Madagascar
In 2007, the Company entered into a joint venture agreement with
Madagascar Minerals and Resources Sarl ("MMR") to acquire a 75% interest in the Green Giant property. Pursuant to the
agreement, the Company paid $765,000 in cash, issued 2,500,000 common shares and issued 1,000,000 common share purchase warrants,
which have now expired.
On July 9, 2009, the Company acquired the remaining 25% interest
by paying $100,000. MMR retains a 2% NSR. The first 1% NSR can be acquired at the Company's option by paying $500,000 in cash or
common shares and the second 1% NSR can be acquired at the Company’s option by paying $1,000,000 in cash or common shares.
On April 16, 2014, the Company signed a Joint Venture Agreement
with Malagasy, whereby Malagasy acquired a 75% interest in non-industrial minerals on the Company's 100% owned Green Giant Property.
On May 21, 2015, Malagasy terminated the Joint Venture Agreement, which as a result, the Company reverted to its original 100%
interest in all minerals on the property.
The Green Giant property is located within exploration permits issued
by the Bureau de Cadastre Minier de Madagascar (“BCMM”) pursuant to the Mining Code 1999 (as amended) and its implementing
decrees. The Green Giant property exploration permits are currently held under the name of our Madagascar subsidiary NextSource
Minerals (Madagascar) SARLU. Our Madagascar subsidiary has paid all taxes and administrative fees to the Madagascar government
and its mining ministry with respect to all the mining permits held in country. These taxes and administrative fee payments have
been acknowledged and accepted by the Madagascar government.
Since early 2012, the Company has focused its efforts on the Molo
Graphite Project and as such only limited work has been completed on the Green Giant Vanadium Project since that time.
Further details regarding the Green Giant Project, incorporated by reference, is the
Green Giant Project NI 43-101 Technical Report dated January 14, 2011, which can be found on the our website at
www.nextsourcematerials.com
(which website is expressly not incorporated by reference into this filing) or in our Canadian regulatory filings at www.sedar.com
(which website and content is expressly not incorporated by reference into this filing).
Sagar Property, Labrador Trough Region, Quebec, Canada
In 2006, the Company purchased from Virginia Mines Inc. ("Virginia")
a 100% interest in 369 claims located in northern Quebec, Canada. Virginia retains a 2% net smelter return royalty ("NSR")
on certain claims within the property. Other unrelated parties also retain a 1% NSR and a 0.5% NSR on certain claims within the
property, of which half of the 1% NSR can be acquired by the Company by paying $200,000 and half of the 0.5% NSR can be acquired
by the Company by paying $100,000.
On February 28, 2014, the Company signed an agreement to sell a
35% interest in the Sagar property to Honey Badger Exploration Inc. (“Honey Badger”), a public company that is a related
party through common management. The terms of the agreement were subsequently amended on July 31, 2014 and again on May 8, 2015.
To earn the 35% interest, Honey Badger was required to complete a payment of $36,045 (CAD$50,000) by December 31, 2015, incur exploration
expenditures of $360,450 (CAD$500,000) by December 31, 2016 and issue 20,000,000 common shares to the Company by December 31, 2015.
Honey Badger did not complete the earn-in requirements by December 31, 2015 resulting in the termination of the option agreement.
Since early 2012, the Company has focused its efforts on the Molo
Graphite Project and as such only minimal work has been completed on the Sagar Property since that time. As of June 30, 2018, the
Sagar property consisted of 234 claims covering a total area of 10,736.59 ha.
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the year ended June 30, 2018
Results of Operations
The following are explanations of the material changes for the years
ended June 30, 2018 and 2017:
Expressed in US Dollars
|
|
|
For the year ended
|
|
|
For the year ended
|
|
|
|
|
June 30, 2018
|
|
|
June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration and evaluation expenses
|
|
|
920,998
|
|
|
|
1,839,659
|
|
|
Payroll and professional fees
|
|
|
1,382,925
|
|
|
|
770,397
|
|
|
Stock options
|
|
|
-
|
|
|
|
794,864
|
|
|
General and administrative expenses
|
|
|
405,580
|
|
|
|
458,780
|
|
|
Depreciation
|
|
|
-
|
|
|
|
21,911
|
|
|
Impairment
|
|
|
27,805
|
|
|
|
-
|
|
|
Foreign currency translation (gain) loss
|
|
|
104,387
|
|
|
|
93,476
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
2,841,695
|
|
|
|
3,979,087
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss before change in fair value, reversal of impairment of amount receivable and part XII.6 taxes
|
|
|
(2,841,695
|
)
|
|
|
(3,979,087
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses)
|
|
|
|
|
|
|
|
|
|
Change in value of warrant liability
|
|
|
-
|
|
|
|
111,049
|
|
|
Reversal of impairment of amount receivable
|
|
|
45,132
|
|
|
|
-
|
|
|
Part XII.6 taxes
|
|
|
11,741
|
|
|
|
(131,320
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the year
|
|
$
|
2,784,822
|
|
|
$
|
3,999,358
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
Items that will be reclassified subsequently to loss
|
|
|
|
|
|
|
|
|
|
Translation adjustment for foreign operations
|
|
|
75,766
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and comprehensive loss for the year
|
|
$
|
(2,709,056
|
)
|
|
$
|
(3,999,358
|
)
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares,
- basic and diluted
|
|
|
468,252,639
|
|
|
|
448,187,140
|
|
Net loss per common shares,
- basic and diluted
|
|
($
|
0.01
|
)
|
|
($
|
0.01
|
)
|
Exploration and evaluation expenses for the year ended
June 30, 2018 decreased to $920,998 (2017: $1,839,659) as our Company focused on environmental assessment activities and decreased
metallurgical evaluation activities as compared to the prior year.
Payroll and professional fees for the year ended June
30, 2018 increased to $1,382,925 (2017: $770,397) as a result of the increased legal fees related to the redomicile of the corporation,
increased legal fees related to permitting and increased management compensation as compared to the prior year.
General and administrative expenses for the year ended
June 30, 2018 decreased to $405,580 (2017: $458,780) as a result of reduced corporate travel, reduced investor relations expenses
and increased transfer agent fees as compared to the prior year.
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the year ended June 30, 2018
Liquidity and Capital Resources
Working Capital Balance
The following are explanations of the material changes to the working
capital position as of March 31, 2018 as compared to June 30, 2017:
|
|
|
June 30,
2018
|
|
|
June 30,
2017
|
|
|
July 1,
2016
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
338,702
|
|
|
$
|
1,964,948
|
|
|
$
|
544,813
|
|
|
Amounts receivable
|
|
|
13,241
|
|
|
|
39,441
|
|
|
|
13,955
|
|
|
Prepaid expenses
|
|
|
42,540
|
|
|
|
39,096
|
|
|
|
11,545
|
|
|
Total current assets
|
|
|
394,483
|
|
|
|
2,043,485
|
|
|
|
570,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
140,865
|
|
|
$
|
159,147
|
|
|
$
|
215,391
|
|
|
Accrued liabilities
|
|
|
197,834
|
|
|
|
68,241
|
|
|
|
24,743
|
|
|
Provision
|
|
|
180,652
|
|
|
|
182,883
|
|
|
|
182,742
|
|
|
Warrant liability
|
|
|
-
|
|
|
|
-
|
|
|
|
111,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
519,351
|
|
|
|
410,271
|
|
|
|
533,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net working capital
|
|
|
(124,868
|
)
|
|
|
1,633,214
|
|
|
|
36,388
|
|
Cash and Cash Equivalents
The Company’s cash balances are deposited with major financial
institutions in Canada except for institutions in Madagascar. Limited amounts of cash are currently held in Madagascar.
|
Cash and Cash Equivalents
|
|
Madagascar
$
|
|
|
Canada
$
|
|
|
Total
$
|
|
|
As of June 30, 2018
|
|
|
17,958
|
|
|
|
320,744
|
|
|
|
338,702
|
|
|
As of June 30, 2017
|
|
|
44,085
|
|
|
|
1,920,863
|
|
|
|
1,964,948
|
|
Sources and Uses of Cash
The Company's ability to continue operations and fund its exploration
and development expenditures is dependent on management's ability to secure additional financing. Management is actively pursuing
such additional sources of financing, and while it has been successful in doing so in the past, there can be no assurance it will
be able to do so in the future.
The following are the Company’s cash flows from operating,
investing and financing activities for the years ended June 30, 2018 and 2017:
Expressed in US Dollars
|
|
|
For the year ended
June 30, 2018
|
|
|
For the year ended
June 30, 2017
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and comprehensive loss for the year
|
|
$
|
(2,709,056
|
)
|
|
$
|
(3,999,358
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Items not affecting cash:
|
|
|
|
|
|
|
|
|
|
Depreciation and impairment of property, plant and equipment
|
|
|
27,805
|
|
|
|
21,911
|
|
|
Change in value of warrant derivative liability
|
|
|
-
|
|
|
|
(111,049
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Change in non-cash working capital items:
|
|
|
|
|
|
|
|
|
|
Amounts receivable and prepaid expenses
|
|
|
22,756
|
|
|
|
(53,037
|
)
|
|
Accounts payable and accrued liabilities
|
|
|
111,311
|
|
|
|
(12,746
|
)
|
|
Provision
|
|
|
(2,231
|
)
|
|
|
(141
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(2,549,415
|
)
|
|
|
(3,359,274
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment purchases
|
|
|
-
|
|
|
|
(27,805
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
-
|
|
|
|
(27,805
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common shares
|
|
|
-
|
|
|
|
5,177,885
|
|
|
Proceeds from exercise of warrants
|
|
|
923,169
|
|
|
|
-
|
|
|
Common share issue costs
|
|
|
-
|
|
|
|
(370,671
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
923,169
|
|
|
|
4,807,214
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
(1,626,246
|
)
|
|
|
1,420,135
|
|
|
Cash and cash equivalents - beginning of year
|
|
|
1,964,948
|
|
|
|
544,813
|
|
|
Cash and cash equivalents - end of year
|
|
$
|
338,702
|
|
|
$
|
1,964,948
|
|
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the year ended June 30, 2018
Contractual Obligations and Commitments
The Company does not have any contractual obligations or commitments
other than trade accounts payable due within one-year totaling $140,865 (2017: $159,147) and accrued liabilities totaling $197,834
(2017: $68,241); and
Provision
During fiscal 2014, the Company issued 17,889,215
flow-through shares to eligible Canadian taxpayer subscribers which included a contractual commitment for the Company to incur
$3,812,642 in eligible Canadian Exploration Expenditures (“CEEs”) by December 31, 2014 as per the provision of the
Income Tax Act of Canada. The CEEs were renounced as a tax credit to the flow-through share subscribers on December 31, 2013. As
at December 31, 2014, the Company had unfulfilled CEE obligations. During the year ended June 30, 2015, the Company recorded a
provision for the Part XII.6 taxes and related penalties payable to the Canada Revenue Agency and for the indemnification liability
to subscribers of the flow-through shares for the additional taxes payable related to the CEE renunciation shortfall. During the
year ended June 30, 2017, the Company paid $131,320 (2016: $nil) in Part XII.6 taxes, resulting in a reduction in the provision,
and following a reassessment of its obligation to subscribers the Company increased the provision by $131,320. During the year
ended June 30, 2018, the provision was adjusted due to foreign exchange fluctuations to $180,652 (June 30, 2017: $182,883).
Contingent Liabilities
On April 16, 2014, the Company signed a Sale and
Purchase Agreement and a Mineral Rights Agreement (together “the Agreements”) with Malagasy to acquire the remaining
25% interest in the Molo Graphite Property. Pursuant to the Agreements, a further cash payment of approximately $771,510 (CAD$1,000,000)
will be due within five days of the commencement of commercial production. Since this cash payment represents a possible obligation
that depends on the occurrence of an uncertain future event, it has been recognized as a contingent liability and no amount has
been recognized as a provision.
Off-balance sheet arrangements
The Company does not have off-balance sheet arrangements including
any arrangements that would affect the liquidity, capital resources, market risk support and credit risk support or other benefits.
Capital Management
As at June 30, 2018, the Company had a working capital deficit of
$124,868 (June 30, 2017: surplus of $1,633,214).
There were no changes in the Company's approach to capital management
during the year ended June 30, 2018.
In managing liquidity, the Company’s primary objective is
to ensure the entity can continue as a going concern while raising additional funding to meet its obligations as they come due.
The Company’s operations to date have been funded by issuing equity. The Company expects to improve the working capital position
by securing additional financing.
The Company’s investment policy is to invest excess cash in
very low risk financial instruments such as term deposits or by holding funds in high yield savings accounts with major Canadian
banks. Financial instruments are exposed to certain financial risks, which may include currency risk, credit risk, liquidity risk
and interest rate risk.
The Company’s mineral property interests are all in the exploration
stage, as such the Company is dependent on external financing to fund its exploration activities and administrative costs. Management
continues to assess the merits of mineral properties on an ongoing basis and may seek to acquire new properties or to increase
ownership interests if it believes there is sufficient geologic and economic potential.
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the year ended June 30, 2018
Management mitigates the risk and uncertainty associated with raising
additional capital in current economic conditions through cost control measures that minimizes discretionary disbursements and
reduces exploration expenditures that are deemed of limited strategic value.
The Company manages the capital structure (consisting of shareholders’
deficiency) on an ongoing basis and adjusts in response to changes in economic conditions and risks characteristics of its underlying
assets. Adjustments to the Company’s capital structure may involve the issuance of new shares, assumption of new debt, acquisition
or disposition of assets, or adjustments to the amounts held in cash, cash equivalents and short-term investments.
The Company is not subject to any externally imposed capital requirements.
Capital Structure
Common Shares
The Company’s common shares have no par
value and the authorized share capital is composed of an unlimited number of common shares. As of June 30, 2018, the Company had
469,933,611 common shares issued and outstanding.
Stock Options
As of June 30,
2018, the Company had 37,630,000 stock options issued and outstanding with a weighted average expiration of 2.9 years, which are
exercisable into 37,630,000 common shares at a weighted average exercise price of $0.09.
All stock options that are currently
outstanding vested on the grant date.
Warrants
As of June 30,
2018, the Company had 3,500,000 common share purchase warrants issued and outstanding with a weighted average expiration of 0.8
years, which are exercisable into 3,500,000 common shares at a weighted average exercise price of $0.14.
All warrants that
are currently outstanding vested on the issue date.
Transactions with related parties
Parties are related if one party has the direct or indirect ability
to control or exercise significant influence over the other party in making operating and financial decisions. Parties are also
related if they are subject to common control or common significant influence. A transaction is considered to be a related party
transaction when there is a transfer of economic resources or financial obligations between related parties. Related party transactions
that are in the normal course of business and have commercial substance are measured at the fair value.
Balances and transactions between the Company and its wholly-owned
subsidiaries, which are related parties of the Company, have been eliminated and are not disclosed in this note.
Related parties include companies controlled by key management personnel.
Key management personnel are composed of the Board of Directors, Chief Executive Officer, Chief Financial Officer and the Senior
Vice Presidents of the Company.
The following key management personnel related party transactions
occurred during the years ended June 30, 2018 and June 30, 2017:
|
|
|
For the year ended
|
|
|
For the year ended
|
|
|
|
|
June 30, 2018
|
|
|
June 30, 2017
|
|
|
Management and professional fees
|
|
$
|
806,752
|
|
|
$
|
639,190
|
|
|
Stock options
|
|
|
-
|
|
|
|
680,560
|
|
|
Total
|
|
$
|
806,752
|
|
|
$
|
1,319,750
|
|
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the year ended June 30, 2018
The following key management related party balances existed as of
June 30, 2018 and June 30, 2017:
|
|
|
As at
June 30, 2018
|
|
|
As at
June 30, 2017
|
|
|
Prepaid payroll to officers of the Company
|
|
$
|
26,632
|
|
|
$
|
29,746
|
|
|
Accounts payable balance due to officers of the Company
|
|
$
|
16,400
|
|
|
$
|
16,400
|
|
Legal Proceedings
We are not currently involved in any litigation
that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit,
proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body
pending or, to the knowledge of the executive officers of our Company or any of our subsidiaries, threatened against or affecting
our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries' officers or directors in their
capacities as such, in which an adverse decision could have a material adverse effect.
Managing Risk Factors
The Company manages risks inherent to its business and
has procedures to identify and manage significant operational and financial risks. The reader is cautioned to carefully review
the risk factors in our financial statements for the year ended June 30, 2018.
Risk factors
SHOULD ONE OR MORE OF THE FOREGOING RISKS OR UNCERTAINTIES
MATERIALIZE OR SHOULD THE UNDERLYING ASSUMPTIONS OF OUR BUSINESS PROVE INCORRECT, ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM
THOSE ANTICIPATED, BELIEVED, ESTIMATED, EXPECTED, INTENDED OR PLANNED.
Going Concern
The independent auditor’s report on our financial
statements contains explanatory language that substantial doubt exists about our ability to continue as a going concern. Due to
our lack of operating history and present inability to generate revenues, we have sustained operating losses since our inception.
If we are unable to obtain sufficient financing in
the near term as required or achieve profitability, then we would, in all likelihood, experience severe liquidity problems and
may have to curtail our operations. If we curtail our operations, we may be placed into bankruptcy or undergo liquidation, the
result of which will adversely affect the value of our common shares.
Our primary exploration efforts are in the African
country of Madagascar, where new presidential elections will be held in October 2018.
Any adverse developments to the political situation in
Madagascar could have a material effect on the Company’s business, results of operations and financial condition. New Presidential
elections are scheduled to be held on November 7, 2018 (first round) and December 19, 2018 (second round).
The Company is actively monitoring the political climate
in Madagascar and continues to hold meetings with representatives of the government and the Ministries in charge of mining.
Depending on future actions taken by the newly elected government, or any future government, the Company’s business operations
could be impacted.
Dependence
on Molo Graphite Project
Our
principal mineral property is the Molo Graphite Project. As a result, unless we acquire or develop any additional material properties
or projects, any adverse developments affecting this project or our rights to develop the Molo Graphite Project could materially
adversely affect our business, financial condition and results of operations.
During fiscal 2017, the Company applied to the BCMM to
have the exploration permit for the Molo Graphite Project converted into a mining permit. Despite repeated assurances by Ministers
in the Madagascar government and from BCMM that the Company has followed all the regulations and that the application contained
no deficiencies, the BCMM has not yet issued the mining permit to the Company. Our situation does not appear to be unique, since
according to the Madagascar Chamber of Mines, the Madagascar government has not granted any new mining permits to any members during
the past 18 months. Although Global Affairs Canada has been providing advocacy support for dealing with Madagascar government officials,
it is believed the Company will have to await the outcome of the Presidential election scheduled for November 2018 before our permit
is granted.
Application for all other necessary permits to construct
and operate the mine, including water use, construction, mineral processing, transportation, export, and labour will be undertaken
upon receipt of the environmental permit.
The Company cannot provide any assurance as to the timing
of the receipt of any of the permits and licenses necessary to initiate construction of the mine.
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the year ended June 30, 2018
Inability
to Enforce Legal Rights
Substantially all of our assets are located outside of the Canada, in Madagascar.
It may not be possible for investors to enforce judgments in Canada against our assets.
Decreases in commodity prices could impact the
feasibility of our projects.
Declining commodity prices can impact operations by
requiring a reassessment of the feasibility of a particular project. Such a reassessment may be the result of a management decision
or may be required under financing arrangements related to a particular project. Even if the project is ultimately determined to
be economically viable, the need to conduct such a reassessment may cause substantial delays or may interrupt operations until
the reassessment can be completed.
Our future profitability may be subject to fluctuations
in commodity prices.
The profitability of a mineral exploration project
could be significantly affected by future changes in the market price of the relevant minerals. A number of factors affect the
market prices of minerals. The aggregate effect of the factors affecting the prices of various minerals is impossible to predict
with accuracy. Fluctuations in mineral prices may adversely affect the value of any mineral discoveries made on the properties
with which we are involved, which may in turn affect the market price and liquidity of our common shares and our ability to pursue
and implement our business plan. In addition, the price of both graphite and vanadium can fluctuate significantly on a month-to-month
and year-to-year basis.
We may not have access to sufficient capital to
pursue our business and therefore would be unable to achieve our planned future growth.
We intend to pursue a strategy that includes development
of our Company’s business plan. We will require significant additional funds in order to place the claims and interests into
commercial production.
The capital and operating cost estimates as disclosed
in the Molo Feasibility Study may not be accurate and actual capital and operating costs may be different due to many potential
factors.
Currently we have limited capital, which is insufficient
to pursue our plans for development and growth. Our ability to implement our Company’s plans will depend primarily on our
ability to obtain additional private or public equity or debt financing. Such financing may not be available, or we may be unable
to locate and secure additional capital on terms and conditions that are acceptable to us. This may occur for a number of reasons,
because we are unable to obtain any adequate funds or because we cannot obtain such funds on terms that we consider economically
feasible. Financing exploration plans through equity financing will have a dilutive effect on our common shares. Our failure to
obtain additional capital will have a material adverse effect on our business.
We will require additional capital in the future and no
assurance can be given that such capital will be available on terms acceptable to us or at all. Our currently available funds will
not be sufficient to finance the development capital costs of the Molo Graphite Project as disclosed in the Molo Feasibility Study.
Accordingly, we will need to raise further equity and/or debt financing to fund development of the Molo Graphite Project. The success
and the pricing of any such equity and/or debt financing will be dependent upon the prevailing market conditions at that time,
the outcomes of the permitting and development activities or any relevant studies and exploration programs at the Molo Graphite
Project. If additional capital is raised by an issue of securities, this may have the effect of diluting stockholders’ interests.
Any debt financing, if available, may involve financial covenants which limit our operations. If we cannot obtain such additional
capital, we may not be able to complete the development of the Molo Graphite Project which would have a materially adverse effect
on our business, operating results and financial condition.
We are a mineral exploration company with a limited
operating history and expect to incur operating losses for the foreseeable future.
We are a mineral exploration company. We have not
earned any revenues and we have not been profitable. Prior to completing exploration on our claims, we may incur increased operating
expenses without realizing any revenues. There are numerous difficulties normally encountered by mineral exploration companies,
and these companies experience a high rate of failure. The likelihood of success must be considered in light of the problems, expenses,
difficulties, complications and delays encountered in connection with the exploration of the mineral properties that we plan to
undertake. These potential problems include, but are not limited to, unanticipated problems relating to exploration and additional
costs and expenses that may exceed current estimates. We have no history upon which to base any assumption as to the likelihood
that our business will prove successful, and we can provide no assurance to investors that we will generate any operating revenues
or ever achieve profitable operations.
We reported negative cash flow from operations for the
year ended June 30, 2018. It is anticipated that we will continue to report negative operating cash flow in future periods, likely
until one or more of our mineral properties generate recurring revenues from being placed into production.
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the year ended June 30, 2018
Due to the speculative nature of mineral property
exploration, there is substantial risk that our assets will not go into commercial production and our business will fail.
Exploration for minerals is a speculative venture
involving substantial risk. We cannot provide investors with any assurance that our claims and properties will ever enter into
commercial production. The exploration work that we have completed on our Molo Graphite Project claims may not result in the commercial
production of graphite. The exploration work that we have completed on our Green Giant Property may not result in the commercial
production of vanadium or other minerals.
Because of the inherent dangers involved in mineral
exploration, there is a risk that we may incur liability or damages as we conduct our business.
The search for valuable minerals involves numerous
hazards. As a result, we may become subject to liability for such hazards, including pollution, cave-ins and other hazards against
which we cannot, or may elect not, to insure against. We currently have no such insurance, but our management intends to periodically
review the availability of commercially reasonable insurance coverage. If a hazard were to occur, the costs of rectifying the hazard
may exceed our asset value and cause us to liquidate all our assets.
Our operations are subject to strict environmental
regulations, which result in added costs of operations and operational delays.
Our operations are subject to environmental regulations,
which could result in additional costs and operational delays. All phases of our operations are subject to environmental regulation.
Environmental legislation is evolving in some countries and jurisdictions in a manner that may require stricter standards, and
enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects, and
a heightened degree of responsibility for companies and their officers, directors, and employees. There is no assurance that any
future changes in environmental regulation will not negatively affect our projects.
We have no insurance for environmental problems.
Insurance against environmental risks, including potential
liability for pollution or other hazards as a result of the disposal of waste products occurring from exploration and production,
has not been available generally in the mining industry. We have no insurance coverage for most environmental risks. In the event
of a problem, the payment of environmental liabilities and costs would reduce the funds available to us for future operations.
If we are unable to full pay for the cost of remedying an environmental problem, we might be required to enter into an interim
compliance measure pending completion of the required remedy.
Due to external market factors in the mining business,
we may not be able to market any minerals that may be found.
The mining industry, in general, is intensely competitive.
Even if commercial quantities of minerals are discovered, we can provide no assurance to investors that a ready market will exist
for the sale of these minerals. Numerous factors beyond our control may affect the marketability of any substances discovered.
These factors include market fluctuations, the sale price of the minerals, the proximity and capacity of markets and processing
equipment, and government regulations, including regulations relating to prices, taxes, royalties, land tenure, land use, mineral
importing and exporting and environmental protection. The effect of these factors cannot be accurately predicted, but any combination
of these factors may result in our not receiving an adequate return on invested capital.
Mining companies are increasingly required to consider
and provide benefits to the communities and countries in which they operate, and are subject to extensive environmental, health
and safety laws and regulations.
As a result of public concern about the real or perceived
detrimental effects of economic globalization and global climate impacts, businesses generally and large multinational corporations
in natural resources industries face increasing public scrutiny of their activities. These businesses are under pressure to demonstrate
that, as they seek to generate satisfactory returns on investment to shareholders, other stakeholders, including employees, governments,
communities surrounding operations and the countries in which they operate, benefit and will continue to benefit from their commercial
activities. Such pressures tend to be particularly focused on companies whose activities are perceived to have a high impact on
their social and physical environment. The potential consequences of these pressures include reputational damage, legal suits,
increasing social investment obligations and pressure to increase taxes and royalties payable to governments and communities.
