UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM 20-F
☐
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, 2019
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)
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, 2019:
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507,417,021
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
and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted 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 and post 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):
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:
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 ☒
ANNUAL INFORMATION FORM,
AUDITED ANNUAL CONSOLIDATED FINANCIAL STATEMENTS
AND MANAGEMENT DISCUSSION AND ANALYSIS
Annual Information Form
The Registrant’s Annual Information Form for the fiscal year
ended June 30, 2019 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, 2019, 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, 2019 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 Meeting and Management Proxy
Circular for the fiscal year ended June 30, 2019 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
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, 4.4.1, 4.4.2, 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
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Articles of Continuance of NextSource Materials Inc., dated
December 27, 2017 (Previously filed with our 20-F filed with the
SEC on October 31, 2018)
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By-Law No. 1 of NextSource Materials Inc., dated December 27, 2017
(Previously filed with our 20-F filed with the SEC on October 31,
2018)
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Amended and Restated Stock Option Plan of NextSource Materials,
Inc. (Incorporated by reference to the registrant’s current
report on Form 8-K as filed with the SEC on October 16,
2013)
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Stock Option Plan of NextSource Materials, Inc. (Incorporated by
reference to Appendix B to Schedule 14A as filed with the SEC on
November 14, 2016)
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Form of Warrant relating to private placement completed during June
2014 (Previously filed with our Annual Report on Form 10-K filed
with the SEC on September 28, 2017)
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Form of Warrant relating to private placement completed during
August 2018 (Previously filed with our 20-F filed with the SEC on
October 31, 2018)
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Form of Warrant relating to private placement completed during
October 2019.
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Employment Agreement with Craig Scherba (Previously filed with our
Annual Report on Form 10-K filed with the SEC on September 28,
2017).
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Employment Agreement with Brent Nykoliation (Previously filed with
our Annual Report on Form 10-K filed with the SEC on September 28,
2017).
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Management Consulting Agreement with Marc Johnson (Previously filed
with our Annual Report on Form 10-K filed with the SEC on September
28, 2017).
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Management Consulting Agreement with Robin Borley (Previously filed
with our Annual Report on Form 10-K filed with the SEC on September
28, 2017).
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8
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List of Subsidiaries (see “Corporate Structure” on page
4 of the Annual Information Form for the fiscal year ended June 30,
2019 filed hereto as Exhibit 99.1.)
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Code of Ethics and Business Conduct (Previously filed with our 20-F
filed with the SEC on October 31, 2018).
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Certification of the Chief Executive Officer pursuant to Rule
13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of
1934.
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Certification of the Chief Financial Officer pursuant to Rule
13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of
1934.
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Certification of the Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
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Certification of the Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
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Annual Information Form for the fiscal year ended June 30,
2019.
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Audited Annual Consolidated Financial Statements for the fiscal
year ended June 30, 2019.
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Management's Discussion and Analysis for the fiscal year ended June
30, 2019.
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Notice of Annual Meeting and Management Proxy Circular for the
fiscal year ended June 30, 2019.
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Additional Information.
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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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NEXTSOURCE MATERIALS INC.,
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Dated: November 13,
2019
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By:
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/s/ Marc
Johnson
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Name: Marc
Johnson
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Title:
Chief
Financial Officer
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EXHIBIT 4.4.2
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 OCTOBER 25, 2021.
UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THIS
SECURITY MUST NOT TRADE THE SECURITY BEFORE FEBRUARY 26,
2020.
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
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2019-10-###
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WARRANTS
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XXXX
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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.
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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 October 25,
2021 (the “Expiry Time”), at a price per Share
equal to $0.09 per Warrant,
subject to adjustment as hereinafter provided (the “Exercise
Price”), upon and subject to the following terms and
conditions.
TERMS AND CONDITIONS
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 October 25, 2019 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 FEBRUARY 26, 2020.”
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.
2.
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.
3.
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.
4.
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:
(a)
Share Reorganization. If during
the Exercise Period, the Corporation shall:
(i)
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
(ii)
subdivide,
re-divide or change its outstanding common shares into a greater
number of common shares, or
(iii)
consolidate, reduce
or combine its outstanding Shares into a lesser number of common
shares,
(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.
(b)
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:
(i)
the numerator of
which shall be the aggregate of:
(A)
the number of
common shares outstanding as of the record date for the Rights
Offering, and
(B)
a number determined
by dividing either
I.
the product of the
number of common shares offered under the Rights Offering and the
price at which such common shares are offered,
or, as
the case may be,
II.
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,
by the
Current Market Price of the common shares as of the record date for
the Rights Offering; and
(ii)
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).
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.
(c)
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:
(i)
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
(ii)
any cash, property
or other assets or evidences of its indebtedness,
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:
(A)
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
(B)
the fair value (as
determined by the directors of the Corporation) to the holders of
such common shares of such Special Distribution; and
(ii)
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.
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.
(d)
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.
(e)
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.
5.
The following
rules and procedures shall be applicable to the adjustments made
pursuant to Section 4:
(a)
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.
(b)
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.
(c)
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.
(d)
No adjustment in
the Exercise Price shall be made pursuant to Section 4 in respect
of the issue from time to time:
(i)
of Shares
purchasable on exercise of the Warrants represented by this Warrant
Certificate;
(ii)
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
(iii)
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;
and any
such issue shall be deemed not to be a Share Reorganization or
Capital Reorganization.
(e)
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.
(f)
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.
(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.
(h)
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.
(i)
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.
6.
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.
7.
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:
(a)
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
(b)
delivering to such
holder any distributions declared with respect to such additional
Shares after such Exercise Date and before such event;
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.
8.
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.
9.
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.
10.
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.
11.
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.
12.
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.
13.
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.
14.
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.
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.
16.
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.
17.
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 October 25,
2019.
18.
Time is of the
essence hereof.
19.
This Warrant
Certificate is binding upon the Corporation and its successors and
assigns.
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.
IN WITNESS WHEREOF this Warrant Certificate has been
executed on behalf of NextSource Materials Inc. as of October 25, 2019
NEXTSOURCE
MATERIALS INC.
Per:
____________________________________________
Authorized Signing
Officer
SUBSCRIPTION NOTICE
TO:
NextSource
Materials Inc.,
1001-145 Wellington
Street West,
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:
(a)
subscribes for
___________________________ Shares at a price per of $0.09 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
(b)
delivers herewith
the above-mentioned Warrant Certificate entitling the undersigned
to subscribe for the above-mentioned number of Shares;
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) (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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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,
2019 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.
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Date: November 13,
2019
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By:
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/s/ Craig
Scherba
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Craig
Scherba
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Chief Executive Officer
(principal executive officer)
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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,
2019 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.
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Date:
November 13, 2019
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By:
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/s/ Marc Johnson
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Marc
Johnson
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Chief Financial Officer
(principal accounting officer)
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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, 2019 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:
November 13, 2019
By:
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/s/
Craig Scherba
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Craig
Scherba
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Chief Executive Officer
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(principal executive officer)
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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, 2019 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:
November 13, 2019
By:
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/s/
Marc Johnson
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Marc
Johnson
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Chief Financial Officer
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(principal accounting officer)
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Exhibit 99.1
NextSource Materials Inc.
Annual Information Form (AIF)
For the
year ended June 30, 2019
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2019
Table of Contents
1 Introduction
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3
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2 General Description of the Business
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4
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3 Corporate Highlights
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6
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4 Molo Graphite Property, Southern Madagascar Region,
Madagascar
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8
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5 Green Giant Vanadium Project, Southern Madagascar Region,
Madagascar
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30
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6 Sagar Property, Labrador Trough Region, Quebec,
Canada
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30
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7 Risk Factors
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30
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8 Market for Securities
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36
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9 Directors and Officers
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36
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10 Legal Proceedings and Regulatory Actions
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41
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11 Interest of Management and Others in Material
Transactions
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41
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12 Interest of Experts
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41
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13 Material Contracts
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42
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14 Transfer Agent and Registrar
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42
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15 Auditors
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42
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16 Additional Information
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42
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SCHEDULE A
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NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2019
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 30, 2019, should be read in
conjunction with NextSource’s consolidated financial
statements for the years ended June 30, 2019 and 2018.
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.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
INFORMATION
Certain
statements contained in this MD&A constitute forward-looking
information within the meaning of applicable Canadian securities
legislation. Generally, forward-looking information can be
identified by the use of forward-looking terminology such as
“plans,” “expects,” or “does not
expect,” “is expected,” “budget,”
“scheduled,” “goal,”
“estimates,” “forecasts,”
“intends,” “anticipates,” or “does
not anticipate,” or “believes” or variations of
such words and phrases or statements that certain actions, events
or results “may,” “could,”
“would,” “might,” or “will be
taken,” “occur,” or “be
achieved”.
Forward-looking
information includes, but is not limited to, information with
respect to certain expectations regarding obtaining necessary
permits; construction timelines and costs; anticipated production
volumes; anticipated operating costs and capital spending; supply,
demand and pricing outlook in the graphite market; sources of
funding for the Molo Graphite Project and the Green Giant Vanadium
Project; exploration drill results; metallurgical drill results;
environmental assessment and rehabilitation costs and amounts of
certain other commitments; the expected use of proceeds; and the
Corporation’s business objectives and targeted milestones
(and timing thereof).
Forward-looking
information is subject to known and unknown risks, uncertainties
and other factors that may cause the actual results, level of
activity, performance or achievements of the Corporation to be
materially different from those expressed or implied by such
forward-looking information. Such factors include, among others:
there is no market for the Securities; negative operating cash
flow; the Corporation’s ability to continue as a going
concern; development projects are uncertain, and it is possible
that actual capital and operating costs and economic returns will
differ significantly from those estimated for a project prior to
production; the Corporation’s development and exploration
projects are in the African country of Madagascar and are subject
to country political and regulatory risks; dependence on the Molo
Graphite Project; additional permits and licenses are necessary to
complete the development of the Molo Graphite Project; 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; fluctuations in the market price of graphite and
other metals may adversely affect the value of the
Corporation’s securities and the ability of the Corporation
to develop the Molo Graphite Project; the Corporation may not have
access to sufficient capital to develop the Molo Graphite Project;
the Corporation has a limited operating history and expects to
incur operating losses for the foreseeable future; due to the
speculative nature of mineral property exploration, there is
substantial risk that the Corporation’s assets will not go
into commercial production and the business will fail; estimates of
mineral resources and mineral reserves may not be realized; because
of the inherent dangers involved in mineral exploration, there is a
risk that the Corporation may incur liability or damages as the
Corporation conducts business; the Corporation has no insurance for
environmental problems; should the Corporation lose the services of
key executives, the Corporation’s financial condition and
proposed expansion may be negatively impacted; because access to
the Corporation’s properties may be restricted by inclement
weather or proper infrastructure, its exploration programs are
likely to experience delays; climate change and related regulatory
responses may impact the Corporation’s business; compliance
with changing regulation of corporate governance and public
disclosure will result in additional expenses and pose challenges
for management; tax risks; the Corporation’s business is
subject to anti-corruption and anti-bribery laws, a breach or
violation of which could lead to civil and criminal fines and
penalties, loss of licenses or permits and reputational harm; the
Corporation does not intend to pay dividends; because from time to
time the Corporation holds a significant portion of cash reserves
in Canadian dollars, the Corporation may experience losses due to
foreign exchange translations; the Corporation is exposed to
general economic conditions, which could have a material adverse
impact on its business, operating results and financial condition;
the current financial environment may impact the
Corporation’s business and financial condition that cannot
predict; the market price for the Common Shares is particularly
volatile given the Corporation’s 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 the market price for the Common Shares; and
the Corporation’s ability to meet other factors listed from
time to time in the Corporation’s continuous disclosure
documents, including but not limited to, the AIF.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2019
Forward-looking
information is based on the reasonable assumptions, estimates,
analysis and opinions of management and/or “qualified
persons” (as such term is defined under National Instrument
43-101 – Standards of Disclosure for Mineral Projects
(“”NI 43-101”) made in light of their experience
and their perception of trends, current conditions and expected
developments, as well as other factors that management and/or
qualified persons believe to be relevant and reasonable in the
circumstances at the date that such statements are made, but which
may prove to be incorrect. Although the Corporation believes that
the assumptions and expectations reflected in such forward-looking
information are reasonable, undue reliance should not be placed on
forward-looking information because the Corporation can give no
assurance that such expectations will prove to be correct. In
addition to the assumptions discussed herein and in the Technical
Report (as defined herein), the material assumptions upon which
such forward-looking statements are based include, among others,
that: the Corporation will be successful in its financing
activities; the demand for graphite will develop as anticipated;
graphite prices will remain at or attain levels that would render
the Molo Graphite Project potentially economic; that any proposed
operating and capital plans will not be disrupted by operational
issues, title issues, loss of permits, environmental concerns,
power supply, labour disturbances, financing requirements or
adverse weather conditions; the Corporation will continue to have
the ability to attract and retain skilled staff; and there are no
material unanticipated variations in the cost of energy or
supplies. Readers are cautioned that the foregoing list is not
exhaustive of all factors and assumptions which may have been used.
Although the Corporation has attempted to identify important
factors that could cause actual results to differ materially from
those contained in forward-looking information, there may be other
factors that cause results not to be as anticipated, estimated or
intended. There can be no assurance that such information will
prove to be accurate, as actual results and future events could
differ materially from those anticipated in such information.
Accordingly, readers should not place undue reliance on
forward-looking information. The forward-looking information
contained herein is presented for the purposes of assisting
investors in understanding the Corporation’s expected
financial and operating performance and the Corporation’s
plans and objectives and may not be appropriate for other
purposes.
The
Corporation does not undertake to update any forward-looking
information, except in accordance with applicable securities
laws.
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 does not operate any
mines and has not initiated construction on any mines. 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 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.
Principal Products
The
Company is currently focused on developing a graphite
mine.
The
Company, through a wholly owned foreign subsidiary, obtained a
mining permit and environmental certificate for its Molo Graphite
Project in Madagascar. The Molo Graphite Project is one of the
largest-known and highest quality flake graphite deposits in the
world. Although the Company released a NI 43-101 Technical Report
Feasibility Study dated September 27, 2019 that concluded that
Phase 1 and Phase 2 of the Molo Graphite Project contains
mineralization that is economically recoverable, the Company does
not have the necessary capital to begin construction at this
time.
In
addition to the Molo Graphite Project, NextSource has 100%
ownership of its NI 43-101 compliant Green Giant Vanadium Project,
located just 11 kilometres from the Molo Graphite Project. The
Green Giant Project is a rarely occurring, sedimentary-hosted
deposit that also ranks as one of the largest-known and highest
in-situ grade vanadium resources in the world.
Competitive Conditions
The
mineral exploration and mining business 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.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2019
Foreign Operations
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 favor 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.
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 (“GRAMAD”), a
Madagascar subsidiary. GRAMAD holds the Molo Graphite Project
exploration permits.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2019
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, 2019, the Company had 507,417,021 common shares
issued and outstanding (June 30, 2018: 469,933,611).
As of June 30 2019, the Company had 40,670,000 stock options issued
and outstanding (June 30, 2018: 37,630,000) with a weighted average
expiration of 2.9 years (June 30, 2018: 2.9 years), which are
exercisable into 40,670,000 common shares (June 30, 2018:
37,630,000) at a weighted average exercise price of $0.08 (June 30,
2018: $0.09). All stock options that are currently outstanding
vested on the grant date.
As of
June 30, 2019, the Company had 10,652,636 common share purchase
warrants issued and outstanding (June 30, 2018: 3,500,000) with a
weighted average expiration of 1.13 years (June 30, 2018: 0.8
years), which are exercisable into 10,652,636 common shares (June
30, 2018: 3,500,000) at a weighted average exercise price of $0.08
(June 30, 2018: $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, 2019, and 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, 2019, we had two employees and several contractors in
addition to the Board of Directors, President & Chief Executive
Officer and 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.
Three-Year History
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.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2019
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 the
ability of the Company to finance the modular expansion. It is
expected that the Phase 2 expansion 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 to be completed in due
course.
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 (i) a pre-tax NPV of $34 million
using an 8% discount rate and a pre-tax internal rate of return
(“IRR”) of 25.2%; and (ii) a post-tax NPV of $25.5
million using an 8% discount rate 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.
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 $1,120,385
(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.
On October 16, 2018, the Company announced the signing of an
Offtake Agreement with the primary graphite supplier to a major
Japanese electric vehicle anode producer. The Offtake Agreement is
for a period of ten (10) years and activates on the commencement of
commercial production at the Molo project, with an automatic
renewal for an additional five (5) years. The Japanese Partner will
have the exclusive right to import and sell SuperFlake®
graphite concentrate in Japan. Provided that commercial production
commences within 3 years, following the ramp up period, the
Japanese Partner will purchase 20,000 tonnes of SuperFlake®
graphite per annum Product prices will be negotiated on a per order
basis between the parties and will be based on the floating market
prices (FOB basis) prevailing in the region.
On
February 15, 2019, the Company announced the Madagascar Government
granted a 40-year mining license for the Molo Graphite Project and
that the mining license does not limit mining to any specific
volume.
On March 7, 2019, the Company closed a non-brokered private
placement offering of 16,086,426 common shares at a price of $0.08
(CAD$0.11) per common share for aggregate gross proceeds of
$1,323,630 (CAD$1,769,507).
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2019
On
April 11, 2019, the Company announced it had received the Global
Environmental Permit for the Molo Graphite Project from the
Madagascar Ministry of Environment’s Office National pour
l'Environnement (the National Office for the Environment; or
“ONE”). This follows the completion of the
Environmental & Social Impact Assessment (“ESIA”)
and Relocation Action Plan (“RAP”) to International
Finance Corporation (IFC) performance standards and World Bank
standards, the completion of local and regional stakeholder and
community engagement, and the completion of negotiations and signed
agreements with all potentially affected land occupants to accept
compensation for any affected crops and grazing land and relocation
if needed.
On
September 27, 2019, the Company released the results of a positive
updated Molo Feasibility Study which outlined a phased development
approach, with Phase 1 producing 17,000 tonnes per annum
(“tpa”) over the first two years of production and
Phase 2 producing a total of 45,000 tpa by year 3. Over the
modelled life of mine (30 years), the production plants will have a
pre-tax internal rate of return (“IRR”) of 43.1%, and a
post-tax IRR of 36.2%. The pre-tax Net Present Value
(“NPV”) at 8% discount rate will be US$237.1M, and the
post-tax NPV will be US$184.3M. The capital mine cost
(“CAPEX”) for Phase 1 will be US$21.0M with Phase 2
CAPEX being an additional US$39.1M, for a total project cost of
US$60.1M.
On
September 27, 2019, Quentin Yarie resigned as a director of the
Company.
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.
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.
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.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2019
During
fiscal 2017, the Company applied to the BCMM to have the
exploration permit for the Molo Graphite Project converted into a
mining permit. On February 15, 2019, the Company announced the
Madagascar Government granted a 40-year mining license for the Molo
Graphite Project and that the mining license does not limit mining
to any specific volume. On April 11, 2019, the Company announced it
had received the Global Environmental Permit for the Molo Graphite
Project from the Madagascar Ministry of Environment’s Office
National pour l'Environnement (the National Office for the
Environment; or “ONE”).
Application
for all other necessary permits to construct and operate the mine,
including water use, facilities construction, mineral processing,
transportation, export, and labour have been
initiated.
The
Company cannot provide any assurance as to the timing of the
receipt of sufficient capital and of any of the permits and
licenses necessary to initiate construction of the
mine.
Graphite Prices
As an
industrial mineral, flake graphite pricing is determined by three
factors: 1) flake size, 2) carbon purity and 3) industry-specific
technical attributes of the flakes. Flake sizing is broadly
classified into four ranges: small (-100 mesh, or <75µm)
medium (-80 to 100 mesh, or 75µm to 180µm), large (-50 to
80 mesh, or 180µm to 300µm), and extra-large or jumbo
(+50 mesh, or >300µm). These flake sizes are in turn
classified by carbon content (”C”), and are typically
sold in ranges of 88-93% C, 94-95% C, and 95-97% C. The specific
technical attributes of the flakes are then defined by end-user
parameters such as expansion coefficient, thermal and electrical
conductivity, and charge-discharge stability and efficiency. As the
technical parameters sought by end-users are proprietary to their
processes, pricing is not publicly available. There are however
subscription pricing services that provide monthly graphite pricing
for various flake sizes and carbon purities based upon input from
graphite purchasers. The following identifies the average monthly
flake graphite pricing for the past 12 months as provided by
Benchmark Mineral Intelligence.
Metallurgical
work confirms that the final flake graphite concentrate from the
Molo deposit yielded material ranging from 96.9% C to 98.1% C.
Using this carbon content range, the following table summarizes FOB
China flake graphite pricing from Benchmark over the past 12 months
for material with a carbon content ranging between 96-97%
C.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2019
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2019
Using
the flake size distribution arrived at from metallurgical testing,
along with the average pricing as identified in the table above
yields a 12 month average “basket price” of US $1207.55
for Molo graphite as per the table below.
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.
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 an 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.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2019
On September 27, 2019 we released the results of an updated Molo
Feasibility Study in order to quantify a phased buildout (i.e.