In addition, our ability to successfully obtain key
permits and approvals to explore for, develop and operate mines and to successfully operate in communities around the world will
likely depend on our ability to develop, operate and close mines in a manner that is consistent with the creation of social and
economic benefits in the surrounding communities, which may or may not be required by law. Our ability to obtain permits and approvals
and to successfully operate in particular communities may be adversely impacted by real or perceived detrimental events associated
with our activities or those of other mining companies affecting the environment, human health and safety of communities in which
we operate. Delays in obtaining or failure to obtain government permits and approvals may adversely affect our operations, including
our ability to explore or develop properties, commence production or continue operations. Key permits and approvals may be revoked
or suspended or may be varied in a manner that adversely affects our operations, including our ability to explore or develop properties,
commence production or continue operations.
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the year ended June 30, 2018
Our business operations are subject to extensive laws
and regulations governing worker health and safety and land use and the protection of the environment, which generally apply to
air and water quality, protection of endangered, protected or other specified species, hazardous waste management and reclamation.
Some of the countries in which we operate have implemented, and are developing, laws and regulations related to climate change
and greenhouse gas emissions. We have made, and expect to make in the future, significant expenditures to comply with such laws
and regulations. Compliance with these laws and regulations imposes substantial costs and burdens, and can cause delays in obtaining,
or failure to obtain, government permits and approvals which may adversely impact our closure processes and operations.
Should we lose the services of our key executives,
our financial condition and proposed expansion may be negatively impacted.
We depend on the continued contributions of our executive
officers to work effectively as a team, to execute our business strategy and to manage our business. The loss of key personnel,
or their failure to work effectively, could have a material adverse effect on our business, financial condition, and results of
operations. Specifically, we rely on Craig Scherba, our President and Chief Executive Officer and Marc Johnson, our Chief Financial
Officer.
We do not maintain key man life insurance. Should
we lose any or all of their services and we are unable to replace their services with equally competent and experienced personnel,
our operational goals and strategies may be adversely affected, which will negatively affect our potential revenues.
Because access to our properties may be restricted
by inclement weather or proper infrastructure, our exploration programs are likely to experience delays.
Access to most of the properties underlying our claims
and interests is restricted due to their remote locations and because of weather conditions. Some of our properties are only accessible
by air. As a result, any attempts to visit, test, or explore the property are generally limited to those periods when weather permits
such activities. These limitations can result in significant delays in exploration efforts, as well as mining and production efforts
in the event that commercial amounts of minerals are found. This could cause our business to fail.
Compliance with changing regulation of corporate governance
and public disclosure will result in additional expenses and pose challenges for our management
.
Changing laws, regulations and standards relating to corporate
governance and public disclosure. Our management team needs to devote significant time and financial resources to comply with both
existing and evolving standards for public companies, which will lead to increased general and administrative expenses and
a diversion of management time and attention from revenue generating activities to compliance activities.
Climate change and related regulatory responses may impact our business.
Climate change as a result of emissions of greenhouse
gases is a current topic of discussion and may generate government regulatory responses in the near future. It is impracticable
to predict with any certainty the impact of climate change on our business or the regulatory responses to it, although we recognize
that they could be significant. However, it is too soon for us to predict with any certainty the ultimate impact, either directionally
or quantitatively, of climate change and related regulatory responses.
To the extent that climate change increases the risk of
natural disasters or other disruptive events in the areas in which we operate, we could be harmed. While we maintain rudimentary
business recovery plans that are intended to allow us to recover from natural disasters or other events that can be disruptive
to our business, our plans may not fully protect us from all such disasters or events.
Changes in tax laws or tax rulings could materially
affect our financial position and results of operations.
Changes in tax laws or tax rulings could materially
affect our financial position and results of operations. Certain proposals could include recommendations that would significantly
increase our tax obligations in many countries where we do business. Due to the large and expanding scale of our international
business activities, any changes in the taxation of such activities may increase our worldwide effective tax rate and harm our
financial position and results of operations.
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the year ended June 30, 2018
Our business is subject to anti-corruption and
anti-bribery laws, a breach or violation of which could lead to civil and criminal fines and penalties, loss of licenses or permits
and reputational harm.
We operate in certain jurisdictions that have experienced
governmental and private sector corruption to some degree, and, in certain circumstances, strict compliance with anti-bribery laws
may conflict with certain local customs and practices. Anti-corruption and anti-bribery laws in certain jurisdictions generally
prohibit companies and their intermediaries from making improper payments for the purpose of obtaining or retaining business or
other commercial advantage. Our corporate policies mandate compliance with these anti-bribery laws, which often carry substantial
penalties. There can be no assurance that our internal control policies and procedures always will protect it from recklessness,
fraudulent behavior, dishonesty or other inappropriate acts committed by the Company’s affiliates, employees or agents. As
such, our corporate policies and processes may not prevent all potential breaches of law or other governance practices. Violations
of these laws, or allegations of such violations, could lead to civil and criminal fines and penalties, litigation, and loss of
operating licenses or permits, and may damage the Company’s reputation, which could have a material adverse effect on our
business, financial position and results of operations or cause the market value of our common shares to decline.
We do not intend to pay dividends.
We do not anticipate paying cash dividends on our
common shares in the foreseeable future. We may not have sufficient funds to legally pay dividends. Even if funds are legally available
to pay dividends, we may nevertheless decide, in our sole discretion, not to pay dividends. The declaration, payment and amount
of any future dividends will be made at the discretion of our board of directors, and will depend upon, among other things, the
results of our operations, cash flows and financial condition, operating and capital requirements, and other factors our board
of directors may consider relevant. There is no assurance that we will pay any dividends in the future, and, if dividends are paid,
there is no assurance with respect to the amount of any such dividend.
Because from time to time we hold a significant
portion of our cash reserves in Canadian dollars, we may experience losses due to foreign exchange translations.
From time to time we hold a significant portion of
our cash reserves in Canadian dollars. Due to foreign exchange rate fluctuations, the value of these Canadian dollar reserves can
result in translation gains or losses in U.S. dollar terms. If there was a significant decline in the Canadian dollar versus the
U.S. dollar, our converted Canadian dollar cash balances presented in U.S. dollars on our balance sheet would significantly decline.
If the US dollar significantly declines relative to the Canadian dollar our quoted US dollar cash position would significantly
decline as it would be more expensive in US dollar terms to pay Canadian dollar expenses. We have not entered into derivative instruments
to offset the impact of foreign exchange fluctuations. In addition, certain of our ongoing expenditures are in South African Rand,
Madagascar Ariary and Euros requiring us to occasionally hold reserves of these foreign currencies with a similar risk of foreign
exchange currency translation losses.
We are exposed to general economic conditions, which could have a material
adverse impact on our business, operating results and financial condition.
Recently there have been adverse conditions and uncertainty
in the global economy as the result of unstable global financial and credit markets, inflation, and recession. These unfavorable
economic conditions and the weakness of the credit market may continue to have, an impact on our Company’s business and our
Company’s financial condition. The current global macroeconomic environment may affect our Company’s ability to access
the capital markets may be severely restricted at a time when our Company wishes or needs to access such markets, which could have
a materially adverse impact on our Company’s flexibility to react to changing economic and business conditions or carry on
our operations.
The current financial environment may impact our business
and financial condition that we cannot predict.
The continued instability in the global financial system
and related limitation on availability of credit may continue to have an impact on our business and our financial condition, and
we may continue to face challenges if conditions in the financial markets do not improve. Our ability to access the capital markets
has been restricted as a result of the economic downturn and related financial market conditions and may be restricted in the future
when we would like, or need, to raise capital. The difficult financial environment may also limit the number of prospects for potential
joint venture, asset monetization or other capital raising transactions that we may pursue in the future or reduce the values we
are able to realize in those transactions, making these transactions uneconomic or difficult to consummate.
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the year ended June 30, 2018
The market price for our common shares is particularly
volatile given our status as a relatively unknown company with a small and thinly traded public float, limited operating history
and lack of profits which could lead to wide fluctuations in our share price.
The market for our common shares is characterized
by significant price volatility when compared to seasoned issuers, and we expect that our share price will continue to be more
volatile than a seasoned issuer. The volatility in our share price is attributable to a number of factors. First our common shares,
at times, are thinly traded. As a consequence of this lack of liquidity, the trading of relatively small quantities of shares by
our shareholders may disproportionately influence the price of those shares in either direction. The price for our common shares
could, for example, decline precipitously in the event that a large number of our common shares are sold on the market without
commensurate demand, as compared to a seasoned issuer which could better absorb those sales without adverse impact on its share
price. Second, we are a speculative or “risky” investment due to our limited operating history, lack of profits to
date and uncertainty of future market acceptance for our potential products. As a consequence, more risk-adverse investors may,
under the fear of losing all or most of their investment in the event of negative news or lack of progress, be more inclined to
sell their shares on the market more quickly and at greater discounts than would be the case with the stock of a seasoned issuer.
Many of these factors are beyond our control and may decrease the market price of our common shares, regardless of our performance.
We cannot make any predictions as to what the prevailing market price for our common shares will be at any time or as to what effect
that the sale of common shares or the availability of common shares for sale at any time will have on the prevailing market price.
Securities of small-cap and mid-cap companies have experienced
substantial volatility in the recent past, often based on factors unrelated to the financial performance or prospects of the companies
involved. These factors include macroeconomic developments in North America and globally and market perceptions of the attractiveness
of particular industries. The price of our common shares is also likely to be significantly affected by short-term changes in graphite
prices and demand, the U.S. dollar, the Malagasy ariary, the Canadian dollar, and our financial condition or results of operations
as reflected in its financial statements. Other factors unrelated to the performance of our Company that may have an effect on
the price of the common shares include the following: the extent of analytical coverage available to investors concerning our business
may be limited if investment banks with research capabilities do not follow our Company’s securities; lessening in trading
volume and general market interest in our Company’s securities may affect an investor’s ability to trade significant
numbers of our common shares; the size of our public float may limit the ability of some institutions to invest in our securities;
and a substantial decline in the price of our common shares that persists for a significant period of time could cause our Company’s
securities, if listed on an exchange, to be delisted from such exchange, further reducing market liquidity.
As a result of any of these factors, the market price
of our common shares at any given point in time may not accurately reflect the long-term value of the Company. Class action litigation
often has been brought against companies following periods of volatility in the market price of their securities. We may in the
future be the target of similar litigation. Securities litigation could result in substantial costs and damages and divert management’s
attention and resources
Evaluation of Disclosure Controls and Procedures
Disclosure Controls and procedures
Disclosure controls and procedures are designed to provide reasonable
assurance that all relevant information is gathered and reported to management, including the CEO and CFO, on a timely basis so
that appropriate decisions can be made regarding public disclosure.
Internal controls over financial reporting
Internal control over financial reporting means a process designed
by or under the supervision of the CEO and CFO, management and other personnel to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS.
The internal controls are not expected to prevent and detect all
misstatements due to error or fraud.
As at June 30, 2018, the Corporation’s CEO and CFO have certified
that the disclosure controls and procedures were effective and that during the year ended June 30, 2018, the Corporation did not
make any material changes in the internal controls over financial reporting that materially affected or are reasonably likely to
materially affect the Corporation’s internal control over financial reporting.
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the year ended June 30, 2018
Summary of Quarterly Results
The following is selected quarterly information
for the eight most recently completed quarters:
|
|
|
Quarter Ended
|
|
|
|
|
June 30,
2018
$
|
|
|
March 31, 2018
$
|
|
|
December 31,
2017
$
|
|
|
September 30, 2017
$
|
|
|
Revenues
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Exploration and evaluation expenses
|
|
|
156,106
|
|
|
|
290,330
|
|
|
|
180,953
|
|
|
|
293,609
|
|
|
Net loss and comprehensive loss for the quarter
|
|
|
(490,126
|
)
|
|
|
(643,109
|
)
|
|
|
(795,196
|
)
|
|
|
(780,625
|
)
|
|
Basic and diluted loss per share for the quarter
|
|
|
(0.00
|
)
|
|
|
(0.00
|
)
|
|
|
(0.00
|
)
|
|
|
(0.00
|
)
|
|
Working capital balance
|
|
|
(124,868
|
)
|
|
|
172,010
|
|
|
|
102,840
|
|
|
|
959,337
|
|
|
|
|
Quarter Ended
|
|
|
|
|
June 30,
2017
$
|
|
|
March 31,
2017
$
|
|
|
December 31,
2016
$
|
|
|
September 30,
2016
$
|
|
|
Revenues
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Exploration and evaluation expenses
|
|
|
382,379
|
|
|
|
621,878
|
|
|
|
522,295
|
|
|
|
313,107
|
|
|
Net loss and comprehensive loss for the quarter
|
|
|
(1,517,208
|
)
|
|
|
(1,006,199
|
)
|
|
|
(916,241
|
)
|
|
|
(559,709
|
)
|
|
Basic and diluted loss per share for the quarter
|
|
|
(0.00
|
)
|
|
|
(0.00
|
)
|
|
|
(0.00
|
)
|
|
|
(0.00
|
)
|
|
Working capital balance
|
|
|
1,633,214
|
|
|
|
2,357,078
|
|
|
|
3,367,815
|
|
|
|
4,294,894
|
|
Other Information
Additional information related to the Company, including the Company’s Annual Information
Form, is available on SEDAR at www.sedar.com or on the Company website at www.nextsourcematerials.com.
19
Exhibit 99.4
NEXTSOURCE MATERIALS INC.
145 Wellington Street West, Suite 1001,
Toronto, Ontario, Canada M5J 1H8
NOTICE OF THE 2018 ANNUAL AND SPECIAL
MEETING OF SHAREHOLDERS
I am pleased to give you notice that the 2018 annual and special
meeting (the “
Meeting
”) of holders (the “
Shareholders
”) of common shares (the “
Shares
”)
of NextSource Materials Inc. (the “
Company
”) will be held at the Company offices at 145 Wellington Street West,
Suite 1001, Toronto, Ontario, Canada, M5J 1H8 on December 4, 2018 at 10:00 a.m. (Toronto time) for the following purposes:
|
|
1.
|
To receive the financial statements of the Company for the fiscal year ended June 30, 2018 and
the Auditors’ Report thereon.
|
|
|
2.
|
To elect six directors of the Company, each to hold their offices until the next annual meeting
of the Shareholders or until their successors have been duly elected and qualified or until the earlier of their resignation, removal
or death.
The Board of Directors recommends that Shareholders vote “FOR” each Director.
|
|
|
3.
|
To approve the appointment of MNP LLP, Chartered Accountants, as the Company’s auditors for
the fiscal year ending June 30, 2019 and to authorize the Board of Directors to fix their remuneration.
The Board of Directors
recommends that the Shareholders vote “FOR” this proposal.
|
|
|
4.
|
To approve an amendment to the articles of continuance of the Company, to be completed at the Board’s
sole discretion, to effect a share consolidation (reverse stock split) of the Company’s outstanding Shares in a ratio of
between one-for-five and one-for-ten at any time prior to the one year anniversary of the Meeting, without further Shareholder
approval; provided that all fractional Shares as a result of the split shall be automatically rounded up to the next whole Share.
The Board of Directors recommends that the Shareholders vote “FOR” this proposal.
|
|
|
5.
|
To ratify, confirm and approve, in accordance with the policies of the Toronto Stock Exchange,
the new 10% rolling stock option plan of the Company.
The Board of Directors recommends that the Shareholders vote “FOR”
this proposal.
|
|
|
6.
|
To transact other business as may properly come before the Meeting or any adjournments thereof.
|
Particulars of the foregoing matters are set forth in the accompanying
management information circular of the Company dated October 22, 2018 (the “
Circular
”).
The Board of Directors has fixed the close of business on October
18, 2018 at 5:00 p.m. (Toronto time) as the record date for the Meeting. Only Shareholders of record at such time are entitled
to notice of, and to vote at, the Meeting.
Regardless of the number of Shares you own or whether you plan to
attend the Meeting, it is important that your Shares be voted. If you hold your Shares in "street name" (that is, through
a broker, bank or other nominee), complete, date and sign the voting instruction form that has been provided by your broker, bank
or other nominee and return it in the enclosed envelope. If you hold your Shares directly and will attend the Meeting, remember
to bring a form of personal identification with you and, if acting as a proxy for another Shareholder, bring written confirmation
from that Shareholder that you are acting as a proxy. If you hold your Shares in "street name" and will attend the Meeting,
bring a form of personal identification with you and proof of beneficial ownership.
Shareholders who are unable to attend the Meeting in person are
requested to complete, date, sign and return the accompanying form of proxy in the enclosed return envelope. All instruments appointing
proxies to be used at the Meeting or at any adjournment thereof must be delivered to the TSX Trust Company, 100 Adelaide Street
West, Suite 301, Toronto, Ontario, Canada, M5H 4H1, Attention: Proxy Department , by 10:00 a.m. ET on November 30, 2018.
The Company will be using the notice-and-access model provided under
National Instrument 54-101 –
Communication with Beneficial Owners of Securities of a Reporting Issuer
(“
Notice
and Access
”) for the delivery of the Circular, the financial statements of the Company for the fiscal year ended June
30, 2018, and other related materials of the Meeting (the “
Meeting Materials
”) to Shareholders.
The Meeting Materials will be available at https://docs.tsxtrust.com/2084
on or about November 2, 2018 and will remain on the website for one full year thereafter. Meeting Materials are also available
upon request, without charge, by e-mail at TMXEInvestorServices@tmx.com or by calling toll-free 1-866-600-5869, or can be accessed
online on SEDAR at www.sedar.com on or about November 2, 2018.
To receive the Meeting Materials in advance of the proxy deposit
date and Meeting date, requests for printed copies must be received at least five business days (i.e. by November 23, 2018) in
advance of the proxy deposit date and time set out in the accompanying form of proxy or voting instruction form. Shareholders may
make this request by following the instructions on their voting instruction form or form of proxy.
The Company will mail paper copies of the Meeting Materials to those
registered and beneficial shareholders who have previously elected to receive paper copies of the Meeting Materials. All other
Shareholders will receive a notice and access notification, which will contain information on how they may access the Meeting Materials
electronically in advance of the Meeting.
The Meeting for which this notice is given may be adjourned without
further notice other than announcement at the Meeting or any adjournment thereof. Any business for which notice is hereby given
may be transacted at any such adjourned Meeting.
BY ORDER OF THE BOARD OF
DIRECTORS
(signed) “Craig
Scherba”
Craig Scherba,
President and Chief Executive
Officer
NEXTSOURCE MATERIALS INC.
145 Wellington Street West, Suite 1001,
Toronto, Ontario, Canada M5J 1H8
Tel: (416) 364-4911; Fax: (416) 364-2753
MANAGEMENT INFORMATION CIRCULAR
FOR THE 2018 ANNUAL AND SPECIAL MEETING
OF SHAREHOLDERS
INTRODUCTION
This Circular is being furnished to holders
(the “
Shareholders
”) of Shares (the “
Shares
”) of NextSource Materials Inc. (the “
Company
”)
in connection with the solicitation by or on behalf of management of the Company by its Board of Directors (the “
Board
”)
in connection with the 2018 annual and special meeting of Shareholders (the “
Meeting
”). Unless otherwise stated,
the information contained in this Circular is as of October 22, 2018.
The Company is listed on the Toronto Stock
Exchange (“
TSX
”) in Canada (ticker: NEXT), on the OTCQB in the United States of America (ticker: NSRC) and on
the Frankfurt, Germany Stock Exchange (ticker: A1CXW3). Our principal business office is located at 145 Wellington Street West,
Suite 1001, Toronto, Ontario, Canada M5J 1H8.
All dollar amounts referenced herein, unless
otherwise indicated, are expressed in United States dollars and Canadian dollars are referred to as “CAD”.
Date, Time and Place of the Meeting
This Circular is being sent to Shareholders
in connection with the solicitation of proxies by the management of the Company for use at the Meeting to be held at the Company
offices at 145 Wellington Street West, Suite 1001, Toronto, Ontario, Canada, M5J 1H8 on December 4, 2018 at 10:00 a.m. (Toronto
time), or at any adjournment or postponement thereof.
The proxy cut-off date for Shares to be
voted in advance of the Meeting will be on November 30, 2018 at 10:00 a.m. (Toronto time). Proxies will be solicited primarily
by mail but may also be solicited personally, by telephone or by facsimile or electonically by the regular employees of the Company
at nominal costs. In accordance with National Instrument 54-101 –
Communication with Beneficial Owners of Securities of
a Reporting Issuer
(“
NI 54-101
”), arrangements have been made to forward proxy solicitation materials
to the beneficial owners of Shares. The costs of solicitation will be borne by the Company.
Record Date
Shareholders of record at the close of
business on October 18, 2018, the record date for the Meeting, are entitled to receive this Circular and to vote at the Meeting
and at any adjournment or postponement thereof. On the record date, there were 491,330,595 issued and outstanding Shares entitled
to notice of and to vote at the Meeting. Holders of Shares have one vote per Share on each matter to be acted upon.
A list of the Shareholders of record entitled
to vote will be available at the Meeting and for 10 days prior to the Meeting, for any purpose germane to the Meeting, between
the hours of 9:00 a.m. and 4:30 p.m. (Toronto Time) at the Company’s principal office at 145 Wellington Street West, Suite
1001, Toronto, Ontario, Canada M5J 1H8.
The presence in person or by proxy of two
persons holding at least ten percent (10%) of the outstanding Shares of the Company constitutes a quorum for the Meeting. There
are no cumulative voting rights. The scrutineer who will be appointed for the Meeting will tabulate votes cast by proxy or in person
and will determine whether or not a quorum is present.
Voting of Proxies
If your Shares are registered directly in your name with the Company’s
transfer agent, TSX Trust Company, you are considered, with respect to those Shares, the “Shareholder of record”. The
Circular has been sent directly to you on the Company’s behalf at the address on file with TSX Trust Company. The Company
has engaged the TSX Trust Company, to handle the setup, mailing and tabulation of proxies in relation to the Meeting.
If your Shares are held in a stock brokerage account or by a bank
or other holder of record, you are considered the “beneficial owner” of Shares held in “street name”. The
Circular has been forwarded, if requested, to you by your broker, bank or other holder of record who is considered, with respect
to those Shares, the Shareholder of record. As the beneficial owner, you have the right to direct your broker, bank or other holder
of record on how to vote your Shares by using the voting instruction card included in the mailing.
A Shareholder has the right to appoint a person or company (who
need not be a Shareholder of the Company), other than the persons designated in the accompanying form of proxy, to represent the
Shareholder at the Meeting.
Such right may be exercised by inserting the name of such person or company in the blank space
provided in the proxy or by completing another proper form of proxy. Your Shares will be voted in accordance with the instructions
contained in the proxies. Your Shares will be voted or withheld from voting in accordance with your instructions on any ballot
that may be called for and, if you specify a choice with respect to any matter to be acted upon, your Shares will be voted accordingly.
Proxies returned by a broker, bank, or other Shareholder of record as “non-votes” because such person or company has
not received instructions from the beneficial owner with respect to the voting of certain Shares or, under applicable stock exchange
or other rules, does not have the discretion to vote those Shares on one or more of the matters that come before the Meeting, will
be treated as not entitled to vote on any such matter and will not be counted as having been voted in respect of any such matter.
Shares represented by such “non-votes” will, however, be counted in determining whether there is a quorum.
Shareholders
should not send share certificates with their form of proxy.
IF YOU RETURN A SIGNED FORM OF PROXY WITHOUT INDICATING YOUR
VOTE, YOUR SHARES WILL BE VOTED “FOR” EACH OF THE MATTERS PUT FORTH AT THE MEETING.
Revocability of Proxies
The grant of a proxy on the enclosed form of proxy does not preclude
a Shareholder from voting in person. A Shareholder may revoke a proxy at any time prior to your proxy being voted: (i) by delivering
to the Company’s President and Chief Executive Officer, prior to the Meeting, a written notice of revocation bearing a later
date or time than the proxy; (ii) by timely delivery of a valid, later dated proxy; or (iii) by attending the Meeting and voting
in person. Attendance at the Meeting will not by itself constitute revocation of a proxy. If an adjournment occurs, it will have
no effect on the ability of Shareholders of record as of the record date to exercise their voting rights or to revoke any previously
delivered proxies. We do not expect to adjourn the Meeting for a period of time long enough to require the setting of a new record
date.
Solicitation Costs
The Company will pay the cost of solicitation of proxies on behalf
of the Board. In addition to mail, proxy solicitation may be made through other means, including by telephone, facsimile, electronically,
and personal interview by our officers, directors and employees.
The Company does not intend to pay for an intermediary to deliver
to Objecting Beneficial Owners, or “OBOs” (within the meaning of such term under NI 54-101, the proxy-related materials
and Form 54-101F7), and therefore OBOs will not receive the materials unless their intermediary assumes the costs of delivery.
The Company is sending proxy related material to Non-objecting Beneficial Owners.
Notice and Access
The Company will be using the notice and access model (“
Notice
and Access
”) provided under NI 54-101 for the delivery of the Circular, the financial statements of the Company
for the fiscal year ended June 30, 2018, and other related materials of the Meeting (the “
Meeting Materials
”)
to Shareholders for the Meeting.
Under Notice and Access, instead of receiving printed copies of
the Meeting Materials, Shareholders electronically receive information on the Meeting date, location and purpose, as well as information
on how they may access the Meeting Materials.
Shareholders with existing instructions on their account to receive
printed materials will receive a printed copy of the Meeting Materials.
Other Matters
As of the date of this Circular, the Company does not know of any
matters other than those set forth herein that will be presented for consideration at the Meeting. If any other matter or matters
are properly brought before the Meeting or any adjournment thereof, the persons named in the accompanying proxy will have discretionary
authority to vote, or otherwise act, with respect to such matters in accordance with their judgment.