Incorporating both Phase 1 and Phase 2), update capital and
operating costs, and utilize recent graphite pricing. Phase
1 will produce 17,000 tonnes per annum (“tpa”) over the
first two years of production, and Phase 2 will increase production
to a total of 45,000 tpa by year 3. Over the modelled life of mine
(30 years), the production plants will have a pre-tax internal rate
of return (“IRR”) of 43.1%, and a post-tax IRR of
36.2%. The pre-tax Net Present Value (“NPV”) at 8%
discount rate will be US$237.1M, and the post-tax NPV will be
US$184.3M. The CAPEX for Phase 1 will be US$21.0M with Phase 2
CAPEX being an additional US$39.1M, for a total project cost of
US$60.1M. Customers have agreed to purchase graphite on a Freight
on Board (“FOB”) basis in Madagascar, with FOB MOLO
operating costs for Phase 1 and Phase 2 being $565.93/T and $514.17
respectively.
Molo Feasibility Study for Phase 1
The
following information is extracted from the Molo Feasibility Study
dated May 31, 2019 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., O. Peters of Metpro Management Inc., O.
Mogoera of Erudite Strategies (Pty) Ltd., H. Smit of Erudite
Projects (Pty) Ltd., E.V. Heerden of EVH Consulting (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.
The
Company is a mineral exploration and development company based in
Toronto, Canada. The Company 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.
Geologically,
Molo is situated in the Bekily 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
was one of several surficial graphite trends discovered by the
Company (then Energizer) 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 PEA, which was
undertaken by DRA Projects in 2013.
The
positive outcome of this PEA led the Company to undertake another
phase of exploratory drilling and sampling in 2014, which was done
under the supervision of CCIC. 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).
CCIC
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 formed the basis of the Molo 2015 FS which targeted
860ktpa of ore processing capacity.
This
Report utilises the knowledge base of both the Molo 2015 FS and
Molo 2017 240ktpa FS technical reports.
Anticipating
the future demand for industrial minerals such as those held by the
Company (Graphite, Vanadium and Cobalt) is complex. The demand for
these minerals is, to a large extent, driven by the development of
the battery market which remains uncertain. Significant research
has been completed by various analysts and the consensus view is
that an explosive increase in demand can be expected. The
uncertainty, however, is the timing of such increase in
demand.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2019
In
order to ensure that the Company remains ahead of the competition
and to appropriately plan for future market demand, the Company has
opted for a flexible development approach which comprises a modular
solution yielding optimal cashflow and return metrics with suitable
flexibility to enable them to rapidly respond to market
changes.
The
Company has an off-take agreement in place with a Japanese Trader
and is in the process of formalizing an additional sales agreement
with a European Trader. As such, the Company requested
feasibility-level analysis of a phased development approach: Phase
1 – 240,000 Tonnes per annum (240ktpa), and Phase 2 –
after 240ktpa for the first 2 years of production, ramping up to
720ktpa in the third year to accommodate additional
sales.
The
Feasibility Study (hereinafter referred to as the “Molo 2019
720ktpa (Ph 2) FS”) as detailed in this Report considers in
some detail the development of a greenfields graphite mine with
modular beneficiation plant and supporting infrastructure.
Engineering, costing and Project planning for Phase 1 of the
proposed mine development has been completed to a level as required
for this Report to comply to the requirements as defined by the TSX
in terms of the NI 43-101. The numbers confirmed during the Molo
2017 240ktpa FS for Phase 1 of the Project are updated as part of
this Report to incorporate the effects of escalation and market
realities, as currently relevant.
Although
detailed engineering has not been completed in order to define an
optimal solution for a larger throughput mine facility, costing for
Phase 2 (which adds an additional two modules of the beneficiation
plant and increases the mining and infrastructure in proportion),
is costed as part of this Report. Phase 2 costing is merely
factored and therefore deemed accurate to FS level but will be
optimised through certain economies of scale which are not
considered in this Report. The increased capital expenditure is
included in the financial model to provide comprehensive financial
analysis of the Project. The increased throughput requires
increased water sourcing which has been considered in the
engineered solution for water supply. Some of the infrastructure
has been increased to support the increased workforce.
The
Company has every intent to develop Phase 2 in close succession to
Phase 1 and has the mineral resources to support further increases
of its mining and beneficiation capacity as the inevitable increase
in demand is realised.
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 and is approximately 13
km NE of the local village of Fotadrevo.
The
proposed development of the Project includes the construction of a
green fields open pit mine, a Phase1 processing plant with a
capacity of 240,000 tonnes of ore per annum and all supporting
infrastructure including water, fuel, power, tailings
(co-disposed), buildings and permanent accommodation. This Project
will be augmented with expansion to Phase 2 processing plant with a
capacity of 720,000 tonnes of ore per annum based on market
conditions.
1.4
Summary of financial results
Table 1 below summarizes the financial results of Phase 1
(240ktpa for the first two years of production and Phase 2 (ramp-up
to 720ktpa production in year three). These are based on a
discounted flow analysis of the Project using real cash flows,
which do not include the effect of inflation.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2019
Table
1: Summary of Financial Results
Description
|
Phase 1 and 2
|
|
Pre-Tax
|
Post-Tax
|
Post-tax: NPV (8% Discount Cash Flow)(1)(2)
|
$237.1m
|
$184.3m
|
Post-tax: IRR (1)(2)
|
43.1%
|
36.2%
|
Payback (2)
|
3.4 years
|
3.8 years
|
Capital cost ("CAPEX")
|
$60,082,340
|
|
Owners Contingency
|
$6,670,430
|
|
On-site Operating Costs ("OPEX") per tonne of concentrate, (year 3
onward)
|
|
|
|
$82.69
|
|
On-site Operating Costs ("OPEX") per tonne of concentrate, (year 3
onward)
|
Processing
|
|
|
$270.27
|
|
Transportation per tonne of concentrate (from mine site to
Madagascar Port year 3 onward)
|
$133.01
|
|
Average annual production of concentrate
|
45,136 tonne
|
|
Life of Mine ("LOM")
|
30 years
|
|
Graphite concentrate sale price (US$/tonne at Start Up -
2017)
|
$1,208
|
|
Average Head Grade
|
7.1%
|
|
Average ore mined per annum over Life of Mine
|
720,000 tonne
|
|
Average stripping ratio
|
0.53:1
|
|
Average carbon recovery
|
88.30%
|
|
Notes
●
Note 1: Assumes
Project is financed with 100% equity
●
Note 2: Values
shown are based on real graphite sales pricing Table 2 below summarizes key mine and process
data.
Table
2: Mine & Process Data
|
Phase 1
|
Phase 2
|
Proven reserves (t)
|
14,048,733
|
Probable reserves (t)
|
8,207,458
|
Grade (% graphitic carbon)
|
8.05%
|
7.10%
|
Waste to ore ratio
|
0.53:1
|
Processing rate (tpa)
|
240,000
|
720,000
|
Mine life (years)
|
30
|
Recovery (%)
|
88.30%
|
Average annual product tonnes
|
17,000
|
45,000
|
1.5
Property Description and Ownership
1.5.1
Property Description
The
Project includes 790 claims and an area totalling 308.6
km2.
The
Project is centred on UTM coordinates 495,289 Easting 7,345,473
Northing (UTM 38S, WGS 84 datum), and is located 11.5 km
east-northeast of the town of Fotadrevo.
The
property is within Exploitation/Mining Permit PE #39807 which
covers an area of 175 km2 or 17,500 hectares
(“ha”), and Exploration Permits PR #39806 and PR #39810
which cover areas of 96.1 km2 (9609 ha) and 37.5
km2 (3750
ha), respectively.
On
December 14, 2011, the Company entered into a Definitive JVA with
Malagasy Minerals Limited (hereinafter referred to as "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 MOU with Malagasy to
acquire the remaining 25% interest in the land
position.
On
April 16, 2014, Energizer 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").
CCIC
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
Project was located within Exploration Permit 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. On January 18, 2019, Permit PR #3432 was transformed into
two Exploration Permits (PR #39806 and PR #39810) and an
Exploitation Permit (PE #39807) by the Ministry of Mines, with the
official permit being granted to the Company by the BCMM on
February 14, 2019.
Mineral
Resources and Reserves delineated in Sections 14 and 15 of this
Report are entirely within the bounds of Exploitation Permit PE
#39807. The Company holds the exclusive right to exploit/mine and
explore for graphite within this license area for a period of 40
years and can renew the license several times for a further period
of 20 years upon each renewal.
The
Company holds the exclusive right to explore for a defined group of
industrial minerals within Exploration Permits PR #39806 and PR
#39810. 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, Zeolites.
Companies
in Madagascar first apply for an exploration mining permit with the
BCMM, a government agency falling under the authority of the
Minister of Mines. Permits under usual circumstances are generally
issued within a month. The number of squares varies widely by claim
number.
The
updated Decret requires the payment of annual administration fees
of Permits Research of ~15,000 Ariary (MGA) for exploitation
permits in years’ one and two. Annual fees increase by
multiplying by a factor equivalent to the number of years (plus 1)
that the company has held the permit. Exploration permits have an
updated duration of five years, with the possibility of two
renewals of an additional three years each. Payments of the
administration fees are due each year on 31March, along with the
submission of an activity report. Each year, the Company is
required to pay a similar, although increasing, amount in order to
maintain the claims in good standing.
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. CCIC is of the opinion
that the Company is compliant in terms of its commitments under
these reporting requirements.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2019
The
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.
1.5.3
The Company’s Royalties
Malagasy
retains a 1.5% net smelter return royalty on the
Project.
Exploitation
Permit PE #39807 (175 km2) and Exploration
Permits PR #39806 and PR #39810 are held under the name of a
subsidiary of the Company called ERG (Madagascar) Ltd. S.A.R.L.U.
and were granted to the Company by the BCMM on February 14,
2019.
The
Madagascar Ministry of Environment’s Office National pour
l'Environnement (the National Office for the Environment) or
“ONE”, granted the Company its Environmental License
for the 240ktpa (Phase 1) Project on April 8, 2019 after reviewing
the following:
●
Exploitation Permit
PE #39807
●
Environmental &
Social Impact Assessment (“ESIA”) and Relocation Action
Plan (“RAP”) to International Finance Corporation (IFC)
Performance and World Bank Standards
●
Completion of local
and regional stakeholder and community engagement, with
overwhelming support from both the local community and local
government, as well as regional government
●
Signed agreements
with all potentially affected land occupants to accept compensation
for any affected crops and grazing land and relocation if
needed
●
Approved capital
investment certification from the BCMM
●
Receipt of Cahier
des Charges Miniér (mining specification) from the BCMM as
pre-requisite to submitting the ESIA & RAP to ONE for
review
●
Successful
completion of the ONE’s technical evaluation process which
consisted of a site visit and four separate community
consultations
●
Joint agreement and
signature of the Cahier des Charges Environnementales
(environmental specification) with the ONE
1.6
Geologic Setting and Mineralization
The
Molo deposit occurs within the regional Ampanihy Shear Zone. The
most conspicuous feature of rocks found within this shear zone is
their well-developed north-south foliation and vertical to
sub-vertical nature. Martelat et al. (2000) state that this
observed bulk strain pattern is clearly related to a
transpressional regime during bulk horizontal shortening of heated
crust, which resulted in the exhumation of lower crustal
material.
The
Project area is underlain by supracrustal and plutonic rocks of
late Neoproterozoic age that were metamorphosed under upper
amphibolite facies and deformed with upright
north-northeast-trending structures. The supracrustal rocks involve
migmatitic (± biotite, garnet) quartzo-feldspathic gneiss,
marble, chert, quartzite, and amphibolite gneiss. The metaplutonic
rocks include migmatitic (± hornblende / diopside, biotite,
garnet) feldspathic gneiss of monzodioritic to syenitic
composition, biotite granodiorite, and leucogranite.
1.7
Mineral Resource Estimate
The
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
●
Inferred mineral
resource of 40.91 Mt at 5.78% C
●
The effective date
of the Mineral Resource tabulation is 14 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.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2019
●
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 are inclusive of the
Mineral Reserves below. The Mineral Resources reported herein
include Mineral Reserves. Mineral Resources that are not Mineral
Reserves do not have demonstrated economic viability.
●
The current mineral
resource estimate for Molo is summarised 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
|
C% =
carbon percentage; Graphite – T = Tonnes of
graphite
Notes:
●
Mineral Resources
are classified according to the Canadian Institute of Mining
definitions.
●
Mineral Resources
are reported Inclusive of Mineral Reserves.
●
“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
mineralised 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.
No
further exploration is currently planned.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2019
1.9
Mineral Reserve Estimate
The
mineral reserves declared in this Molo 2019 (720ktpa) FS are
declared as per Table 4
below.
Table 4:
Mineral Reserves
Category
|
Tonnage
|
C Grade (%)
|
Proven
|
14 169
741
|
7.00
|
Probable
|
8 266
944
|
7.04
|
Proven
and Probable
|
22 436
685
|
7.02
|
Proven
reserves are reported as the Measured Resources inside the designed
open pit and above the grade cut-off of 4.5% C. Similarly, the
Probable Reserves are reported as the Indicated Resources inside
the designed open pit and above the grade cut-off of 4.5%
C.
1.10
Metallurgical Test Work
The FS
analyses are 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 FS 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, 2019
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.
The
process design is based on an annual Phase1 feed plant throughput
capacity of 240 kilotonnes at a nominal head grade of 8.05% C(t)
producing an estimated average of 17 kilotonnes per annum (ktpa) of
final concentrate. The same process design has been applied to an
annual Phase 2 feed plant throughput capacity of 720 kilotonnes at
a nominal head grade of 8.05% C, which would produce an estimated
average of 45 ktpa of final graphite 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 by attritioning, 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
recovered concentrate is then upgraded in the primary, fine-flake
and attritioning cleaning circuits to an estimated final product
grade of above 94% C(t). The primary cleaning circuit consists
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.
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.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2019
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.
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.
As the
proposed Phase1 plant is a small plant, and with the
Company’s intention to rapidly expand to a larger Phase 2
process plant and mining operation, the brief from the Company was
to develop a “fit for purpose” and cost-effective
design without compromising on safety or quality.
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).
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2019
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.
Concrete
grades and mix design were selected taking into consideration
durability requirements. Particular attention will be given to wet
process plant areas and wash down slabs. All foundations were
designed as pad or raft type foundations with load bearing
pressures not exceeding 150kPa. Foundations were designed to
minimize settlement.
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.
Storm
water within the process plant area will be collected though
dedicated storm water containment channels and then handled
accordingly.
As an
industrial mineral, flake graphite pricing is determined by three
factors: 1) flake size, 2) carbon purity and 3) industry-specific
technical attributes of the flakes (Benchmark, 2017a; Roskill,
2017). Flake sizing is broadly classified into four ranges: small
(-100 mesh, or <75µm) medium (-80 to 100 mesh, or 75µm
to 180µm), large (-50 to 80 mesh, or 180µm to
300µm), and extra-large or jumbo (+50 mesh, or
>300µm). These flake sizes are in turn classified by carbon
content (”C”), and are typically sold in ranges of
88-93% C, 94-95% C, and 95-97% C. The specific technical attributes
of the flakes are then defined by end-user parameters such as
expansion coefficient, thermal and electrical conductivity, and
charge-discharge stability and efficiency. As the technical
parameters sought by end-users are proprietary to their processes,
pricing is not publicly available. There are however subscription
pricing services that provide monthly graphite pricing for various
flake sizes and carbon purities based upon input from graphite
purchasers. The Company utilized the average pricing for the past
12 months for flake graphite sold on an FOB China basis, provided
by UK-based Benchmark Mineral Intelligence, with the flake size
distribution of Molo graphite to arrive at a “basket”
sale price of US $1207.55 per tonne as outlined in Section
19.3.
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.
The
following equipment are available at the port.
●
5 x Trailers for
container movement (2x40ft, 3x20ft)
●
6 x Forklifts (1 x
2.5T; 2 x 5T; 3 x 7T)
The
port is fenced and there is a security service (G4S) for days and
nights port guarding. Despite the presence of a national airport,
the port of Ehaola is mainly connected to the hinterland
destinations by road. All types of trucks can obtain access to the
port and his berth for cargo off loading, however the majority are
container trucks (20ft and 40ft).
Customs
are available on site and clearance can be streamlined via
pre-clearance in order to lessen standing time of the containers
once arrived. It is to be noted that all cargo items imported into
the Republic of Madagascar, needs to have a BSC online cargo
tracking note. Failing to submit the BSC certificate, cargo cannot
be cleared, and the shipment will be sent back to origin and be
subject to a fine of 2500 USD per Bill of lading, plus regulations
charges. All containers, vehicles, bulk commodities, including
airfreight requires a BSC certificate.
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.
Due to
the poor road conditions, majority of cargo would have to be
transported to site during the dry season. Cargo transport
limitations include:
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2019
●
12m (L) x 3.5m (W)
x 2.8m (H) at a maximum of 35 T per 3-axle trailer.
●
12m (L) x 2.5m (W)
x 3.5m (H) at a maximum of 26 T per 2-axle trailer.
Cargo
exceeding 4m width pose problems to transport due to the Manambaro
Bridge, as there is no possibility to divert. Some access areas
would also need to be adjusted for items holding a width of 2.3m
– 3.6m. (Ex. Raft of Bevilana). Any cargo exceeding the
above-mentioned limitations would have to be considered on a
case-by-case basis prior to importation.
Specialised
trailers and equipment for transporting out-of-gauge items are
limited. The design of equipment / plant would have to consider
above mentioned limitations in order to ensure equipment can be
transported to Site from Port.
The
Phase 1 initial CAPEX is estimated at $21.0 M, including a 10%
contingency, with an additional $3.1 M required to cover the first
3 months of working capital. Phase 2 CAPEX is estimated at $67.4 M,
including a 12.5% contingency, with an additional $7.3 m required
to cover the first 3 months of working capital. Over the life of
the mine, sustaining capital of $3.3 M will be required for
equipment replacement and for rehabilitation at the end of the
project. Table 7 summarizes the capital
requirements.
The
base date for the capital costs is May 2019 and no provision has
been made for escalation. The accuracy of capital costs is
considered to be with +/- 10%.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2019
Capital Cost Breakdown
|
Phase 1 (240ktpa)
|
Phase 2 (720ktpa)
|
Process Equipment
|
$8,438,609.00
|
$25,315,827.00
|
Civil & Infrastructure
|
$2,103,672.21
|
$6,661,016.63
|
Tailings
|
$0.00
|
$0.00
|
Mining
|
$2,574,143.85
|
$4,913,341.38
|
Buildings
|
$1,154,609.43
|
$2,886,523.59
|
Electrical Infrastructure
|
$128,804.10
|
$386,412.30
|
Project Services/EPCM
|
$931,481.79
|
$2,794,445.38
|
Construction Services
|
$1,474,775.11
|
$3,686,937.78
|
Indirect Costs
|
$372,750.00
|
$1,118,250.00
|
Environmental & Permitting costs
|
$729,827.94
|
$1,459,655.89
|
Owner's Costs
|
$1,197,000.00
|
$4,189,500.00
|
Sub-total
|
$19,105,673.44
|
$53,411,909.93
|
Contingency (10%/12.5%)
|
$1,910,567.34
|
$6,676,488.74
|
3 Months Working Capital
|
$3,100,000
|
$7,300,000
|
CAPEX TOTAL
|
$24,116,241
|
$67,388,398.67
|
Sustaining CAPEX over Life of Mine
|
|
$3,300,000
|
The
operating costs per tonne of finished graphite flake concentrate
delivered on a FOB basis at the Port of Fort Dauphin, Madagascar
are outlined in Table 8.
Table 8: Operating Costs per Tonne of Finished Graphite
Concentrate
Category
|
Phase 1
|
Phase 2
|
|
Operating
cost
|
Mining
(US$/T)
|
102.81
|
65.34
|
Processing
(US$/T)
|
265.82
|
265.82
|
Trucking
to local port / Ft. Dauphin (US$/T)
|
133.01
|
133.01
|
General
and Administration (US$/T)
|
64.29
|
50.00
|
TOTAL
|
$565.93
|
$514.17
|
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
Table 9
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, 2019
Table 9: Economic Analysis of the Project
Metric
|
Unit
|
Value
|
Before Tax
|
Total Project Cash Flows
|
USDm
|
841
|
NPV @ 8%
|
USDm
|
237.1
|
NPV @ 10%
|
USDm
|
182.9
|
NPV @ 12%
|
USDm
|
143.3
|
IRR
|
%
|
43.10%
|
Payback Period
|
year
|
3.4
|
After Tax
|
Total Project Cash Flows
|
USDm
|
671.6
|
NPV @ 8%
|
USDm
|
184.3
|
NPV @ 10%
|
USDm
|
140.5
|
NPV @ 12%
|
USDm
|
108.4
|
IRR
|
%
|
36.20%
|
Payback Period
|
year
|
3.8
|
Note
All
values in the above table do not account for inflation in costs or
product pricing.