INTEREST OF CERTAIN
PERSON IN MATTERS TO BE ACTED UPON
No director or officer of the Company, nor any person who has held
such a position since the beginning of the last completed financial year-end of the Company, nor any proposed nominee for election
as a director of the Company, nor any associate or affiliate of any of the foregoing persons, has any material interest, direct
or indirect, by way of beneficial ownership of securities or otherwise, in any matter of business to be acted upon at the Meeting,
other than the election of directors of the Company and as may otherwise be set out herein.
VOTING SECURITIES AND
PRINCIPAL HOLDERS THEREOF
The Company is authorized to issued an unlimited number of Shares.
As of October 22, 2018, the Company had 491,330,595 Shares issued
and outstanding, all of which are Shares, each of which carries the right to one vote on all matters that may come before the Meeting.
To the knowledge of the directors and executive officers of the
Company, as of October 22, 2018, no person or Company beneficially owns, or controls or directs, directly or indirectly, Shares
carrying in excess of 10% of the voting rights attached to all outstanding Shares of the Company.
CAUTIONARY NOTE REGARDING
FORWARD-LOOKING STATEMENTS
This Circular contains forward-looking statements within the meaning
of U.S. securities laws and forward-looking information within the meaning of Canadian securities laws (collectively, “
forward-looking
statements
”) and are intended to be covered by the safe harbors provided by such regulations. Any statements that express
or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future
events or performance (often, but not always, identified by words or phrases such as “expects”, “is expected”,
“anticipates”, “believes”, “plans”, “projects”, “estimates”, “assumes”,
“intends”, “strategy”, “goals”, “objectives”, “potential”, “possible”
or variations thereof or stating that certain actions, events, conditions or results “may”, “could”, “would”,
“should”, “might” or “will” be taken, occur or be achieved, or the negative of any of these
terms and similar expressions) are not statements of historical fact and may be forward-looking statements.
Forward-looking statements are not guarantees of future performance.
They are based on current expectations that involve a number of risks, uncertainties and assumptions that could cause our future
results to differ materially from those expressed in any forward-looking statements. The assumptions underlying our forward-looking
statements are based on judgments with respect to a number of factors that are difficult or impossible to predict accurately, and
many of which are beyond our control. Accordingly, although we believe that the assumptions underlying the forward-looking statements
are reasonable, any such assumption could prove to be inaccurate and therefore there can be no assurance that the results contemplated
in forward-looking statements will be realized.
Important factors that may cause our actual results to differ from
our forward-looking statements include, but are not limited to the timing of the completion of any share consolidation (“
Share
Consolidation
”) at the sole discretion of the Board and the risks outlined in the annual information form of the Company
dated September 28, 2018 (the “
Annual Information Form
”) as well as risks discussed elsewhere in this Circular.
In light of the significant uncertainties inherent in our forward-looking
statements, there can be no assurance that the forward-looking statements contained in this Circular will in fact occur, and the
inclusion of such forward-looking statements in this Circular should not be construed as a representation by us or any other person
that our predicted or expected outcomes will be achieved. You should carefully consider the risks disclosed in this Circular before
deciding how to vote.
Additionally, you are cautioned that our Company does not have a
policy of updating or revising forward-looking statements and thus, you should not assume that silence by our management over time
means that actual events are bearing out as estimated in such forward-looking statements.
PARTICULARS OF MATTERS TO BE ACTED UPON AT THE MEETING
ELECTION OF DIRECTORS
General Information
Under TSX rules, listed issuers must elect
directors annually, elect directors individually and publicly disclose the votes received for the election of each director by
news release. The Company’s practice is to hold annual elections for directors and at meetings of Shareholders called for
this purpose. Each director is elected individually. The Company will disclose the votes each nominee for election receives by
way of press release in Canada.
Under the Company’s existing articles and by-laws, the number
of directors of the Company shall consist of a minimum of one director and a maximum of ten directors. Directors of the Company
will hold their offices until the next annual meeting of Shareholders or until their successors have been duly elected and qualified
or until the earlier of resignation, removal of office or death. Executive officers of the Company are appointed by the Board to
serve until their successors are elected and qualified.
Advance Notice Provision
The Company’s existing by-laws include
an advance notice provision for nominations of directors by Shareholders in certain circumstances. As at the date hereof, the Company
had not received notice of any director nomincations in connection with the Meeting within the time periods prescribed under the
advance notice provision. A copy of the Company’s advance notice provision is available on the Company’s website at
www.nextsourcematerials.com under the “Corporate Policies & Governance” caption.
Majority Voting Policy
The Company has adopted a majority voting
policy stipulating that if the votes in favour of the election of a director nominee at a Shareholders’ meeting represent
less than a majority of the Shares voted and withheld at such meeting, the nominee will submit their resignation promptly after
such meeting, for the Nomination Committee’s consideration. The Nomination Committee will make a recommendation to the Board
after reviewing the matter, and the Board’s decision to accept or reject the resignation offer will be disclosed to the public.
The nominee will not participate in any Nomination Committee or Board deliberations relating to the resignation offer. The policy
does not apply in circumstances involving a proxy battle or contested director elections.
Nominated Directors
The following table sets forth the name, province or state and country
of residence, age, Company position and principal occupation of the six nominated directors of the Company as at October 22, 2018
as well as the shareholdings of each director. There are no family relationships between any director or executive officer of the
Company.
|
Name
|
Age
|
Company
Position
|
Principal
Occupation
|
Director Since
|
# of Voting Securities Beneficially Owned, or Controlled or Directed, Directly or Indirectly
(3)
|
|
John Sanderson
(1)
(Vancouver, BC, Canada)
|
83
|
Director,
Chairman of the Board of Directors
|
Lawyer and arbitrator
|
January 2009
|
75,000
|
|
Craig Scherba
(2)
(Oakville, ON, Canada)
|
45
|
Director,
President & Chief Executive Officer
|
President & CEO of the Company
|
January 2010
|
600,000
|
|
Robin Borley
(2)
(Johannesburg, South Africa)
|
50
|
Director,
Senior Vice President – Mine Development
|
SVP-Mine Development of the Company
|
December 2013
|
2,787,857
|
|
Quentin Yarie
(1)
(Toronto, ON, Canada)
|
53
|
Director
|
President & CEO of Red Pine Exploration Inc., and Honey Badger Exploration Inc., and President of MacDonald Mines Exploration Inc.
|
December 2008
|
446,500
|
|
Dean Comand
(1)
(Ancaster, ON, Canada)
|
52
|
Director
|
Professional Engineer. Consultant - mining and energy sectors
|
October 2014
|
0
|
|
Dalton Larson
(1)
(Surrey, BC, Canada)
|
78
|
Director
|
Lawyer and arbitrator
|
October 2014
|
1,000,000
|
(1) Messrs. Sanderson, Comand, Larson
and Yarie are independent of the Company.
(2) Messrs. Scherba and Borley are non-independent
directors as they are executive officers of the Company.
(3) The information as to principal
occupation and voting securities (defined as securities that, by their terms, provide the securityholders with a presently exercisable
right to vote for the election of directors) beneficially owned or controlled or directed, directly or not directly, not being
within the knowledge of the Company, has been furnished by the respective nominees.
Recommendation
The Board recommends that Shareholders vote “FOR”
the election of each of the nominated directors.
Biographies of the Nominated Directors of the Company
John Sanderson, Q.C. (Vancouver, Canada)
Mr. Sanderson has been the Company’s Vice Chairman of the
Board since October 2009 and a director of our Company since January 2009. Mr. Sanderson was Chairman of the Board of the Company
from January 2009 to September 2009. Mr. Sanderson is a chartered mediator, chartered arbitrator, consultant and lawyer called
to the bar in the Canadian provinces of Ontario and British Columbia. Mr. Sanderson’s qualifications to serve as a director
include his many years of legal and mediation experience in various industries. Mr. Sanderson is a Queen’s Counsel (Q.C.).
He has acted as mediator, facilitator and arbitrator across Canada, and internationally, in numerous commercial transactions, including
insurance claims, corporate contractual disputes, construction matters and disputes, environmental disputes, inter-governmental
disputes, employment matters, and in relation to aboriginal claims. He has authored and co-authored books on the use and value
of dispute resolution systems as an alternative to the courts in managing business and legal issues.
Craig Scherba, P.Geol. (Oakville, Canada)
Mr. Scherba was appointed as the President and Chief Executive Officer
of the Company in August 2015 and has served as a director since January 2010. Mr. Scherba served as President and Chief Operating
Officer from September 2012 to August 2015 and Vice President, Exploration of the Company from January 2010 to September 2012.
Mr. Scherba has been a professional geologist (P. Geol.) since 2000, and his expertise includes supervising large Canadian and
international exploration. Mr. Scherba also serves as Vice President, Exploration of MacDonald Mines Exploration Ltd, Red Pine
Exploration Inc. and Honey Badger Exploration Inc. which are resource exploration companies trading on the TSX Venture Exchange.
In addition, Mr. Scherba was professional geologist with Taiga Consultants Ltd. (“Taiga”), a mining exploration consulting
company from March 2003 to December 2009. He was a managing partner of Taiga between January 2006 and December 2009. Mr. Scherba
was an integral member of the exploration team that developed Nevsun Resources’ high grade gold, copper and zinc Bisha project
in Eritrea. While at Taiga, Mr. Scherba served as the Company's Country and Exploration Manager in Madagascar during its initial
exploration stage.
Robin Borley (Johannesburg, South Africa)
Mr. Borley was appointed our Senior Vice President (“SVP”)
of Mine Development in December 2013 and has served as a director since December 2013. Mr. Borley is a Graduate mining engineering
professional and a certified mine manager with more than 25 years of international mining experience building and operating mining
ventures. He has held senior management positions both internationally and within the South African mining industry. Until October
2014, Mr. Borley served as Mining Director for DRA Mineral Projects. In addition, Mr. Borley was instrumental as the COO of Red
Island Minerals in a developing a Madagascar coal venture. His diverse career has spanned resource project management, evaluation,
exploration and mine development. Robin has completed several mine evaluations including operational and financial evaluations
of new and existing operations across a diverse range of resource sectors. He has experience in the management of underground and
surface mining operations from both the contractor and owner miner environments. From 2006 through to 2012, Robin participated
in the BEE management buy-out transaction of the Optimum Colliery mining property from BHP, through its independent listing and
its ultimate sale to Glencore in December 2012.
Quentin Yarie, P.Geo. (Toronto, Canada)
Mr. Yarie has served as a director of the Company since 2008. Mr.
Yarie is an experienced geophysicist and a successful entrepreneur with over 25 years’ experience in mining and environmental/engineering.
Mr. Yarie has project management and business development experience as he has held positions of increasing responsibility with
a number of Canadian-based geophysical service providers. He is currently CEO and President of Red Pine Exploration Inc., and Honey
Badger Exploration Inc. and President of MacDonald Mines Exploration Inc. From January 2010, Mr. Yarie was Senior Vice President
Exploration for MacDonald Mines Exploration Ltd, Red Pine Exploration Inc. and Honey Badger Exploration Inc. all listed on the
TSX Venture Exchange headquartered in Toronto, Canada. From October 2007 to December 2009, Mr. Yarie was a business development
officer with Geotech Ltd, a geophysical airborne survey company. From September 2004 to October 2007, Mr. Yarie was a senior representative
of sales and business development for Aeroquest Limited. From 1992-2001, he was a partner of a specialized environmental and engineering
consulting group where he managed a number of large projects including the ESA of the Sydney Tar Ponds, the closure of the Canadian
Forces Bases in Germany and the Maritime and Northeast Pipeline project.
Dean Comand P. Eng, CET MMP CDir. (Ancaster, Canada)
Mr. Comand has served as a director of the Company since October
2014. He is a Mechanical Engineer and holds his P. Eng designation in the province of Ontario as well as designation as a Certified
Engineering Technologist. Mr. Comand earned his Maintenance Manager Professional Designation (MMP) license in 2006 and his Charter
Director designation (CDir) in 2012. Mr. Comand is currently the President of The Comand Group which provides strategic advice
to numerous clients around the world in the mining and energy sectors. From 2009 – 2014, Mr. Comand worked for Sherritt International
as Vice President of Operations of Ambatovy, a large scale nickel project in Madagascar. He successfully led the construction and
commissioning of Ambatovy, and led the operations to commercial production. He has extensive business and financial acumen in large-scale
energy, power, and mining industries. He has consistently held senior positions in operations, business, project development, environmental
management, maintenance, and project construction. He has managed a variety of complex operations, including one of the world’s
largest mining facilities, industrial facilities, numerous power plants, renewable energy facilities and privately held municipal
water treatment facilities across Canada and the United States.
Dalton Larson (Surrey, Canada)
Mr. Larson has served as a director of our Company since October
2014. Mr. Larson is a Canadian attorney with more than 35 years as a member of the Law Society of British Columbia. He commenced
practice as a member of the Faculty of Law, University of British Columbia, subsequently becoming a partner of a major Vancouver
Law firm, now McMillan LLP. Currently, he maintains a private practice along with a vigorous investment business. He is a recognized
expert in alternate dispute resolution and has extensive experience as a professional arbitrator and mediator. He has three degrees,
including a Master’s degree in law from the University of London, England. His business activities include more than 25 years
as a director of several investment funds managed by the CW Funds group of companies, affiliated with Ventures West Management
Inc., which is one of the largest venture capital firms in Canada. The CW Funds raised and invested in a wide variety of businesses
totaling more than $130 million, primarily from overseas investors. In that period, he served as Chairman of the Board of Directors
of a Philippine ethanol company. He was the founding shareholder of the First Coal Corporation, which started operations in 2014.
He served as the first Chairman of the Board of Directors for two years and then participated closely in its governance and management
including serving as the Chair of the Compensation Committee. During his tenure, the Company raised in excess of $65 million in
equity to finance its development activities, all by way of private placements. First Coal Corporation was sold to Xstrata in excess
of $150 million. He currently serves as the Chairman of the Board of Directors of Cloud Nine Education Group (CSE:CNI) and on the
Board of Directors of SmartCool Systems Inc. (TSX-V: SSC).
APPROVAL OF APPOINTMENT MNP LLP AS AUDITORS
General Information
At the Meeting, the Shareholders will vote
to ratify the appointment of MNP LLP, as the Company’s auditors for the fiscal year ending June 30, 2019 and to authorize
the Board to fix their remuneration. MNP LLP served as auditor for the fiscal year ended June 30, 2018. We do not expect a representative
of MNP LLP to be present at the Meeting.
The Board has selected MNP LLP as our independent
registered public accounting firm for the fiscal year ending June 30, 2019. Although the selection of the independent registered
public accounting firm is not required under the Company’s current by-laws or otherwise to be ratified by Shareholders, the
Board has directed that the appointment of MNP LLP be submitted to Shareholders for ratification due to the significance of their
appointment. If Shareholders fail to ratify the selection, it will be considered as a direction to the Board to consider the selection
of a different firm. Even if the selection is ratified, the Board in its discretion may select a different independent registered
public accounting firm at any time during the year if it determines that such a change would be in the best interests of the Company
and Shareholders.
Recommendation
The Board recommends that Shareholders vote “FOR”
the ratification of the appointment of MNP LLP, as the Company’s independent registered public accounting firm for the fiscal
year ending June 30, 2019 and to authorize the Board to fix their remuneration.
APPROVAL OF SHARE CONSOLIDATION
General Information About the Share Consolidation
At the annual and special meeting of our Shareholders held last
year (December 5, 2017) our Shareholders approved a Share Consolidation on materially the same terms as stated herein. The previously
passed resolution granted the Board the discretion to implement the Share Consolidation for a period of one year.
Over the course of the previous year, the Board considered the timing
for implementing the Share Consolidation, however, as a result of market conditions, determined that it was in the Company’s
best interest not to implement the Share Consolidation. The Board will continue to monitor market conditions to determine the appropriate
time to implement the Share Consolidation, however, the previously-approved Share Consolidation may not be completed prior to the
one-year anniversary of the date the previous resolution was passed. Accordingly, you are being asked to approve the Share Consolidation
again at the Meeting.
The Board has determined that it is advisable and in the Company’s
and the Shareholders’ best interests to restructure the Company’s capital and has directed the proposal in respect
of the Share Consolidation be submitted to Shareholders to authorize the Board, in its sole discretion, to effect a Share Consolidation
(or reverse stock split), at an exchange ratio of not less than 1-for-5 and not greater than 1-for-10 (the “
Exchange Ratio
”),
as shall be determined in the sole discretion of the Board, on the terms described in this Circular. A more detailed discussion
of the Share Consolidation is presented below.
The Board’s primary objective in seeking authority to effect
a Share Consolidation is to increase the per-Share trading price of the Shares. The Board believes that the low market price of
the Shares impairs the Company’s marketability and acceptance by institutional investors and other members of the investing
public and creates a negative impression of the Company. Theoretically, decreasing the number of Shares outstanding should not,
by itself, affect the marketability of the Shares, the type of investor who would be interested in acquiring them, or the Company’s
reputation in the financial community. In practice, however, many investors and market makers consider low-priced shares as unduly
speculative in nature and, as a matter of policy, avoid investment and trading in such shares. The presence of these negative perceptions
may adversely affect not only the pricing of the Shares but also the trading liquidity. In addition, these perceptions may affect
the Company’s commercial business and the Company’s ability to raise additional capital through equity and debt financings.
The Board will determine whether to effect a Share Consolidation and, if so, pursuant to which Exchange Ratio, based upon a number
of market and business factors deemed relevant by the Board at that time, including, but not limited to:
|
|
(i)
|
historical trading price and volumes of the Shares;
|
|
|
(ii)
|
existing marketability and liquidity of the Shares and the expected impact of a Share Consolidation
on the trading market, including the anticipated post-split market price, for the Shares;
|
|
|
(iii)
|
potential business and strategic alternatives, if any, that are available to the Company at that
time; and
|
|
|
(iv)
|
stock market and economic conditions.
|
If the Board elects to effect a Share Consolidation, the Company
shall issue a press release announcing the terms, Exchange Ratio and effective date of the Share Consolidation before the Company
files an amendment to the articles of continuance with the authorities that administer the CBCA.
The following table contains examples of approximate information,
as of October 22, 2018, relating to the impact of the Share Consolidation on the Shares based on certain of the Exchange Ratios
available for selection by the Board, without giving effect to any adjustments for fractional Shares:
|
Status
|
|
Number of Shares Issued and Outstanding (1)
|
|
Number of Shares Reserved for Future Issuance (2)
|
|
Total
Number of Shares Fully Diluted
|
|
Pre-Consolidation
|
|
491,330,595
|
|
50,702,636
|
|
542,033,231
|
|
Post-Consolidation 1:5 ratio
|
|
98,266,119
|
|
10,140,527
|
|
108,406,646
|
|
Post-Consolidation 1:6 ratio
|
|
81,888,433
|
|
8,450,439
|
|
90,338,872
|
|
Post-Consolidation 1:7 ratio
|
|
70,190,085
|
|
7,243,234
|
|
77,433,319
|
|
Post-Consolidation 1:8 ratio
|
|
61,416,324
|
|
6,337,830
|
|
67,754,154
|
|
Post-Consolidation 1:9 ratio
|
|
54,592,288
|
|
5,633,626
|
|
60,225,915
|
|
Post-Consolidation 1:10 ratio
|
|
49,133,060
|
|
5,070,264
|
|
54,203,323
|
|
(1)
|
Number of Shares Issued and Outstanding does not take into account the treatment of any fractional Shares. See “Treatment of fractional shares.”
|
|
(2)
|
Shares reserved for issuance pursuant to outstanding options and warrants.
|
Upon implementation of the Share Consolidation, the number of Shares
that are issued and outstanding would immediately and automatically be reduced, as of the effective date of the Share Consolidation,
by a factor equal to the Exchange Ratio and the number of Shares subject to outstanding options and warrants would be reduced proportionately
and the respective exercise prices would be increased proportionately.
For example, on October 22, 2018, there were 491,330,595 Shares
issued and outstanding and 50,702,636 Shares reserved for issuance pursuant to outstanding options and warrants resulting in a
542,033,231 shares on a fully diluted basis. If the Exchange Ratio selected by the Board is 1-for-5, after the Share Consolidation,
there would be 98,266,119 Shares issued and outstanding and 10,140,527 Shares reserved for issuance pursuant to outstanding Options
and warrants resulting in 108,406,646 Shares on a fully diluted basis.
A Share Consolidation would affect all Shareholders uniformly and
would have no effect on the proportionate holdings of any individual Shareholder, with the exception of adjustments related to
the treatment of fractional Shares (as described below).
Additional Information About the Share Consolidation
Potential Benefits of the Share Consolidation
In addition to an increase in the number of authorized and unissued
Shares that would result from implementing a Share Consolidation, there are other considerations affecting the Board’s decision
to seek approval from Shareholders to effect a Share Consolidation:
Increased Share Price
If the Board determines to implement a Share Consolidation, the
price per Share would increase, at least initially, which could return the Share price to a more favorable level. An increase in
the per-Share cost of the Shares should enhance the acceptability and marketability of the Shares to the financial community and
investing public. Many institutional investors have policies prohibiting them from holding lower-priced shares in their portfolios,
which reduces the number of potential buyers for the Shares. If the Shares traded at a higher price, the Company could potentially
meet investing guidelines of institutional investors and investment funds who do not currently consider the Shares to be an eligible
investment.
Moreover, advisors and analysts at many broker-dealers are reluctant
to recommend lower-priced shares and do not as a practice follow the trading activity of lower-priced shares, or if they do follow
lower-priced shares frequently require additional monitoring activities.
Increasing the Company’s Share price may make it easier for
individual brokers to recommend the Shares, which could generate increased interest in the Shares. If the Company were to generate
increased interest in the Shares, the Company anticipates that the Shares potentially would have greater liquidity. However, there
can be no assurance that a Share Consolidation would result in any increased interest in the Shares, or that the Shares would achieve
a price level that would meet investing guidelines of institutional investors who have not considered investing in the Shares.
Reduced Trading Expense
As investors tend to pay commissions based on the number of shares
traded, commissions on lower-priced shares generally represent a higher percentage of the share price than commissions on higher-priced
shares. As a result, investors in lower-priced shares pay transaction costs which are a higher percentage of their total value,
which may limit interest in the Shares. If the Company were successful in raising the price per Share, the Company’s investors
could potentially incur lower transaction costs in trading the Shares, although Shareholders who hold odd-lot positions (less than
100 Shares) after a Share Consolidation could experience increased transaction costs in selling their Shares.
Effects of the Share Consolidation
Effect of a Share Consolidation on the Company’s outstanding
Shares
A Share Consolidation will be effective immediately and without
further action by Shareholders upon the filing of an amendment to the Company’s articles of continuance. Individual Shareholders
will own fewer Shares after a Share Consolidation, equal to the number of Shares owned prior to the Share Consolidation divided
by the Exchange Ratio selected by the Board, subject to the Company’s treatment of fractional Shares. A Share Consolidation
will not change the number of Shareholders of record, although it may increase the number of Shareholders holding odd-lot positions
in the Shares. Following a Share Consolidation, all Shares will remain fully paid and non-assessable.
Following a Share Consolidation, the value of the Shares as designated
on the Company’s consolidated balance sheet will be decreased proportionately based on the Exchange Ratio with a corresponding
increase in additional paid-in capital. “Earnings per share” would increase proportionately as a result of the Share
Consolidation since there would be fewer Shares outstanding. In future financial statements, “earnings per share” for
periods ending before the Share Consolidation would be recast to give retroactive effect to the Share Consolidation. The Company
does not anticipate any other material accounting consequence would arise as a result of the Share Consolidation.
As Shareholders have no pre-emptive rights to purchase or subscribe
for any Shares, the future issuance of additional Shares will reduce the Company’s current Shareholders’ percentage
ownership interest in the total outstanding Shares. An increase in the number of issued and outstanding Shares in the absence of
a proportionate increase in the Company’s future earnings and book value would dilute the Company’s projected future
earnings per share, if any, and book value per share of all outstanding Shares. If these factors were reflected in the price per
share of the Shares, the potential realizable value of a Shareholder’s investment could be adversely affected.
While the potential effects of a Share Consolidation are expected
to be similar prior to and after giving effect to the Redomicile, contemplated changes in the Company’s capital structure
in connection with the Redomicile will lead to certain effects being realized if a Share Consolidation is completed prior to giving
effect to the Redomicile that will not be present if a Share Consolidation is completed prior to giving effect to the Redomicile.
Treatment of fractional Shares
No fractional Shares will be issued as a result of the Share Consolidation.
Shareholders who otherwise would be entitled to receive a fractional Share because they hold a number of Shares not evenly divisible
by the Exchange Ratio selected by the Board will automatically be entitled to receive an additional fraction of a Share to round
up to the next whole Share.
Effect of the Share Consolidation on options, restricted stock
awards and warrants
The number of Shares subject to outstanding options, restricted
stock awards and warrants will automatically be adjusted by a factor equal to the Exchange Ratio applied for the Share Consolidation
and in accordance with their terms.
No dissenters’ or appraisal rights
Under CBCA, Shareholders are not entitled to dissenters’ or
appraisal rights in connection with the proposed amendment to the Company’s articles of continuance to implement the Share
Consolidation. If the Company implements the Share Consolidation, the Company will not independently make such rights available
to the Company’s Shareholders.
Interests of Directors and Executive Officers in the Share Consolidation
The Company’s directors and executive officers, and their
associates, have no substantial interest, directly or indirectly, in the matters set forth in the Share Consolidation proposal
except to the extent of their ownership of Shares or options to purchase Shares.
Procedures to Implement the Share Consolidation
The Share Consolidation will occur on the date that the amendment
to the Company’s articles of continuance effecting the Share Consolidation is filed with the authorities that administer
the CBCA, unless otherwise specified in such amendment, without any action on the part of the Shareholders and without regard to
the date that any share certificates representing the Shares prior to the Share Consolidation are physically surrendered for new
share certificates.