The
assumptions used in the financial model are as
follows:
●
13 South African
Rand (ZAR) to US$1
●
12% Import Duties
and Taxes
1.20
Environmental & Permitting
The
Madagascar Ministry of Environment’s Office National pour
l'Environnement (the National Office for the Environment) or
“ONE”, granted the Company its Environmental License
for the 240ktpa (Phase 1) Project on April 8, 2019 after reviewing
the following:
●
Exploitation Permit
PE #39807
●
Environmental &
Social Impact Assessment (“ESIA”) and Relocation Action
Plan (“RAP”) to International Finance Corporation (IFC)
Performance and World Bank Standards
●
Completion of local
and regional stakeholder and community engagement, with
overwhelming support from both the local community and local
government, as well as regional government
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2019
●
Signed agreements
with all potentially affected land occupants to accept compensation
for any affected crops and grazing land and relocation if
needed
●
Approved capital
investment certification from the BCMM
●
Receipt of Cahier
des Charges Miniér (mining specification) from the BCMM as
pre-requisite to submitting the ESIA & RAP to ONE for
review
●
Successful
completion of the ONE’s technical evaluation process which
consisted of a site visit and four separate community
consultations
●
Joint agreement and
signature of the Cahier des Charges Environnementales
(environmental specification) with the ONE.
1.20.1
Environmental and Social Impact Assessment
A
comprehensive Environmental and Social Impact Assessment was
completed and submitted to Malagasy government as part of the
Environmental Permit process.
Early
integration of environmental and social sensitivities and risks
ensured that the final impact assessment component revealed that
there are no fatal flaws from an environmental and social
perspective. The significance levels of impacts range from minor to
major before any mitigation measures are applied and from minor to
average with mitigation measures included. Notably, all major risks
require significant reduction in risk via stringent controls. These
controls have been incorporated into the Project design and
planning with additional operational controls specified within the
various environmental and social management plans.
To this
end, the ESIA contains a chapter which details specific management
measures which either remove the risks completely or reduce their
significance to an acceptable level.
In
addition, each specific environmental and social component has a
prescribed monitoring plan which will be followed during each
Project developmental phase. This is aimed at monitoring compliance
against various specifications such as the baseline environment and
predicted impact removal and reduction measures.
The
Company’s 2011 exploration programme delineated a number of
new graphitic trends in southern Madagascar. The resource
delineation drilling undertaken during 2012-2014 focussed 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.
Maiden
mineral reserves of 22 300 000 tonnes have been declared for
the Molo 2019 720ktpa (Phase 2) FS at an average grade of 7.0% and
based on the information contained in the FS, it is possible to
economically mine this deposit.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2019
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 with an
expansion to Phase 2 production. 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.
In
addition to the qualitative risk assessment completed during the
Molo 2015 FS, a comprehensive HAZID study was completed as part of
this Molo 2019 720ktpa (Phase 2) FS.
The
Mining and Environmental Permits have been obtained for the
project, but supplementary sectoral permits will be
required.
1.21.6
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.
No
further recommendations.
The
Project will allow for potential optimisation of drilling and
blasting designs during execution that could reduce operating costs
slightly.
From a
pure mining perspective, the Project is robust 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.
1.22.3
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;
●
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
Molo 2019 720ktpa (Phase 2) FS pit design.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2019
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 test work be conducted to test the current plant
configuration for treatment for higher feed grade material.
Provision is to be made for attritioning circuit tailings to be
recycled back into the process.
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
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 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.
1.22.7
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 utilise 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
sensitise 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.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2019
●
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.
●
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.
●
Compilation of a
comprehensive legal register.
●
Application for an
amendment of the environmental approval would be required for the
expansion to 720ktpa (Phase 2).
Further details regarding the Molo Graphite Project, incorporated
by reference, is the Molo Feasibility Study dated May 31, 2019
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.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2019
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, 2019, 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
identified below in addition to the risk factors disclosed in our
financial statements for the year ended June 30, 2019 and our most
recent AIF.
Any
such risk factors could materially affect the Corporation’s
business, financial condition and/or future operating results and
prospects and could cause actual events to differ materially from
those described in forward-looking statements and information
relating to the Corporation. Additional risks and uncertainties not
currently identified by the Corporation or that the Corporation
currently believes not to be material also may materially and
adversely affect the Corporation’s business, financial
condition, operations or prospects.
The Corporation’s ability to continue as a going
concern.
The
independent auditor’s report on the financial statements of
the Corporation contains explanatory language that substantial
doubt exists about the Corporation’s ability to continue as a
going concern. Due to the Corporation’s lack of operating
history and present inability to generate revenues, the Corporation
has sustained operating losses since its inception.
If the
Corporation is unable to obtain sufficient financing in the near
term as required or achieve profitability, then the Corporation
would, in all likelihood, experience severe liquidity problems and
may have to curtail business activities. If the Corporation
curtails business activities, the Corporation may be placed into
bankruptcy or undergo liquidation, the result of which will
adversely affect the value of the securities of the
Corporation.
Development projects are uncertain, and it is possible that actual
capital and operating costs and economic returns will differ
significantly from those estimated for a project prior to
production.
Mine
development projects, including the Molo Graphite Project, require
significant expenditures during the development phase before
production is possible.
Development
projects are subject to the completion of successful feasibility
studies and environmental assessments, issuance of necessary
governmental permits and availability of adequate financing. The
economic feasibility of development projects is based on many
factors such as: estimation of mineral reserves, anticipated
recoveries, environmental considerations and permitting, future
commodity prices, and anticipated capital and operating costs of
these projects. It is not unusual in new mining operations to
experience unexpected problems during the start-up phase, and
delays can often occur at the start of production.
Particularly for
development projects, mineral reserve estimates and cash operating
costs are, to a large extent, based upon the interpretation of
geologic data obtained from drill holes and other sampling
techniques, and feasibility studies that derive estimates of cash
operating costs based upon anticipated tonnage and grades of ore to
be mined and processed, the configuration of the ore body, expected
recovery rates of metals from the ore, estimated operating costs,
anticipated climatic conditions and other factors. As a result, it
is possible that actual capital and operating costs and economic
returns will differ significantly from those currently estimated
for a project prior to production.
Any of
the following events, among others, could affect the profitability
or economic feasibility of the Molo Graphite Project: unanticipated
changes in grade and tonnes of material to be mined and processed,
unanticipated adverse geological conditions, unanticipated recovery
problems, incorrect data on which engineering assumptions are made,
availability and costs of labor, costs of processing, availability
of economic sources of power, adequacy of water supply,
availability of surface on which to locate processing facilities,
adequate access to the site, unanticipated transportation costs,
government regulations (including regulations with respect to
prices, royalties, duties, taxes, permitting, restrictions on
production, quotas on exportation of minerals, environmental),
fluctuations in commodity prices, accidents, labor actions, the
availability and delivery of critical equipment, successful
commissioning and start-up of operations, including the achievement
of designed plant recovery rates and force-majeure
events.
The
Molo Graphite Project has not yet been built and accordingly has no
operating history upon which to base estimates of future production
and cash operating costs. The price of graphite can fluctuate
significantly on a month-to-month and year-to-year basis. Declining
graphite prices can impact operations by forcing a reassessment of
the feasibility of the Molo Graphite Project.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2019
It is
likely that actual results for the Molo Graphite Project will
differ from current estimates and assumptions, and these
differences may be material. In addition, experience from actual
mining or processing operations may identify new or unexpected
conditions that could reduce production below, or increase capital
or operating costs above, current estimates. If actual results are
less favorable than currently estimated, the Corporation’s
business, results of operations, financial condition and liquidity
could be materially adversely affected.
The Corporation’s development and exploration projects are in
the African country of Madagascar and are subject to country
political and regulatory risks.
A new
president of Madagascar was inaugurated in January 2019 following
democratic elections. The Corporation is actively monitoring the
political climate in Madagascar and continues to hold meetings with
new 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 Corporation’s
business operations could be impacted.
Companies in the
mining and metals sector continue to be targeted to raise
government revenue, particularly as governments struggle with
deficits and concerns over the effects of depressed economies. Many
governments are continually assessing the fiscal terms of the
economic rent for mining companies to exploit resources in their
countries.
The
government of Madagascar has granted mining claims, permits, and
licenses that will enable us to conduct anticipated operations or
exploration and development activities. Notwithstanding, these
arrangements, the Corporation’s ability to conduct
operations, exploration and/or development activities at any of its
properties is subject to obtaining and/or renewing permits or
concessions, changes in laws or government regulations or shifts in
political attitudes beyond its control.
Any
adverse developments to the political and regulatory situation in
Madagascar could have a material effect on the Corporation’s
business, results of operations and financial condition. The
Corporation’s operations may also be affected in varying
degrees by terrorism; military conflict or repression; crime;
populism; activism; labour unrest; attempts to renegotiate or
nullify existing concessions, licenses, permits and contracts;
unstable or unreliable legal systems; changes in fiscal regimes
including taxation, and other risks arising out of sovereignty
issues.
The
Corporation does not currently carry political risk insurance
covering its investments in Madagascar. It may not be possible for
investors to enforce judgments in Canada against a loss suffered on
the Corporation’s assets and operations in
Madagascar.
Dependence on the Molo Graphite Project.
The
Corporation’s principal mineral property is the Molo Graphite
Project. As a result, unless the Corporation acquires or develops
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 the
Corporation’s business, financial condition and results of
operations.
Additional permits and licenses are necessary to complete the
development of the Molo Graphite Project.
The
Corporation successfully converted its exploration permit for the
Molo Graphite Project into a mining permit. However, the
Corporation requires additional permits necessary to construct and
operate the mine, including water use, construction, mineral
processing, transportation, export, and labour. Applications for
these additional permits and licenses will be undertaken in due
course at the appropriate time.
The
Corporation cannot provide any assurance as to the timing of the
receipt of any of the additional permits and licenses necessary to
initiate construction of the mine.
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.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2019
In
addition, the Corporation’s 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 the Corporation’s 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. The
Corporation’s 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
the Corporation’s activities or those of other mining
companies affecting the environment, human health and safety of
communities in which the Corporation operates. Delays in obtaining
or failure to obtain government permits and approvals may adversely
affect the Corporation’s operations, including its 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 the
Corporation’s operations, including its ability to explore or
develop properties, commence production or continue
operations.
The
Corporation’s 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. The
Corporation has 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 the
Corporation’s closure processes and operations.
Fluctuations in the market price of graphite and other metals may
adversely affect the value of the Corporation’s securities
and the ability of the Corporation to develop the Molo Graphite
Project.
The
value of the Corporation’s securities may be significantly
affected by the market price of graphite and other metals, which
are cyclical and subject to substantial price fluctuations. Market
prices can be affected by numerous factors beyond the
Corporation’s control, including levels of supply and demand
for a broad range of industrial products, economic growth rates of
various international economies, expectations with respect to the
rate of inflation, the relative strength of various currencies,
interest rates, speculative activities, global or regional
political or economic circumstances. The Chinese market is a
significant source of global demand for commodities, including
graphite. Chinese demand has been a major driver in global
commodities markets for a number of years and recent reductions in
Chinese demand have adversely affected prices for graphite. A
further slowing in China’s economic growth could result in
even lower prices and could negatively impact the value of the
Corporation’s securities. Prolonged decreases in the price of
graphite or other metals could adversely impact the ability of the
Corporation to proceed with the development of the Molo Graphite
Project.
The Corporation may not have access to sufficient capital to
develop the Molo Graphite Project.
The
Corporation has limited capital, which is insufficient to
development the Molo Graphite Project. The Corporation’s
ability to develop the project will depend primarily on its ability
to obtain additional capital in the form of private or public
equity or debt financing. Access to mine financing has been
negatively impacted by the prolonged decline in commodities prices.
Therefore, there is no assurance that the Corporation will secure
sufficient financing, or the Corporation may be unable to locate
and secure capital on terms and conditions that are acceptable to
the Corporation. Any equity financing may have a dilutive effect on
the value of the Corporation’s securities. Any debt
financing, if available, may involve financial covenants which
limit operations and could be secured against all of the
Corporation’s assets. If the Corporation cannot obtain
additional capital, the Corporation may not be able to complete the
development of the Molo Graphite Project, which would have a
material adverse effect on the business, operating results and
financial condition of the Corporation.
The Corporation has a limited operating history and expects to
incur operating losses for the foreseeable future.
The
Corporation has principally operated as a mineral exploration
company since incorporation and has just received its first mining
permit. There are numerous difficulties normally encountered by
mineral exploration and development companies, and these companies
experience a high rate of failure.
The
Corporation has not earned any revenues and the Corporation has not
been profitable. It is anticipated that the Corporation will
continue to report negative operating cash flow in future periods,
likely until after the Molo Graphite Project generates recurring
revenues from being placed into production of which there is no
assurance. The Corporation has no history upon which to base any
assumption as to the likelihood that the business will prove
successful, and the Corporation can provide no assurance to
investors that it will generate any operating revenues or ever
achieve profitable operations.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2019
Due to the speculative nature of mineral property exploration,
there is substantial risk that the Corporation’s assets will
not go into commercial production and the business will
fail.
Exploration for
minerals is a speculative venture involving substantial risk. The
Corporation cannot provide investors with any assurance that the
Corporation’s claims and properties will ever enter into
commercial production. The exploration work that the Corporation
has completed on the Molo Graphite Project claims may not result in
the commercial production of graphite. The exploration work that
the Corporation has completed on the Green Giant Vanadium Project
may not result in the commercial production of vanadium or other
minerals.
Estimates of mineral resources and mineral reserves may not be
realized.
Mineral
resource and mineral reserve estimates are only estimates and no
assurance can be given that any particular level of recovery of
minerals will be realized or that an identified mineral resource
will ever qualify as a commercially mineable (or viable) deposit
which can be legally and economically exploited. The Corporation
relies on laboratory-based recovery models to project estimated
ultimate recoveries by mineral type. There can be no assurance that
mineral recovery in small scale laboratory tests will be duplicated
in large scale tests under on-site conditions or in production
scale operations. Actual recoveries may exceed or fall short of
projected laboratory test results. In addition, the grade of
mineralization ultimately mined may differ from the one indicated
by the drilling results and the difference may be material.
Production can be affected by such factors as permitting
regulations and requirements, weather, environmental factors,
unforeseen technical difficulties, unusual or unexpected geological
formations, inaccurate or incorrect geologic, metallurgical or
engineering work, and work interruptions, among other things. Short
term factors, such as the need for an orderly development of
deposits or the processing of new or different grades, may have an
adverse effect on mining operations or the results of those
operations. Material changes in mineral reserves or mineral
resources, grades, waste-to-ore ratios or recovery rates may affect
the economic viability of projects. The estimated mineral reserves
and mineral resources should not be interpreted as assurances of
mine life or of the profitability of future operations
Because of the inherent dangers involved in mineral exploration,
there is a risk that the Corporation may incur liability or damages
as the Corporation conducts business.
The
search for valuable minerals involves numerous hazards. As a
result, the Corporation may become subject to liability for such
hazards, including pollution, cave-ins and other hazards against
which the Corporation cannot, or may elect not, to insure against.
The Corporation currently has no such insurance, but 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 the Corporation’s asset
value and cause us to liquidate all of its assets.
The
Corporation’s operations are subject to environmental
regulations, which could result in additional costs and operational
delays. Environmental legislation is evolving 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 the
Corporation’s projects.
The Corporation has 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. The Corporation has 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 the Corporation is
unable to full pay for the cost of remedying an environmental
problem, the Corporation might be required to enter into an interim
compliance measure pending completion of the required
remedy.
Should the Corporation lose the services of key executives, the
Corporation’s financial condition and proposed expansion may
be negatively impacted.
The
Corporation depends on the continued contributions of the
Corporation’s executive officers to work effectively as a
team, to execute its business strategy and to manage its business.
The loss of key personnel, or their failure to work effectively,
could have a material adverse effect on its business, financial
condition, and results of operations. Specifically, the Corporation
relies on Craig Scherba, the President and Chief Executive Officer
and Marc Johnson, the Chief Financial Officer.
The
Corporation does not maintain key man life insurance. Should the
Corporation lose any or all of their services and the Corporation
is unable to replace their services with equally competent and
experienced personnel, the Corporation’s operational goals
and strategies may be adversely affected, which will negatively
affect potential revenues.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2019
Because access to the Corporation’s properties may be
restricted by inclement weather or proper infrastructure, its
exploration programs are likely to experience delays.
Access
to most of the properties underlying the Corporation’s claims
and interests is restricted due to their remote locations and
because of weather conditions. Some of the Corporation’s
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 the Corporation’s
business to fail.
Climate change and related regulatory responses may impact the
Corporation’s 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 the
Corporation’s business or the regulatory responses to it,
although the Corporation recognizes 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 the Corporation
operates, the Corporation could be harmed. While the Corporation
maintains rudimentary business recovery plans that are intended to
allow us to recover from natural disasters or other events that can
be disruptive to the Corporation’s business, its plans may
not fully protect us from all such disasters or
events.
Compliance with changing regulation of corporate governance and
public disclosure will result in additional expenses and pose
challenges for management.
The
Corporation’s 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.
Tax risks.
Changes
in tax laws or tax rulings could materially affect the
Corporation’s financial position and results of operations.
Changes to, or differing interpretations of, taxation laws or
regulations in Canada, Madagascar, the United States of America, or
any of the countries in which the Corporation’s assets or
relevant contracting parties are located could result in some or
all of the Corporation’s profits being subject to additional
taxation or other tax liabilities being applicable to the
Corporation or its subsidiaries. Taxation laws are complex, subject
to differing interpretations and applications by the relevant tax
authorities. In particular, the tax treatment relating to the
Corporation’s corporate redomicile from the US to Canada is
complex. There is no assurance that new taxation rules or
accounting policies will not be enacted or that existing rules will
not be applied in a manner which could result in the
Corporation’s profits being subject to additional taxation or
which could otherwise have a material adverse effect on
profitability, results of operations, financial condition and the
trading price of the Corporation’s securities. Additionally,
the introduction of new tax rules or accounting policies, or
changes to, or differing interpretations of, or application of,
existing tax rules or accounting policies could make investments in
or by the Corporation less attractive to counterparties. Such
changes could adversely affect the Corporation’s ability to
raise additional funding or make future investments.
The Corporation’s business is subject to anti-corruption and
anti-bribery laws, a breach or violation of which could lead to
civil and criminal fines and penalties, loss of licenses or permits
and reputational harm.
The
Corporation operates 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. The Corporation’s corporate policies
mandate compliance with these anti-bribery laws, which often carry
substantial penalties. There can be no assurance that the
Corporation’s internal control policies and procedures always
will protect it from recklessness, fraudulent behavior, dishonesty
or other inappropriate acts committed by the Corporation’s
affiliates, employees or agents. As such, the Corporation’s
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 Corporation’s
reputation, which could have a material adverse effect on its
business, financial position and results of operations or cause the
market value of the Common Shares to decline.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2019
The Corporation does not intend to pay dividends.
The
Corporation does not anticipate paying cash dividends in the
foreseeable future. The Corporation may not have sufficient funds
to legally pay dividends. Even if funds are legally available to
pay dividends, the Corporation may nevertheless decide, in its sole
discretion, not to pay dividends. The declaration, payment and
amount of any future dividends will be made at the discretion of
the board of directors, and will depend upon, among other things,
the results of the Corporation’s operations, cash flows and
financial condition, operating and capital requirements, and other
factors the board of directors may consider relevant. There is no
assurance that the Corporation 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 the Corporation holds a significant
portion of cash reserves in Canadian dollars, the Corporation may
experience losses due to foreign exchange
translations.
From
time to time the Corporation holds a significant portion of 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, the Corporation’s converted Canadian dollar cash
balances presented in U.S. dollars on its balance sheet would
significantly decline. If the US dollar significantly declines
relative to the Canadian dollar the Corporation’s quoted US
dollar cash position would significantly decline as it would be
more expensive in US dollar terms to pay Canadian dollar expenses.
The Corporation has not entered into derivative instruments to
offset the impact of foreign exchange fluctuations. In addition,
certain of the Corporation’s 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.
The Corporation is exposed to general economic conditions, which
could have a material adverse impact on its 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 the Corporation’s business and the Corporation’s
financial condition. The current global macroeconomic environment
may affect the Corporation’s ability to access the capital
markets may be severely restricted at a time when the Corporation
wishes or needs to access such markets, which could have a
materially adverse impact on the Corporation’s flexibility to
react to changing economic and business conditions or carry on
operations.
The current financial environment may impact the
Corporation’s business and financial condition that cannot
predict.
The
continued instability in the global financial system and related
limitation on availability of credit may continue to have an impact
on the Corporation’s business and financial condition, and
the Corporation may continue to face challenges if conditions in
the financial markets do not improve. The Corporation’s
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 the Corporation
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 the Corporation may pursue in the future or
reduce the values the Corporation is able to realize in those
transactions, making these transactions uneconomic or difficult to
consummate.
The market price for the Common Shares is particularly volatile
given the Corporation’s 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 the market price for the Common
Shares.