Exchange of book-entry shares
If the Board implements the Share Consolidation, Shareholders whose
Shares are uncertificated and held in “street name” with a broker, either as direct or beneficial owners, will have
their holdings electronically adjusted by their brokers to give effect to the Share Consolidation.
Exchange of Shares held in certificate form
SHAREHOLDERS SHOULD NOT DESTROY ANY SHARE CERTIFICATES AND SHOULD
NOT SUBMIT THEIR SHARE CERTIFICATES UNTIL THEY RECEIVE A LETTER OF TRANSMITTAL FROM THE COMPANY’S TRANSFER AGENT
.
As soon as practicable after the effective date, the Company’s
transfer agent, acting as exchange agent, will mail to each Shareholder of record whose Shares are held in certificate form a letter
of transmittal to be used in forwarding their share certificates for surrender and exchange for the whole number of new Shares
that such Shareholder is entitled to receive as a result of the Share Consolidation. No new share certificates will be issued to
a Shareholder until the Shareholder has surrendered their outstanding share certificate(s) together with the properly completed
and executed letter of transmittal.
Certain Risks Related to the Share Consolidation
If a Share Consolidation is effected, there is no assurance that
the Company’s market price will remain above $0.25, and the total value of the Company’s outstanding shares may decline.
If the Board determines that a Share Consolidation is in the best
interests of the Company and Shareholders, the Board will set the Exchange Ratio with the intent of raising the price per Share
above $0.25. However, there is no assurance that after the Share Consolidation is completed, the Shares will maintain its Share
Consolidation adjusted price. As a result, the Company’s Share price could trade below the $0.25 price. Moreover, a decline
in the market price of the Shares after a Share Consolidation may result in a greater percentage decline than would occur in the
absence of a Share Consolidation.
Similarly, the total value of the Company’s outstanding Shares
(market capitalization) immediately after a Share Consolidation may be lower than immediately before a Share Consolidation, and/or
the total market capitalization may decline. If trading activity following a Share Consolidation has the effect of reducing the
total market capitalization of the Company, the Company may be unable to fund the Company’s activities, resulting in reductions
in Shareholders’ equity.
There are numerous risks and uncertainties that could affect the
value of the Shares after a Share Consolidation including without limitation risks and uncertainties related directly to the Company,
including, without limitation, the status of the Company’s development programs, the Company’s cash position and results
of operations in future periods, and the Company’s ability to attract and retain key executive management and professional
personnel, as well as other factors such as market conditions as a whole and the general economic environment. Even though a Share
Consolidation would not directly impact the Company’s capital, cash position, or the number of Shareholders, there may be
share-consolidation-related trading activity that may have the effect of depressing the market price of the Shares and the Company’s
market capitalization. For these reasons, if the Board implements a Share Consolidation, the market price of the Shares will likely
not be sustainable at the arithmetic result obtained by applying the Exchange Ratio of the Share Consolidation by the market price
of the Shares immediately prior to the effective date of the Share Consolidation, and the percentage decline in the Company’s
market value may be greater than would occur in the absence of a Share Consolidation. If the market price of the Shares declines
after the Share Consolidation, the Company’s total market capitalization (the aggregate value of all of the Company’s
outstanding Shares at the then existing market price) after the Share Consolidation will be lower than before the Share Consolidation.
A Share Consolidation may reduce liquidity and increase volatility
of the Shares.
Following a Share Consolidation, the number of Shares available
for trading in the public market will be reduced by a factor equal to the Exchange Ratio. This reduction in Shares could result
in depressed trading activity, fewer market makers and less interest in the Shares. This could result in increased volatility and
adversely affect liquidity of the Shares.
In addition, investors might consider the increased proportion of
unissued authorized Shares to issued Shares to have an anti-takeover effect under certain circumstances, since the proportion allows
for dilutive issuances that could prevent certain Shareholders from changing the composition of the Board or render tender offers
for a combination with another entity more difficult to successfully complete. The Board does not intend for the Share Consolidation
to have any anti-takeover effects
Recommendation
The Board recommends that Shareholders vote “FOR”
the approval of the Share Consolidation and amending the articles of continuance of the Company to effect the Share Consolidation
at the discretion of the Board as outlined above.
Share Consolidation Resolution
The special resolution approving the Share Consolidation (the “
Share
Consolidation Resolution
”) must be approved by at least two-thirds of the votes cast by Shareholders present in person
or represented by proxy at the Meeting or any adjournment or postponement thereof.
The text of the Share Consolidation Resolution to be submitted to
Shareholders at the Meeting is set forth below:
“
BE IT RESOLVED THAT:
|
|
1.
|
the
amendment to the articles of continuance of the Company, to be completed at the Board’s sole discretion, to effect a share
consolidation (reverse stock split) of the Company’s outstanding common shares in a ratio of between one-for-five and one-for-ten
at any time prior to the one year anniversary of the date hereof, without further shareholder approval; provided that all fractional
common shares as a result of the split shall be automatically rounded up to the next whole common share, is hereby authorized
and approved; and
|
|
|
2.
|
any
one director or officer of the Company be and is hereby authorized and directed to execute and deliver for and in the name of
and on behalf of the Company, whether under its corporate seal or not, all such certificates, instruments, agreements, documents
and notices and to do all such other acts and things as in such person’s opinion as may be necessary or desirable for the
purpose of giving effect to these resolutions.”
|
Proxies received in favour of management will be voted in favour
of the Share Consolidation Resolution, unless the Shareholder has specified in the proxy that his, her or its Shares are to be
voted against the Share Consolidation Resolution.
APPROVAL OF NEW STOCK OPTION PLAN
The Company’s current equity-based
compensation plan is the existing stock option plan (the “
Stock Option Plan
”). The Board has adopted, subject
to shareholder approval, a new 10% rolling stock option plan of the Company (the “
New Stock Option Plan
”). The
Board determined it was appropriate to adopt the New Stock Option Plan primarily to bring the Company’s incentive plans in
line with incentive plans of the Company’s peers in Canada.
At the Meeting or any adjournment or postponement
thereof, Shareholders will be asked to pass an ordinary resolution to ratify, confirm and approve the New Stock Option Plan (the
“
New Stock Option Plan Resolution
”).
In the event that Shareholders approve
the New Stock Option Plan Resolution: (i) all options issued under the current Stock Option Plan shall remain outstanding and continue
to be governed by the terms and conditions of the Stock Option Plan; (ii) no further awards shall be granted under the current
Stock Option Plan; and (iii) the New Stock Option Plan will replace the current Stock Option Plan as the Company’s primary
incentive plan.
Further, in the event that Shareholders
approve the New Stock Option Plan Resolution, the maximum number of Shares available at all times for issuance pursuant to the
New Stock Option Plan or any other security based compensation arrangement (pre-existing or otherwise) shall not exceed 10% of
the issued and outstanding Shares. As of the date hereof, 10% of the issued and outstanding Shares is equal to 49,133,059. After
deducting 36,550,000 Shares which are reserved for issuance pursuant to outstanding options under the current Stock Option Plan,
there would be up to 12,583,059 Shares available for future issuance pursuant to grants of Options under the New Stock Option Plan,
representing approximately 2.5% of the issued and outstanding Shares, assuming no options are exercised, settled, cancelled or
terminated.
The TSX has conditionally approved the
New Stock Option Plan, subject to the receipt by the Company of, among other things, evidence of Shareholder approval.
New Stock Option Plan
The following is a summary of the key terms
of the New Stock Option Plan, which summary is qualified in its entirety by the full terms of the New Stock Option Plan attached
as Appendix “C” to this Circular.
The principal purposes of the New Stock Option Plan is to secure
for the Company and its Shareholders the benefits of incentive inherent in the share ownership by issuing options (“
Options
”)
to the employees (including part-time employees), directors or officers of the Company or any of its subsidiaries or affiliates,
management company employees, consultants, and service providers (“
Optionees
”) who, in the judgment of the Board,
will be largely responsible for its future growth and success. It is generally recognized that a stock option plan of the nature
provided for in the New Stock Option Plan aids in retaining and encouraging persons of exceptional ability because of the opportunity
offered them to acquire a proprietary interest in the Company.
The maximum number of Shares available at all times for issuance
under the New Stock Option Plan or any other security based compensation arrangements (pre-existing or otherwise) shall not exceed
10% of the issued and outstanding Shares at the time of grant. Any increase in the number of issued and outstanding Shares will
result in an increase in the number of Shares issuable under the New Stock Option Plan. The New Stock Option Plan is an “evergreen”
plan and accordingly, any issuance of Shares from treasury, including issuances of Shares in respect of which Options are exercised,
and any expired or cancelled Options, shall automatically replenish the number of Options issuable under the New Stock Option Plan.
The exercise price per Share under an Option shall be determined
by the Board, but, in any event, shall not be lower than the market price of the Shares on the date of grant of the Options, being
the closing price of the Shares on the TSX (or if the Shares are not then listed on the TSX, on the principal stock exchange on
which such Shares are traded, on the trading day of the Option grant)(the “
Market Price
”). In the event that
the Shares are not then listed and posted for trading on a stock exchange, the Market Price shall be the fair market value of such
Shares as determined by the Board in its sole discretion.
The exercise price per Share under an Option shall be determined
by the Board, but, in any event, shall not be lower than the market price of the Shares on the date of grant of the Options.
The period within which Options may be exercised and the number
of Options which may be exercised in any such period are determined by the Board at the time of granting the Options provided,
however, that the maximum term of any Options awarded under the New Stock Option Plan is ten (10) years from the date of the Option
grant.
In the event that the expiry of an Option falls within, or within
two (2) days of, a trading blackout period imposed by Company, the expiry date of the Option shall be automatically extended to
the tenth business day following the end of the blackout period.
An Optionee will have, in all cases subject to the original Option
expiry date and any determination otherwise by the Board:
|
|
·
|
In the event of retirement or resignation, a 12-month period to exercise his or her Options, which
will automatically vest;
|
|
|
·
|
In the event of the death or disability of an Optionee, a 12-month period to exercise his or her
Options, which will automatically vest;
|
|
|
·
|
In the event of termination without cause of an Optionee, the Optionee will have 12 months to exercise
his or her Options which have vested, but any unvested Options will become void; and
|
|
|
·
|
In the event of termination with cause, Options shall become void, except as may be set out in
the Optionee’s Option commitment or as otherwise determined by the Board in its sole discretion.
|
In the event of a change of control, the vesting of all Options
and the time for the fulfilment of any conditions or restrictions on such vesting shall be accelerated to a date or time immediately
prior to the effective time of the change of control, and the Board, in its sole discretion, may authorize and implement any one
or more of the following additional courses of action:
|
|
·
|
Terminating without any payment or other consideration, any Options not exercised or surrendered
by the effective time of the change of control;
|
|
|
·
|
Causing the Company to offer to acquire from each Optionee his or her Options for a cash payment
equal to the in-the-money amount, and any Options not so surrendered or exercised by the effective time of the change of control
will be deemed to have expired; and
|
|
|
·
|
An Option granted under the New Stock Option Plan be exchanged for an option to acquire, for the
same exercise price, that number and type of securities as would be distributed to the Optionee in respect of the Shares issued
to the Optionee had he or she exercised the Option prior to the effective time of the change of control, provided that any such
replacement option must provide that it survives for a period of not less than one (1) year from the effective time of the change
of control, regardless of the continuing directorship, officership or employment of the Optionee.
|
For great certainty, and notwithstanding anything else to the contrary
contained in the New Stock Option Plan, the Board may, in its sole discretion, in any change of control which may or has occurred,
make such arrangements as it deems appropriate for the exercise of issued and outstanding Options including, without limitation,
the power to modify the terms of the New Stock Option Plan and/or the Options as contemplated above. If the Board exercises such
power, the Options shall be deemed to have been amended to permit the exercise thereof in whole or in part by the Optionee at any
time or from time to time as determined by the Board prior to or in conjunction with completion of the change of control.
The grant of Options under the New Stock Option Plan is subject
to a restriction such that the number of Shares: (i) issued to insiders of Company, within any one-year period, and (ii) issuable
to insiders of Company, at any time, under the New Stock Option Plan, or when combined with all of Company’s other security
based compensation arrangements, shall not exceed 10% of Company’s total issued and outstanding Shares, respectively.
The Board may delegate, to the extent permitted by applicable law
and by resolution of the Board, its powers under the New Stock Option Plan to the Compensation Committee, or such other committee
as the Board may determine from time to time, such committee consisting of no less than two (2) members.
Options are not assignable or transferable other than by will or
by the applicable laws of descent. During the lifetime of an Optionee, all Options may only be exercised by the Optionee.
The amendment provisions of the New Stock Option Plan provide the
Board with the power, subject to the requisite regulatory approval, to make the following amendments to the provisions of the New
Stock Option Plan and any Option commitment without Shareholder approval (without limitation):
|
|
·
|
Amendments of a housekeeping nature,
|
|
|
·
|
Additions or changes to any vesting provisions of an Option,
|
|
|
·
|
Changes to the termination provisions of an Option or the New Stock Option Plan which do not entail
an extensions beyond the original expiry date,
|
|
|
·
|
Addition of a cashless exercise feature, payable in cash or securities, whether or not providing
for a full deduction of the number of underlying Shares from the New Stock Option Plan reserves, and
|
|
|
·
|
Amendments to reflect changes to applicable securities or tax laws.
|
However, any of the following amendments require Shareholder approval:
|
|
·
|
Reducing the exercise price of an Option, cancelling and reissuing an Option, or cancelling an
Option in order to issue an alternative entitlement,
|
|
|
·
|
Amending the term of an Option to extend the term beyond its original expiry date,
|
|
|
·
|
Materially increasing the benefits to the holder of Options who is an insider to the material detriment
of Company and the Shareholders,
|
|
|
·
|
Increasing the number of Shares or maximum percentage of Shares which may be issued pursuant to
the New Stock Option Plan (other than by virtue of adjustments permitted under the New Stock Option Plan),
|
|
|
·
|
Permitting Options to be transferred other than for normal estate settlement purposes,
|
|
|
·
|
Removing or exceeding of the insider participation limits,
|
|
|
·
|
Materially modifying the eligibility requirements for participation in the New Stock Option Plan,
or
|
|
|
·
|
Modifying the amending provisions of the New Stock Option Plan.
|
Recommendation
The Board recommends that Shareholders vote FOR the New Stock
Option Plan Resolution.
New Stock Option Plan Resolution
The New Stock Option Plan Resolution must be approved by at least
a majority of the votes cast by Shareholders present in person or represented by proxy at the Meeting or any adjournment or postponement
thereof.
The text of the New Stock Option Plan Resolution to be submitted
to Shareholders at the Meeting is set forth below:
“
BE IT RESOLVED THAT:
|
|
1.
|
the
new 10% rolling stock option plan of the Company, the full text of which are set forth in Appendix “C” of the Circular,
is hereby ratified, confirmed and approved; and
|
|
|
2.
|
the
ability of the Company to continue to grant options under the New Stock Option Plan until December 4, 2021, which is the date
that is three (3) years from the date hereof, is hereby authorized and approved; and
|
|
|
3.
|
any
one director or officer of the Company be and is hereby authorized and directed to execute and deliver for and in the name of
and on behalf of the Company, whether under its corporate seal or not, all such certificates, instruments, agreements, documents
and notices and to do all such other acts and things as in such person’s opinion as may be necessary or desirable for the
purpose of giving effect to these resolutions.”
|
Proxies received in favour of management will be voted in favour
of the New Stock Option Plan Resolution, unless the Shareholder has specified in the proxy that his, her or its Shares are to be
voted against the New Stock Option Plan Resolution.
OTHER MATTERS WHICH MAY COME BEFORE THE MEETING
Management knows of no matters to come before the Meeting other
than the matters referred to in the notice of Meeting. Receipt at the Meeting of reports to the Directors and auditors and the
Company’s financial statements for its last completed financial year and the auditors’ report thereon will not constitute
approval or disapproval of any matters referred to therein. If any matters which are not now known should properly come before
the Meeting, the accompanying form of proxy will be voted on such matters in accordance with the best judgment of the person voting
it.
STATEMENT OF EXECUTIVE COMPENSATION
Under National Instrument 51-102 –
Continuous Disclosure
Obligations
(“
NI 51-102
”) and in accordance with Form 51-102F6 –
Statement of Executive Compensation
,
requires the disclosure of certain financial and other information relating to the compensation of the Chief Executive Officer
(“
CEO
”), Chief Financial Officer (“
CFO
”) and the three most highly compensated executive
officer, other than the CEO and CFO, who was serving as an executive officer at the end of financial year ended June 30, 2018 and
whose total compensation exceeded CAD$150,000, for that financial year (collectively, “
NEO
” or the “
Named
Executive Officers
”) and of the directors of the Company.
As of the year-ended June 30, 2018 the Company had four individuals
that qualified as NEOs: Craig Scherba, President and CEO, Marc Johnson, CFO, Robin Borley, SVP, and Brent Nykoliation, SVP. The
remaining directors of the Company are John Sanderson, Quentin Yarie, Dean Comand and Dalton Larson.
Compensation Discussion and Analysis
The objectives of the compensation program is to balance the need
to offer competitive compensation compared to peer companies in the mining industry and with comparably sized companies at a similar
stage of development in order to attract and retain high-calibre executives against the need to provide compensation programs that
are fair and reasonable from the perspective of shareholders.
The Company compensation program has been designed to achieve the
following key objectives:
|
|
1.
|
Recruit and Retain High-Calibre Executive Management
|
The Company structures its executive compensation so that
it can continue to attract, retain and motivate key executives in Canada and South Africa in a highly competitive mining industry.
|
|
2.
|
Providing Fair and Competitive Compensation
|
The Company has established executive compensation principles
and formalized a compensation policy for its executive officers. The executive compensation program is designed to provide fair
and competitive compensation through the following elements of compensation: (i) a competitive cash compensation consisting of
base salary, milestone-based performance bonuses and certain perquisites and (ii) providing an opportunity to participate in the
Company’s long-tertm growth through the grant of Options.
|
|
3.
|
Balancing the Interests of Executive Management and Shareholders of the Company
|
The executive compensation program aligns the interests
of executive management with the interests of the shareholders through the following elements: (i) the opportunity for executives
to achieve contractual bonuses based the achievement of specific project development milestones and (ii) the grant of stock options,
which if the price of the Company’s Shares increase over time, both executives and shareholders will benefit.
The compensation program is designed to reward the advancement of
the Company’s development projects and the long-term appreciation of the Company’s Share price.
The basic elements of the compensation progam are base salary, annual
incentive bonuses and long-term stock-option incentives.
Base Salary
On an individual basis, base salaries are reviewed for each executive
officer, including the CEO, and where it is deemed necessary, changes are made. In order to ensure that base salaries paid are
competitive relative to other similar positions within the mining industry in Canada and South Africa, surveys of such salaries
are examined. Other considerations taken into account when examining base salaries include years of experience, the potential contribution
which the individual can make to the success of the Company and the level of responsibility and authority inherent in the job and
the importance of maintaining internal equity within the organization.
Annual Incentives
The Compensation Committee may recommend bonuses be paid to executive
officers of the Company when their performance warrants additional consideration. There is currently no annual bonus plan but the
NEO’s are eligible for certain discretionary performance bonuses linked to achieving Company milestones:
|
|
·
|
The CEO and SVP Corporate Development will earn performance bonuses linked to the closing of a
definitive offtake agreement and the commencement of mining and commissioning of the processing plant (payable 6 months after commencement).
|
|
|
·
|
The CFO earned a performance bonus linked to completion of the redomicile and will earn performance
bonuses linked to completion of a share consolidation and the commencement of mining and commissioning of the processing plant
(payable 6 months after commencement).
|
|
|
·
|
The SVP Mining will earn performance bonuses linked to the receipt of a valid mining permit, the
start of plant construction (initiation of siteworks) and the commencement of mining and commissioning of the processing plant
(payable 6 months after commencement).
|
Option-Based Incentives
Options to purchase the Shares of the Company encourage executive
officers to own and hold the Company’s Shares and are a method of linking the performance of the Company and the appreciation
of share value to the compensation of the executive officer. When determining the number of options granted to an executive officer,
items such as the relative position of the individual officer, the contribution made by that officer during the review period and
the number of options granted previously would be taken into consideration.
The Compensation Committee recommends option grants to the Board.
Pursuant to the current Stock Option Plan, the Company’s Board grants options to directors, executive officers, other employees
and consultants as incentives. The level of stock options awarded to a Named Executive Officer (as hereinafter defined) is determined
by his position and his potential future contributions to the Company.
Other Compensation – Perquisites
Perquisites such as health benefits and other usual perquisites
may be provided for executives in accordance with local practices in order.
Associated Risks
The Compensation Committee has discussed the implications of the
risks associated with the Company’s compensation policies and practices. The Compensation Committee works with management
of the Company to determine the risk oversight principles.
The Company has not adopted a policy that prevents the executive
officers and directors of the Company to purchase financial instruments, including, prepaid variable forward contracts, equity
swaps, collars or units of exchange funds, that are designed to hedge or offset a decrease in market value of equity securities
granted as compensation or held, directly or indirectly, by the executive officer or director
Summary Compensation Table
The following table is a summary of the compensation paid, directly
or indirectly, to the Named Executive Officers and directors of the Company for the three most recently completed financial years
ended June 30, 2018.
|
Name and
Principal
Position
|
Fiscal Year
|
Salary and Consulting Fees
($)
|
Option-Based Awards
($)
(1)
|
Non-Equity Incentive Plan Compensation
($)
|
Pension Value
($)
|
All Other Compensation
($)
(2)
|
Total Compensation
($)
|
Craig Scherba,
CEO, President and Director
(A)
|
2018
|
188,586
|
Nil
|
Nil
|
Nil
|
Nil
|
188,586
|
|
2017
|
139,870
|
90,240
|
Nil
|
Nil
|
Nil
|
230,110
|
|
2016
|
88,015
|
37,049
|
Nil
|
Nil
|
Nil
|
125,064
|
|
Marc Johnson,
CFO
(B)
|
2018
|
141,346
|
Nil
|
16,000
|
Nil
|
1,622
|
158,968
|
|
2017
|
128,860
|
82,720
|
Nil
|
Nil
|
Nil
|
211,580
|
|
2016
|
51,784
|
29,249
|
Nil
|
Nil
|
Nil
|
81,033
|
|
Robin Borley,
SVP Mining and Director
(C)
|
2018
|
196,800
|
Nil
|
Nil
|
Nil
|
Nil
|
196,800
|
|
2017
|
196,800
|
82,720
|
Nil
|
Nil
|
Nil
|
279,520
|
|
2016
|
204,800
|
29,249
|
Nil
|
Nil
|
Nil
|
234,049
|
|
Brent Nykoliation, SVP Corporate Development
(D)
|
2018
|
141,440
|
Nil
|
Nil
|
Nil
|
1,705
|
143,145
|
|
2017
|
132,594
|
82,720
|
Nil
|
Nil
|
Nil
|
215,314
|
|
2016
|
129,027
|
29,249
|
Nil
|
Nil
|
Nil
|
158,276
|
|
|
(A)
|
On July 30, 2015, Mr. Scherba became the Chief Executive Officer. The Company has an employment
agreement with Mr. Scherba, who receives a salary of CAD$20,000 per month. He is eligible to receive specific bonuses linked to
achieving company milestones.
|
|
|
(B)
|
On October 23, 2015, Mr. Johnson became the Chief Financial Officer. The Company has a management
company agreement with Mr. Johnson, who receives consulting fees of CAD$15,000 per month. He is eligible to receive specific bonuses
linked to achieving company milestones. His contract has an 18-month termination notice, which increases to 36 months if within
12 months of a change of control the Company gives notice of its intention to terminate or a triggering event occurs and he elects
to terminate.
|
|
|
(C)
|
The Company has a management company agreement with Mr. Borley, who receives consulting fees of
USD$16,400 per month. He is eligible to receive specific bonuses linked to achieving company milestones. His contract has an 18-month
termination notice, which increases to 36 months if within 12 months of a change of control the Company gives notice of its intention
to terminate or a triggering event occurs and he elects to terminate.
|
|
|
(D)
|
The Company has a management company agreement with Mr. Nykoliation, who receives a salary of CAD$15,000
per month. He is eligible to receive specific bonuses linked to achieving company milestones. His contract has an 18-month termination
notice, which increases to 36 months if within 12 months of a change of control the Company gives notice of its intention to terminate
or a triggering event occurs and he elects to terminate.
|
|
|
(1)
|
These values represent the calculated Black-Scholes theoretical value of granted options. It is
important to note that these granted options may or may not ever be exercised. Whether granted options are exercised or not will
be based primarily, but not singularly, on the Company’s future stock price and whether the granted options become “in-the-money”.