The
market price for the Common Shares is characterized by significant
price volatility when compared to seasoned issuers, and the
Corporation expect that its share price will continue to be more
volatile than a seasoned issuer. Such volatility is attributable to
a number of factors. First, the Common Shares, at times, are thinly
traded. As a consequence of this lack of liquidity, the trading of
relatively small quantities of Common Shares by shareholders may
disproportionately influence the price of those Common Shares in
either direction. The price for the Common Shares could, for
example, decline precipitously in the event that a large number of
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, the
Corporation are a speculative or “risky” investment due
to the Corporation’s limited operating history, lack of
profits to date and uncertainty of future market acceptance for the
Corporation’s 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 the
Corporation’s control and may decrease the market price of
the Common Shares, regardless of the Corporation’s
performance. The Corporation cannot make any predictions as to what
the prevailing market price for the 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, 2019
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 the 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 the Corporation’s financial
condition or results of operations as reflected in its financial
statements. Other factors unrelated to the performance of the
Corporation that may have an effect on the price of the Common
Shares include the following: the extent of analytical coverage
available to investors concerning the Corporation’s business
may be limited if investment banks with research capabilities do
not follow the Corporation’s securities; lessening in trading
volume and general market interest in the Corporation’s
securities may affect an investor’s ability to trade
significant numbers of Common Shares; the size of the
Corporation’s public float may limit the ability of some
institutions to invest in its securities; and a substantial decline
in the price of the Common Shares that persists for a significant
period of time could cause its 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 the Common
Shares at any given point in time may not accurately reflect the
long-term value of the Corporation. Class action litigation often
has been brought against companies following periods of volatility
in the market price of their securities. The Corporation 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 (in CAD$)
|
Month
|
High
|
Low
|
Volume
|
July
2018
|
$0.10
|
$0.08
|
3,680,700
|
August
2018
|
$0.10
|
$0.08
|
3,971,200
|
September
2018
|
$0.09
|
$0.05
|
4,210,300
|
October
2018
|
$0.14
|
$0.07
|
21,919,900
|
November
2018
|
$0.11
|
$0.09
|
4,474,200
|
December
2018
|
$0.11
|
$0.09
|
6,627,700
|
January
2019
|
$0.12
|
$0.08
|
14,201,000
|
February
2019
|
$0.16
|
$0.11
|
13,212,200
|
March
2019
|
$0.13
|
$0.08
|
17,401,800
|
April
2019
|
$0.11
|
$0.09
|
4,077,300
|
May
2019
|
$0.10
|
$0.09
|
3,125,000
|
June
2019
|
$0.10
|
$0.09
|
2,358,700
|
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2019
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)
|
84
|
Chairman
of the Board of Directors
|
Lawyer
and arbitrator
|
January
2009
|
75,000
(<0.1%)
|
Craig
Scherba (2)
(Oakville,
ON,
Canada)
|
47
|
Director,
President
& Chief Executive Officer
|
|
January
2010
|
600,000
(0.1%)
|
Robin
Borley (2)
(Johannesburg,
South
Africa)
|
51
|
Director,
Senior
Vice President – Mine Development,
|
|
December
2013
|
2,787,857
(0.8%)
|
Dean
Comand (1)(4)(6)
(Ancaster,
ON,
Canada)
|
53
|
Director
|
Professional
Engineer,
Consultant
|
October
2014
|
Nil
(0.0%)
|
Dalton
Larson (1)(4)(5)(6)
(Surrey,
BC,
Canada)
|
79
|
Director
|
Lawyer
and arbitrator
|
October
2014
|
1,000,000
(0.2%)
|
Marc
Johnson
(Toronto,
ON,
Canada)
|
43
|
Chief
Financial Officer
|
|
|
300,000
(<0.1%)
|
Brent
Nykoliation
(Toronto,
ON,
Canada)
|
50
|
Senior
Vice President – Corporate Development
|
|
|
Nil
(0.0%)
|
(1)
Other than Company Position as described 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, and Larson are independent directors of
the Company.
(4)
Members of the Audit Committee are Dean Comand (Chair), John
Sanderson and Dalton Larson.
(5)
Members of the Nomination Committee are John Sanderson and Dalton
Larson.
(6)
Members of the Compensation Committee are Dalton Larson (Chair),
John Sanderson and Dean Comand.
(7)
Quentin Yarie resigned as a director effective September 27,
2019.
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.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2019
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.
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).
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2019
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.
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.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2019
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).
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).
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2019
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.
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 2019, 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”.
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.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2019
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, 2019.
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.
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.
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, 2019
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, 2019 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, 2019, 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, 2019 was CAD$49,542 (June
30, 2018: CAD$32,100).
Non-Audit Assurance Fees:
The
aggregate fees, including expenses, billed by the Company’s
auditor for assurance services unrelated to the audit for the year
ended June 30, 2019 were CAD$Nil (June 30, 2018:
CAD$23,647).
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,
2019 were CAD$72,549 (June 30, 2018: CAD$6,527).
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, 2019
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.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2019
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.
Exhibit 99.2
NextSource Materials Inc.
Consolidated Financial Statements
For the
years ended June 30, 2019 and June 30, 2018
Expressed
in US Dollars
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the
Board of Directors and Shareholders of NextSource Materials
Inc.,
Opinion on the Consolidated Financial Statements
We have
audited the accompanying consolidated statements of financial
position of NextSource Materials Inc. (the Company) as of June 30,
2019 and 2018, and the related consolidated statements of
operations and comprehensive loss, shareholders’ equity, and
cash flows for each of the years in the three year period ended
June 30, 2019, and the related notes (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 of June 30, 2019 and 2018, and the results of its
consolidated operations and its consolidated cash flows for each of
the years in the three year period ended June 30, 2019 in
conformity with International Financial Reporting Standards as
issued by the International Accounting Standards
Board.
Material Uncertainty Related to Going Concern
The
accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As
discussed in Note 1 to the consolidated financial statements, the
Company has suffered accumulated deficit, recurring net losses and
negative operating cash flows that raise substantial doubt about
its ability to continue as a going concern. Management's plans with
regards to these matters are also described in Note 1. The
consolidated financial statements do not include any adjustments
that might result from the outcome of this
uncertainty.
Basis for Opinion
These
consolidated financial statements are the responsibility of the
Company’s management. Our responsibility is to express an
opinion on the Company’s consolidated financial statements
based on our audits. We are a public accounting firm registered
with the Public Company Accounting Oversight Board (United States)
(PCAOB) and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement, whether due
to error or fraud. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial
reporting. As part of our audits, we are required to obtain an
understanding of internal control over financial reporting, but not
for the purpose of expressing an opinion on the effectiveness of
the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of
material misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included
evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation
of the consolidated financial statements. We believe that our
audits provide a reasonable basis for our opinion.
Chartered Professional Accountants
Licensed Public Accountants
We have
served as the Company’s auditor since 2012.
Mississauga,
Ontario
September 6,
2019
NextSource Materials Inc.
Consolidated Statements of Financial Position
Expressed in US Dollars
|
|
|
Assets
|
|
|
Current
Assets:
|
|
|
Cash and cash
equivalents
|
$529,331
|
$338,702
|
Amounts
receivable
|
33,640
|
13,241
|
Prepaid expenses
(note 16)
|
50,432
|
42,540
|
Total
Assets
|
$613,403
|
$394,483
|
|
|
|
Liabilities
|
|
|
Current
Liabilities:
|
|
|
Accounts payable
(note 16)
|
$109,020
|
$140,865
|
Accrued
liabilities
|
654,999
|
197,834
|
Provision (note
9)
|
180,652
|
180,652
|
Warrant liability
(note 13)
|
334,618
|
-
|
|
|
|
Total
Liabilities
|
1,279,289
|
519,351
|
|
|
|
Shareholders’
Deficit
|
|
|
Share capital (note
10)
|
103,172,066
|
100,544,293
|
Accumulated
deficit
|
(103,955,431)
|
(100,744,927)
|
Accumulated other
comprehensive income
|
117,479
|
75,766
|
|
|
|
Total
Shareholders’ Deficit
|
(665,886)
|
(124,868)
|
|
|
|
Total
Liabilities and Shareholders’ Deficit
|
$613,403
|
$394,483
|
The accompanying notes are an integral part of these consolidated
financial statements.
Nature
of Operations and Going Concern (note 1)
Mineral
Exploration Properties (note 3)
Subsequent
Event (note 18)
NextSource Materials Inc.
Consolidated Statements of Operations and Comprehensive
Loss
Expressed in US Dollars
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$-
|
$-
|
$-
|
Expenses
|
|
|
|
Exploration
and evaluation expenses (notes 3, 5)
|
1,103,394
|
920,998
|
1,839,659
|
Management
and professional fees (notes 6, 16)
|
1,178,975
|
1,382,925
|
770,397
|
Share
based compensation (notes 11, 16)
|
651,692
|
-
|
794,864
|
General
and administrative expenses (note 7)
|
354,540
|
405,580
|
458,780
|
Depreciation
(note 8)
|
-
|
-
|
21,911
|
Impairment
(note 8)
|
-
|
27,805
|
-
|
Foreign
currency translation (gain) loss
|
(4,565)
|
104,387
|
93,476
|
|
|
|
|
Total expenses
|
3,284,036
|
2,841,695
|
3,979,087
|
Net loss before change in fair value, reversal of impairment of
amount receivable and part XII.6 taxes
|
(3,284,036)
|
(2,841,695)
|
(3,979,087)
|
Other
income (expenses)
|
|
|
|
Change
in value of warrant liability (note 13)
|
73,532
|
-
|
111,049
|
Reversal
of impairment of amount receivable
|
-
|
45,132
|
-
|
Part
XII.6 taxes (note 9)
|
-
|
11,741
|
(131,320)
|
|
|
|
|
Net loss for the year
|
$(3,210,504)
|
$(2,784,822)
|
$3,999,358
|
|
|
|
|
Other comprehensive income
|
|
|
|
Items that will be reclassified subsequently to loss
|
|
|
|
Translation
adjustment for foreign operations
|
41,713
|
75,766
|
-
|
|
|
|
|
Net loss and comprehensive loss for the year
|
$(3,168,791)
|
$(2,709,056)
|
$(3,999,358)
|
|
|
|
|
Weighted-average
common shares,
-
basic
and diluted
|
493,586,450
|
468,252,639
|
448,187,140
|
Net
loss per common shares,
-
basic
and diluted
|
(0.01)
|
(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,
2019
|
For the year
ended
June
30,
2018
|
For the year
ended
June
30,
2017
|
Cash
flows from operating activities
|
|
|
|
Net
loss for the year
|
$(3,210,504)
|
$(2,784,822)
|
$(3,999,358)
|
Items not affecting
cash:
|
|
|
|
Depreciation and
impairment of equipment
|
-
|
27,805
|
21,911
|
Change in value of
warrant derivative liability
|
(73,532)
|
-
|
(111,049)
|
Share based
compensation
|
651,692
|
-
|
794,864
|
|
|
|
|
Change in working
capital balances:
|
|
|
|
(Increase) decrease
in amounts receivable and prepaid expenses
|
(28,291)
|
22,756
|
(53,037)
|
Increase (decrease)
in accounts payable and accrued liabilities
|
425,320
|
111,311
|
(12,746)
|
Increase (decrease)
in provision
|
-
|
(2,231)
|
141
|
|
|
|
|
Net cash used in
operating activities
|
(2,235,315)
|
(2,625,181)
|
(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
|
2,444,015
|
-
|
5,177,885
|
Proceeds from
exercise of warrants
|
-
|
923,169
|
-
|
Common share issue
cost finder shares
|
17,966
|
-
|
-
|
Common share issue
costs
|
(77,750)
|
-
|
(370,671)
|
|
|
|
|
Net cash provided
by financing activities
|
2,384,231
|
923,169
|
4,807,214
|
|
|
|
|
Effect of exchange
rate changes on cash
|
41,713
|
75,766
|
-
|
|
|
|
|
Increase (decrease)
in cash and cash equivalents
|
190,629
|
(1,626,246)
|
1,420,135
|
Cash and cash
equivalents - beginning of year
|
338,702
|
1,964,948
|
544,813
|
Cash
and cash equivalents - end of year
|
$529,331
|
$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
|
|
|
|
Accumulated Other Comprehensive Income
$
|
|
|
|
|
|
|
|
Balance – June 30, 2017
|
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)
|
|
|
|
|
|
|
Private
placement of common shares
|
37,145,696
|
2,444,015
|
-
|
-
|
2,444,015
|
Reclassification
as warrant liability
|
-
|
(408,150)
|
-
|
-
|
(408,150)
|
Cost
of issue of private placement of common shares
|
-
|
(77,750)
|
-
|
-
|
(77,750)
|
Cost
of issue finder shares
|
337,714
|
17,966
|
-
|
-
|
17,966
|
Share-based
compensation
|
-
|
651,692
|
-
|
-
|
651,692
|
Net
loss for the period
|
-
|
-
|
(3,210,504)
|
-
|
(3,210,504)
|
Cumulative
translation adjustment
|
-
|
-
|
-
|
41,713
|
41,713
|
|
|
|
|
|
|
Balance – June 30, 2019
|
507,417,021
|
103,172,066
|
(103,955,431)
|
117,479
|
(665,886)
|
The accompanying notes are an integral part of these consolidated
financial statements.
NextSource Materials Inc.
Notes to Consolidated Financial Statements
For the years ended June 30, 2019 and 2018
Expressed in US Dollars
1.
Nature
of Operations and Going Concern
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 a wholly owned foreign subsidiary, obtained a
mining permit and environmental certificate for its Molo Graphite
Project in Madagascar.
These
consolidated financial statements were approved by the Board of
Directors on September 9, 2019.
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 (“GRAMAD”), a
Madagascar subsidiary. GRAMAD 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, 2019, the Company had an accumulated deficit of
$103,955,431 (June 30, 2018:
$100,744,927), 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 may raise substantial doubt about the
Company’s ability to continue as a going
concern.
These
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.
NextSource Materials Inc.
Notes to Consolidated Financial Statements
For the years ended June 30, 2019 and 2018
Expressed in US Dollars
2.
Significant
Accounting Policies
Statement of compliance with IFRS
These
consolidated financial statements have been prepared in accordance
with International Financial Reporting Standards
(“IFRS”) issued by International Accounting Standards
Board (“IASB”).
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 11.
Derivative warrant liability: The Company measures the fair
value of the derivative liability using an option pricing model.
This estimate requires determining the most appropriate inputs to
the valuation model including the expected life of the warrant,
volatility, dividend yield, and rate of forfeitures and making
assumptions about them. The value of the warrant liability along
with the assumptions and model used for estimating fair value are
disclosed in Note 13.
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.
NextSource Materials Inc.
Notes to Consolidated Financial Statements
For the years ended June 30, 2019 and 2018
Expressed in US Dollars
2.
Significant
Accounting Policies - continued
Significant accounting estimates, judgments and assumptions -
continued
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.
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
IFRS 9
- Financial Instruments ("IFRS 9") replaced the provision of IAS 39
- Financial Instruments: Recognition and Measurement ("IAS 39") and
was effective for annual periods beginning on or after January 1,
2018. IFRS 9 includes requirements for recognition and measurement,
impairment, derecognition and general hedge
accounting.
IFRS 9
includes finalized guidance on the classification and measurement
of financial assets. Under IFRS 9, financial assets are classified
and measured either at amortized cost, fair value through other
comprehensive income (“FVOCI”) or fair value through
profit or loss (“FVTPL”) based on the business model in
which they are held and the characteristics of their contractual
cash flows. IFRS 9 largely retains the existing requirements in IAS
39 - Financial Instruments: Recognition and Measurement ("IAS 39"),
for the classification and measurement of financial
liabilities.
The
Company adopted IFRS 9 in its consolidated financial statements on
July 1, 2018. Due to the nature of its financial instruments, the
adoption of IFRS 9 had no material impact on the opening
accumulated deficit balance on July 1, 2018. The impact on the
classification and measurement of its financial instruments is set
out below.
All
financial assets not classified at amortized cost or FVOCI are
measured at FVTPL. On initial recognition, the Company can
irrevocably designate a financial asset at FVTPL if doing so
eliminates or significantly reduces an accounting
mismatch.
A
financial asset is measured at amortized cost if it meets both of
the following conditions and is not designated at
FVTPL:
●
It is held within a
business model whose objective is to hold the financial asset to
collect the contractual cash flows associated with the financial
asset instead of selling the financial asset for a profit or
loss;
●
Its contractual
terms give rise to cash flows that are solely payments of principal
and interest.
All
financial instruments are initially recognized at fair value on the
consolidated statement of financial position. Subsequent
measurement of financial instruments is based on their
classification. Financial assets and liabilities classified at
FVTPL are measured at fair value with changes in those fair values
recognized in the consolidated statement of loss and comprehensive
loss for the period. Financial assets classified at amortized cost
and financial liabilities are measured at amortized cost using the
effective interest method.
Financial assets
Financial assets
are classified as either financial assets at FVTPL, amortized cost,
or FVTOCI. The Company determines the classification of its
financial assets at initial recognition.
i.
Financial assets recorded at FVTPL
Financial assets
are classified as FVTPL if they do not meet the criteria of
amortized cost or FVTOCI. Gains or losses on these items are
recognized in profit or loss.
NextSource Materials Inc.
Notes to Consolidated Financial Statements
For the years ended June 30, 2019 and 2018
Expressed in US Dollars
2.
Significant
Accounting Policies (continued)
Financial instruments (continued)
ii.
Amortized cost
Financial assets
classified as amortized cost are non-derivative financial assets
with fixed or determinable payments that are not quoted in an
active market. They are carried at amortized cost less any
provision for impairment. Individually significant receivables are
considered for impairment when they are past due or when other
objective evidence is received that a specific counterparty will
default.
The
Company’s cash and cash equivalents and amounts receivable
(excluding HST) are classified as financial assets measured at
amortized cost.
iii.
Financial assets recorded at FVTOCI
Financial assets
are recorded at FVTOCI when the change in fair value is
attributable to changes in the Company’s credit
risk.
Financial liabilities
Financial
liabilities are classified as either financial liabilities at FVTPL
or at amortized cost. The Company determines the classification of
its financial liabilities at initial recognition.
i.
Amortized cost
Financial
liabilities are measured at amortized cost, including borrowings,
are initially measured at fair value, net of transaction cost. They
are subsequently measured at amortized cost using the effective
interest method, with interest recognized on an effective yield
basis.
The
effective interest method is a method of calculating the amortized
cost of a financial liability and of allocating interest costs over
the relevant period. The effective interest rate is the rate that
exactly discounts estimated future cash payments through the
expected life of the financial liability or to the next carrying
amount or initial recognition.
The
Company’s accounts payable, accrued liabilities and provision
do not satisfy any of the exemptions and are therefore classified
as measured at amortized cost.
ii.
Financial liabilities recorded FVTPL
Financial
liabilities are classified as FVTPL if they do not fall into
amortized cost as detailed above.
The
Company’s warrant liability is classified as measured at
FVTPL.
Transaction costs
Transaction costs
associated with financial instruments, carried at FVTPL, are
expensed as incurred, while transaction costs associated with all
other financial instruments are included in the initial carrying
amount of the asset or the liability.
Subsequent measurement
Instruments
classified as FVTPL are measured at fair value with unrealized
gains and losses recognized in profit or loss. Instruments
classified as amortized cost are measured at amortized cost using
the effective interest rate method. Instruments classified as FVOCI
are measured at fair value with unrealized gains and losses
recognized in other comprehensive income.
Derecognition
The
Company derecognizes financial liabilities only when its
obligations under the financial liabilities are discharged,
cancelled, or expired. The difference between the carrying amount
of the financial liability derecognized and the consideration paid
and payable, including any non-cash assets transferred or
liabilities assumed, is recognized in profit or loss.
NextSource Materials Inc.
Notes to Consolidated Financial Statements
For the years ended June 30, 2019 and 2018
Expressed in US Dollars
2.
Significant
Accounting Policies (continued)
Financial instruments (continued)
Expected credit loss impairment model
Financial assets
not measured at FVTPL are assessed for indicators of impairment at
the end of each reporting period. Financial assets are impaired
when there is objective evidence that, as a result of one or more
events that occurred after initial recognition of the financial
assets, the estimated future cash flows of the financial asset has
been negatively impacted.
The
carrying amount of a financial asset is written off (either
partially or in full) to the extent that there is no realistic
prospect of recovery. This is generally the case when the Company
determines that the debtor does not have assets or sources of
income that could generate sufficient cash flows to repay the
amounts subject to the write-off.
IFRS 9
introduced a single expected credit loss impairment model, which is
based on changes in credit quality since initial application. The
adoption of the expected credit loss impairment model had no impact
on the Company’s consolidated financial
statements.
Financial instruments recorded at fair value:
Financial
instruments recorded at fair value on the consolidated statements
of financial position are classified using a fair value hierarchy
that reflects the significance of the inputs used in making the
measurements. The fair value hierarchy has the following
levels:
●
Level 1 - valuation
based on quoted prices (unadjusted) in active markets for identical
assets or liabilities;
●
Level 2 - valuation
techniques based on inputs other than quoted prices included in
Level 1 that are
●
observable for the
asset or liability, either directly (i.e. as prices) or indirectly
(i.e. derived from prices); and
●
Level 3 - valuation
techniques using inputs for the asset or liability that are not
based on observable market data (unobservable inputs).