If these granted options are unexercised and expire, the cash value or benefit to the above noted individuals is $nil.
|
|
|
(2)
|
Other compensation includes health benefits and other perquisites.
|
Option-Based Awards - Outstanding
As at June 30, 2018, a total of 15,750,000 options granted to Named
Executive Officers were outstanding pursuant to the current Stock Option Plan, as follows:
|
Name and Principal Position
|
Number of Securities Underlying Unexercised Options Exercisable
(#)
|
Option Exercise Price
(USD$)
|
Option Expiration Date
|
Value of unexercised in-the-money stock options
(USD$
)
(1)
|
|
Craig Scherba
|
180,000
|
0.11
|
July 9, 2018
|
0
|
|
CEO, President
|
500,000
|
0.18
|
January 10, 2019
|
0
|
|
and Director
|
250,000
|
0.15
|
July 3, 2019
|
0
|
|
|
470,000
|
0.20
|
February 26, 2020
|
0
|
|
|
950,000
|
0.056
|
December 22, 2020
|
20,805
|
|
|
2,400,000
|
0.066
|
June 9, 2022
|
28,800
|
|
Marc Johnson
|
750,000
|
0.056
|
December 22, 2020
|
16,425
|
|
CFO
|
2,200,000
|
0.066
|
June 9, 2022
|
26,400
|
|
|
|
|
|
|
|
Robin Borley
|
300,000
|
0.18
|
January 10, 2019
|
0
|
|
SVP Minig and
|
350,000
|
0.20
|
February 26, 2020
|
0
|
|
Director
|
750,000
|
0.056
|
December 22, 2020
|
16,425
|
|
|
2,200,000
|
0.066
|
June 9, 2022
|
26,400
|
|
Brent Nykoliation
|
175,000
|
0.11
|
July 9, 2018
|
0
|
|
SVP Corporate
|
75,000
|
0.15
|
July 19, 2018
|
0
|
|
Development
|
400,000
|
0.18
|
January 10, 2019
|
0
|
|
|
400,000
|
0.15
|
July 3, 2019
|
0
|
|
|
450,000
|
0.20
|
February 26, 2020
|
0
|
|
|
750,000
|
0.056
|
December 22, 2020
|
16,425
|
|
|
2,200,000
|
0.066
|
June 9, 2022
|
26,400
|
|
Total
|
15,750,000
|
|
|
|
|
|
(1)
|
Based on a TSX closing price of USD$0.078 (CAD$0.10) on June 30, 2018 and presuming all options
are exercised.
|
Option-Based Awards – Value Vested or Earned During the Year
The value vested for option and share based awards and the value
earned for non-equity incentive plans during the year ending June 30, 2018 are as follows:
|
Name and
Principal
Position
|
Option-based awards
value vested
during the
year
($)
|
Share-based awards
value vested
during the
year
($)
|
Non-equity
incentive plan compensation
value earned
during the year
($)
|
Craig Scherba,
CEO, President and Director
|
Nil
|
Nil
|
Nil
|
|
Marc Johnson,
CFO
|
Nil
|
Nil
|
16,000
|
|
Robin Borley,
SVP Mining and
Director
|
Nil
|
Nil
|
Nil
|
|
Brent Nykoliation,
SVP Corporate
Development
|
Nil
|
Nil
|
Nil
|
Performance Graph
The following table and graph compares the cumulative total shareholder
return for CDN$100 invested in Shares of the Company on June 30, 2013 against the cumulative total shareholder return of the S&P/TSX
Capped Materials Index and the S&P/TSX Composite Index to June 30, 2018.
|
June
30
|
2013
|
2014
|
2015
|
2016
|
2017
|
2018
|
|
NextSource
Shares
|
CAD$100
|
CAD$116.67
|
CAD$83.33
|
CAD$66.67
|
CAD$50.00
|
CAD$83.33
|
|
S&P/TSX Capped
Materials Index
|
CAD$100
|
CAD$115.46
|
CAD$97.25
|
CAD$112.66
|
CAD$102.49
|
CAD$113.26
|
|
S&P/TSX Composite
Index
|
CAD$100
|
CAD$124.45
|
CAD$122.09
|
CAD$115.95
|
CAD$125.17
|
CAD$134.20
|
The Company was affected by the mining industry slowdown from 2014
to 2015 but failed to recover in 2016 due to continued weakness in the price of graphite during this period. The price of the Shares
of the Company has improved significantly since mid 2017 due to the improvement in the price of graphite and the achievement of
company-specific milestones in 2017 and 2018, which included completion of the Molo Graphite Project Feasibility Study in mid-2017
and the redomicile of the Company to Canada in late 2017.
Concurrent with the submission of the mining permit for the Molo
Graphite Project to the Government of Madagascar in early 2017, the Compensation Committee renegotiated the employment and consulting
contracts of the executive officers. As a result, the Company’s Share price trend shown by the graph above coincides with
the increase in the Company’s compensation to executive officers reported under this form for the same period.
Option-Based Awards
The Compensation Committee reviews on an annual basis the cash compensation,
performance and overall compensation package for each of the President and Chief Executive Officer, Chief Financial Officer, and
the Senior Vice Presidents. It then submits to the Board recommendations with respect to the basic salary, bonus and participation
in the Stock Option Plan for such executive officers.
Prior to approving any grantes of options, the Board considers the
unexercised options already granted to the individual, timing of the expirations of those options and the likelihood that those
options may become exercisable relative to the stock price performance.
Compensation Governance
The Company has established a Compensation Committee to determine
the appropriate compensation for the Company’s directors and officers. The Compensation Committee has a charter, a copy of
which is available on the Company’s website at www. http://nextsourcematerials.com. The Compensation Committee determines
compensation based on industry standards, the employee or consultant’s level of experience, and the Company’s financial
situation.
The Compensation Committee consists of Dalton Larson (Chair), John
Sanderson and Dean Comand. All members are independent as per the standards of National Instrument 58-101. During fiscal 2018,
the Compensation Committee met four times in person or by telephone.
The Compensation Committee reviews on an annual basis the cash compensation,
performance and overall compensation package for each of the President and Chief Executive Officer, Chief Financial Officer, and
the Senior Vice Presidents. It then submits to the Board recommendations with respect to the basic salary, bonus and participation
in the Stock Option Plan for such executive officers.
The Compensation Committee agrees annually and on an as needed basis
with input from management, on the specific work to be undertaken by the Compensation Committee.
Relevant Education and Experience
The skills and experience relevant to the members of the Compensation
Committee is summarized above for each member under the heading “Biographies of the Nominated Directors of the Company”.
Termination And Change Of Control Benefits
The following are the material termination and change of control
benefits payable in respect of services provided to the Company or any of its subsidiaries that were performed by a director, NEO
or was performed by any other party but are services typically provided by a director or NEO.
|
|
·
|
The Company has an employment agreement with Mr. Scherba, who receives a salary of CAD$20,000 per
month. He is eligible to receive specific bonuses linked to achieving company milestones. His contract has an 18-month termination
notice, which increases to 36 months if within 12 months of a change of control the Company gives notice of its intention to terminate
or a triggering event occurs and he elects to terminate.
|
|
|
·
|
The Company has a management company agreement with Mr. Johnson, who receives consulting fees of
CAD$15,000 per month. He is eligible to receive specific bonuses linked to achieving company milestones. His contract has an 18-month
termination notice, which increases to 36 months if within 12 months of a change of control the Company gives notice of its intention
to terminate or a triggering event occurs and he elects to terminate.
|
|
|
·
|
The Company has a management company agreement with Mr. Borley, who receives consulting fees of
USD$16,400 per month. He is eligible to receive specific bonuses linked to achieving company milestones. His contract has an 18-month
termination notice, which increases to 36 months if within 12 months of a change of control the Company gives notice of its intention
to terminate or a triggering event occurs and he elects to terminate.
|
|
|
·
|
The Company has a management company agreement with Mr. Nykoliation, who receives a salary of CAD$15,000
per month. He is eligible to receive specific bonuses linked to achieving company milestones. His contract has an 18-month termination
notice, which increases to 36 months if within 12 months of a change of control the Company gives notice of its intention to terminate
or a triggering event occurs and he elects to terminate.
|
Estimated Incremental Payment on Change of Control or Termination
The following table provides details regarding the estimated incremental payments from
the Corporation to each of the NEOs upon termination in connection with a change of control in accordance with the above provisions,
or upon termination without cause, assuming a triggering event occurs on June 30, 2018.
|
Name and
Principal
Position
|
Severance Period
Without / With
Change of Control
(# of months)
|
Base Salary
per Month
(USD$)
(1)
|
Termination Pay Without
Change of Control
(USD$)
|
Termination Pay
with
Change of Control
(USD$)
|
|
Craig Scherba,
CEO, President and Director
|
18 months
(36 months)
|
15,000
|
270,000
|
540,000
|
|
Marc Johnson,
CFO
|
18 months
(36 months)
|
11,250
|
202,500
|
405,000
|
|
Robin Borley,
SVP Mining and Director
|
18 months
(36 months)
|
16,400
|
295,200
|
590,400
|
|
Brent Nykoliation,
SVP Corporate Development
|
18 months
(36 months)
|
11,250
|
202,500
|
405,000
|
(1) Conversion from CAD to USD using an exchange rate of $0.75 USD per CAD.
Director Compensation
The Board, with the recommendation of the compensation committee,
determines the compensation payable to the directors of the Company and reviews such compensation annually.
For the fiscal year ending June 30, 2018, each director was entitled
to (i) a $2,500 monthly fee (the Chairman is entitled to an additional $1,000 monthly fee and each Committee Chair is entitled
to an additional $667 monthly fee); (ii) $nil per day for each meeting attended in person; (iii) $nil for each meeting attended
by telephone upon furnishing an invoice for same; (iv) reimbursement for travel and other meeting-related expenses and (v) may,
from time to time, be awarded stock options under the provisions of the Plan.
There are no other arrangements under which the directors of the
Company were compensated by the Company during the most recently completed financial year end for their services in their capacity
as directors.
Summary Compensation Table
The following table is a summary of the compensation paid, directly
or indirectly, to the directors of the Company whom were not also NEOs for the three most recently completed financial years ended
June 30, 2018.
|
Name and
Principal
Position
|
Fiscal Year
|
Fees
Earned
($)
|
Option-Based Awards
(1)
($)
|
Non-Equity Incentive Plan Compensation
($)
|
Pension Value
($)
|
All Other Compensation
($)
|
Total Compensation
($)
|
|
John Sanderson,
Chairman
(A)
|
2018
|
33,003
|
Nil
|
Nil
|
Nil
|
Nil
|
33,003
|
|
2017
|
13,475
|
90,240
|
Nil
|
Nil
|
Nil
|
103,715
|
|
2016
|
Nil
|
33,149
|
Nil
|
Nil
|
Nil
|
33,149
|
|
Quentin Yarie,
Director
(B)
|
2018
|
29,859
|
Nil
|
Nil
|
Nil
|
Nil
|
29,859
|
|
2017
|
5,775
|
82,720
|
Nil
|
Nil
|
Nil
|
88,495
|
|
2016
|
20,033
|
29,249
|
Nil
|
Nil
|
Nil
|
49,282
|
|
Dean Comand,
Director
(C)
|
2018
|
29,859
|
Nil
|
Nil
|
Nil
|
Nil
|
29,859
|
|
2017
|
9,625
|
82,720
|
Nil
|
Nil
|
Nil
|
92,345
|
|
2016
|
Nil
|
29,249
|
Nil
|
Nil
|
Nil
|
29,249
|
|
Dalton Larson,
Director
(D)
|
2018
|
29,859
|
Nil
|
Nil
|
Nil
|
Nil
|
29,859
|
|
2017
|
12,191
|
86,480
|
Nil
|
Nil
|
Nil
|
98,671
|
|
2018
|
Nil
|
29,249
|
Nil
|
Nil
|
Nil
|
29,249
|
|
V. Peter Harder,
Former Director
(E)
|
2018
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
|
2017
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
|
2018
|
Nil
|
33,149
|
Nil
|
Nil
|
Nil
|
33,149
|
|
Albert Thiess,
Former Director
(F)
|
2018
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
|
2017
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
|
2018
|
Nil
|
29,249
|
Nil
|
Nil
|
Nil
|
29,249
|
|
|
(A)
|
Mr. Sanderson receives chairman fees of CAD$3,500 per month. Mr. Sanderson became Chairman on March
23, 2016.
|
|
|
(B)
|
Mr. Yarie receives director fees of CAD$2,500 per month plus committee chair fees of $667 per month.
During 2016, Mr. Yarie received salary and consulting fees for his services as an employee of the Company and not for his service
as a Director.
|
|
|
(C)
|
Mr. Comand receives director fees of CAD$2,500 per month plus committee chair fees of $667 per
month.
|
|
|
(D)
|
Mr. Larson receives director fees of CAD$2,500 per month plus committee chair fees of $667 per
month.
|
|
|
(E)
|
Mr. Harder resigned as Chairman and Director on March 23, 2016.
|
|
|
(F)
|
Mr. Thiess passed away in April 2017.
|
|
|
(1)
|
These values represent the calculated Black-Scholes theoretical value of granted options. It is
important to note that these granted options may or may not ever be exercised. Whether granted options are exercised or not will
be based primarily, but not singularly, on the Company’s future stock price and whether the granted options become “in-the-money”.
If these granted options are unexercised and expire, the cash value or benefit to the above noted individuals is $nil.
|
Option-Based Awards – Outstanding
As at June 30, 2018, a total of 15,000,000 options granted to directors
who are not Named Executive Officers were outstanding pursuant to the current Stock Option Plan, as follows:
|
Name and Principal Position
|
Number of Securities Underlying Unexercised Options Exercisable
(#)
|
Option Exercise Price
(USD$)
|
Option Expiration Date
|
Value of unexercised in-the- money stock options (CDN$
)
(1)
|
|
John Sanderson,
|
25,000
|
0.11
|
July 9, 2018
|
0
|
|
Chairman
|
50,000
|
0.15
|
July 19, 2018
|
0
|
|
|
400,000
|
0.18
|
January 10, 2019
|
0
|
|
|
200,000
|
0.15
|
July 3, 2019
|
0
|
|
|
350,000
|
0.20
|
February 26, 2020
|
0
|
|
|
850,000
|
0.056
|
December 22, 2020
|
18,615
|
|
|
2,400,000
|
0.066
|
June 9, 2022
|
28,800
|
|
Quentin Yarie,
|
100,000
|
0.11
|
July 9, 2018
|
0
|
|
Director
|
50,000
|
0.15
|
July 19, 2018
|
0
|
|
|
425,000
|
0.18
|
January 10, 2019
|
0
|
|
|
250,000
|
0.15
|
July 3, 2019
|
0
|
|
|
350,000
|
0.20
|
February 26, 2020
|
0
|
|
|
750,000
|
0.056
|
December 22, 2020
|
16,425
|
|
|
2,200,000
|
0.066
|
June 9, 2022
|
26,400
|
|
Dean Comand,
Director
|
400,000
|
0.20
|
February 26, 2020
|
0
|
|
750,000
|
0.056
|
December 22, 2020
|
16,425
|
|
2,200,000
|
0.066
|
June 9, 2022
|
26,400
|
|
Dalton Larson,
Director
|
200,000
|
0.20
|
February 26, 2020
|
0
|
|
750,000
|
0.056
|
December 22, 2020
|
16,425
|
|
2,300,000
|
0.066
|
June 9, 2022
|
27,600
|
|
Total
|
15,000,000
|
|
|
|
|
|
(1)
|
Based on a TSX closing price of USD$0.078 (CAD$0.10) on June 30, 2018 and presuming all options
are exercised.
|
Option and Share Based Awards – Value Vested or Earned During the Year
The value vested for option and share based awards and the value
earned for non-equity incentive plans during the year ending June 30, 2018 are as follows:
|
Name and
Principal
Position
|
Option-based awards
value vested
during the
year
($)
|
Share-based awards
value vested
during the
year
($)
|
Non-equity
incentive plan compensation
value earned
during the year
($)
|
|
John Sanderson
|
Nil
|
Nil
|
Nil
|
|
Quentin Yarie
|
Nil
|
Nil
|
Nil
|
|
Dean Comand
|
Nil
|
Nil
|
Nil
|
|
Dalton Larson
|
Nil
|
Nil
|
Nil
|
STATEMENT OF CORPORATE GOVERNANCE PRACTICES
National Policy 58-201 –
Corporate Governance Guidelines
(“
NP 58-201
”) and National Instrument 58-101 –
Disclosure of Corporate Governance Practices
(“
NI
58-101
”) set out a series of guidelines for effective corporate governance. The guidelines address matters such as the
constitution and independence of corporate boards, the function to be performed by boards and their committees and the effectiveness
and education of board members. NI 58-101 requires the disclosure by each reporting issuer of its approach to corporate governance
with reference to the guidelines as it is recognized that the unique characteristics of individual corporations will result in
varying degrees of conformity. The following disclosure is provided in accordance with the corporate governance disclosure prescribed
by Form 58-101F2 of NI 58-101.
Corporate Governance
The Board and management consider good corporate governance to be
central to the effective and efficient operation of the Company. The Board is committed to sound corporate governance practices,
which are both in the interest of its Shareholders and contribute to effective and efficient decision making.
The role of the Board is to oversee the conduct of the Company's
business, to set corporate policy and to supervise management, which is responsible to the Board for the day-to-day conduct of
business. Material transactions are addressed at the Board level. The Board discharges five specific responsibilities as part of
its stewardship responsibility. These are:
|
|
(1)
|
Strategic Planning Process
: given the Company's size, the strategic plan is carried out
directly by management, with input from and assistance of the Board;
|
|
|
(2)
|
Managing Risk
: the Board directly oversees most aspects of the business of the Company and
thus, does not require elaborate systems or numerous committees to effectively monitor and manage the principal risks of all aspects
of the business of the Company;
|
|
|
(3)
|
Appointing, Training, and Monitoring Senior Management
: no elaborate system of selection,
training and assessment of Management has been established, given the operations and size of the Company; however, the Board closely
monitors Management's performance, which is measured against the overall strategic plan, through reports by and regular meetings
with management;
|
|
|
(4)
|
Communication Policy
: the Company has a Disclosure Committee and formal disclosure policy
allowing it to communicate effectively and accurately with its Shareholders, other stakeholders, and the public generally through
statutory filings and news releases; the Shareholders are also given an opportunity to make comments or suggestions at Shareholder
meetings; these comments and suggestions are then factored into the Board's decisions; and
|
|
|
(5)
|
Ensuring the integrity of the Company's Internal Control and Management Information System
:
given the involvement of the Board in operations, the reports from and the meetings with management, the Board can effectively
track and monitor the implementation of approved strategies.
|
The President and Chief Executive Officer of the Company is a member
of the Board, as is usual given the Company’s size. The Board feels that this is not an impediment to the proper discharge
of its responsibilities. Interaction between members of management and the Board, inside and outside Board meetings, ensures that
the Board is informed and the Board members' experience utilized by management. The Board remains cognizant to corporate governance
issues and seeks to set up structures to ensure the effective discharge of its responsibilities without creating additional costs.
The Board is committed to ensuring the Company’s long-term viability, and the well-being of its employees and of the communities
in which it operates. The Board has also adopted a policy of permitting individual directors, under appropriate circumstances,
to engage legal, financial or other advisors at the Company’s expense. The majority of the Board, when elected, was comprised
of independent directors. See “
Election of Directors
”.
The Board is of the view that the Company’s approach to corporate
governance is appropriate for its current size and resources, but will monitor its approach as it progresses in its business plans.
The Company will periodically monitor and refine such practices as the size and scope of its operations increase. The Board regularly
reviews, evaluates and modifies its governance program to ensure it is of the highest standard. The Board is satisfied that the
Company’s governance plan is consistent with legal and stock exchange requirements.
The Company does not have a policy requiring members of the Board
to attend annual meetings of Shareholders, although the Company typically encourages the Board to attend.
Board of Directors
At the last annual meeting of Shareholders, which was held on December
5, 2017, the following individuals were elected as the Company’s directors: John Sanderson, Craig Scherba, Quentin Yarie,
Robin Borley, Jr., Dean Comand and Dalton Larson.
NI 58-101 defines an “independent director” as a director
who has no direct or indirect material relationship with the Company. A “material relationship” is defined as a relationship,
which could, in the view of the Board, be reasonably expected to interfere with such member’s independent judgment. John
Sanderson, Quentin Yarie, Dean Comand and Dalton Larson are considered “independent directors”.
Independent directors do not hold regularly scheduled meetings at
which non-independent directors and members of management are not in attendance. Independent directors are encouraged to hold unscheduled
and informal meetings to discuss issues ahead of regularly scheduled meetings of the Board.
Since the last annual meeting of Shareholders, the Board has met
ten times. Mr. Sanderson attended ten meetings, Mr. Scherba attended nine meetings, Mr. Borley attended seven meetings, Mr. Yarie
attended seven meetings, Mr. Comand attended eight meetings, Mr. Larson attended ten meetings. No member of the Board attended
fewer than 75% of the total number of board and committee meetings.
|
Attendance
|
Board Meetings
|
Audit
Committee
|
Nomination
Committee
|
Compensation
Committee
|
|
John Sanderson
|
10
(Chairman)
|
5
|
3
|
5
|
|
Craig Scherba
|
9
|
N/A
|
N/A
|
N/A
|
|
Robin Borley
|
7
|
N/A
|
N/A
|
N/A
|
|
Quentin Yarie
|
7
|
N/A
|
4
(Committee Chair)
|
N/A
|
|
Dean Comand
|
8
|
4
(Committee Chair)
|
N/A
|
5
|
|
Dalton Larson
|
10
|
5
|
4
|
5
(Committee Chair)
|
Board Mandate
The Board of Directors has developed a written Board of Directors
Mandate description. The full text of the Board Mandate is attached to this Circular as “Appendix A” and is also available
on the Company’s website at www.nextsourcematerials.com under the “Corporate Policies & Governance” caption.
Position Descriptions
The Board of Directors has developed written position descriptions
for the Chair of the Board, the Chair of Board committees. The Board of Directors has established that these Chairs are required
to set the agenda for respective meetings, assigning meeting secretaries, calling the meetings to proper order and ensuring the
meeting agendas are respected and that matters are duly discussed. The Board has developed a written position description for the
Chief Executive Officer, which is reviewed annually. A copy of the Company’s position descriptions are available on the Company’s
website at www.nextsourcematerials.com under the “Corporate Policies & Governance” caption.
Director Orientation and Continuing Education
The Company does not provide a formal orientation and education
program for its directors. New directors are given an opportunity to familiarize themselves with the Company by visiting the Company's
corporate offices, meeting with other directors, reviewing the rules and regulations of the stock exchanges where the Shares are
listed, and reviewing the Company's by-laws and related documents. Directors are invited to speak with the Company's solicitors,
auditors and other service providers to become familiar with their legal responsibilities.
Ethical Business Conduct
The Company has instituted certain policies and procedures, including
a Code of Ethics (the “
Code of Ethics
”) that applies to its directors, officers, and employees, including its
principal executive officers, principal financial officer, principal accounting officer, controller or persons performing similar
functions. A copy of the Company’s Code of Ethics is available on the Company’s website at www.nextsourcematerials.com
under the “Corporate Policies & Governance” caption. If the Company makes substantive amendments to the Code of
Ethics, the Company will disclose the nature of such amendments or waiver on the Company’s website or in a report within
four days of such amendment or waiver.
Board of Director Committees
The Company’s Board has three committees: Audit Committee,
Nomination Committee, and Compensation Committee.
Audit Committee
The Audit Committee consists of Dean Comand (Chair), Dalton Larson
and John Sanderson. All members are independent as per the standards of National Instrument 58-101. During fiscal 2018, the Audit
Committee met five times in person or by telephone.
The Audit Committee has a charter, the full text of which is attached
to this Circular as “Appendix B” and is also available on the Company’s website at www.nextsourcematerials.com
under the “Corporate Policies & Governance” caption.
Nomination Committee
The Nomination Committee consists of Quentin Yarie (Chair), Dalton
Larson and John Sanderson. All members are independent as per the standards of National Instrument 58-101. During fiscal 2018,
the Nomination Committee met four times in person or by telephone.
The Company has established a Nomination Committee to appoint and
assesses the performance of directors. The Nomination Committee has a charter, a copy of which is available on the Company’s
website at www.nextsourcematerials.com under the “Corporate Policies & Governance” caption. The Nomination Committee
seeks to attract and maintain directors with business expertise, and in particular, knowledge of mineral development, geology,
investment banking, corporate law and finance. Further, the Company seeks to have the right mix of these disciplines. Nominations
tend to be the result of recruitment efforts by management and directors, which are then presented to the Nomination Committee
and then to the Board for consideration. The Nomination Committee has no specified policy regarding consideration of any director
candidates recommended by securityholders, as it believes the most effective recruitment efforts are those led by management and
directors.
Compensation Committee
The Compensation Committee consists of Dalton Larson (Chair), John
Sanderson and Dean Comand. All members are independent as per the standards of National Instrument 58-101. During fiscal 2018,
the Compensation Committee met five times in person or by telephone.
The Company has established a Compensation Committee to determine
the appropriate compensation for the Company’s directors and officers. The Compensation Committee has a charter, a copy of
which is available on the Company’s website at www. http://nextsourcematerials.com under the “Corporate Policies &
Governance” caption. The Compensation Committee determines compensation based on industry standards, the employee or consultant’s
level of experience, and the Company’s financial situation.
Directorships
The following directors of the Company are presently directors of
the following other issuers that are reporting issuers, or the equivalent, in a Canadian or foreign jurisdiction
:
|
Director
|
Name of Reporting Issuer
|
Exchange
|
Position
|
|
Craig Scherba
|
Honey Badger Exploration Inc.
|
TSX-V
|
Director
|
|
Quentin Yarie
|
MacDonald Mines Exploration Ltd
Red Pine Exploration Inc.
|
TSX-V
TSX-V
|
Director
Director
|
|
Dalton Larson
|
Cloud Nine Education Group
SmartCool Systems Inc.
|
CSE
TSX-V
|
Director
Director
|
Note: “TSX” – Toronto Stock Exchange, “TSX-V”
= TSX Venture Exchange, and “CSE” = Canadian Securities Exchange
Director Assessments
The Board uses peer reviews to assess, on an annual basis, the effectiveness
of the Board as a whole and of each of the individual Directors in order to determine whether the Board is functioning effectively.
Director Term Limits
The Company has not instituted director term limits. The Company
believes that in taking into account the nature and size of the Board and the Company, it is more important to have relevant experience
than to impose set time limits on a director’s tenure, which may create vacancies at a time when a suitable candidate cannot
be identified and as such would not be in the best interests of the Company. In lieu of imposing term limits, the Company regularly
monitors director performance through annual assessments and regularly encourages sharing and new perspectives through regularly
scheduled Board meetings, meetings with only independent directors in attendance, as well as through continuing education initiatives.
On a regular basis, the Company analyzes the skills and experience necessary for the Board and evaluates the need for director
changes to ensure that the Company has highly knowledgeable and motivated Board members, while ensuring that new perspectives are
available to the Board.
|
Name
|
Age
|
Director Since
|
Years of Tenure
|
|
John Sanderson
|
83
|
January 2009
|
9.8 years
|
|
Craig Scherba
|
45
|
January 2010
|
8.8 years
|
|
Robin Borley
|
50
|
December 2013
|
4.9 years
|
|
Quentin Yarie
|
53
|
December 2008
|
9.9 years
|
|
Dean Comand
|
52
|
October 2014
|
4.1 years
|
|
Dalton Larson
|
78
|
October 2014
|
4.1 years
|
Female Representation in Management and on the Board
The Company currently has six Board members and four executive officers,
none of whom are female.
The Company has not implemented a diversity policy; however, the
Company believes that it currently promotes the benefits of, and need for, extending opportunities to all candidates, without distinction
as to gender, race, colour, religion, sexual orientation, family or marital status, political belief, age, national or ethnic origin,
citizenship, disability, or any other basis and will strive for diversity of experience, perspective and education. The Company
believes that it currently focuses on hiring the best quality individuals for the position and also encourages representation of
women on the Board and in executive officer positions.
While the Nomination Committee does not have a formal diversity
policy for Board membership, the Nomination Committee seeks directors who represent a mix of backgrounds and experiences that will
enhance the quality of the Board’s deliberations and decisions. The Nomination Committee considers, among other factors,
diversity with respect to viewpoint, skills, experience, character and behavior qualities in its evaluation of candidates for Board
membership.
The Company has not adopted a written policy relating to the identification
and nomination of women directors and executive officers. The Nomination Committee has been tasked with identifying and nominating
a woman as an eventual seventh director. The Company has not considered the level of representation of women in its executive officer
positions or on its Board in previous nominations or appointments (including a targeted number or percentage).
The Company’s focus has always been, and will continue to
be, to attract the highest quality executive officers and Board candidates with special focus on the skills, experience, character
and behavioral qualities of each candidate. The Company will continue to monitor developments in the area of diversity.
Board’s Relations with Management
The interaction between Management and Board members, both inside
and outside of meetings of the Board, ensures that the Board is properly informed and that the Board members’ experience
is brought to bear when needed by management.
The Board remains sensitive to corporate governance issues and seeks
to set up the necessary structures to ensure the effective discharge of its responsibilities without creating additional overhead
costs or reducing the return on shareholders’ equity. The Board is committed to ensuring the long-term viability of the Company,
as well as the well-being of its consultants and of the communities in which it operates. The Board has also adopted a policy of
permitting individual Directors under appropriate circumstances to engage legal, financial or other expert advisors at the Company’s
expense.
AUDIT COMMITTEE INFORMATION
AND OVERSIGHT
National Instrument 52-110 –
Audit Committees
(“
NI
52-110
”) requires that certain information regarding the Audit Committee be included in the management Circular sent
to shareholders in connection with the issuer’s annual meeting.
The Audit Committee is responsible for the oversight and for recommending
the appointment, compensation, retention, termination of an independent external auditor engaged for the purpose of preparing or
issuing an audit report or performing other audit, review or attest services for the Company. The Company has not yet adopted any
specific policies or procedures regarding the engagement of non-audit services, but does review such matters as they arise in light
of factors such as the Company’s current needs and the availability of services.
The Audit Committee consists of Dean Comand (Chair), Dalton Larson
and John Sanderson. All members are independent and “financially literate” as per the standards of National Instrument
52-110. During fiscal 2018, the Audit Committee met four times in person or by telephone. All Audit Committee members attended
all four meetings.
The Audit Committee has a charter, the full text of which is attached
to this Circular as “Appendix B” and is also available on the Company’s website at www.nextsourcematerials.com
under the “Corporate Policies & Governance” caption.
Relevant Education and Experience
Dean Comand P. Eng, CET MMP CDir. (Ancaster, Canada)
Mr. Comand has served as a director of the Company since October
2014. He is a Mechanical Engineer and holds his P. Eng designation in the province of Ontario as well as designation as a Certified
Engineering Technologist. Mr. Comand earned his Maintenance Manager Professional Designation (MMP) license in 2006 and his Charter
Director designation (CDir) in 2012. Mr. Comand is currently the President of The Comand Group which provides strategic advice
to numerous clients around the world in the mining and energy sectors. From 2009 – 2014, Mr. Comand worked for Sherritt International
as Vice President of Operations of Ambatovy, a large scale nickel project in Madagascar. He successfully led the construction and
commissioning of Ambatovy, and led the operations to commercial production. He has extensive business and financial acumen in large-scale
energy, power, and mining industries. He has consistently held senior positions in operations, business, project development, environmental
management, maintenance, and project construction. He has managed a variety of complex operations, including one of the world’s
largest mining facilities, industrial facilities, numerous power plants, renewable energy facilities and privately held municipal
water treatment facilities across Canada and the United States.
Dalton Larson (Surrey, Canada)
Mr. Larson has served as a director of our Company since October
2014. Mr. Larson is a Canadian attorney with more than 35 years as a member of the Law Society of British Columbia. He commenced
practice as a member of the Faculty of Law, University of British Columbia, subsequently becoming a partner of a major Vancouver
Law firm, now McMillan LLP. Currently, he maintains a private practice along with a vigorous investment business. He is a recognized
expert in alternate dispute resolution and has extensive experience as a professional arbitrator and mediator. He has three degrees,
including a Master’s degree in law from the University of London, England. His business activities include more than 25 years
as a director of several investment funds managed by the CW Funds group of companies, affiliated with Ventures West Management
Inc., which is one of the largest venture capital firms in Canada. The CW Funds raised and invested in a wide variety of businesses
totaling more than $130 million, primarily from overseas investors. In that period, he served as Chairman of the Board of Directors
of a Philippine ethanol company. He was the founding shareholder of the First Coal Corporation, which started operations in 2014.
He served as the first Chairman of the Board of Directors for two years and then participated closely in its governance and management
including serving as the Chair of the Compensation Committee. During his tenure, the Company raised in excess of $65 million in
equity to finance its development activities, all by way of private placements. First Coal Corporation was sold to Xstrata in excess
of $150 million. He currently serves as the Chairman of the Board of Directors of Cloud Nine Education Group (CSE:CNI) and on the
Board of Directors of SmartCool Systems Inc. (TSX-V: SSC).
John Sanderson, Q.C. (Vancouver, Canada)
Mr. Sanderson has been the Company’s Vice Chairman of the
Board since October 2009 and a director of our Company since January 2009. Mr. Sanderson was Chairman of the Board of the Company
from January 2009 to September 2009. Mr. Sanderson is a chartered mediator, chartered arbitrator, consultant and lawyer called
to the bar in the Canadian provinces of Ontario and British Columbia. Mr. Sanderson’s qualifications to serve as a director
include his many years of legal and mediation experience in various industries. Mr. Sanderson is a Queen’s Counsel (Q.C.).
He has acted as mediator, facilitator and arbitrator across Canada, and internationally, in numerous commercial transactions, including
insurance claims, corporate contractual disputes, construction matters and disputes, environmental disputes, inter-governmental
disputes, employment matters, and in relation to aboriginal claims. He has authored and co-authored books on the use and value
of dispute resolution systems as an alternative to the courts in managing business and legal issues.
Audit Committee Oversight
Since the commencement of the most recently completed financial
year, the Board adopted all the recommendations of the Audit Committee to nominate or compensate an external auditor.
Pre-Approval Policies and Procedures
The Audit Committee has not adopted any specific policies and procedures
regarding the engagement of non-audit services, but does review such matters as they arise in light of factors such as the Company’s
current needs, the availability of services from other sources and the other services provided by the Company’s auditor.
External Auditor Services Fees
The Board considers that the work done in the year ended June 30,
2018 by the Company’s external auditors, MNP LLP is compatible with maintaining MNP LLP. All of the work expended by MNP
LLP on our June 30, 2018 audit was attributed to work performed by MNP LLP’s full-time, permanent employees. The Audit Committee
reviews and must approve all engagement agreements with external auditors.
During the year ended June 30, 2018, the Audit Committee pre-approved
all of the fees invoiced by MNP LLP.
Audit Fees:
The aggregate fees, including expenses, billed by the Company’s
auditor in connection with the audit of our financial statements for the most recent fiscal year and for the review of our financial
information included in our Annual Report and our quarterly reports during the fiscal year ending June 30, 2018 was CAD$32,100
(June 30, 2017: CAD$47,800).
Non-Audit Assurance Fees:
The aggregate fees, including expenses, billed by the Company’s
auditor for assurance services unrelated to the audit for the year ended June 30, 2018 were CAD$23,647 (June 30, 2017: CAD$nil).
Non-Audit Taxation Fees:
The aggregate fees, including expenses, billed by the Company’s
auditor for tax compliance services during the year ended June 30, 2018 were CAD$6,527 (June 30, 2017: CAD$23,647).
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
Set forth below is a summary of securities issued and issuable under
all equity compensation plans of the Company as at June 30, 2018. As at June 30, 2018, the current Stock Option Plan was the only
equity compensation plan of the Company.
|
Name and Position
|
Number of securities to be issued upon exercise of outstanding
options, warrants and rights
(#)
|
Weighted-average exercise price of outstanding options, warrants
and rights
($)
|
Number of securities remaining available for future issuance under
equity compensation plans (excluding security reflected in column (a))
(#)
|
|
Equity Compensation Plans Approved by Shareholders (Stock Option Plan)
(1)
|
|
|
|
|
37,630,000
(2)
|
$0.09
|
8,370,000
(3)
|
|
|
|
|
|
Equity Compensation Plans Not Approved by Shareholders
|
|
|
|
|
N/A
|
N/A
|
N/A
|
|
|
|
|
|
|
(1)
|
The Company has in place a “fixed” stock option plan whereby
the maximum number of Shares that may be reserved for issuance pursuant to the current Stock Option Plan will not exceed 46,000,000
Shares.
|
|
|
(2)
|
Representing approximately 8.1% of the 469,933,611 Shares issued and outstanding
as at June 30, 2018.
|
|
|
(3)
|
Representing approximately 1.9% of the 469,933,611 Shares issued and outstanding
as at June 30, 2018.
|
Set forth below is a summary of securities issued and issuable under
all equity compensation plans of the Company as at October 22, 2018.
|
Name and Position
|
Number of securities to be issued upon exercise of outstanding
options, warrants and rights
(#)
|
Weighted-average exercise price of outstanding options, warrants
and rights
($)
|
Number of securities remaining available for future issuance under
equity compensation plans (excluding security reflected in column (a))
(#)
|
|
Equity Compensation Plans Approved by Shareholders (Stock Option Plan)
(1)
|
|
|
|
|
36,550,000
|
$0.09
|
9,450,000
|
|
|
|
|
|
Equity Compensation Plans Not Approved by Shareholders
|
|
|
|
|
N/A
|
N/A
|
N/A
|
|
|
|
|
|
|
(1)
|
The Company has in place a “fixed” stock option plan whereby
the maximum number of Shares that may be reserved for issuance pursuant to the current Stock Option Plan will not exceed 46,000,000
Shares.
|
Stock Option Plan
The Company currently has a fixed stock option plan, the Stock Option
Plan.
The purpose of the current Stock Option Plan is to advance the interests
of the Company, by providing an additional incentive to attract, retain and motivate highly qualified and competent persons who
are key to the Company and upon whose efforts and judgment the success of the Company and its subsidiaries is largely dependent.
Eligibility of the Stock Option Plan includes Employees, Consultants, Officers and Directors of the Company or any subsidiary.
Subject to adjustment in certain circumstances, the Company can
issue up to 46,000,000 options under the Stock Option Plan (which represents approximately 10% of the Company’s issued and
outstanding shares, and, assuming Shareholder approval of the Share Consolidation Resolution, will remain at 10% of the issued
and outstanding shares due to the proportional consolidation of the authorized options under the Stock Option Plan).
The following table provides details of the burn rate under the
current Stock Option Plan for the year ended June 30, 2018, the year ended June 30, 2017, and the year ended June 30, 2016.
|
Fiscal Year Ended
|
Burn Rate
(1)
|
Number of Options Granted
|
Weighted Average Number of Shares Outstanding
|
|
Year Ended June 30, 2018
|
0%
|
Nil
|
468,252,639
|
|
Year Ended June 30, 2017
|
4.7%
|
21,140,000
|
448,187,140
|
|
Year Ended June 30, 2016
|
2.4%
|
8,500,000
|
343,243,652
|
(1) Calculated by dividing the number of Options granted
under the current Stock Option Plan during the applicable period by the weighted average number of Shares outstanding for the applicable
period.
As at October 22, 2018, there are 36,550,000 options issued under
the current Stock Option Plan, representing approximately 7.4% of the 491,330,595 Shares issued and outstanding. Of such options,
30,095,000 options are issued to existing insiders (which represents approximately 6.1% of the currently issued and outstanding
Shares of the Company) and 5,080,000 options are issued to former insiders (which represents approximately 1% of the currently
issued and outstanding Shares of the Company). The number of options remaining for further issuance under the current Stock Option
Plan is 9,450,000, representing approximately 1.9% of the 491,330,595 Shares issued and outstanding.
The Board (or a committee appointed by the Board) administers the
Stock Option Plan. The Board, may designate an exercise price for options as the prior day closing price on a stock exchange to
which the Shares trade. To date, the Company has used the prior day U.S. dollar closing price as quoted on the OTCQB. The exercise
price of options in no event shall be less than the market price of the Shares underlying such option, on the date such option
is granted (110% of market price in the case of a 10% holder). Subject to the policies of the TSX, the Board may determine the
granting of the options, the exercise price of the options, and vesting schedule and any terms and conditions attaching to such
options. Options may be issued for a period of up to 10 years and are non-transferrable in the ordinary course. If and for so long
as the Shares are listed on the TSX:
|
|
(i)
|
the aggregate number of Shares issued to insiders of the Company within any 12-month period, or
issuable to insiders of the Company at any time, under the Stock Option Plan and any other security-based compensation arrangement
of the Company, may not exceed 10% of the total number of issued and outstanding Shares of the Company at such time;
|
|
|
(ii)
|
the maximum aggregate number of Shares that may be reserved under the Stock Option Plan for issuance
to any one individual in any 12-month period shall not exceed 5% of the issued and outstanding Shares at the time of grant, unless
the Company has obtained disinterested shareholder approval for such an issuance;
|
|
|
(iii)
|
the maximum aggregate number of Shares that may be reserved under the Stock Option Plan or other
share compensation arrangements of the Company for issuance to any one consultant during any 12-month period shall not exceed 2%
of the issued and outstanding Shares at the time of grant;
|
|
|
(iv)
|
the maximum aggregate number of Shares that may be reserved under the Stock Option Plan or other
share compensation arrangement of the Company for issuance to persons who are employed in investor relations activities during
any 12-month period shall not exceed 2% of the issued and outstanding Shares at the time of grant; and
|
|
|
(v)
|
the Board shall, through the establishment of the appropriate procedures, monitor the trading in
the securities of the Company by all optionees performing investor relations activities.
|
Unless otherwise expressly provided in any option agreement, and
subject to any applicable limitations contained in the Stock Option Plan, the unexercised portion of any Option shall automatically
and without notice immediately terminate and become forfeited, null and void at the time of the earliest to occur of the following:
|
|
(i)
|
the expiration of a period not to exceed one year (such period to be determined by the Board in
its sole discretion) after the date on which the optionee’s employment is terminated for any reason other than by reason
of (a) cause, (b) the termination of the optionee’s employment with the Company by such optionee following less than 60 days’
prior written notice to the Company of such termination, (c) a mental or physical disability, or (d) death;
|
|
|
(ii)
|
immediately upon (a) the termination by the Company of the optionee’s employment for cause,
or (b) an improper termination;
|
|
|
(iii)
|
the later of (a) the expiration of a period not to exceed one year (such period to be determined
by the Board in its sole discretion) after the date on which the optionee’s employment is terminated by reason of a mental
or physical disability, or (b) one year after the date on which the optionee shall die if such death shall occur during such period;
|
|
|
(iv)
|
one year after the date of termination of the optionee’s employment by reason of death of
the employee; or
|
|
|
(v)
|
the expiration date of the Option established on the date of grant and set forth in the option
agreement. Upon termination of optionee’s employment any Option (or portion thereof) not previously vested or not yet exercisable
pursuant to the terms of the Stock Option Plan shall be immediately cancelled.
|
Under the terms of the Stock Option Plan, the Board is permitted
to make certain adjustments or modifications to the Stock Option Plan and any Option that may have been issued under the Stock
Option Plan. Notwithstanding the amendment provisions included in the Stock Option Plan, the following may not be amended without
approval of security holders:
|
|
(i)
|
reduction in the exercise price or purchase price benefiting an insider of the Company;
|
|
|
(ii)
|
any amendment to remove or to exceed the insider participation limit;
|
|
|
(iii)
|
an increase to the maximum number of securities issuable, either as a fixed number or a fixed percentage
of the listed issuer's outstanding capital represented by such securities; and
|
|
|
(iv)
|
amendments to an amending provision within a security based compensation arrangement.
|
The Board may grant stock appreciation rights in tandem with options
that have been or are granted under the Stock Option Plan. A stock appreciation right shall entitle the holder to receive in cash,
with respect to each Share as to which the right is exercised, payment in an amount equal to the excess of the share’s fair
market value on the date the right is exercised over its fair market value on the date the right was granted. To date no stock
appreciation rights have been granted.
The Stock Option Plan shall terminate in November 2026. In the event
that Shareholders approve the New Stock Option Plan Resolution: (i) all options issued under the current Stock Option Plan shall
remain outstanding and continue to be governed by the terms and conditions of the Stock Option Plan; (ii) no further awards shall
be granted under the current Stock Option Plan; and (iii) the New Stock Option Plan will replace the current Stock Option Plan
as the Company’s primary incentive plan.
INDEBTEDNESS OF DIRECTORS AND OFFICERS
No person who is now, or was at any time since the beginning of
the most recently completed financial year of the Company has been, a director, executive officer or senior officer of the Company,
or associate thereof, been indebted to the Company, or had indebtedness during that period which was the subject of a guarantee,
support agreement, letter of credit or other similar arrangement or understanding provided by the Company.
INTEREST OF INFORMED PERSONS IN MATERIAL TRANSACTIONS
None of the directors or senior officers of the Company, nor any
proposed director of the Company, nor any person who beneficially owns, directly or indirectly, shares carrying more than 10% of
the voting rights attached to all outstanding shares of the Company, nor any associate or affiliate of the foregoing persons has
any material interest, direct or indirect, in any transaction since the commencement of the Company’s last completed fiscal
year or in any proposed transaction which, in either case, has or will materially affect the Company.
ADDITIONAL INFORMATION
Additional information related to the Company, including the Annual
Information Form, financial statements and management discussion and analysis (MD&A) for the most recently completed financial
year, is available on SEDAR at www.sedar.com or on the Company website at www.nextsourcematerials.com.
Shareholders may request copies of such financial statements and
MD&A by mailing a request to: NextSource Materials Inc., 1001-145 Wellington Street West, Toronto, Ontario, M5J 1H8.
APPENDIX “A”
BOARD MANDATE
BOARD OF DIRECTORS MANDATE
The Board of Directors (the "Board") of NextSource Materials
Inc. (the "Corporation") has the responsibilities and duties as outlined below:
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1.
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Responsible for the stewardship of the Corporation.
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2.
|
To oversee the management of the business and affairs of the Corporation.
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3.
|
To perform such duties and approve certain matters as may be required by applicable legislation
and regulations, including those of the Ontario Securities Commission, the United States Securities and Exchange Commission, the
Toronto Stock Exchange and the New York Stock Exchange.
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4.
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To oversee the Corporation’s strategic direction, organizational structure and succession
planning of the Chief Executive Officer.
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5.
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To adopt a strategic planning process and review, on an annual basis, a strategic plan for the
Corporation, which takes into account, among other things, the opportunities and risks of the business.
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6.
|
To identify the principal business risks and review and approve key policies and practices, particularly
in the areas of mine development and safety, property acquisitions, mineral reserve and mineral resource calculations, internal
control, corporate governance and risk management and ensure the implementation of appropriate systems to manage those risks.
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7.
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To ensure that the Board receives from senior management the information and input required to
enable the Board to effectively perform its duties.
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8.
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To ensure the integrity of the Corporation’s internal controls and management information
systems.
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9.
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To review and approve all material transactions.
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10.
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To review the performance of the Corporation on a consolidated basis and approve all annual and
quarterly financial statements and the declaration of dividends.
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11.
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To the extent feasible, satisfy itself as to the integrity of the Chief Executive Officer and other
executive officers and that the Chief Executive Officer and other executive officers create a culture of integrity throughout the
organization.
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12.
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To approve the appointment and compensation of executive management and training and monitoring
of executive management.
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13.
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To develop the Corporation’s approach to corporate governance and its corporate governance
principles and guidelines.
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14.
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To provide advice and counsel the Chief Executive Officer.
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15.
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To establish committees of the Board, delegate the appropriate responsibilities to those said committees,
and appoint the Chairs for committees of the Board.
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16.
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On the recommendation of the Corporate Governance Committee, to appoint directors or recommend
nominees for election to the Board at the Annual Meeting of shareholders.
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17.
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From its membership, to appoint a non-executive Chairman of the Board or Lead Director.
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18.
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To conduct and act upon annual assessments and evaluations of the Board, committees of the Board
and individual directors.
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19.
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To oversee the establishment of processes for accurate, timely and full public disclosure, including
the Corporation’s disclosure policy.
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20.
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To ensure that there is an ongoing, appropriate and effective process in place for ensuring adherence
to the Corporation’s Code of Ethics.
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APPENDIX “B”
AUDIT COMMITTEE CHARTER
GENERAL AND AUTHORITY
The Board of Directors of NextSource Materials Inc. (the “Company)
appoints the Audit Committee (the “Committee). The Committee is a key component of the Company’s commitment to maintaining
a higher standard of corporate responsibility. The Committee shall review the Company’s financial reports, internal control
systems, the management of financial risks and the external audit process. It has the authority to conduct any investigation appropriate
to its responsibilities. The Committee has the authority to: engage independent counsel and other advisors as it necessary to carry
out its duties; set and pay the compensation for advisors employed by the Committee; and communicate directly with the internal
and external auditors.
RESPONSIBILITIES
Overseeing the External Audit Process
- The Committee shall
recommend to the Board the external auditor to be nominated, shall set the compensation for the external auditor and shall ensure
that the external auditor reports directly to the Committee. (b) The Committee shall be directly responsible for overseeing the
work of the external auditor, including the resolution of disagreements between management and the external auditor regarding financial
reporting. (c) The Committee shall review the external auditor’s audit plan, including scope, procedures and timing of the
audit. (d) The Committee shall pre-approve all non-audit services to be provided by the external auditor. (e) The Committee shall
review and approve the Company’s hiring policies regarding partners, employees and former partners and employers of the present
and former external auditor. (f) The Committee shall review fees paid by the Company to the external auditor and other professionals
in respect of audit and non-audit services on an annual basis.
Financial Reporting and Internal Controls -
(a) The Committee
shall review the annual audited financial statements to satisfy itself that they are presented in accordance with generally accepted
accounting principles, that the information contained therein is not erroneous, misleading or incomplete and that the audit function
has been effectively carried out. (b) The Committee shall report to the Board with respect to its review of the annual audited
financial statements and recommend to the Board whether or not same should be approved prior to their being publicly disclosed.
(c) The Committee shall review the Company’s annual and interim financial statements, management’s discussion and analysis
relating to annual and interim financial statements, and earnings press releases prior to any of the foregoing being publicly disclosed
by the Company. (d) The Committee shall satisfy itself that adequate procedures are in place for the review of the Company’s
public disclosure of financial information extracted or derived from the Company’s financial statements other than the disclosure
referred to in Section 3.2(c) of this Charter, and periodically assess the adequacy of these procedures. (e) The Committee shall
oversee any investigations of alleged fraud and illegality relating to the Company’s finances. (f) The Committee shall establish
procedures for: (1) the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting
controls or auditing matters; and (2) the confidential, anonymous submission by employees of the Company or concerns regarding
questionable accounting or auditing matters. (g) The Committee shall meet no less frequently than annually with the external auditor
and the Chief Financial Officer or, in the absence of a Chief Financial Officer, with the officer of the Company in charge of financial
matters, to review accounting practices, internal controls, auditing matters and such other matters as the Committee deems appropriate.
Risk Management -
The Committee shall inquire of management
and the external auditor regarding significant risks or exposures to which the Company may be subject, and shall assess the adequacy
of the steps management has taken to minimize such risks.
Other Responsibilities
- The Committee shall perform any
other responsibilities consistent with this Charter and any applicable laws as the Committee or Board deems appropriate.
COMPOSITION AND MEETINGS
Composition -
(a) The Committee shall be composed of three
or more directors, all of whom are independent as per the independence standards of the NYSE MKT in the United States of America
and as per the standards of NI 58-101 in Canada (each are independent directors as they do not have involvement in the day-to-day
operations of the Company). (b) If at any time, the Company ceases to be exempt from Part 3 of National Instrument 52-110 - Audit
Committees, every audit committee member shall be Independent, as such term is defined in said Instrument. (c) Notwithstanding
Sections 4.1(a) and 4.1(b) of this Charter, the Committee and its membership shall at all times be so constituted as to meet all
current, applicable legal, regulatory and listing requirements, including, without limitation, securities laws and the requirements
of the TSX and of all applicable securities regulatory authorities. (d) Committee members will be appointed by the Board. One member
shall be designated by the Board to serve as Chair.