As of
June 30, 2019 and 2018, except for the warrant liability –
which is a Level 3 financial instrument (see Note 13) - none of the
Company’s financial instruments are recorded at fair value in
the consolidated statements of financial position.
The
following table summarizes the classification and measurement
changes under IFRS 9 for each financial instrument as per adoption
of IFRS 9. The adoption of the new classification did not result in
any changes in the measurement or carrying amount of the financial
instruments.
Classification
|
IAS
39
|
IFRS
9
|
Financial
assets:
|
|
|
Cash
and cash equivalents
|
Amortized
cost
|
Amortized
cost
|
Amounts
receivable excluding HST
|
Amortized
cost
|
Amortized
cost
|
|
|
|
Financial
liabilities:
|
|
|
Accounts
payable and accrued liabilities
|
Amortized
cost
|
Amortized
cost
|
Provision
|
Amortized
cost
|
Amortized
cost
|
Warrant
liability
|
FVTPL
|
FVTPL
|
NextSource Materials Inc.
Notes to Consolidated Financial Statements
For the years ended June 30, 2019 and 2018
Expressed in US Dollars
2.
Significant
Accounting Policies (continued)
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:
●
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.
NextSource Materials Inc.
Notes to Consolidated Financial Statements
For the years ended June 30, 2019 and 2018
Expressed in US Dollars
2.
Significant
Accounting Policies (continued)
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.
Broker warrants may also be issued in connection with
financings.
The
fair value of share-based compensation is 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 share-based compensation is only re-measured if there is a
modification to the terms of the instrument, such as a change in
exercise price or legal life. The fair value of the share-based
compensation 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.
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 cumulative translation
adjustment 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.
The
Company adopted the IFRIC 23 guidance concerning accounting for
uncertainty in income taxes, which clarifies the accounting and
disclosure for uncertainty in tax positions, as of June 2017.
The guidance requires that the Company determine whether it
is
NextSource Materials Inc.
Notes to Consolidated Financial Statements
For the years ended June 30, 2019 and 2018
Expressed in US Dollars
2.
Significant
Accounting Policies (continued)
Income taxes (continued)
more
likely than not that a tax position will not be sustained upon
examination by the appropriate taxing authority. If a tax
position does not meet the more likely than not recognition
criterion, the guidance requires that the tax position be measured
at the largest amount of benefit greater than 50 percent not likely
of being sustained upon ultimate settlement. Based on the
Company’s evaluation, management has concluded that there are
no significant uncertain tax positions requiring recognition in the
financial statements.
Loss per share
Basic
loss per share is computed using the weighted average number of
common shares outstanding during the period. Diluted earnings per
share is computed, using the treasury stock method, to show the
potential reduction in earnings per share that would occur if
dilutive 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 issued but not yet applied
Certain
new accounting standards and interpretations have been published
that are not mandatory for the June 30, 2019 reporting period.
Management believes the following standards will not have a
significant impact on the Company’s consolidated financial
statements:
●
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. Management expects
that adoption of IFRS 16 will have no impact on the financial
statements since the Company does not have any leases exceeding one
year. IFRS 16 is effective for periods beginning on or after
January 1, 2019, with early adoption permitted.
In June
2017, the IASB issued IFRIC Interpretation 23 – Uncertainty
over Income Tax Treatments (‘‘IFRIC 23’’).
IFRIC 23 clarifies the application of recognition and measurement
requirements in IAS 12 – Income Taxes when there is
uncertainty over income tax treatments. More specifically, it will
provide guidance in the determination of taxable profit (tax loss),
tax bases, unused tax losses, unused tax credits and tax rates,
when uncertainty exists. IFRIC 23 is applicable for annual
reporting periods beginning on or after January 1, 2019. The
Company has determined that there will be no impact on the
Company’s current and deferred income tax balances as a
result of the adoption of IFRIC 23.
NextSource Materials Inc.
Notes to Consolidated Financial Statements
For the years ended June 30, 2019 and 2018
Expressed in US Dollars
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.
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.
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.
During
fiscal 2017, the Company applied to the BCMM to have the
exploration permit for the Molo Graphite Project converted into a
mining permit. On February 15, 2019, the Company announced the
Madagascar Government granted a 40-year mining license for the Molo
Graphite Project and that the mining license does not limit mining
to any specific volume. On April 11, 2019, the Company announced it
had received the Global Environmental Permit for the Molo Graphite
Project from the Madagascar Ministry of Environment’s Office
National pour l'Environnement (the National Office for the
Environment; or “ONE”).
Application
for all other necessary permits to construct and operate the mine,
including water use, facilities construction, mineral processing,
transportation, export, and labour have been
initiated.
The
Company cannot provide any assurance as to the timing of the
receipt of sufficient capital and of any of the permits and
licenses necessary to initiate construction of the
mine.
NextSource Materials Inc.
Notes to Consolidated Financial Statements
For the years ended June 30, 2019 and 2018
Expressed in US Dollars
3.
Mineral
Exploration Properties – continued
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, 2019, the Sagar property consisted of 234 claims covering
a total area of 10,736.59 ha.
NextSource Materials Inc.
Notes to Consolidated Financial Statements
For the years ended June 30, 2019 and 2018
Expressed in US Dollars
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
|
|
|
|
Year
ended June 30, 2019
|
1,087,925
|
15,469
|
1,103,394
|
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
|
|
|
|
As
of June 30, 2019
|
54,701
|
474,630
|
529,331
|
As
of June 30, 2018
|
17,958
|
320,744
|
338,702
|
As
of June 30, 2017
|
44,085
|
1,920,863
|
1,964,948
|
5.
Exploration
and Evaluation Expenses
Exploration
and evaluation expenses include all costs relating to exploration
activities (drilling, seismic, geological, geophysical, testing and
sampling), metallurgical evaluation activities, local payroll and
consultants, Madagascar travel costs, mineral claims and camp
operations.
The
following is the breakdown by nature of the expenses:
|
|
|
|
|
|
|
|
Exploration
activities
|
-
|
-
|
50,717
|
Metallurgical
evaluation
|
19,737
|
107,185
|
1,120,045
|
Consulting
fees
|
852,049
|
522,341
|
344,749
|
Travel
|
12,587
|
26,902
|
82,288
|
Mineral
claims and camp (Madagascar)
|
203,552
|
249,714
|
156,634
|
Mineral
claims (Canada)
|
15,469
|
14,856
|
85,226
|
Total exploration and evaluation expenses
|
1,103,394
|
920,998
|
1,839,659
|
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:
|
|
|
|
|
|
|
|
Management
payroll
|
459,553
|
458,932
|
339,023
|
Consulting
fees
|
368,345
|
381,713
|
160,916
|
Legal
fees
|
239,366
|
502,463
|
224,938
|
Auditor
fees
|
23,760
|
27,247
|
41,337
|
Tax
advisory fees
|
67,810
|
9,095
|
-
|
Other
|
20,141
|
3,475
|
4,183
|
Total management and professional fees
|
1,178,975
|
1,382,925
|
770,397
|
7.
General
and Administrative Expenses
General
and administrative expenses include all corporate travel, public
filing and transfer agent fees, investor relations, rent,
insurance, bank fees, meals and entertainment, telecommunications
and information technology.
The
following is the breakdown by nature of the expenses:
|
|
|
|
|
|
|
|
Travel
|
140,414
|
147,109
|
219,509
|
Public
filing and transfer agent fees
|
87,093
|
105,461
|
71,979
|
Investor
relations
|
49,711
|
86,946
|
112,263
|
Rent
|
28,956
|
23,686
|
21,793
|
Insurance
|
18,315
|
12,491
|
13,545
|
Bank
fees
|
4,021
|
5,300
|
4,469
|
Other
|
26,030
|
24,587
|
15,222
|
Total general and administrative expenses
|
354,540
|
405,580
|
458,780
|
The
Company owns metallurgical testing equipment and several vehicles
used for exploration purposes in Madagascar that were deemed
impaired and have no carrying values.
Changes
in the carrying values were as follows:
|
|
Accumulated
Depreciation
$
|
|
|
|
|
|
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
|
(27,805)
|
|
(27,805)
|
Balance June 30, 2018
|
-
|
-
|
-
|
|
|
|
|
Balance June 30, 2019
|
-
|
-
|
-
|
9.
Provision
and Contingent Liability
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 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. During the year ended June 30, 2019,
there were $NIL adjustments made to the provision
balance.
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, no amount has been recognized as a provision.
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, 2019, the Company had 507,417,021
common shares issued and outstanding (June 30 2018:
469,933,611).
The Company issued the following common shares during the year
ended June 30, 2019:
(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 $1,120,385
(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
included cash finder’s fees totaling $16,905, the issuance of
337,714 common shares valued at $17,966 and the issuance of 123,000
common share purchase warrants valued at $3,272 with each warrant
exercisable into one common share at an exercise price of $0.076
(CAD$0.10) for a period of two years. Other share issue costs were
$8,015.
(b)
On
March 7, 2019, the Company closed a non-brokered private placement
offering of 16,086,426 common shares at a price of $0.08 (CAD$0.11)
per common share for aggregate gross proceeds of $1,323,630
(CAD$1,769,507). The share issue costs included cash finder’s
fees totaling $24,062 (CAD$35,300). Other share issue costs were
$6,999 and legal fees were $3,803.
The Company issued the following common shares during the year
ended June 30, 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.
The
Company’s stock option plan is restricted to a maximum of 10%
of the issued and outstanding common shares. 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, 2019, the Company had 40,670,000 stock options
issued and outstanding (June 30, 2018: 37,630,000) with a weighted
average expiration of 3 years (June 30, 2018: 2.9 years), which are
exercisable into 40,670,000 common shares (June 30, 2018:
37,630,000) at a weighted average exercise price of $0.08 (June 30,
2018: $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 ended June 30, 2019:
|
|
|
Balance
Outstanding
June
30,
2018
|
Options Granted
(Expired or
Cancelled)
|
|
Balance
Outstanding
June 30,
2019
|
July 9,
2013
|
July 9,
2018
|
USD
$0.11
|
705,000
|
(705,000)
|
-
|
-
|
September 19,
2013
|
July 19,
2018
|
USD
$0.15
|
375,000
|
(375,000)
|
-
|
-
|
January 10,
2014
|
January 10,
2019
|
USD
$0.18
|
2,925,000
|
(2,925,000)
|
-
|
-
|
July 3,
2014
|
July 3,
2019
|
USD
$0.15
|
2,250,000
|
(1,100,000)
|
-
|
1,150,000
|
February 26,
2015
|
February 26,
2020
|
USD
$0.20
|
3,335,000
|
(465,000)
|
-
|
2,870,000
|
December 22,
2015
|
December 22,
2020
|
USD
$0.06
|
6,900,000
|
(200,000)
|
-
|
6,700,000
|
June 9,
2017
|
June 9,
2022
|
USD
$0.07
|
21,140,000
|
(3,040,000)
|
-
|
18,100,000
|
March 26,
2019
|
March 26,
2024
|
CAD
$0.10
|
-
|
11,850,000
|
-
|
11,850,000
|
Total
Outstanding
|
|
|
37,630,000
|
3,040,000
|
|
40,670,000
|
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
|
USD
$0.11
|
44,470,000
|
|
|
|
Granted
|
-
|
-
|
Exercised
|
-
|
-
|
Expired
|
USD
$0.18
|
(6,840,000)
|
Outstanding as of
June 30, 2018
|
USD
$0.09
|
37,630,000
|
|
|
|
Granted
|
CAD $0.10
|
11,850,000
|
Exercised
|
-
|
-
|
Expired/cancelled
|
USD
$0.09
|
(8,810,000)
|
Outstanding as of
June 30, 2019
|
USD
$0.08
|
40,670,000
|
11.
Stock
Options - Continued
The Company granted the following stock options during the year
ended June 30, 2019:
(a)
On
March 26, 2019, the Company granted 11,850,000 stock options
exercisable at a price of CAD$0.10 for a period of five years. The
options were valued at $651,692 using the Black-Scholes pricing
model based on a risk-free rate of 1.66% and volatility of 97%.
These stock options vested on the grant date.
The
Company did not grant any stock options during the year ended June
30, 2018.
The Company granted the following stock options during the year
ended June 30, 2017:
(a)
On
June 9, 2017, the Company issued 21,140,000 stock options at an
exercise price of $0.07 and an expiry date of June 9, 2022. The
stock options were valued at $794,864 using the Black-Scholes
pricing model with the following assumptions: risk free rate
– 1.11%; expected volatility – 82%; dividend yield
– NIL; and expected life – 5 years. These stock options
vested on the grant date.
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, 2019, the Company had 10,652,636 (June 30, 2018:
3,500,000) common share purchase warrants issued and outstanding
with a weighted average expiration of 1.13 years (June 30, 2018:
0.8 years), which are exercisable into 10,652,636 (June 30, 2018:
3,500,000) common shares at a weighted average exercise price of
$0.08 (June 30, 2018: $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 ended June 30, 2019:
|
|
|
Balance
Outstanding
June
30,
2018
|
Warrants Granted
(Expired)
|
|
Balance
Outstanding
June
30,
2019
|
June 23,
2014
|
April 15,
2019
|
USD
$0.14
|
3,500,000
|
(3,500,000)
|
-
|
-
|
August 17,
2018
|
August 17,
2020
|
CAD
$0.10
|
-
|
10,529,636
|
-
|
10,529,636
|
August 17,
2018
|
August 17,
2020
|
CAD
$0.10
|
-
|
123,000
|
-
|
123,000
|
Total
Outstanding
|
|
|
3,500,000
|
7,152,636
|
-
|
10,652,636
|
The
following is the continuity schedule of the Company's common share
purchase warrants:
|
Weighted-Average
Exercise
Price
$
|
|
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
|
USD
$0.11
|
30,521,256
|
|
|
|
Issued
|
-
|
-
|
Expired
|
USD
$0.11
|
(18,083,356)
|
Exercised
|
USD
$0.10
|
(8,937,900)
|
Outstanding as of
June 30, 2018
|
USD
$0.14
|
3,500,000
|
|
|
|
Issued
|
CAD $0.10
|
10,652,636
|
Expired
|
USD
$0.14
|
(3,500,000)
|
Exercised
|
-
|
-
|
Outstanding as of
June 30, 2019
|
USD
$0.08
|
10,652,636
|
The Company issued the following common share purchase warrants
during the year ended June 30, 2019:
(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 $1,120,385
(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
included cash finder’s fees totaling $16,905, the issuance of
337,714 common shares valued at $17,966 and the issuance of 123,000
common share purchase warrants valued at $3,272 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 Company did not issue any common share purchase warrants during
the year ended June 30, 2017.
The
warrants that were issued on August 17, 2018, as part of the units
as described in notes 10 and 12, were issued in a currency other
than the Company’s functional currency and therefore are
considered a derivative equity instrument as per IFRS 9
Financial Instruments. The
warrant liability was measured at fair value in the statement of
financial position using the Black-Scholes option valuation model
and will be revalued at each reporting period through profit and
loss until expiration or exercise of the underlying
warrants.
The
fair value of the warrant liability was estimated using the
following model inputs on the following valuation
dates:
|
|
August
17,
2018 (issue
date)
|
|
|
|
Exercise
price
|
$0.076
|
$0.076
|
Risk free
rate
|
1.67%
|
1.50%
|
Expected
volatility
|
97%
|
115%
|
Expected dividend
yield
|
Nil
|
Nil
|
Expected life (in
years)
|
1.13
|
2
|
Opening balance,
derivative warrant liability
|
$408,150
|
$-
|
Gain on change in
fair value of derivative warrant liability
|
(73,532)
|
408,150
|
Ending
balance, derivative warrant liability
|
$334,618
|
$408,150
|
The
warrants that expired in January 2017 were issued in a currency
other than the Company’s functional currency and therefore
were considered a derivative instrument and recorded on the balance
sheet as a warrant liability. The fair value of the warrant
liability was estimated on the date of issue and was re-measured at
each reporting period using a binomial model until expiration or
exercise of the underlying warrants.
For the
year ended June 30, 2017, the Company recorded a gain in the fair
value of the derivative warrant liability of $111,049.
The
fair value of the warrant liability was estimated using the
following model inputs on the following valuation
dates:
|
|
|
|
Exercise
price
|
Nil
|
Risk free
rate
|
Nil
|
Expected
volatility
|
Nil
|
Expected dividend
yield
|
Nil
|
Expected life (in
years)
|
Nil
|
Opening balance,
derivative warrant liability
|
$111,049
|
Gain on change in
fair value of derivative warrant liability
|
(111,049)
|
Ending
balance, derivative warrant liability
|
$-
|
As at
June 30, 2019, the Company had a working capital deficit of
$665,886 (June 30, 2018: deficit of $124,868).
There
were no changes in the Company's approach to capital management
during the year-ended June 30, 2019.
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.
15.
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, 2019, the Company expects to access public debt and equity
capital markets for financing over the next 12 months in order to
initiate construction of its Molo Graphite Project in Madagascar
and to satisfy working capital requirements. 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, 2019, the Company had a cash and cash equivalents balance
of $529,331 (June 30, 2018: $338,702) to settle current liabilities
of $1,279,289 (June 30, 2018: $519,351). 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.
Other than accounts payable, which are due within 30 days, and the
warrant liability, which will be fully expensed by August 2020,
none of the Company’s obligations have contractual
maturities.
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:
This is the sensitivity of the fair value or of the future cash
flows of a financial instrument to changes in interest rates. The
Company does not have any financial assets or liabilities that are
subject to variable interest rates.
●
Commodity price
risks: This is the sensitivity of the fair value of, 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, 2019 would
result in a loss of $37,497 (June 30, 2018: loss of $24,109; June
30, 2017: $32,080) on the consolidated statement of loss and
comprehensive loss. The impact of a 10% strengthening of the
Madagascar Ariary of June 30, 2019 would result in a gain of $4,654
(June 30, 2018: gain of $1,605; June 30, 2017: $2,135) on the
consolidated statement of loss and comprehensive loss. 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.
16.
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, 2019, 2018 and
2017:
|
|
|
|
|
|
|
|
Management
and professional fees
|
774,220
|
806,752
|
639,190
|
Share
based compensation
|
640,692
|
-
|
680,560
|
Total
|
1,414,912
|
806,752
|
1,319,750
|
The
following key management related party balances existed as of June
30, 2019 and 2018:
|
|
|
|
Prepaid
payroll to officers of the Company
|
$26,568
|
$26,632
|
$29,746
|
Accounts
payable balance due to officers of the Company
|
$16,400
|
$16,400
|
$16,400
|
Below
is a reconciliation of the income tax provision, calculated using
the combined Canadian federal and provincial statutory income tax
rate of 26.5%.
|
|
|
Net
Loss
|
(3,210,504)
|
(2,784,222)
|
Statutory
rate
|
26.5%
|
26.5%
|
|
|
|
Expected
income tax recovery
|
(850,784)
|
(738,000)
|
Other
adjustments
|
24,585
|
68,710
|
Share
issuance costs booked to equity
|
(21,471)
|
-
|
Non-deductible
expenses
|
153,893
|
-
|
Utilization
of losses not previously recognized
|
-
|
(15,210)
|
Change
in tax benefits not recognized
|
693,777
|
684,500
|
Income
tax recovery
|
-
|
-
|
17.
Income
Taxes – continued
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:
|
|
|
Property,
plant and equipment
|
188,980
|
189,750
|
Share
issue costs
|
219,290
|
384,230
|
Non-capital
losses – Canada
|
22,069,720
|
20,292,580
|
Capital
losses carried forward – Canada
|
53,000
|
53,000
|
Exploration
expenditures - Canada
|
4,191,650
|
3,291,810
|
Losses-Non-Canadian
|
1,215,070
|
-
|
Deferred
tax assets
|
27,937,710
|
24,211,370
|
The
Canadian non-capital loss carryforwards 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 costs will be fully amortized in 2023. The remaining
deductible temporary differences may be carried forward
indefinitely. Non-Canadian losses will expire in 2023. 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 $48,139,994 and expire between 2026 and 2038. U.S.
non-operating losses incurred in years 2019 and after, are carried
forward indefinitely. 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
|
2039
|
1,777,160
|
|
$22,069,720
|
There
were no subsequent events.
Exhibit 99.3
NextSource Materials Inc.
Management’s Discussion and Analysis (MD&A)
For the
years ended June 30, 2019 and 2018
Expressed
in US Dollars
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the years ended June 30, 2019 and 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 9, 2019, should
be read in conjunction with NextSource’s consolidated
financial statements for the years ended June 30, 2019 and
2018.
The
consolidated financial statements have been prepared in accordance
with International Financial Reporting Standards
(“IFRS”) issued by International Accounting Standards
Board (“IASB”). The presentation and functional
currency of the Company is the US dollar.
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.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
INFORMATION
Certain
statements contained in this MD&A constitute forward-looking
information within the meaning of applicable Canadian securities
legislation. Generally, forward-looking information can be
identified by the use of forward-looking terminology such as
“plans,” “expects,” or “does not
expect,” “is expected,” “budget,”
“scheduled,” “goal,”
“estimates,” “forecasts,”
“intends,” “anticipates,” or “does
not anticipate,” or “believes” or variations of
such words and phrases or statements that certain actions, events
or results “may,” “could,”
“would,” “might,” or “will be
taken,” “occur,” or “be
achieved”.