Meetings -
(a) The Committee shall meet at least quarterly,
at the discretion of the Chair or a majority of its members, as circumstances dictate or are required. A minimum of two and at
least 50% of the members present in person or by telephone shall constitute a quorum. For quorum to exist, the majority of members’
present must not be Company’ employees, Control Persons or officers or any of its Associates or Affiliates, (capitalized
terms as defined by the TSX). (b) If a vacancy in the Committee exists, the remaining members may exercise all of its powers and
responsibilities provided that a quorum (as herein defined) remains in office. (c) The time and place at which meetings of the
Committee shall be held, and the procedures at such meetings, shall be determined by the Committee. A meeting of the Committee
may be called by letter, telephone, facsimile or electronic means, by giving 48 hours’ notice, or such greater notice as
may be required under the Company’s By-Laws, provided that no notice shall be necessary if all the members are present either
in person or by telephone or if those absent have waived notice. (d) The Committee shall keep minutes of its meetings which shall
be submitted to the Board. The Committee may, from time to time, appoint any person, who need not be a member, to act as a secretary
at any meeting. (e) The Committee may invite such officers, directors and employees of the Company as it deems appropriate, from
time to time, to attend meetings of the Committee. Any matters to be determined by the Committee shall be decided by a majority
of the votes cast at a meeting of the Committee called for such purpose. Actions of the Committee may be taken by an instrument
or instruments in writing signed by all members of the Committee, and such actions shall be effective as though they had been decided
by a majority of the votes cast at a meeting of the Committee called for such purpose.
REPORTING TO THE BOARD
The Committee shall report regularly to the Board on Committee activities,
findings and recommendations. The Committee is responsible for ensuring that the Board is aware of any matter that may have a significant
impact on the financial condition or affairs of the Company.
CONTINUED REVIEW OF CHARTER
The Committee shall review and assess the continued adequacy of
this Charter annually and submit such proposed amendments as the Committee sees fit to the Board for its consideration.
APPENDIX “C”
NEXTSOURCE MATERIALS INC.
STOCK OPTION PLAN
Article
I
INTRODUCTION
The principal purposes of this Plan is to secure for the Company
and its shareholders the benefits of incentive inherent in the share ownership by the Directors and Officers, as well as Employees,
Management Company Employees, Consultants, and Service Providers of the Company and its Subsidiaries who, in the judgment of the
Board, will be largely responsible for its future growth and success. It is generally recognized that a stock option plan of the
nature provided for herein aids in retaining and encouraging persons of exceptional ability because of the opportunity offered
them to acquire a proprietary interest in the Company.
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(a)
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“
Affiliate
” means any corporation that is an affiliate of the Company as defined
in National Instrument 45-106 –
Prospectus and Registration Exemptions
, as may be amended from time to time.
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(b)
|
“
Associate
” of any person or company, is as defined in the
Securities Act
,
as may be amended from time to time.
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(c)
|
“
Award Agreement
” means the commitment or grant of an Option delivered by the
Company hereunder to an Optionee and substantially in the form of Exhibit A hereto.
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(d)
|
“
Board
” means the board of directors of the Company, or any Committee of the
board of directors to which the duties of the board of directors hereunder are delegated.
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(i)
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with respect to any Optionee, unless the applicable Award Agreement states otherwise:
|
(A)
if the Optionee is a party to an employment or service agreement with the Company or its Affiliates and such agreement provides
for a definition of Cause, the definition contained therein; or
(B)
if no such agreement exists, or if such agreement does not define Cause, any act or omission that would entitle the Company
to terminate the Optionee’s employment without notice or compensation under the common law for just cause, including, without
in any way limiting its meaning under the common law: (i) the indictment for or conviction of an indictable offence or any summary
offence involving material dishonesty or moral turpitude; (ii) material fiduciary breach with respect to the Company or an Affiliate;
(ii) fraud, embezzlement or similar conduct that results in or is reasonably likely to result in harm to the reputation or business
of the Company or any of its Affiliates; (iii) gross negligence or willful misconduct with respect to the Company or an Affiliate;
(iv) material violation of applicable laws; or (v) the willful failure of the Optionee to properly carry out his or her duties
on behalf of the Company or to act in accordance with the reasonable direction of the Company; and
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(ii)
|
the Board, in its absolute discretion, shall determine the effect of all matters and questions
relating to whether an Optionee has been discharged for Cause;
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(f)
|
“
Change of Control
” means the occurrence of any one or more of the following
events:
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(i)
|
a consolidation, merger, amalgamation, arrangement or other reorganization or acquisition involving
the Company or any of its Affiliates and another corporation or other entity, as a result of which the holders of Shares immediately
prior to the completion of the transaction hold less than
50%
of the outstanding shares of the successor corporation immediately
after completion of the transaction;
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(ii)
|
the sale, lease, exchange or other disposition, in a single transaction or a series of related
transactions, of all or substantially all of the assets, rights or properties of the Company and its Subsidiaries on a consolidated
basis to any other person or entity, other than transactions among the Company and its Subsidiaries;
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(iii)
|
a resolution is adopted to wind-up, dissolve or liquidate the Company;
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(iv)
|
any person, entity or group of persons or entities acting jointly or in concert (the “
Acquiror
”)
acquires, or acquires control (including, without limitation, the power to vote or direct the voting) of, voting securities of
the Company which, when added to the voting securities owned of record or beneficially by the Acquiror or which the Acquiror has
the right to vote or in respect of which the Acquiror has the right to direct the voting, would entitle the Acquiror and/or Associates
and/or Affiliates of the Acquiror to cast or direct the casting of 50% or more of the votes attached to all of the Company’s
outstanding voting securities which may be cast to elect directors of the Company or the successor corporation (regardless of whether
a meeting has been called to elect directors);
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(v)
|
as a result of or in connection with: (A) a contested election of directors of the Company; or
(B) a consolidation, merger, amalgamation, arrangement or other reorganization or acquisition involving the Company or any of its
Affiliates and another corporation or other entity (a “
Transaction
”), fewer than 50% of the Directors are persons
who were directors of the Company immediately prior to such Transaction; or
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(vi)
|
the Board adopts a resolution to the effect that a Change of Control as defined herein has occurred
or is imminent.
|
For the purposes of the foregoing definition of Change of
Control, “
voting securities
” means Shares and any other shares entitled to vote for the election of directors
of the Company and shall include any security, whether or not issued by the Company, which are not shares entitled to vote for
the election of directors but are convertible into or exchangeable for shares which are entitled to vote for the election of directors,
including any options or rights to purchase such shares or securities.
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(g)
|
“
Company
” means NextSource Materials Inc. and includes any successor corporation
thereof.
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(h)
|
“
Committee
” means any committee of the board of directors to which the duties
of the board of directors hereunder are delegated.
|
|
|
(i)
|
“Consultant”
means, in relation to the Company, an individual or a consultant
company, other than an Employee, Director or Officer of the Company, that:
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|
|
(i)
|
is engaged to provide on a continuous bona fide basis, consulting, technical, management or other
services to the Company or to an Affiliate of the Company, other than services provided in relation to a distribution;
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(ii)
|
provides the services under a written contract between the Company or the Affiliate and the individual
or the consultant company;
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|
(iii)
|
in the reasonable opinion of the Company, spends or will spend a significant amount of time and
attention on the affairs and business of the Company or an Affiliate of the Company; and
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|
(iv)
|
has a relationship with the Company or an Affiliate of the Company that enables the individual
to be knowledgeable about the business and affairs of the Company.
|
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|
(j)
|
“
Director
” means a director of the Company or any of its Subsidiaries.
|
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|
(k)
|
“
Disability
” means where the Optionee: (i) is to a substantial degree unable,
due to illness, disease, affliction, mental or physical disability or similar cause, to fulfill his or her obligations as an officer
or employee of the Company either for any consecutive 12 month period or for any period of 18 months (whether or not consecutive)
in any consecutive 24 month period; or (ii) is declared by a court of competent jurisdiction to be mentally incompetent or
incapable of managing his affairs.
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(l)
|
“
Eligible Person
” means an Employee, Director or Officer of the Company or any
of its Subsidiaries or Affiliates, Management Company Employees, Consultants, and Service Providers, and includes a company that
is wholly-owned by such persons;
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(m)
|
“
Employee
” means an individual who is a bona fide employee of the Company or
of any Subsidiary of the Company and includes a bona fide permanent part-time employee of the Company or any Subsidiary of the
Company.
|
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(n)
|
“
Exchange
” means, as the context requires, the TSX, or any other stock exchange
on which the Shares are listed for trading at the relevant time.
|
|
|
(o)
|
“
Exchanged Share
” means a security that is exchanged for a Share in a Change
of Control.
|
|
|
(p)
|
“
Exchanged Share Price
” means the product of the Share to Exchanged Share ratio
multiplied by the five day volume weighted average price of the Exchanged Shares on an exchange for the period ending one day prior
to the effective time of the Change of Control, or, in the case of Exchanged Shares that are not listed or quoted for trading,
the fair value of those Exchanged Shares, as determined by the Board as of the day immediately preceding the effective time of
the Change of Control.
|
|
|
(q)
|
“
In the Money Amount
” means: (a) in the case of a Change of Control in which
the holders of Shares will receive only cash consideration, the difference between the exercise price of an Option and the cash
consideration paid per Share pursuant to that Change of Control; (b) in the case of a Change of Control in which the holders of
Shares will receive Exchanged Shares, the difference between the exercise price of an Option and the Exchanged Share Price; or
(c) in the case of a Change of Control in which the holders of Shares will receive cash consideration and Exchanged Shares per
Share, the difference between the exercise price of an Option and the sum of the cash consideration paid per Share plus the Exchanged
Share Price.
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|
|
(r)
|
“
Insider
” has the meaning ascribed to such term as applicable to Section 613
of the TSX Company Manual, being only those insiders that are considered “reporting insiders” as defined in National
Instrument 55-104 –
Insider Reporting Requirements and Exemptions
.
|
|
|
(s)
|
“
Market Price
” as at any date in respect of the Shares shall be the closing
price of the Shares on the TSX (or if the Shares are not then listed on the TSX, on the principal stock exchange on which such
Shares are traded, on the trading day of the Option grant). In the event that the Shares are not then listed and posted for trading
on a stock exchange, the Market Price shall be the fair market value of such Shares as determined by the Board in its sole discretion.
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(t)
|
“
Management Company Employee
” means an individual who is a bona fide employee
of a company providing management services to the Company, which are required for the ongoing successful operation of the business
enterprise of the Company.
|
|
|
(u)
|
“
non-employee director
” means a Director who is not also an officer of the Company.
|
|
|
(v)
|
“
Officer
” means a senior officer of the Company or any of its Subsidiaries.
|
|
|
(w)
|
“
Option
” shall mean an option granted under the terms of the Plan.
|
|
|
(x)
|
“
Optionee
” shall mean a Eligible Person to whom an Option has been granted under
the terms of the Plan.
|
|
|
(y)
|
“
Plan
” means the Stock Option Plan, as may be amended from time to time.
|
|
|
(z)
|
“
Resignation
” means the cessation of employment (as an Officer or Employee)
of the Optionee with the Company or an Affiliate as a result of resignation, other than as a result of Retirement.
|
|
|
(aa)
|
“
Retirement
” means the Optionee ceasing to be an Employee or Officer of the
Company or an Affiliate in accordance with the retirement policies of the Company or any Subsidiary, if any, or such other time
as the Company may agree with the Optionee.
|
|
|
(bb)
|
“
Securities Act
” means the
Securities Act
, R.S.O. 1990, Chapter S.5,
as amended from time to time.
|
|
|
(cc)
|
“Service Provider”
has the meaning ascribed to such term in Section 613 of the
TSX Company Manual, being a person or company engaged by the Company to provide services for an initial, renewable or extended
period of twelve months or more
|
|
|
(dd)
|
“
Shares
” mean the common shares in the capital of the Company.
|
|
|
(ee)
|
“
Subsidiary
” means a corporation which is a subsidiary of the Company defined
under the Securities Act.
|
|
|
(ff)
|
“
Termination With Cause
” means the termination of employment (as an Officer
or Employee) of the Optionee with Cause by the Company or an Affiliate (and does not include Resignation or Retirement).
|
|
|
(gg)
|
“
Termination Without Cause
” means the termination of employment (as an Officer
or Employee) of the Optionee without Cause by the Company or an Affiliate (and does not include Resignation or Retirement) and,
in the case of an Officer, includes the removal of or failure to reappoint the Optionee as an Officer of the Company or an Affiliate.
|
|
|
(hh)
|
“
TSX
” means the Toronto Stock Exchange.
|
Article
II
STOCK OPTION PLAN
Options to purchase Shares may be granted hereunder to Eligible
Persons.
|
|
2.2
|
Determination of Option Recipients
|
The Board shall make all necessary or desirable determinations regarding
the granting of Options to Eligible Persons and may take into consideration the present and potential contributions of a particular
Eligible Person to the success of the Company and any other factors which it may deem proper and relevant.
The exercise price per Share under an Option shall be determined
by the Board but, in any event, shall not be lower than the Market Price of the Shares of the Company on the date of grant of the
Options.
The Board may at any time authorize the granting of Options to such
Eligible Persons as it may select for the number of Shares that it shall designate, subject to the provisions of the Plan. The
date of each grant of Options shall be determined by the Board when the grant is authorized.
Each Option granted to an Optionee shall be evidenced by an Award
Agreement detailing the terms of the Option and upon delivery of the Award Agreement to the Optionee by the Company, the Optionee
shall have the right to purchase the Shares underlying the Options at the exercise price set out therein, subject to any provisions
as to the vesting of the Option.
The period within which Options may be exercised and the number
of Options which may be exercised in any such period shall be determined by the Board at the time of granting the Options provided,
however, that all Options must be exercisable during a period not extending beyond ten (10) years from the date of the Option grant.
Notwithstanding the foregoing, in the event that the expiry of an Option period falls within, or within two (2) days of, a trading
blackout period imposed by the Company (the “
Blackout Period
”), the expiry date of such Option shall be automatically
extended to the 10th business day following the end of the Blackout Period.
Subject to the provisions of the Plan, an Option may be exercised
from time to time by delivery to the Company of a written notice of exercise specifying the number of Shares with respect to which
the Option is being exercised and accompanied by payment in full of the exercise price of the Shares to be purchased. Shares issued
to Optionees shall be issued in registered form and deposited to CDS Clearing and Depository Services Inc. or certificates for
such Shares shall be issued and delivered to the Optionee, as applicable, within a reasonable time following the receipt of such
notice and payment.
Options granted pursuant to the Plan shall vest and become exercisable
by an Optionee at such time or times as may be determined by the Board at the date of the Option grant and as indicated in the
Award Agreement related thereto.
The Board shall have the power to accelerate the time at which an
Option may be first exercised or the time during which an Option or any part thereof will vest in accordance with the Plan, notwithstanding
the provisions in the Award Agreement stating the time at which it may first be exercised.
If Options are surrendered, terminated or expire without being exercised,
in whole or in part, new Options may be granted covering the Shares not purchased under such lapsed Options.
In the event of a Change of Control, the vesting of all Options
and the time for the fulfilment of any conditions or restrictions on such vesting shall be accelerated to a date or time immediately
prior to the effective time of the Change of Control and the Board, in its sole discretion, may authorize and implement any one
or more of the following additional courses of action:
|
|
(a)
|
terminating without any payment or other consideration, any Options not exercised or surrendered
by the effective time of the Change of Control;
|
|
|
(b)
|
causing the Company to offer to acquire from each Optionee his or her Options for a cash payment
equal to the In the Money Amount, and any Options not so surrendered or exercised by the effective time of the Change of Control
will be deemed to have expired; and
|
|
|
(c)
|
an Option granted under this Plan be exchanged for an option to acquire, for the same exercise
price, that number and type of securities as would be distributed to the Optionee in respect of the Shares issued to the Optionee
had he or she exercised the Option prior to the effective time of the Change of Control, provided that any such replacement option
must provide that it survives for a period of not less than one year from the effective time of the Change of Control, regardless
of the continuing directorship, officership or employment of the Optionee.
|
For greater certainty, and notwithstanding anything else to the
contrary contained in this Plan, the Board shall have the power, in its sole discretion, in any Change of Control which may or
has occurred, to make such arrangements as it shall deem appropriate for the exercise of outstanding Options including, without
limitation, to modify the terms of this Plan and/or the Options as contemplated above. If the Board exercises such power, the Options
shall be deemed to have been amended to permit the exercise thereof in whole or in part by the Optionee at any time or from time
to time as determined by the Board prior to or in conjunction with completion of the Change of Control.
|
|
2.11
|
Death or Disability of Optionee
|
Subject to the Board determining otherwise, in the event of:
|
|
(a)
|
the death of an Optionee, any unvested Options held by such Optionee will automatically vest and
become exercisable on the date of death of such Optionee and all Options shall be exercisable for a period of 12 month
s
after the date of death, subject to the expiration of such Options occurring prior to the end of such 12-month period; or
|
|
|
(b)
|
the Disability of an Optionee, any unvested Options held by such Optionee will automatically vest
and become exercisable on the date on which the Optionee is determined to be totally disabled and all Options shall be exercisable
for a period of 12 months after the date the Optionee is determined to be totally disabled, subject to the expiration of such Options
occurring prior to the end of such 12-month period.
|
|
|
2.12
|
Retirement or Resignation
|
Subject to the Board determining otherwise, in the event of Retirement
or Resignation of an Optionee, any unvested Options held by such Optionee will automatically vest and become exercisable on the
date of Retirement or Resignation, as applicable, and all Options shall be exercisable for a period of 12 months after the date
of Retirement or Resignation, subject to the expiration of such Options occurring prior to the end of such 12 month period.
|
|
2.13
|
Termination Without Cause
|
Subject to the Board determining otherwise, in the event of Termination
Without Cause of an Optionee, any vested Options held by such Optionee shall be exercisable for a period of 12 months after the
date of Termination Without Cause, subject to the expiration of such Options occurring prior to the end of such 12 month period,
and any unvested Options held by such Optionee shall become void and the Optionee shall have no entitlement and will forfeit any
rights to any issuance of Shares under this Plan in connection with such unvested Options.
For greater certainty, the date of Termination Without Cause shall
mean the date the Optionee ceases providing services to the Company or an Affiliate regardless of the reasons therefore and, for
greater clarity, such date shall be as specified in the notice of termination from the Company or an Affiliate and shall not include
or be deemed to include any period of notice of termination to which the Optionee may be entitled under contract, statute, common
law or otherwise.
|
|
2.14
|
Termination With Cause
|
In the event of Termination With Cause of an Optionee, all of the
Optionee’s Options shall become void and the Optionee shall have no entitlement and will forfeit any rights to any issuance
of Shares under Options awarded under this Plan, except as may otherwise be stipulated in the Optionee’s Award Agreement,
employment agreement or as may otherwise be determined by the Board in its sole and absolute discretion.
|
|
2.15
|
Effect of Take-Over Bid
|
If a bona fide offer (the “
Offer
”) for Shares
is made to shareholders generally (or to a class of shareholders that would include the Optionee), which Offer, if accepted in
whole or in part, would result in the offeror (the “
Offeror
”) exercising control over the Company within the
meaning of the Securities Act, then the Company shall, as soon as practicable following receipt of the Offer, notify each Optionee
of the full particulars of the Offer. The Board will have the sole discretion to amend, abridge or otherwise eliminate any vesting
schedule related to each Optionee’s Options so that notwithstanding the other terms of this Plan, such Option may be conditionally
exercised in whole or in part by the Optionee and the underlying Shares may be conditionally issued to each such Optionee so (and
only so) as to permit the Optionee to tender the Shares received in connection with the exercise of the Options pursuant to the
Offer. If:
|
|
(a)
|
the Offer is not complied with in the time specified therein;
|
|
|
(b)
|
the Optionee does not tender the Shares underlying the Options pursuant to the Offer; or
|
|
|
(c)
|
all of the Shares tendered by the Optionee pursuant to the Offer are not taken up and paid for
by the Offeror,
|
then at the discretion of the Board, the Options shall be deemed
not to have been exercised and the Shares or, in the case of clause (c) above, the Shares that are not taken up and paid for, shall
be deemed not to have been issued and will be reinstated as authorized but unissued Shares and the Options shall be reinstated
and the terms of the Options as set forth in this Plan and the applicable Award Agreement shall again apply to the Options. If
any Shares are returned to the Company under this Section, the Company shall refund the exercise price to the Optionee for such
Shares without interest or deduction.
|
|
2.16
|
Adjustment in Shares Subject to the Plan
|
In the event there is any change in the Shares, whether by reason
of a stock dividend, consolidation, subdivision, reclassification or otherwise, an appropriate adjustment shall be made by the
Board, if any, in its sole discretion, to the exercise price of any outstanding Options as well as the number of Shares which may
be issued upon exercise of the Options to reflect such changes. If the foregoing adjustment shall result in a fractional Share,
the fraction shall be disregarded. The Company shall give each Optionee notice of an adjustment hereunder and, upon notice, all
such adjustments shall be conclusive, final and binding for all purposes of this Plan.
For greater certainty, notwithstanding the foregoing, the Board
shall have no obligation to make an appropriate adjustment to the terms of any Options in the event of the issuance of securities
by the Company, either in connection with a direct or underwritten sale of securities of the Company, or upon exercise of rights
or warrants to subscribe therefor or purchase such securities of the Company.
Article
III
GENERAL
|
|
3.1
|
Maximum Number of Shares
|
|
|
(a)
|
The maximum number of Shares made available for issuance from treasury under this Plan or any other
security based compensation arrangement (pre-existing or otherwise), subject to adjustments pursuant to Section 2.16, shall not
exceed 10% of the issued and outstanding Shares at the time of grant. Any increase in the issued and outstanding Shares will result
in an increase in the number of Shares issuable under the Plan. The Plan is an “evergreen plan” and accordingly, any
issuance of Shares from treasury, including issuances of Shares in respect of which Options are exercised, and any expired or cancelled
Options, shall automatically replenish the number of Shares issuable under this Plan.
|
|
|
(b)
|
The grant of Options under the Plan is subject to the number of the Shares: (i) issued to Insiders
of the Company, within any one (1) year period, and (ii) issuable to Insiders of the Company, at any time, under the Plan, or when
combined with all of the Company’s other security based compensation arrangements, and shall not exceed 10% of the Company’s
total issued and outstanding Shares, respectively. For the purposes of this Plan, “security based compensation arrangement”
shall have the meaning set out in the TSX Company Manual.
|
For the purposes of this Section 3.1, the number of Shares then
outstanding shall mean the number of Shares outstanding on a non-diluted basis on the date immediately prior to the proposed grant
date of the applicable Options.
Options are not assignable or transferable other than by will or
by the applicable laws of descent. During the lifetime of an Optionee, all Options may only be exercised by the Optionee.
Nothing contained in the Plan shall confer upon any Optionee any
right with respect to employment or continuance of employment with the Company or any Subsidiary, or interfere in any way with
the right of the Company or any Subsidiary, to terminate the Optionee’s employment at any time. Participation in the Plan
by an Optionee is voluntary.
|
|
3.4
|
No Shareholder Rights
|
An Optionee shall not have any rights as a shareholder of the Company
with respect to any of the Shares covered by an Option until the Optionee exercises such Option in accordance with the terms of
the Plan and the issuance of the Shares by the Company.
The Company shall maintain a register in which shall be recorded
the name and address of each Optionee, the number of Options granted to an Optionee, the details thereof and the number of Options
outstanding.
The Plan shall be effective only upon the approval of the Board
and the shareholders of the Company by ordinary resolution. Notwithstanding the foregoing, the Company may grant Options to Optionees
prior to the Plan being approved by shareholders of the Company, however, no such Options shall vest or be exercisable prior to
the necessary approval of shareholders of the Company having been obtained. The obligation of the Company to sell and deliver Shares
in accordance with the Plan is subject to the approval of any governmental authority having jurisdiction or the Exchange which
may be required in connection with the authorization, issuance or sale of such Shares by the Company. If any Shares cannot be issued
to any Optionee for any reason including, without limitation, the failure to obtain such approval, then the obligation of the Company
to issue such Shares shall terminate and any exercise price paid by an Optionee to the Company shall be returned to the Optionee
without interest or deduction.
|
|
3.7
|
Delegation to Committee
|
All of the powers exercisable hereunder by the Board may, to the
extent permitted by applicable law and by resolution of the Board, be exercised by the compensation committee of the Board, or
such other Committee as the Board may determine from time to time, such Committee consisting of no less than two members. The Directors
of the Committee shall not be employees of the Company so long as they are on such committee.
|
|
3.8
|
Administration of the Plan
|
The Board is authorized to interpret the Plan from time to time
and to adopt, amend and rescind rules and regulations for carrying out the Plan. The interpretation and construction of any provision
of the Plan by the Board shall be final and conclusive. Administration of the Plan shall be the responsibility of the appropriate
Officers of the Company and all costs in respect thereof shall be paid by the Company.
The Company or its Affiliates may take such steps as are considered
necessary or appropriate for the withholding of any taxes or other source deduction which the Company or its Affiliate is required
by any law or regulation of any governmental authority whatsoever to withhold in connection with this Plan, including a sale on
behalf of an Optionee, of a sufficient number of Shares to fund such withholding obligation or withholding from other remuneration
owing to the Optionee.
The Corporation shall not deduct for purposes of the
Income Tax
Act
(Canada) any cash payment that may be made to an Optionee on the surrender of an Option as a result of any course of action
undertaken under Section 2.10 or otherwise, if such deduction would preclude such Optionee from realizing the benefit of a deduction
under paragraph 110(1)(d) of the
Income Tax Act
(Canada) or any successor provision thereof. In such a situation, the Corporation
shall make the necessary elections, filings and provide copies of such filings to such Optionee, as required by subsection 110(1.1)
of the
Income Tax Act
(Canada).
|
|
3.11
|
Amendments to the Plan
|
The Board may from time to time in its sole discretion, and without
shareholder approval, amend, modify and change the provisions of this Plan and any Award Agreement, in connection with (without
limitation):
|
|
(a)
|
amendments of a housekeeping nature;
|
|
|
(b)
|
the addition or a change to any vesting provisions of an Option;
|
|
|
(c)
|
changes to the termination provisions of an Option or the Plan which do not entail an extension
beyond the original expiry date;
|
|
|
(d)
|
the addition of a cashless exercise feature, payable in cash or securities, whether or not providing
for a full deduction of the number of underlying Shares from the Plan reserves; and
|
|
|
(e)
|
amendments to reflect changes to applicable securities or tax laws.
|
However, other than as set out above, any amendment, modification
or change to the provisions of this Plan which would:
|
|
(a)
|
reduce the exercise price of an Option, cancel and reissue an Option or cancel an Option in order
to issue an alternative entitlement;
|
|
|
(b)
|
amend the term of an Option to extend the term beyond its original expiry date;
|
|
|
(c)
|
materially increase the benefits to the holder of the Options who is an Insider to the material
detriment of the Company and its shareholders;
|
|
|
(d)
|
increase the maximum percentage of Shares which may be issued pursuant to this Plan (other than
by virtue of adjustments pursuant to Section 2.16 of this Plan);
|
|
|
(e)
|
permit Options to be transferred other than for normal estate settlement purposes;
|
|
|
(f)
|
remove or exceed the Insider participation limits;
|
|
|
(g)
|
materially modify the eligibility requirements for participation in this Plan; or
|
|
|
(h)
|
modify the amending provisions of the Plan set forth in this Section 3.11,
|
shall only be effective on such amendment, modification or change
being approved by the shareholders of the Company. In addition, any such amendment, modification or change of any provision of
this Plan shall be subject to the approval, if required, by the Exchange having jurisdiction over the securities of the Company.
|
|
3.12
|
No Representation or Warranty
|
The Company makes no representation or warranty as to the future
market value of any Shares issued in accordance with the provisions of the Plan.
The Plan will be governed by and construed in accordance with the
laws of the Province of Ontario and the federal laws of Canada applicable therein.
|
|
3.14
|
Compliance with Applicable Law
|
If any provision of the Plan or any agreement entered into pursuant
to the Plan contravenes any law or any order, policy, by-law or regulation of any regulatory body or stock exchange having authority
over the Company or the Plan then such provision shall be deemed to be amended to the extent required to bring such provision into
compliance therewith.
The Company’s obligation to issue and deliver Shares under
any Option is subject to: (i) the completion of such qualification of such Shares or obtaining approval of such regulatory authority
as the Company shall determine to be necessary or advisable in connection with the authorization, issuance or sale thereof; (ii)
the admission of such Shares to listing on any stock exchange on which such Shares may then be listed; and (iii) the receipt from
the Optionee of such representations, agreements and undertakings as to future dealings in such Shares as the Company determines
to be necessary or advisable in order to safeguard against the violation of the securities laws of any jurisdiction. The Company
shall take all reasonable steps to obtain such approvals, registrations and qualifications as may be necessary for the issuance
of such Shares in compliance with applicable laws and for the listing of such Shares on any stock exchange on which such Shares
are then listed. Options may not be granted with a date of grant or effective date earlier than the date on which all actions required
to grant the Options have been completed.
|
|
3.15
|
Effective Dates and Amendments
|
Approved by the board of directors of the Company on October 22,
2018.
Approved by the shareholders of the Company on [
l
],
2018.
EXHIBIT A
NEXTSOURCE MATERIALS INC.
STOCK OPTION PLAN
AWARD AGREEMENT
Notice is hereby given that effective the _____ day of ______________________
(the “Effective Date”), NextSource Materials Inc. (the “Company”) has granted to _____________________________,
an Option to acquire _______________ Common Shares (“Shares”) exercisable up to 5:00 p.m. Toronto Time on the ___________
day of __________________________ (the “Expiry Date”) at an exercise price of CAD $_______ per Share.
The Shares may be acquired as follows:
[
l
]
The grant of the Option evidenced hereby is made subject to the
terms and conditions of the Company’s Stock Option Plan, the terms and conditions of which are hereby incorporated herein.
To exercise your Option, deliver a written notice specifying the
number of Shares you wish to acquire, together with cash or a certified cheque payable to the Company for the aggregate exercise
price, to the Company.
NEXTSOURCE MATERIALS INC.
___________________________________
Authorized Signatory
Exhibit 99.5 Additional Information
Item 16A.
The Audit committee financial expert is Dean Comand.
Item 7A
In addition to the major shareholders disclosed
in the 2018 Management Proxy Circular which is attached as Exhibit 99.4 of this Annual Report on Form 20-F and incorporated herein
by reference, to the best of the Company’s knowledge, the following table sets forth certain information regarding beneficial
ownership of our common shares as of October 31, 2018 and for the previous three years by each person who is known by the Company
to own beneficially more than 5% of our common shares.
|
Name, Principal Position and Address
|
Number of
Common Shares Beneficially Owned
October 2016
(%)
|
Number of
Common Shares Beneficially Owned
October 2017
(%)
|
Number of
Common Shares Beneficially Owned
October 2018
(%)
|
|
Goodman & Company, Investment Counsel
Inc.,
(1)
2100-1 Adelaide Street East,
Ontario, Canada
|
45,714,286
(1a)
43,516,714
(1b)
(19.3%)
|
45,714,286
(1a)
43,516,714
(1b)
(19.3%)
|
45,714,286
(1a)
43,516,714
(1b)
(18.2%)
|
|
VR Capital Group Ltd.,
(2)
Dubai International Financial Centre,
Gate Village 4, Suite 402, Dubai, UAE
|
30,658,713
(6.6%)
|
30,658,713
(6.6%)
|
30,658,713
(6.2%)
|
|
JP Morgan Chase & Co.,
(3)
270 Park Avenue, New York,
NY10017
|
36,309,600
(3a)
(10.2%)
|
33,428,200
(3b)
(7.0%)
|
11,278,000
(3c)
(2.4%)
|
|
|
a.
|
Schedule 13G/A filed on March 7, 2017 by Goodman & Company, Investment Counsel Inc., on behalf
of CMP 2016 Resource Limited Partnership.
|
|
|
b.
|
Schedule 13G filed on March 7, 2017 by Goodman & Company, Investment Counsel Inc., on behalf
of Dundee Global Resource Class.
|
|
|
a.
|
Schedule 13G/A filed on February 14, 2018 on behalf of (i) VR Global Partners, L.P. (the “Fund”),
a Cayman Islands exempted limited partnership, (ii) VR Advisory Services Ltd (“VR”), a Cayman Islands exempted company,
as the general partner of the Fund, (iii) VR Capital Participation Ltd. (“VRCP”), a Cayman Islands exempted company,
as the sole shareholder of VR, (iv) VR Capital Group Ltd. (“VRCG”), a Cayman Islands exempted company, as the sole
shareholder of VRCP, (v) VR Capital Holdings Ltd. (“VRCH”), a Cayman Islands exempted company, as the sole shareholder
of VRCG and (vi) Richard Deitz, the principal of VR, VRCP, VRCG, VRCH. All shares of Common Stock are held by the Fund and VRCG.
|
|
|
a.
|
Schedule 13G/A filed on January 15, 2016 by JP Morgan Chase & Co. for itself and its wholly-owned
subsidiary, JPMorgan Asset Management (UK) Limited.
|
|
|
b.
|
Schedule 13G/A filed on January 18, 2017 by JP Morgan Chase & Co. for itself and its wholly-owned
subsidiary, JPMorgan Asset Management (UK) Limited.
|
|
|
c.
|
Schedule 13G/A filed on November 7, 2017 by JP Morgan Chase & Co. for itself and its wholly-owned
subsidiary, JPMorgan Asset Management (UK) Limited.
|
The company’s major shareholders
do not have different voting rights that other shareholders.
Item 10E
MATERIAL UNITED STATES FEDERAL INCOME
TAX CONSIDERATIONS
The following is a general summary of certain
material U.S. federal income tax considerations applicable to a U.S. Holder (as defined below) arising from and relating to the
acquisition, ownership, and disposition of Common Shares.
This summary is for general information
purposes only and does not purport to be a complete analysis or listing of all potential U.S. federal income tax considerations
that may apply to a U.S. Holder arising from and relating to the acquisition, ownership, and disposition of Common Shares. In addition,
this summary does not take into account the individual facts and circumstances of any particular U.S. Holder that may affect the
U.S. federal income tax consequences to such U.S. Holder, including specific tax consequences to a U.S. Holder under an applicable
tax treaty. Accordingly, this summary is not intended to be, and should not be construed as, legal or U.S. federal income tax advice
with respect to any U.S. Holder. This summary does not address the U.S. federal alternative minimum, U.S. federal estate and gift,
U.S. state and local, and foreign tax consequences to U.S. Holders of the acquisition, ownership, and disposition of Common Shares.
Except as specifically set forth below, this summary does not discuss applicable tax reporting requirements. Each U.S. Holder should
consult its own tax advisor regarding the U.S. federal, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state
and local, and foreign tax consequences relating to the acquisition, ownership and disposition of Common Shares.
No legal opinion from U.S. legal counsel
or ruling from the Internal Revenue Service (the “IRS”) has been requested, or will be obtained, regarding the U.S.
federal income tax consequences of the acquisition, ownership, and disposition of Common Shares. This summary is not binding on
the IRS, and the IRS is not precluded from taking a position that is different from, and contrary to, the positions taken in this
summary. In addition, because the authorities on which this summary is based are subject to various interpretations, the IRS and
the U.S. courts could disagree with one or more of the positions taken in this summary.
Scope of this Summary
Authorities
This summary is based on the Internal Revenue
Code of 1986, as amended (the “Code”), Treasury Regulations (whether final, temporary, or proposed), published rulings
of the IRS, published administrative positions of the IRS, the Convention Between Canada and the United States with Respect to
Taxes on Income and on Capital, signed September 26, 1980, as amended (the “Canada-U.S. Tax Convention”), and U.S.
court decisions that are applicable and, in each case, as in effect and available, as of the date of this document. Any of the
authorities on which this summary is based could be changed in a material and adverse manner at any time, and any such change could
be applied on a retroactive or prospective basis which could affect the U.S. federal income tax considerations described in this
summary. This summary does not discuss the potential effects, whether adverse or beneficial, of any proposed legislation that,
if enacted, could be applied on a retroactive or prospective basis.
U.S. Holders
For purposes of this summary, the term
"U.S. Holder" means a beneficial owner of Common Shares that is for U.S. federal income tax purposes:
|
|
•
|
an individual who is a citizen or resident of the United States;
|
|
|
•
|
a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) organized
under the laws of the U.S., any state thereof or the District of Columbia;
|
|
|
•
|
an estate whose income is subject to U.S. federal income taxation regardless of its source; or
|
|
|
•
|
a trust that (1) is subject to the primary supervision of a court within the U.S. and the control
of one or more U.S. persons for all substantial decisions or (2) has a valid election in effect under applicable Treasury Regulations
to be treated as a U.S. person.
|
Non-U.S. Holders
For purposes of this summary, a “non-U.S.
Holder” is a beneficial owner of Common Shares that is not a U.S. Holder or is a partnership. This summary does not address
the U.S. federal income tax consequences to non-U.S. Holders arising from and relating to the acquisition, ownership, and disposition
of Common Shares. Accordingly, a non-U.S. Holder should consult its own tax advisor regarding the U.S. federal, U.S. federal alternative
minimum, U.S. federal estate and gift, U.S. state and local, and foreign tax consequences (including the potential application
of and operation of any income tax treaties) relating to the acquisition, ownership, and disposition of Common Shares.
U.S. Holders Subject to Special U.S.
Federal Income Tax Rules Not Addressed
This summary does not address the U.S.
federal income tax considerations applicable to U.S. Holders that are subject to special provisions under the Code, including,
but not limited to, U.S. Holders that: (a) are tax-exempt organizations, qualified retirement plans, individual retirement accounts,
or other tax-deferred accounts; (b) are financial institutions, underwriters, insurance companies, real estate investment trusts,
or regulated investment companies; (c) are broker-dealers, dealers, or traders in securities or currencies that elect to apply
a mark-to-market accounting method; (d) have a “functional currency” other than the U.S. dollar; (e) own Common Shares
as part of a straddle, hedging transaction, conversion transaction, constructive sale, or other arrangement involving more than
one position; (f) acquired Common Shares in connection with the exercise of employee stock options or otherwise as compensation
for services; (g) hold Common Shares other than as a capital asset within the meaning of Section 1221 of the Code (generally, property
held for investment purposes); or (h) own or have owned (directly, indirectly, or by attribution) 10% or more of the total combined
voting power of the outstanding shares of the Company. This summary also does not address the U.S. federal income tax considerations
applicable to U.S. Holders who are: (a) U.S. expatriates or former long-term residents of the U.S.; (b) persons that have been,
are, or will be a resident or deemed to be a resident in Canada for purposes of the Income Tax Act (Canada) (the “Tax Act”);
(c) persons that use or hold, will use or hold, or that are or will be deemed to use or hold Common Shares in connection with carrying
on a business in Canada; (d) persons whose Common Shares constitute “taxable Canadian property” under the Tax Act;
or (e) persons that have a permanent establishment in Canada for the purposes of the Canada-U.S. Tax Convention. U.S. Holders that
are subject to special provisions under the Code, including, but not limited to, U.S. Holders described immediately above, should
consult their own tax advisors regarding the U.S. federal, U.S. federal alternative minimum, U.S. federal estate and gift, U.S.
state and local, and foreign tax consequences relating to the acquisition, ownership and disposition of Common Shares.
If an entity or arrangement that is classified
as a partnership (or “pass-through” entity) for U.S. federal income tax purposes holds Common Shares, the U.S. federal
income tax consequences to such partnership and the partners (or owners) of such partnership generally will depend on the activities
of the partnership and the status of such partners (or owners). This summary does not address the tax consequences to any such
partnership or partner (or owner). Partners (or owners) of entities or arrangements that are classified as partnerships for U.S.
federal income tax purposes should consult their own tax advisors regarding the U.S. federal income tax consequences arising from
and relating to the acquisition, ownership, and disposition of Common Shares.
Ownership and Disposition of Common
Shares
The following discussion is subject to
the rules described below under the heading “Passive Foreign Investment Company Rules.”
Distributions on Common Shares
Subject to the PFIC (as defined below)
rules discussed below, a U.S. Holder that receives a distribution, including a constructive distribution, with respect to a Common
Share will be required to include the amount of such distribution in gross income as a dividend (without reduction for any Canadian
income tax withheld from such distribution) to the extent of the current or accumulated “earnings and profits” of the
Company, as computed for U.S. federal income tax purposes. A dividend generally will be taxed to a U.S. Holder at ordinary income
tax rates if the Company is a PFIC. To the extent that a distribution exceeds the current and accumulated “earnings and profits”
of the Company, such distribution will be treated first as a tax-free return of capital to the extent of a U.S. Holder's tax basis
in the Common Shares and thereafter as gain from the sale or exchange of such Common Shares. (See “Sale or Other Taxable
Disposition of Common Shares” below.) However, the Company may not maintain the calculations of earnings and profits in accordance
with U.S. federal income tax principles, and each U.S. Holder should therefore assume that any distribution by the Company with
respect to the Common Shares will constitute ordinary dividend income. Dividends received on Common Shares generally will not be
eligible for the “dividends received deduction.” Subject to applicable limitations and provided the Company is eligible
for the benefits of the Canada-U.S. Tax Convention or the Common Shares are readily tradable on a U.S. securities market, dividends
paid by the Company to non-corporate U.S. Holders, including individuals, generally will be eligible for the preferential tax rates
applicable to long-term capital gains for dividends, provided certain holding period and other conditions are satisfied, including
that the Company not be classified as a PFIC in the tax year of distribution or in the preceding tax year. The dividend rules are
complex, and each U.S. Holder should consult its own tax advisors regarding the application of such rules.
Sale or Other Taxable Disposition of
Common Shares
Subject to the PFIC rules discussed below,
upon the sale or other taxable disposition of Common Shares, a U.S. Holder generally will recognize capital gain or loss in an
amount equal to the difference between the amount of cash plus the fair market value of any property received and such U.S. Holder’s
tax basis in such Common Shares sold or otherwise disposed of. Subject to the PFIC rules discussed below, gain or loss recognized
on such sale or other disposition generally will be long-term capital gain or loss if, at the time of the sale or other disposition,
the Common Shares have been held for more than one year.
Preferential tax rates apply to long-term
capital gain of a U.S. Holder that is an individual, estate, or trust. There are currently no preferential tax rates for long-term
capital gain of a U.S. Holder that is a corporation. Deductions for capital losses are subject to significant limitations under
the Code.
Passive Foreign Investment Company Rules
If the Company were to constitute a “passive
foreign investment company” (“PFIC”) for any year during a U.S. Holder’s holding period, then certain potentially
adverse rules would affect the U.S. federal income tax consequences to a U.S. Holder resulting from the acquisition, ownership
and disposition of its Common Shares. The Company believes that it was not a PFIC for its tax year ended March 31, 2016. The determination
of whether any corporation was, or will be, a PFIC for a tax year depends, in part, on the application of complex U.S. federal
income tax rules, which are subject to differing interpretations. In addition, whether the Company will be a PFIC for any future
tax year depends on the assets and income of the Company over the course of each such tax year, and, as a result, cannot be predicted
with certainty as of the date of this document. There can be no assurance that the IRS will not challenge any determination made
by the Company concerning its PFIC status. Each U.S. Holder should consult its own tax advisors regarding the PFIC status of the
Company.
In any year in which the Company is classified
as a PFIC, a U.S. Holder will be required to file an annual report with the IRS containing such information as Treasury Regulations
and/or other IRS guidance may require. In addition to penalties, a failure to satisfy such reporting requirements may result in
an extension of the time period during which the IRS can assess a tax. U.S. Holders should consult their own tax advisors regarding
the requirements of filing such information returns under these rules, including the requirement to file an IRS Form 8621 annually.
The Company generally will be a PFIC if,
after the application of certain “look-through” rules with respect to subsidiaries in which the Company holds at least
25% of the value of such subsidiary, for a tax year, (a) 75% or more of the gross income of the Company for such tax year is passive
income (the “income test”) or (b) 50% or more of the value of the Company’s assets either produce passive income
or are held for the production of passive income (the “asset test”), based on the quarterly average of the fair market
value of such assets. “Gross income” generally includes all sales revenues less the cost of goods sold, plus income
from investments and from incidental or outside operations or sources, and “passive income” generally includes, for
example, dividends, interest, certain rents and royalties, certain gains from the sale of stock and securities, and certain gains
from commodities transactions. Royalties are generally treated as active income if such royalties are derived from licensing property
that the licensor has developed, created, or produced, or has acquired and added substantial value to, but only so long as the
licensor is regularly engaged in the development, creation or production of, or in the acquisition of and addition of substantial
value to, property of such kind.
If the Company were a PFIC in any tax year
during which a U.S. Holder held its Common Shares, such U.S. Holder generally would be subject to special rules with respect to
“excess distributions” made by the Company on the Common Shares and with respect to gain from the disposition of Common
Shares. An “excess distribution” generally is defined as the excess of distributions with respect to the Common Shares
received by a U.S Holder in any tax year over 125% of the average annual distributions such U.S. Holder has received from the Company
during the shorter of the three preceding tax years, or such U.S. Holder’s holding period for the Common Shares. Generally,
a U.S. Holder would be required to allocate any excess distribution or gain from the disposition of the Common Shares ratably over
its holding period for the Common Shares. Such amounts allocated to the year of the disposition or excess distribution would be
taxed as ordinary income, and amounts allocated to prior tax years would be taxed as ordinary income at the highest tax rate in
effect for each such year and an interest charge at a rate applicable to underpayments of tax would apply.
While there are U.S. federal income tax
elections that sometimes can be made to mitigate these adverse tax consequences (including the “QEF Election” under
Section 1295 of the Code and the “Mark-to-Market Election” under Section 1296 of the Code), such elections are available
in limited circumstances and must be made in a timely manner.
U.S. Holders should be aware that, for
each tax year, if any, that the Company is a PFIC, the Company can provide no assurances that it will satisfy the record keeping
requirements or make available to U.S. Holders the information such U.S. Holders require to make a QEF Election with respect to
the Company or any subsidiary that also is classified as a PFIC. U.S. Holders should consult their own tax advisors regarding the
potential application of the PFIC rules to the ownership and disposition of Common Shares, and the availability of certain U.S.
tax elections under the PFIC rules.
Additional Considerations
Additional Tax on Passive Income
Individuals, estates and certain trusts
whose income exceeds certain thresholds will be required to pay a 3.8% Medicare surtax on “net investment income” including,
among other things, dividends and net gain from disposition of property (other than property held in certain trades or businesses).
Special rules apply to PFICs. U.S. Holders should consult their own tax advisors regarding the effect, if any, of this tax on their
ownership and disposition of Common Shares.
Receipt of Foreign Currency
The amount of any distribution paid to
a U.S. Holder in foreign currency, or on the sale, exchange or other taxable disposition of Common Shares, generally will be equal
to the U.S. dollar value of such foreign currency based on the exchange rate applicable on the date of receipt (regardless of whether
such foreign currency is converted into U.S. dollars at that time). A U.S. Holder will have a basis in the foreign currency equal
to its U.S. dollar value on the date of receipt. Any U.S. Holder who converts or otherwise disposes of the foreign currency after
the date of receipt may have a foreign currency exchange gain or loss that would be treated as ordinary income or loss, and generally
will be U.S. source income or loss for foreign tax credit purposes. Different rules apply to U.S. Holders who use the accrual method
of tax accounting. Each U.S. Holder should consult its own U.S. tax advisors regarding the U.S. federal income tax consequences
of receiving, owning, and disposing of foreign currency.
Foreign Tax Credit
Subject to the PFIC rules discussed above,
a U.S. Holder that pays (whether directly or through withholding) Canadian income tax with respect to dividends paid on the Common
Shares generally will be entitled, at the election of such U.S. Holder, to receive either a deduction or a credit for such Canadian
income tax paid. Generally, a credit will reduce a U.S. Holder’s U.S. federal income tax liability on a dollar-for-dollar
basis, whereas a deduction will reduce a U.S. Holder’s income subject to U.S. federal income tax. This election is made on
a year-by-year basis and applies to all foreign taxes paid (whether directly or through withholding) by a U.S. Holder during a
year.
Complex limitations apply to the foreign
tax credit, including the general limitation that the credit cannot exceed the proportionate share of a U.S. Holder’s U.S.
federal income tax liability that such U.S. Holder’s “foreign source” taxable income bears to such U.S. Holder’s
worldwide taxable income. In applying this limitation, a U.S. Holder’s various items of income and deduction must be classified,
under complex rules, as either “foreign source” or “U.S. source.” Generally, dividends paid by a foreign
corporation should be treated as foreign source for this purpose, and gains recognized on the sale of stock of a foreign corporation
by a U.S. Holder should be treated as U.S. source for this purpose, except as otherwise provided in an applicable income tax treaty,
and if an election is properly made under the Code. However, the amount of a distribution with respect to the Common Shares that
is treated as a “dividend” may be lower for U.S. federal income tax purposes than it is for Canadian federal income
tax purposes, resulting in a reduced foreign tax credit allowance to a U.S. Holder. In addition, this limitation is calculated
separately with respect to specific categories of income. The foreign tax credit rules are complex, and each U.S. Holder should
consult its own U.S. tax advisors regarding the foreign tax credit rules.
Backup Withholding and Information Reporting
Under U.S. federal income tax law, certain
categories of U.S. Holders must file information returns with respect to their investment in, or involvement in, a foreign corporation.
For example, U.S. return disclosure obligations (and related penalties) are imposed on individuals who are U.S. Holders that hold
certain specified foreign financial assets in excess of certain threshold amounts. The definition of specified foreign financial
assets includes not only financial accounts maintained in foreign financial institutions, but also, unless held in accounts maintained
by a financial institution, any stock or security issued by a non-U.S. person, any financial instrument or contract held for investment
that has an issuer or counterparty other than a U.S. person and any interest in a foreign entity. U.S. Holders may be subject to
these reporting requirements unless their Common Shares are held in an account at certain financial institutions. Penalties for
failure to file certain of these information returns are substantial. U.S. Holders should consult with their own tax advisors regarding
the requirements of filing information returns including the requirement to file an IRS Form 8938.
Payments made within the U.S. or by a U.S.
payor or U.S. middleman, of dividends on, and proceeds arising from the sale or other taxable disposition of, Common Shares will
generally be subject to information reporting and backup withholding tax, at the rate of 28%, if a U.S. Holder (a) fails to furnish
such U.S. Holder’s correct U.S. taxpayer identification number (generally on IRS Form W-9), (b) furnishes an incorrect U.S.
taxpayer identification number, (c) is notified by the IRS that such U.S. Holder has previously failed to properly report items
subject to backup withholding tax, or (d) fails to certify, under penalty of perjury, that such U.S. Holder has furnished its correct
U.S. taxpayer identification number and that the IRS has not notified such U.S. Holder that it is subject to backup withholding
tax. However, certain exempt persons generally are excluded from these information reporting and backup withholding rules. Any
amounts withheld under the U.S. backup withholding tax rules generally will be allowed as a credit against a U.S. Holder’s
U.S. federal income tax liability, if any, or will be refunded, if such U.S. Holder furnishes required information to the IRS in
a timely manner.
The discussion of reporting requirements
set forth above is not intended to constitute a complete description of all reporting requirements that may apply to a U.S. Holder.
A failure to satisfy certain reporting requirements may result in an extension of the time period during which the IRS can assess
a tax, and under certain circumstances, such an extension may apply to assessments of amounts unrelated to any unsatisfied reporting
requirement. Each U.S. Holder should consult its own tax advisors regarding the information reporting and backup withholding rules.