Forward-looking
information includes, but is not limited to, information with
respect to certain expectations regarding obtaining necessary
permits; construction timelines and costs; anticipated production
volumes; anticipated operating costs and capital spending; supply,
demand and pricing outlook in the graphite market; sources of
funding for the Molo Graphite Project and the Green Giant Vanadium
Project; exploration drill results; metallurgical drill results;
environmental assessment and rehabilitation costs and amounts of
certain other commitments; and the Corporation’s business
objectives and targeted milestones (and timing
thereof).
Forward-looking
information is subject to known and unknown risks, uncertainties
and other factors that may cause the actual results, level of
activity, performance or achievements of the Corporation to be
materially different from those expressed or implied by such
forward-looking information. Such factors include, among others;
negative operating cash flow; the Corporation’s ability to
continue as a going concern; development projects are uncertain,
and it is possible that actual capital and operating costs and
economic returns will differ significantly from those estimated for
a project prior to production; the Corporation’s development
and exploration projects are in the African country of Madagascar
and are subject to country political and regulatory risks;
dependence on the Molo Graphite Project; additional permits and
licenses are necessary to complete the development of the Molo
Graphite Project; 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; fluctuations in the market
price of graphite and other metals may adversely affect the value
of the Corporation’s securities and the ability of the
Corporation to develop the Molo Graphite Project; the Corporation
may not have access to sufficient capital to develop the Molo
Graphite Project; the Corporation has a limited operating history
and expects to incur operating losses for the foreseeable future;
due to the speculative nature of mineral property exploration,
there is substantial risk that the Corporation’s assets will
not go into commercial production and the business will fail;
estimates of mineral resources and mineral reserves may not be
realized; because of the inherent dangers involved in mineral
exploration, there is a risk that the Corporation may incur
liability or damages as the Corporation conducts business; the
Corporation has no insurance for environmental problems; should the
Corporation lose the services of key executives, the
Corporation’s financial condition and proposed expansion may
be negatively impacted; because access to the Corporation’s
properties may be restricted by inclement weather or proper
infrastructure, its exploration programs are likely to experience
delays; climate change and related regulatory responses may impact
the Corporation’s business; compliance with changing
regulation of corporate governance and public disclosure will
result in additional expenses and pose challenges for management;
tax risks; the Corporation’s business is subject to
anti-corruption and anti-bribery laws, a breach or violation of
which could lead to civil and criminal fines and penalties, loss of
licenses or permits and reputational harm; the Corporation does not
intend to pay dividends; because from time to time the Corporation
holds a significant portion of cash reserves in Canadian dollars,
the Corporation may experience losses due to foreign exchange
translations; the Corporation is exposed to general economic
conditions, which could have a material adverse impact on its
business, operating results and financial condition; the current
financial environment may impact the Corporation’s business
and financial condition that cannot predict; the market price for
the Common Shares is particularly volatile given the
Corporation’s 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 the market
price for the Common Shares; and the Corporation’s ability to
meet other factors listed from time to time in the
Corporation’s continuous disclosure documents, including but
not limited to, the AIF.
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the years ended June 30, 2019 and June 30, 2018
Forward-looking
information is based on the reasonable assumptions, estimates,
analysis and opinions of management and/or “qualified
persons” (as such term is defined under National Instrument
43-101 – Standards of Disclosure for Mineral Projects
(“”NI 43-101”)) made in light of their experience
and their perception of trends, current conditions and expected
developments, as well as other factors that management and/or
qualified persons believe to be relevant and reasonable in the
circumstances at the date that such statements are made, but which
may prove to be incorrect. Although the Corporation believes that
the assumptions and expectations reflected in such forward-looking
information are reasonable, undue reliance should not be placed on
forward-looking information because the Corporation can give no
assurance that such expectations will prove to be correct. In
addition to the assumptions discussed herein the material
assumptions upon which such forward-looking statements are based
include, among others, that: the Corporation will be successful in
its financing activities; the demand for graphite will develop as
anticipated; graphite prices will remain at or attain levels that
would render the Molo Graphite Project potentially economic; that
any proposed operating and capital plans will not be disrupted by
operational issues, title issues, loss of permits, environmental
concerns, power supply, labour disturbances, financing requirements
or adverse weather conditions; the Corporation will continue to
have the ability to attract and retain skilled staff; and there are
no material unanticipated variations in the cost of energy or
supplies. Readers are cautioned that the foregoing list is not
exhaustive of all factors and assumptions which may have been used.
Although the Corporation has attempted to identify important
factors that could cause actual results to differ materially from
those contained in forward-looking information, there may be other
factors that cause results not to be as anticipated, estimated or
intended. There can be no assurance that such information will
prove to be accurate, as actual results and future events could
differ materially from those anticipated in such information.
Accordingly, readers should not place undue reliance on
forward-looking information. The forward-looking information
contained herein is presented for the purposes of assisting
investors in understanding the Corporation’s expected
financial and operating performance and the Corporation’s
plans and objectives and may not be appropriate for other
purposes.
The
Corporation does not undertake to update any forward-looking
information, except in accordance with applicable securities
laws.
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 or pay
dividends and is unlikely to do so in the immediate or foreseeable
future. 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.
Principal Products
The
Company is currently focused on developing a graphite
mine.
The
Company, through a wholly owned foreign subsidiary, obtained a
mining permit and environmental certificate for its Molo Graphite
Project in Madagascar. Although the Company released a NI 43-101
Technical Report Feasibility Study dated July 13, 2017 that
concluded that Phase 1 of the Molo Graphite Project contains
mineralization that is economically recoverable, the Company does
not have the necessary capital to begin construction at this
time.
In
addition to the Molo Graphite Project, NextSource has 100%
ownership of its NI 43-101 compliant Green Giant Vanadium Project,
located just 11 kilometres from the Molo Project. The Green Giant
Project is a rarely occurring, sedimentary-hosted
deposit.
Competitive Conditions
The
mineral exploration and mining business 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
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 favor 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.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the years ended June 30, 2019 and June 30, 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 (“GRAMAD”), a
Madagascar subsidiary. GRAMAD 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, 2019, the Company had 507,417,021 common shares
issued and outstanding (June 30, 2018: 469,933,611).
As of June 30 2019, the Company had 40,670,000 stock options issued
and outstanding (June 30, 2018: 37,630,000) with a weighted average
expiration of 2.9 years (June 30, 2018: 2.9 years), which are
exercisable into 40,670,000 common shares (June 30, 2018:
37,630,000) at a weighted average exercise price of $0.08 (June 30,
2018: $0.09). All stock options that are currently outstanding
vested on the grant date.
As of
June 30, 2019, the Company had 10,652,636 common share purchase
warrants issued and outstanding (June 30, 2018: 3,500,000) with a
weighted average expiration of 1.13 years (June 30, 2018: 0.8
years), which are exercisable into 10,652,636 common shares (June
30, 2018: 3,500,000) at a weighted average exercise price of $0.08
(June 30, 2018: $0.14). All warrants that are currently outstanding
vested on the issue date.
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the years ended June 30, 2019 and June 30, 2018
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 equity and/or debt offerings 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, 2019, and 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, 2019, we had two employees and several contractors in
addition to the Board of Directors, President & Chief Executive
Officer and 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, 2019, the Company had an accumulated deficit of
$103,955,431 (June 30, 2018: $100,744,927), 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.
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.
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 consolidated financial
statements for the year ended June 30, 2019 that there currently
exists substantial doubt regarding the Company’s ability to
continue as a going concern.
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the years ended June 30, 2019 and June 30, 2018
Corporate Highlights
Three-Year History
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 capital costs of the project (“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.
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 the
ability of the Company to finance the modular expansion. It is
expected that the Phase 2 expansion 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 to be completed in due
course.
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 (i) a pre-tax Net Present Value
(“NPV”) of $34 million using an 8% discount rate and a
pre-tax internal rate of return (“IRR”) of 25.2%; and
(ii) a post-tax NPV of $25.5 million using an 8% discount rate 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.
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 $1,120,385
(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.
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the years ended June 30, 2019 and June 30, 2018
On October 16, 2018, the Company announced the signing of an
Offtake Agreement with the primary graphite supplier to a major
Japanese electric vehicle anode producer. The Offtake Agreement is
for a period of ten (10) years and activates on the commencement of
commercial production at the Molo project, with an automatic
renewal for an additional five (5) years. The Japanese Partner will
have the exclusive right to import and sell SuperFlake®
graphite concentrate in Japan. Provided that commercial production
commences within 3 years, following the ramp up period, the
Japanese Partner will purchase 20,000 tonnes of SuperFlake®
graphite per annum Product prices will be negotiated on a per order
basis between the parties and will be based on the floating market
prices (FOB basis) prevailing in the region.
On
February 15, 2019, the Company announced the Madagascar Government
granted a 40-year mining license for the Molo Graphite Project and
that the mining license does not limit mining to any specific
volume.
On March 7, 2019, the Company closed a non-brokered private
placement offering of 16,086,426 common shares at a price of $0.08
(CAD$0.11) per common share for aggregate gross proceeds of
$1,323,630 (CAD$1,769,507).
On
April 11, 2019, the Company announced it had received the Global
Environmental Permit for the Molo Graphite Project from the
Madagascar Ministry of Environment’s Office National pour
l'Environnement (the National Office for the Environment; or
“ONE”). This follows the completion of the
Environmental & Social Impact Assessment (“ESIA”)
and Relocation Action Plan (“RAP”) to International
Finance Corporation (IFC) performance standards and World Bank
standards, the completion of local and regional stakeholder and
community engagement, and the completion of negotiations and signed
agreements with all potentially affected land occupants to accept
compensation for any affected crops and grazing land and relocation
if needed.
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.
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.
During
fiscal 2017, the Company applied to the BCMM to have the
exploration permit for the Molo Graphite Project converted into a
mining permit. On February 15, 2019, the Company announced the
Madagascar Government granted a 40-year mining license for the Molo
Graphite Project and that the mining license does not limit mining
to any specific volume. On April 11, 2019, the Company announced it
had received the Global Environmental Permit for the Molo Graphite
Project from the Madagascar Ministry of Environment’s Office
National pour l'Environnement (the National Office for the
Environment; or “ONE”).
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the years ended June 30, 2019 and June 30, 2018
Application
for all other necessary permits to construct and operate the mine,
including water use, facilities construction, mineral processing,
transportation, export, and labour have been
initiated.
The
Company cannot provide any assurance as to the timing of the
receipt of sufficient capital and of any of the permits and
licenses necessary to initiate construction of the
mine.
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, 2019, the Sagar property consisted of 234 claims covering
a total area of 10,736.59 ha.
Discussion of Operations
During
the fiscal year ended June 30, 2019, the Company incurred
$3,284,036 in expenditures advancing the Molo Graphite Project
which included $1,103,394 in evaluation expenditures and $1,178,975
in management and professional fees.
During
the fiscal year, the Company achieved the following
milestones:
●
On February 15,
2019, the Company was granted a 40-year mining license for the Molo
Graphite Project which does not limit mining to any specific
volume.
●
On April 11, 2019,
the Company received the Global Environmental Permit for the Molo
Graphite Project.
The
Company also 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. The company also initiated applications for all other
necessary permits to construct and operate the mine, including
water use, facilities construction, mineral processing,
transportation, export, and labour.
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the years ended June 30, 2019 and June 30, 2018
Future Outlook
As at
the date hereof, the timing of the advancement of the next stage of
Phase 1 of the Molo Graphite Project is entirely contingent upon
obtaining additional capital through financing activities. The
Company cannot provide any assurance as to the timing of the
receipt of sufficient capital and of any of the permits and
licenses that are still necessary to complete the construction of
the mine. In the event that such financing is not available, the
Company will not be able to pursue any substantial work in
connection with the development of Molo Graphite
Project.
The
Company is currently assessing a staged contingent approach and is
in the process of establishing specific milestones that it hopes to
achieve in respect of the development of the Molo Graphite Project
in the event that the entire projected development costs are not
available to the Company to bring the project to full production.
The amount of costs to be incurred in respect of the development
and the specific milestones which may be achieved will be directly
related to the amount of money the Company is able to raise for
this purpose. In the event that the Company is successful in
raising sufficient capital, the Company plans to develop the Molo
Graphite Project and incur construction capital costs as well as
incur additional costs relating to permitting, engineering,
professional fees, G&A and working capital. No assurances can
be provided that we will be able to raise sufficient capital or
achieve our construction milestones.
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.
Although
the focus of the Company is the Molo Graphite Project, subject to
and upon receipt of excess capital not used in respect of the
development of the Molo Graphite Project, the Company may pursue
further work on the Green Giant Vanadium Project in order to
complete an updated technical report at an estimated cost of up to
$500,000.
As
stated elsewhere, the Company requires additional capital to
achieve its business plan however 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.
Financial Results
Expressed in US Dollars
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$-
|
$-
|
$-
|
Expenses
|
|
|
|
Exploration
and evaluation expenses
|
1,103,394
|
920,998
|
1,839,659
|
Management
and professional fees
|
1,178,975
|
1,382,925
|
770,397
|
Share
based compensation
|
651,692
|
-
|
794,864
|
General
and administrative expenses
|
354,540
|
405,580
|
458,780
|
Depreciation
|
-
|
-
|
21,911
|
Impairment
|
-
|
27,805
|
-
|
Foreign
currency translation (gain) loss
|
(4,565)
|
104,387
|
93,476
|
|
|
|
|
Total expenses
|
3,284,036
|
2,841,695
|
3,979,087
|
Net loss before change in fair value, reversal of impairment of
amount receivable and part XII.6 taxes
|
(3,284,036)
|
(2,841,695)
|
(3,979,087)
|
Other
income (expenses)
|
|
|
|
Change
in value of warrant liability
|
73,532
|
-
|
111,049
|
Reversal
of impairment of amount receivable
|
-
|
45,132
|
-
|
Part
XII.6 taxes
|
-
|
11,741
|
(131,320)
|
|
|
|
|
Net loss for the year
|
$(3,210,504)
|
$(2,784,822)
|
$3,999,358
|
|
|
|
|
Other comprehensive income
|
|
|
|
Items that will be reclassified subsequently to loss
|
|
|
|
Translation
adjustment for foreign operations
|
41,713
|
75,766
|
-
|
|
|
|
|
Net loss and comprehensive loss for the year
|
$(3,168,791)
|
$(2,709,056)
|
$(3,999,358)
|
|
|
|
|
Weighted-average
common shares,
-
basic
and diluted
|
493,586,450
|
468,252,639
|
448,187,140
|
Net
loss per common shares,
-
basic
and diluted
|
(0.01)
|
(0.01)
|
(0.01)
|
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the years ended June 30, 2019 and June 30, 2018
Exploration and Evaluation Expenses
Exploration
and evaluation expenses include all costs relating to exploration
activities (drilling, seismic, geological, geophysical, testing and
sampling), metallurgical evaluation activities, local payroll and
consultants, Madagascar travel costs, mineral claims and camp
operations.
The
following is the breakdown by nature of the expenses:
|
|
|
|
|
|
|
|
Exploration
activities
|
-
|
-
|
50,717
|
Metallurgical
evaluation
|
19,737
|
107,185
|
1,120,045
|
Consulting
fees
|
852,049
|
522,341
|
344,749
|
Travel
|
12,587
|
26,902
|
82,288
|
Mineral
claims and camp (Madagascar)
|
203,552
|
249,714
|
156,634
|
Mineral
claims (Canada)
|
15,469
|
14,856
|
85,226
|
Total exploration and evaluation expenses
|
1,103,394
|
920,998
|
1,839,659
|
Exploration
and evaluation expenses for the year ended June 30, 2019 increased
to $1,103,394 (2018: $920,998; 2017: 1,839,659). The net increase
of $182,396 (2018: net decrease of $918,661) is primarily
attributed to increased consulting fees related to the mining and
environmental permits as well as mine planning expenditures, mainly
incurred in the fourth quarter, as compared to the prior years. No
exploration work was completed in 2019 and 2018 since all
exploration work necessary was completed prior to 2017.
Metallurgical evaluation fees were minimal in 2018 and 2018 since
most assessment work was completed in 2017. Travel and camp
expenditures decreased in 2019 as compared to 2018 since there were
fewer site visits.
Management and Professional Fees Expenses
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:
|
|
|
|
|
|
|
|
Management
payroll
|
459,553
|
458,932
|
339,023
|
Consulting
fees
|
368,345
|
381,713
|
160,916
|
Legal
fees
|
239,366
|
502,463
|
224,938
|
Auditor
fees
|
23,760
|
27,247
|
41,337
|
Tax
advisory fees
|
67,810
|
9,095
|
-
|
Other
|
20,141
|
3,475
|
4,183
|
Total management and professional fees
|
1,178,975
|
1,382,925
|
770,397
|
Management
and professional fees for year ended June 30, 2019 decreased to
$1,178,975 (2018: $1,382,925; 2017: $770,397). The net decrease of
$203,950 (2018: net increase of $612,528) is primarily attributed
to decreased legal fees, which was partially offset by the
increased tax advisory fees, as compared to 2018. Management and
consulting fees in 2019 did not change materially from 2018 as
there was no changes to the management team.
Share Based Compensation
On
March 26, 2019, the Company granted 11,850,000 stock options
exercisable at a price of CAD$0.10 for a period of five years. The
options were valued at $651,692 using the Black-Scholes pricing
model based on a risk-free rate of 1.66% and volatility of 97%.
These stock options vested on the grant date. The stock option
value was expensed in the fourth quarter.
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the years ended June 30, 2019 and June 30, 2018
The
Company did not grant any stock options in 2018.
On June
9, 2017, the Company issued 21,140,000 stock options at an exercise
price of $0.07 and an expiry date of June 9, 2022. The stock
options were valued at $794,864 using the Black-Scholes pricing
model with the following assumptions: risk free rate – 1.11%;
expected volatility – 82%; and expected life – 5 years.
These stock options vested on the grant date.
General and Administrative Expenses
General
and administrative expenses include all corporate travel, public
filing and transfer agent fees, investor relations, rent,
insurance, bank fees, meals and entertainment, telecommunications
and information technology.
The
following is the breakdown by nature of the expenses:
|
|
|
|
|
|
|
|
Travel
|
140,414
|
147,109
|
219,509
|
Public
filing and transfer agent fees
|
87,093
|
105,461
|
71,979
|
Investor
relations
|
49,711
|
86,946
|
112,263
|
Rent
|
28,956
|
23,686
|
21,793
|
Insurance
|
18,315
|
12,491
|
13,545
|
Bank
fees
|
4,021
|
5,300
|
4,469
|
Other
|
26,030
|
24,587
|
15,222
|
Total general and administrative expenses
|
354,540
|
405,580
|
458,780
|
General
and administrative expenses for the year ended June 30, 2019
decreased to $354,541 (2018: $405,580; 2017: $458,780). The net
decrease of $51,039 (2018: net decrease of 53,200) is primarily
attributed to decreased public filing and transfer agent fees, as
well as decreased investor relations expenses, as compared to 2018
and 2017. Corporate travel expenditures in 2019 did not materially
change from 2018. Insurance expenditures in 2019 increased slightly
from 2018 and 2017.
Liquidity and Capital Resources
The
Company's ability to continue operations and fund its 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. Circumstances that could affect our ability
to obtain additional financing are market or commodity price
changes and economic downturns.
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.
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the years ended June 30, 2019 and June 30, 2018
As at
June 30, 2019, the Company expects to access public debt and equity
capital markets for financing over the next 12 months in order to
initiate construction of its Molo Graphite Project in Madagascar
and to satisfy working capital requirements. 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, 2019, the Company had a cash and cash equivalents balance
of $529,331 (June 30, 2018: $338,702) to settle current liabilities
of $1,279,289 (June 30, 2018: $519,351). 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.
Other than accounts payable, which are due within 30 days, and the
warrant liability, which will be fully expensed by August 2020,
none of the Company’s obligations have contractual
maturities.
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:
This is the sensitivity of the fair value or of the future cash
flows of a financial instrument to changes in interest rates. The
Company does not have any financial assets or liabilities that are
subject to variable interest rates.
●
Commodity price
risks: This is the sensitivity of the fair value of, 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, 2019 would
result in a loss of $37,498 (June 30, 2018: loss of $24,109; June
30, 2017: $32,080) on the consolidated statement of loss and
comprehensive loss. The impact of a 10% strengthening of the
Madagascar Ariary of June 30, 2019 would result in a gain of $4,654
(June 30, 2018: gain of $1,605; June 30, 2017: $2,135) on the
consolidated statement of loss and comprehensive loss. 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.
Working Capital Balance
As at
June 30, 2019, the Company had a working capital deficit of
$665,886 (June 30, 2018: deficit of $124,868).
|
|
|
Assets
|
|
|
Current
Assets:
|
|
|
Cash and cash
equivalents
|
$529,331
|
$338,702
|
Amounts
receivable
|
33,640
|
13,241
|
Prepaid
expenses
|
50,432
|
42,540
|
Total
Current Assets
|
$613,403
|
$394,483
|
|
|
|
Current
Liabilities:
|
|
|
Accounts
payable
|
$109,021
|
$140,865
|
Accrued
liabilities
|
654,999
|
197,834
|
Provision
|
180,652
|
180,652
|
Warrant
liability
|
334,618
|
-
|
Total
Current Liabilities
|
1,279,289
|
519,351
|
|
|
|
Working
Capital (Deficit)
|
$(665,886)
|
$(124,868)
|
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the years ended June 30, 2019 and June 30, 2018
The
working capital deficit increased $541,018 as compared to the prior
year. The changes in the working capital are discussed in further
detail in the next sections.
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
|
|
|
|
As
of June 30, 2019
|
54,701
|
474,630
|
529,331
|
As
of June 30, 2018
|
17,958
|
320,744
|
338,702
|
As
of June 30, 2017
|
44,085
|
1,920,863
|
1,964,948
|
Current Assets and Liabilities
Amounts
receivables and prepaid expenses increased by $28,291 which
consists mainly of tax receivables and prepaid insurance. Accounts
payable and accrued liabilities increased by $425,320 which
consists mainly of trade payables and of accrued legal and
consulting expenditures. The provision remained unchanged from the
prior year and is discussed in detail in the Provision section. The warrant
liability is a reclassification from share capital and is discussed
in detail in the Warrant
Liability section.
Contractual Obligations and Commitments Excluding
Provisions
The
Company does not have any contractual obligations or commitments
other than accounts payable due within one-year totaling $109,021
(June 30, 2018: $140,865) and accrued liabilities totaling $654,999
(June 30, 2018: $197,834).
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. During the year ended June 30, 2019, there were $nil
adjustments made to the provision balance.
Warrant Liability
The
warrants that were issued on August 17, 2018 were issued in a
currency other than the Company’s functional currency and
therefore are considered a derivative equity instrument as per IFRS
9 Financial Instruments. The warrant liability was measured at fair
value in the statement of financial position using the
Black-Scholes option valuation model and will be revalued at each
reporting period through profit and loss until expiration or
exercise of the underlying warrants.
The
fair value of the warrant liability was estimated using the
following model inputs on the following valuation
dates:
|
|
August
17,
2018 (issue
date)
|
|
|
|
Exercise
price
|
$0.075
|
$0.075
|
Risk free
rate
|
1.67%
|
1.50%
|
Expected
volatility
|
97%
|
115%
|
Expected dividend
yield
|
Nil
|
Nil
|
Expected life (in
years)
|
1.13
|
2
|
Opening balance,
derivative warrant liability
|
$408,150
|
$-
|
Gain on change in
fair value of derivative warrant liability
|
(73,532)
|
408,150
|
Ending
balance, derivative warrant liability
|
$334,618
|
$408,150
|
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the years ended June 30, 2019 and June 30, 2018
The
warrants that expired in January 2017 were issued in a currency
other than the Company’s functional currency and therefore
were considered a derivative instrument and recorded on the balance
sheet as a warrant liability. The fair value of the warrant
liability was estimated on the date of issue and was re-measured at
each reporting period using a binomial model until expiration or
exercise of the underlying warrants.
For the
year ended June 30, 2017, the Company recorded a gain in the fair
value of the derivative warrant liability of $111,049.
|
|
|
|
Exercise
price
|
Nil
|
Risk free
rate
|
Nil
|
Expected
volatility
|
Nil
|
Expected dividend
yield
|
Nil
|
Expected life (in
years)
|
Nil
|
Opening balance,
derivative warrant liability
|
$111,049
|
Gain on change in
fair value of derivative warrant liability
|
(111,049)
|
Ending
balance, derivative warrant liability
|
$-
|
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.
Cash Flows - Sources and Uses of Cash
The
following are the Company’s cash flows from operating,
investing and financing activities for the years ended June 30,
2019, 2018 and 2017:
Expressed in US Dollars
|
For the year
ended
June
30,
2019
|
For the year
ended
June
30,
2018
|
For the year
ended
June
30,
2017
|
Cash
flows from operating activities
|
|
|
|
Net
loss for the year
|
$(3,210,504)
|
$(2,784,822)
|
$(3,999,358)
|
Items not affecting
cash:
|
|
|
|
Depreciation and
impairment of equipment
|
-
|
27,805
|
21,911
|
Change in value of
warrant derivative liability
|
(73,532)
|
-
|
(111,049)
|
Share based
compensation
|
651,692
|
-
|
794,864
|
|
|
|
|
Change in working
capital balances:
|
|
|
|
(Increase) decrease
in amounts receivable and prepaid expenses
|
(28,291)
|
22,756
|
(53,037)
|
Increase (decrease)
in accounts payable and accrued liabilities
|
425,320
|
111,311
|
(12,746)
|
Increase (decrease)
in provision
|
-
|
(2,231)
|
141
|
|
|
|
|
Net cash used in
operating activities
|
(2,235,315)
|
(2,625,181)
|
(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
|
2,444,015
|
-
|
5,177,885
|
Proceeds from
exercise of warrants
|
-
|
923,169
|
-
|
Common share issue
cost finder shares
|
17,966
|
-
|
-
|
Common share issue
costs
|
(77,750)
|
-
|
(370,671)
|
|
|
|
|
Net cash provided
by financing activities
|
2,384,231
|
923,169
|
4,807,214
|
|
|
|
|
Effect of exchange
rate changes on cash
|
41,713
|
75,766
|
|
|
|
|
|
Increase (decrease)
in cash and cash equivalents
|
190,629
|
(1,626,246)
|
1,420,135
|
Cash and cash
equivalents - beginning of year
|
338,702
|
1,964,948
|
544,813
|
Cash
and cash equivalents - end of year
|
$529,331
|
$338,702
|
$1,964,948
|
|
|
|
|
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the years ended June 30, 2019 and June 30, 2018
Investing Activities
The
Company owns metallurgical testing equipment and several vehicles
used for exploration purposes in Madagascar that were deemed
impaired and have no carrying values. The Company did not make any
equipment purchases in 2019 or 2018.
Financing Activities
The Company issued the following common shares during the year
ended June 30, 2019:
(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 $1,120,385
(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
included cash finder’s fees totaling $16,905, the issuance of
337,714 common shares valued at $17,966 and the issuance of 123,000
common share purchase warrants valued at $3,272 with each warrant
exercisable into one common share at an exercise price of $0.076
(CAD$0.10) for a period of two years. Other share issue costs were
$8,015.
(b)
On
March 7, 2019, the Company closed a non-brokered private placement
offering of 16,086,426 common shares at a price of $0.08 (CAD$0.11)
per common share for aggregate gross proceeds of $1,323,630
(CAD$1,769,507). The share issue costs included cash finder’s
fees totaling $24,062 (CAD$35,300). Other share issue costs were
$6,999 and legal fees were $3,803.
Capital Management
There
were no changes in the Company's approach to capital management
during the year ended June 30, 2019.
As of
June 30, 2019, the Company is not subject to any externally imposed
capital requirements and does not have any commitments for capital
expenditures.
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.
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.
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the years ended June 30, 2019 and June 30, 2018
The
following key management personnel related party transactions
occurred during the years ended June 30, 2019 and
2018:
|
|
|
|
|
|
Management
and professional fees
|
$774,220
|
$806,752
|
Stock
options
|
640,692
|
-
|
Total
|
$1,414,912
|
$806,752
|
The
following key management related party balances existed as of June
30, 2019 and 2018:
|
|
|
Prepaid
payroll to officers of the Company
|
$26,568
|
$26,632
|
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.
Changes in Accounting Policies
IFRS 9
- Financial Instruments ("IFRS 9") replaced the provision of IAS 39
- Financial Instruments: Recognition and Measurement ("IAS 39") and
was effective for annual periods beginning on or after January 1,
2018. IFRS 9 includes requirements for recognition and measurement,
impairment, derecognition and general hedge
accounting.
IFRS 9
includes finalized guidance on the classification and measurement
of financial assets. Under IFRS 9, financial assets are classified
and measured either at amortized cost, fair value through other
comprehensive income (“FVOCI”) or fair value through
profit or loss (“FVTPL”) based on the business model in
which they are held and the characteristics of their contractual
cash flows. IFRS 9 largely retains the existing requirements in IAS
39 - Financial Instruments: Recognition and Measurement ("IAS 39"),
for the classification and measurement of financial
liabilities.
The
Company adopted IFRS 9 in its consolidated financial statements on
July 1, 2018. Due to the nature of its financial instruments, the
adoption of IFRS 9 had no material impact on the opening
accumulated deficit balance on July 1, 2018.
The
Company adopted the IFRIC 23 guidance concerning accounting for
uncertainty in income taxes, which clarifies the accounting and
disclosure for uncertainty in tax positions, as of June 2017. The
guidance requires that the Company determine whether it is more
likely than not that a tax position will not be sustained upon
examination by the appropriate taxing authority. If a tax position
does not meet the more likely than not recognition criterion, the
guidance requires that the tax position be measured at the largest
amount of benefit greater than 50 percent not likely of being
sustained upon ultimate settlement. Based on the Company’s
evaluation, management has concluded that there are no significant
uncertain tax positions requiring recognition in the financial
statements.
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the years ended June 30, 2019 and June 30, 2018
Selected Annual Information and Selected Quarterly
Results
The
following is selected quarterly information for the three most
recently completed financial years:
|
|
|
|
|
|
Revenues
|
-
|
-
|
-
|
Exploration
and evaluation expenses
|
1,103,394
|
920,998
|
1,839,659
|
Net
loss and comprehensive loss for the quarter
|
(3,168,791)
|
(2,709,056)
|
(3,999,358)
|
Basic
and diluted loss per share for the quarter
|
(0.01)
|
(0.01)
|
(0.01)
|
Total
assets
|
613,403
|
394,483
|
2,071,290
|
Total
non-current financial liabilities
|
-
|
-
|
-
|
Dividends
|
-
|
-
|
-
|
The
following is selected quarterly information for the eight most
recently completed quarters:
|
|
|
|
|
|
|
Revenues
|
-
|
-
|
-
|
-
|
Exploration
and evaluation expenses
|
569,580
|
326,479
|
112,651
|
94,684
|
Net
loss and comprehensive loss for the quarter
|
(1,749,161)
|
(542,996)
|
(461,060)
|
(415,574)
|
Basic
and diluted loss per share for the quarter
|
(0.00)
|
(0.00)
|
(0.00)
|
(0.00)
|
Working
capital balance
|
(665,886)
|
432,230
|
93,029
|
555,506
|
|
|
|
|
|
|
|
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
|
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
identified below in addition to the risk factors disclosed in our
financial statements for the year ended June 30, 2019 and our most
recent AIF.
Any
such risk factors could materially affect the Corporation’s
business, financial condition and/or future operating results and
prospects and could cause actual events to differ materially from
those described in forward-looking statements and information
relating to the Corporation. Additional risks and uncertainties not
currently identified by the Corporation or that the Corporation
currently believes not to be material also may materially and
adversely affect the Corporation’s business, financial
condition, operations or prospects.
The Corporation’s ability to continue as a going
concern.
The
independent auditor’s report on the financial statements of
the Corporation contains explanatory language that substantial
doubt exists about the Corporation’s ability to continue as a
going concern. Due to the Corporation’s lack of operating
history and present inability to generate revenues, the Corporation
has sustained operating losses since its inception.
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the years ended June 30, 2019 and June 30, 2018
If the
Corporation is unable to obtain sufficient financing in the near
term as required or achieve profitability, then the Corporation
would, in all likelihood, experience severe liquidity problems and
may have to curtail business activities. If the Corporation
curtails business activities, the Corporation may be placed into
bankruptcy or undergo liquidation, the result of which will
adversely affect the value of the securities of the
Corporation.
Development projects are uncertain, and it is possible that actual
capital and operating costs and economic returns will differ
significantly from those estimated for a project prior to
production.
Mine
development projects, including the Molo Graphite Project, require
significant expenditures during the development phase before
production is possible.
Development
projects are subject to the completion of successful feasibility
studies and environmental assessments, issuance of necessary
governmental permits and availability of adequate financing. The
economic feasibility of development projects is based on many
factors such as: estimation of mineral reserves, anticipated
recoveries, environmental considerations and permitting, future
commodity prices, and anticipated capital and operating costs of
these projects. It is not unusual in new mining operations to
experience unexpected problems during the start-up phase, and
delays can often occur at the start of production.
Particularly for
development projects, mineral reserve estimates and cash operating
costs are, to a large extent, based upon the interpretation of
geologic data obtained from drill holes and other sampling
techniques, and feasibility studies that derive estimates of cash
operating costs based upon anticipated tonnage and grades of ore to
be mined and processed, the configuration of the ore body, expected
recovery rates of metals from the ore, estimated operating costs,
anticipated climatic conditions and other factors. As a result, it
is possible that actual capital and operating costs and economic
returns will differ significantly from those currently estimated
for a project prior to production.
Any of
the following events, among others, could affect the profitability
or economic feasibility of the Molo Graphite Project: unanticipated
changes in grade and tonnes of material to be mined and processed,
unanticipated adverse geological conditions, unanticipated recovery
problems, incorrect data on which engineering assumptions are made,
availability and costs of labor, costs of processing, availability
of economic sources of power, adequacy of water supply,
availability of surface on which to locate processing facilities,
adequate access to the site, unanticipated transportation costs,
government regulations (including regulations with respect to
prices, royalties, duties, taxes, permitting, restrictions on
production, quotas on exportation of minerals, environmental),
fluctuations in commodity prices, accidents, labor actions, the
availability and delivery of critical equipment, successful
commissioning and start-up of operations, including the achievement
of designed plant recovery rates and force-majeure
events.
The
Molo Graphite Project has not yet been built and accordingly has no
operating history upon which to base estimates of future production
and cash operating costs. The price of graphite can fluctuate
significantly on a month-to-month and year-to-year basis. Declining
graphite prices can impact operations by forcing a reassessment of
the feasibility of the Molo Graphite Project.
It is
likely that actual results for the Molo Graphite Project will
differ from current estimates and assumptions, and these
differences may be material. In addition, experience from actual
mining or processing operations may identify new or unexpected
conditions that could reduce production below, or increase capital
or operating costs above, current estimates. If actual results are
less favorable than currently estimated, the Corporation’s
business, results of operations, financial condition and liquidity
could be materially adversely affected.
The Corporation’s development and exploration projects are in
the African country of Madagascar and are subject to country
political and regulatory risks.
A new
president of Madagascar was inaugurated in January 2019 following
democratic elections. The Corporation is actively monitoring the
political climate in Madagascar and continues to hold meetings with
new 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 Corporation’s
business operations could be impacted.
Companies in the
mining and metals sector continue to be targeted to raise
government revenue, particularly as governments struggle with
deficits and concerns over the effects of depressed economies. Many
governments are continually assessing the fiscal terms of the
economic rent for mining companies to exploit resources in their
countries.
The
government of Madagascar has granted mining claims, permits, and
licenses that will enable us to conduct anticipated operations or
exploration and development activities. Notwithstanding, these
arrangements, the Corporation’s ability to conduct
operations, exploration and/or development activities at any of its
properties is subject to obtaining and/or renewing permits or
concessions, changes in laws or government regulations or shifts in
political attitudes beyond its control.
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the years ended June 30, 2019 and June 30, 2018
Any
adverse developments to the political and regulatory situation in
Madagascar could have a material effect on the Corporation’s
business, results of operations and financial condition. The
Corporation’s operations may also be affected in varying
degrees by terrorism; military conflict or repression; crime;
populism; activism; labour unrest; attempts to renegotiate or
nullify existing concessions, licenses, permits and contracts;
unstable or unreliable legal systems; changes in fiscal regimes
including taxation, and other risks arising out of sovereignty
issues.
The
Corporation does not currently carry political risk insurance
covering its investments in Madagascar. It may not be possible for
investors to enforce judgments in Canada against a loss suffered on
the Corporation’s assets and operations in
Madagascar.
Dependence on the Molo Graphite Project.
The
Corporation’s principal mineral property is the Molo Graphite
Project. As a result, unless the Corporation acquires or develops
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 the
Corporation’s business, financial condition and results of
operations.
Additional permits and licenses are necessary to complete the
development of the Molo Graphite Project.
The
Corporation successfully converted its exploration permit for the
Molo Graphite Project into a mining permit. However, the
Corporation requires additional permits necessary to construct and
operate the mine, including water use, construction, mineral
processing, transportation, export, and labour. Applications for
these additional permits and licenses will be undertaken in due
course at the appropriate time.
The
Corporation cannot provide any assurance as to the timing of the
receipt of any of the additional permits and licenses necessary to
initiate construction of the mine.
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, the Corporation’s 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 the Corporation’s 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. The
Corporation’s 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
the Corporation’s activities or those of other mining
companies affecting the environment, human health and safety of
communities in which the Corporation operates. Delays in obtaining
or failure to obtain government permits and approvals may adversely
affect the Corporation’s operations, including its 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 the
Corporation’s operations, including its ability to explore or
develop properties, commence production or continue
operations.
The
Corporation’s 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. The
Corporation has 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 the
Corporation’s closure processes and operations.
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the years ended June 30, 2019 and June 30, 2018
Fluctuations in the market price of graphite and other metals may
adversely affect the value of the Corporation’s securities
and the ability of the Corporation to develop the Molo Graphite
Project.
The
value of the Corporation’s securities may be significantly
affected by the market price of graphite and other metals, which
are cyclical and subject to substantial price fluctuations. Market
prices can be affected by numerous factors beyond the
Corporation’s control, including levels of supply and demand
for a broad range of industrial products, economic growth rates of
various international economies, expectations with respect to the
rate of inflation, the relative strength of various currencies,
interest rates, speculative activities, global or regional
political or economic circumstances. The Chinese market is a
significant source of global demand for commodities, including
graphite. Chinese demand has been a major driver in global
commodities markets for a number of years and recent reductions in
Chinese demand have adversely affected prices for graphite. A
further slowing in China’s economic growth could result in
even lower prices and could negatively impact the value of the
Corporation’s securities. Prolonged decreases in the price of
graphite or other metals could adversely impact the ability of the
Corporation to proceed with the development of the Molo Graphite
Project.
The Corporation may not have access to sufficient capital to
develop the Molo Graphite Project.
The
Corporation has limited capital, which is insufficient to
development the Molo Graphite Project. The Corporation’s
ability to develop the project will depend primarily on its ability
to obtain additional capital in the form of private or public
equity or debt financing. Access to mine financing has been
negatively impacted by the prolonged decline in commodities prices.
Therefore, there is no assurance that the Corporation will secure
sufficient financing, or the Corporation may be unable to locate
and secure capital on terms and conditions that are acceptable to
the Corporation. Any equity financing may have a dilutive effect on
the value of the Corporation’s securities. Any debt
financing, if available, may involve financial covenants which
limit operations and could be secured against all of the
Corporation’s assets. If the Corporation cannot obtain
additional capital, the Corporation may not be able to complete the
development of the Molo Graphite Project, which would have a
material adverse effect on the business, operating results and
financial condition of the Corporation.
The Corporation has a limited operating history and expects to
incur operating losses for the foreseeable future.
The
Corporation has principally operated as a mineral exploration
company since incorporation and has just received its first mining
permit. There are numerous difficulties normally encountered by
mineral exploration and development companies, and these companies
experience a high rate of failure.
The
Corporation has not earned any revenues and the Corporation has not
been profitable. It is anticipated that the Corporation will
continue to report negative operating cash flow in future periods,
likely until after the Molo Graphite Project generates recurring
revenues from being placed into production of which there is no
assurance. The Corporation has no history upon which to base any
assumption as to the likelihood that the business will prove
successful, and the Corporation can provide no assurance to
investors that it will generate any operating revenues or ever
achieve profitable operations.
Due to the speculative nature of mineral property exploration,
there is substantial risk that the Corporation’s assets will
not go into commercial production and the business will
fail.
Exploration for
minerals is a speculative venture involving substantial risk. The
Corporation cannot provide investors with any assurance that the
Corporation’s claims and properties will ever enter into
commercial production. The exploration work that the Corporation
has completed on the Molo Graphite Project claims may not result in
the commercial production of graphite. The exploration work that
the Corporation has completed on the Green Giant Vanadium Project
may not result in the commercial production of vanadium or other
minerals.
Estimates of mineral resources and mineral reserves may not be
realized.
Mineral
resource and mineral reserve estimates are only estimates and no
assurance can be given that any particular level of recovery of
minerals will be realized or that an identified mineral resource
will ever qualify as a commercially mineable (or viable) deposit
which can be legally and economically exploited. The Corporation
relies on laboratory-based recovery models to project estimated
ultimate recoveries by mineral type. There can be no assurance that
mineral recovery in small scale laboratory tests will be duplicated
in large scale tests under on-site conditions or in production
scale operations. Actual recoveries may exceed or fall short of
projected laboratory test results. In addition, the grade of
mineralization ultimately mined may differ from the one indicated
by the drilling results and the difference may be material.
Production can be affected by such factors as permitting
regulations and requirements, weather, environmental factors,
unforeseen technical difficulties, unusual or unexpected geological
formations, inaccurate or incorrect geologic, metallurgical or
engineering work, and work interruptions, among other things. Short
term factors, such as the need for an orderly development of
deposits or the processing of new or different grades, may have an
adverse effect on mining operations or the results of those
operations. Material changes in mineral reserves or mineral
resources, grades, waste-to-ore ratios or recovery rates may affect
the economic viability of projects. The estimated mineral reserves
and mineral resources should not be interpreted as assurances of
mine life or of the profitability of future operations
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the years ended June 30, 2019 and June 30, 2018
Because of the inherent dangers involved in mineral exploration,
there is a risk that the Corporation may incur liability or damages
as the Corporation conducts business.
The
search for valuable minerals involves numerous hazards. As a
result, the Corporation may become subject to liability for such
hazards, including pollution, cave-ins and other hazards against
which the Corporation cannot, or may elect not, to insure against.
The Corporation currently has no such insurance, but 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 the Corporation’s asset
value and cause us to liquidate all of its assets.
The
Corporation’s operations are subject to environmental
regulations, which could result in additional costs and operational
delays. Environmental legislation is evolving 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 the
Corporation’s projects.
The Corporation has 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. The Corporation has 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 the Corporation is
unable to full pay for the cost of remedying an environmental
problem, the Corporation might be required to enter into an interim
compliance measure pending completion of the required
remedy.
Should the Corporation lose the services of key executives, the
Corporation’s financial condition and proposed expansion may
be negatively impacted.
The
Corporation depends on the continued contributions of the
Corporation’s executive officers to work effectively as a
team, to execute its business strategy and to manage its business.
The loss of key personnel, or their failure to work effectively,
could have a material adverse effect on its business, financial
condition, and results of operations. Specifically, the Corporation
relies on Craig Scherba, the President and Chief Executive Officer
and Marc Johnson, the Chief Financial Officer.
The
Corporation does not maintain key man life insurance. Should the
Corporation lose any or all of their services and the Corporation
is unable to replace their services with equally competent and
experienced personnel, the Corporation’s operational goals
and strategies may be adversely affected, which will negatively
affect potential revenues.
Because access to the Corporation’s properties may be
restricted by inclement weather or proper infrastructure, its
exploration programs are likely to experience delays.
Access
to most of the properties underlying the Corporation’s claims
and interests is restricted due to their remote locations and
because of weather conditions. Some of the Corporation’s
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 the Corporation’s
business to fail.
Climate change and related regulatory responses may impact the
Corporation’s 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 the
Corporation’s business or the regulatory responses to it,
although the Corporation recognizes 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 the Corporation
operates, the Corporation could be harmed. While the Corporation
maintains rudimentary business recovery plans that are intended to
allow us to recover from natural disasters or other events that can
be disruptive to the Corporation’s business, its plans may
not fully protect us from all such disasters or
events.
Compliance with changing regulation of corporate governance and
public disclosure will result in additional expenses and pose
challenges for management.
The
Corporation’s 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.
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the years ended June 30, 2019 and June 30, 2018
Tax risks.
Changes
in tax laws or tax rulings could materially affect the
Corporation’s financial position and results of operations.
Changes to, or differing interpretations of, taxation laws or
regulations in Canada, Madagascar, the United States of America, or
any of the countries in which the Corporation’s assets or
relevant contracting parties are located could result in some or
all of the Corporation’s profits being subject to additional
taxation or other tax liabilities being applicable to the
Corporation or its subsidiaries. Taxation laws are complex, subject
to differing interpretations and applications by the relevant tax
authorities. In particular, the tax treatment relating to the
Corporation’s corporate redomicile from the US to Canada is
complex. There is no assurance that new taxation rules or
accounting policies will not be enacted or that existing rules will
not be applied in a manner which could result in the
Corporation’s profits being subject to additional taxation or
which could otherwise have a material adverse effect on
profitability, results of operations, financial condition and the
trading price of the Corporation’s securities. Additionally,
the introduction of new tax rules or accounting policies, or
changes to, or differing interpretations of, or application of,
existing tax rules or accounting policies could make investments in
or by the Corporation less attractive to counterparties. Such
changes could adversely affect the Corporation’s ability to
raise additional funding or make future investments.
The Corporation’s business is subject to anti-corruption and
anti-bribery laws, a breach or violation of which could lead to
civil and criminal fines and penalties, loss of licenses or permits
and reputational harm.
The
Corporation operates 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. The Corporation’s corporate policies
mandate compliance with these anti-bribery laws, which often carry
substantial penalties. There can be no assurance that the
Corporation’s internal control policies and procedures always
will protect it from recklessness, fraudulent behavior, dishonesty
or other inappropriate acts committed by the Corporation’s
affiliates, employees or agents. As such, the Corporation’s
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 Corporation’s
reputation, which could have a material adverse effect on its
business, financial position and results of operations or cause the
market value of the Common Shares to decline.
The Corporation does not intend to pay dividends.
The
Corporation does not anticipate paying cash dividends in the
foreseeable future. The Corporation may not have sufficient funds
to legally pay dividends. Even if funds are legally available to
pay dividends, the Corporation may nevertheless decide, in its sole
discretion, not to pay dividends. The declaration, payment and
amount of any future dividends will be made at the discretion of
the board of directors, and will depend upon, among other things,
the results of the Corporation’s operations, cash flows and
financial condition, operating and capital requirements, and other
factors the board of directors may consider relevant. There is no
assurance that the Corporation 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 the Corporation holds a significant
portion of cash reserves in Canadian dollars, the Corporation may
experience losses due to foreign exchange
translations.
From
time to time the Corporation holds a significant portion of 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, the Corporation’s converted Canadian dollar cash
balances presented in U.S. dollars on its balance sheet would
significantly decline. If the US dollar significantly declines
relative to the Canadian dollar the Corporation’s quoted US
dollar cash position would significantly decline as it would be
more expensive in US dollar terms to pay Canadian dollar expenses.
The Corporation has not entered into derivative instruments to
offset the impact of foreign exchange fluctuations. In addition,
certain of the Corporation’s 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.
The Corporation is exposed to general economic conditions, which
could have a material adverse impact on its 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 the Corporation’s business and the Corporation’s
financial condition. The current global macroeconomic environment
may affect the Corporation’s ability to access the capital
markets may be severely restricted at a time when the Corporation
wishes or needs to access such markets, which could have a
materially adverse impact on the Corporation’s flexibility to
react to changing economic and business conditions or carry on
operations.
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the years ended June 30, 2019 and June 30, 2018
The current financial environment may impact the
Corporation’s business and financial condition that cannot
predict.
The
continued instability in the global financial system and related
limitation on availability of credit may continue to have an impact
on the Corporation’s business and financial condition, and
the Corporation may continue to face challenges if conditions in
the financial markets do not improve. The Corporation’s
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 the Corporation
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 the Corporation may pursue in the future or
reduce the values the Corporation is able to realize in those
transactions, making these transactions uneconomic or difficult to
consummate.
The market price for the Common Shares is particularly volatile
given the Corporation’s 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 the market price for the Common
Shares.
The
market price for the Common Shares is characterized by significant
price volatility when compared to seasoned issuers, and the
Corporation expect that its share price will continue to be more
volatile than a seasoned issuer. Such volatility is attributable to
a number of factors. First, the Common Shares, at times, are thinly
traded. As a consequence of this lack of liquidity, the trading of
relatively small quantities of Common Shares by shareholders may
disproportionately influence the price of those Common Shares in
either direction. The price for the Common Shares could, for
example, decline precipitously in the event that a large number of
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, the
Corporation are a speculative or “risky” investment due
to the Corporation’s limited operating history, lack of
profits to date and uncertainty of future market acceptance for the
Corporation’s 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 the
Corporation’s control and may decrease the market price of
the Common Shares, regardless of the Corporation’s
performance. The Corporation cannot make any predictions as to what
the prevailing market price for the 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 the 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 the Corporation’s financial
condition or results of operations as reflected in its financial
statements. Other factors unrelated to the performance of the
Corporation that may have an effect on the price of the Common
Shares include the following: the extent of analytical coverage
available to investors concerning the Corporation’s business
may be limited if investment banks with research capabilities do
not follow the Corporation’s securities; lessening in trading
volume and general market interest in the Corporation’s
securities may affect an investor’s ability to trade
significant numbers of Common Shares; the size of the
Corporation’s public float may limit the ability of some
institutions to invest in its securities; and a substantial decline
in the price of the Common Shares that persists for a significant
period of time could cause its 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 the Common
Shares at any given point in time may not accurately reflect the
long-term value of the Corporation. Class action litigation often
has been brought against companies following periods of volatility
in the market price of their securities. The Corporation 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.
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the years ended June 30, 2019 and June 30, 2018
The
internal controls are not expected to prevent and detect all
misstatements due to error or fraud.
As at
June 30, 2019, the Corporation’s CEO and CFO have certified
that the disclosure controls and procedures were effective and that
during the fiscal year ended June 30, 2019, 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.
Other Information
Additional
information related to the Company, including the Company’s
Annual Information Form (“AIF”), is available on SEDAR
at www.sedar.com or on the Company website at www.nextsourcematerials.com.
Exhibit 99.4
NEXTSOURCE MATERIALS INC.
145 Wellington Street West, Suite 1001, Toronto, Ontario, Canada
M5J 1H8
NOTICE OF THE 2019 ANNUAL AND SPECIAL MEETING OF
SHAREHOLDERS
I am
pleased to give you notice that the 2019 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
offices of Cassels Brock & Blackwell LLP, Scotia Plaza, 21st
Floor, Toronto, Ontario, M5H 3C2 on December 2, 2019 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, 2019 and the
Auditors’ Report thereon.
2.
To elect seven
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
re-appointment of MNP LLP, Chartered Accountants, as the
Company’s auditors for the fiscal year ending June 30, 2020
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 share consolidation shall be
automatically rounded up to the next whole Share. The Board of Directors recommends that the
Shareholders vote “FOR” this
proposal.
5.
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 23,
2019 (the “Circular”).
The
Board of Directors has fixed the close of business on October 23,
2019 at 5:00 p.m. (Toronto time) as the record date for the
Meeting. Only registered Shareholders 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 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 directly (that is, as a registered Shareholder) and are
unable to attend the Meeting in person, complete, date, sign and
return the accompanying form of proxy in the enclosed envelope 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 28, 2019.
If you
hold your Shares in "street name" (that is, as a non-registered
Shareholder through a broker, bank or other nominee (such as CDS
&Co.)) and will attend the Meeting, bring a form of personal
identification with you and proof of beneficial ownership. If you
hold your Shares in "street name" and are unable to attend the
Meeting, 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 in accordance with the instructions
provided by your broker, bank or other nominee.
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, 2019, and other related
materials of the Meeting (the “Meeting Materials”) to
Shareholders. Under Notice and Access, instead of receiving printed
copies of the Meeting Materials, Shareholders receive a package in
the mail containing: (i) information on the Meeting date, location
and purpose; (ii) a form of proxy or voting instruction form so
Shareholders can vote their Shares; and (iii) information on how
they may electronically access the Meeting Materials. However, the
Company will mail paper copies of the Meeting Materials to those
registered and non-registered Shareholders who have previously
elected to receive paper copies of the Meeting
Materials
The
Meeting Materials will be available at
https://docs.tsxtrust.com/2084 on or about November 8, 2019 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 8, 2019.
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 21, 2019) 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 form of proxy or
voting instruction form.
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 2019 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
2019 annual and special meeting of Shareholders (the
“Meeting”).
Unless otherwise stated, the information contained in this Circular
is as of October 23, 2019.
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 offices of Cassels Brock &
Blackwell LLP, Scotia Plaza, 21st Floor, Toronto, Ontario, M5H 3C2
on December 2, 2019 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 28, 2019 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
non-registered Shareholders. The costs of solicitation will be
borne by the Company.
Record Date
Registered
Shareholders at the close of business on October 23, 2019, 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 507,417,021 issued and outstanding Shares
entitled to notice of and to vote at the Meeting. Shareholders have
one vote per Share on each matter to be acted upon.
A list
of the registered Shareholders 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.
Quorum
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.
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, 2019, 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
receive a package (the “Notice and Access Package”) in the
mail containing: (i) information on the Meeting date, location and
purpose; (ii) a form of proxy or voting instruction form so
Shareholders can vote their Shares; and (iii) information on how
they may electronically access the Meeting Materials. However, 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.
The
Meeting Materials will be available at
https://docs.tsxtrust.com/2084 on or about November 8, 2019 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 8, 2019.
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 21, 2019) 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 form of proxy or
voting instruction form.
Voting of Proxies
Registered Shareholders
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, a registered Shareholder.
The Notice and Access Package 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.
Non-Registered Shareholders
If your
Shares are held in “street name” through a broker, bank
or other nominee (such as CDS & Co.), you are considered a
non-registered Shareholder. The Notice and Access Package 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 registered Shareholder. As a non-registered Shareholder, 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
form included in the Notice and Access Package or as otherwise
provided to you by your broker, bank, or other
nominee.
Appointment and Revocability of Proxies
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 or voting instruction
form, 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 or voting instruction
form.
Your
Shares will be voted in accordance with the instructions contained
in the form of proxy or voting instruction form. 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.
IF YOU RETURN A SIGNED FORM OF PROXY OR VOTING INSTRUCTION FORM
WITHOUT INDICATING YOUR VOTE, YOUR SHARES WILL BE VOTED
“FOR” EACH OF THE MATTERS PUT FORTH AT THE
MEETING.
The
grant of a proxy on the enclosed form of proxy or voting
instruction form 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
registered Shareholders 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.
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 23, 2019, the Company had 507,417,021 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 23, 2019, 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 30, 2019 (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 and in the Annual Information Form before deciding how to
vote.
Additionally,
you are cautioned that our Company does not have a policy of
updating or revising forward-looking statements, other in in
compliance with applicable securities laws, 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
seven nominated directors of the Company as at October 23, 2019 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)
|
84
|
Director,
Chairman
of the Board of Directors
|
Lawyer
and arbitrator
|
January
2009
|
75,000
|
Craig
Scherba(2)
(Oakville,
ON, Canada)
|
46
|
Director,
President
& Chief Executive Officer
|
President
& CEO of the Company
|
January
2010
|
600,000
|
Robin
Borley(2)
(Johannesburg,
South Africa)
|
51
|
Director,
Senior
Vice President – Mine Development
|
COO of
the Company
|
December
2013
|
2,787,857
|
Dean
Comand (1)
(Ancaster,
ON, Canada)
|
53
|
Director
|
Professional
Engineer. Consultant - mining and energy sectors
|
October
2014
|
0
|
Dalton
Larson (1)
(Surrey,
BC, Canada)
|
79
|
Director
|
Lawyer
and arbitrator
|
October
2014
|
1,000,000
|
Christopher
Kruba (1)
(Windsor,
ON, Canada)
|
44
|
None
|
Vice-President
and Counsel to Nostrum Capital Corporation
|
N/A
|
2,500,000
|
David
McNeely (1)
(Surrey,
BC, Canada)
|
57
|
None
|
Anesthesia
and Critical Care at Surrey Memorial Hospital and member of
advisory boards
|
N/A
|
32,100,000
|
(1)
Messrs. Sanderson, Comand, Larson, Kruba and McNeely 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.
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).
Christopher Kruba (Windsor, Canada)
Christopher
Kruba is Vice-President and Counsel to Nostrum Capital Corporation
and a number of related corporations that are part of the Toldo
Group. The Toldo Group is headquartered in Windsor, Ontario and is
composed of several privately held corporations in Canada and the
United States, some of which manufacture and operate in diversified
sectors and others which are involved in active and passive
investments across capital markets throughout North America, Europe
and Africa. In addition to his responsibilities as counsel to the
Toldo Group Mr. Kruba serves as corporate secretary to all the
companies, is a member of group’s investment committee and he
serves on the board of directors of many of the companies. In his
roles Mr. Kruba is involved in capital market decisions, he has
lead mergers and acquisitions and he has participated in the
management and strategic planning for numerous companies, including
venture capital corporations in which the group has invested. Prior
to joining the Toldo Group in 2000 Mr. Kruba articled with and
practiced at the law firm of Gignac, Sutts LLP in Windsor, Ontario.
Mr. Kruba graduated from the University of Windsor’s Faculty
of Law in 1998 and has been a Member of the Law Society of Ontario
since 1999. Nostrum Capital Corporation and Mr. Kruba personally
have been investors in NextSource Materials Inc. since
2011.
David McNeely (Surrey, Canada)
David
McNeely has a clinical practice in Anesthesia and Critical Care at
Surrey Memorial Hospital and has held numerous executive and
advisory positions over the past 25 years, which include department
leadership, patient safety and advocacy, program implementations
and physician/government contract negotiations. He was Clinical
Co-Lead of the OR Design Team for the Jim Pattison Outpatient Care
and Surgical Centre (2009-2011) and co-authored two reports on
surgical program practice and effectiveness at this facility. He
sits on the Advisory Board of SIM4MIS, a company involved with
Minimally Invasive Surgical Instrument teaching platforms. He has
been a UBC Associate Clinical Instructor since 2008. Dr. McNeely is
also a humanitarian and has worked in causes which have underscored
the critical relationship between health and environment. He is a
member of Canadian Association of Physicians for the Environment
(CAPE) and has participated in medical missions to Inuvik, NWT,
where water levels and weather are now disrupting lifestyles and
food supplies, and Ulaanbaatar, Mongolia, where smog from coal
fired energy plants are having devastating health consequences. He
was a Founding Member of Galliano Greenhouses (1994) which supplied
trees for urban reforestation projects. Mr. McNeely received a
BSc.Hons. from St. Francis Xavier University (1984), medical degree
from McGill (1989) and Anesthesia Fellowship from UBC (1994). Mr.
McNeely has been a major shareholder of the Company since
2014.
APPROVAL OF RE-APPOINTMENT OF MNP LLP AS AUDITORS
General Information
At the
Meeting, the Shareholders will vote to ratify the re-appointment of
MNP LLP, as the Company’s auditors for the fiscal year ending
June 30, 2020 and to authorize the Board to fix their remuneration.
MNP LLP served as auditor for the fiscal year ended June 30, 2019.
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, 2020. 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 re-appointment of MNP LLP, as the
Company’s auditors for the fiscal year ending June 30, 2020
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 on December 4,
2018, 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 23, 2019, 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
|
507,417,021
|
50,172,636
|
557,589,657
|
Post-Consolidation
1:5 ratio
|
101,483,404
|
10,034,527
|
111,517,931
|
Post-Consolidation
1:6 ratio
|
84,569,504
|
8,362,106
|
92,931,610
|
Post-Consolidation
1:7 ratio
|
72,488,146
|
7,167,519
|
79,655,665
|
Post-Consolidation
1:8 ratio
|
63,427,128
|
6,271,580
|
69,698,707
|
Post-Consolidation
1:9 ratio
|
56,379,669
|
5,574,737
|
61,954,406
|
Post-Consolidation
1:10 ratio
|
50,741,702
|
5,017,264
|
55,758,966
|
(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 stock options granted by Company
(“Options”) and
common share purchase warrants issued by the Company
(“Warrants”)
would be reduced proportionately and the respective exercise prices
would be increased proportionately.
For
example, on October 23, 2019, there were 507,417,021. Shares issued
and outstanding and 50,172,636 Shares reserved for issuance
pursuant to outstanding Options and Warrants resulting in
557,589,657 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 101,483,404 Shares issued and outstanding and
10,034,527 Shares reserved for issuance pursuant to outstanding
Options and Warrants resulting in 111,517,931 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 and
Warrants
The
number of Shares subject to outstanding Options 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.
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, as non-registered Shareholders, 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
registered Shareholder 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 share consolidation 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.
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, 2019 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, 2019 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, 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 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 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 will earn
performance bonuses linked to completion of the 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 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 Stock Option Plan, the Company’s Board grants
Options to directors, executive officers, other employees and
consultants as incentives. The level of 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, 2019.
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,
|
2019
|
179,989
|
87,992
|
Nil
|
Nil
|
4,998
|
272,979
|
CEO,
President and
|
2018
|
188,586
|
Nil
|
Nil
|
Nil
|
Nil
|
188,586
|
Director
(A)
|
2017
|
139,870
|
90,240
|
Nil
|
Nil
|
Nil
|
230,110
|
|
|
|
|
|
|
|
|
Marc
Johnson,
|
2019
|
136,989
|
76,993
|
Nil
|
Nil
|
4,998
|
218,980
|
CFO
(B)
|
2018
|
141,346
|
Nil
|
16,000
|
Nil
|
1,622
|
158,968
|
|
2017
|
128,860
|
82,720
|
Nil
|
Nil
|
Nil
|
211,580
|
|
|
|
|
|
|
|
|
Robin
Borley,
|
2019
|
196,800
|
76,993
|
Nil
|
Nil
|
Nil
|
273,793
|
SVP
Mining and
|
2018
|
196,800
|
Nil
|
Nil
|
Nil
|
Nil
|
196,800
|
Director
(C)
|
2017
|
196,800
|
82,720
|
Nil
|
Nil
|
Nil
|
279,520
|
|
|
|
|
|
|
|
|
Brent
Nykoliation,
|
2019
|
136,989
|
76,993
|
Nil
|
Nil
|
4,998
|
218,980
|
SVP
Corporate
|
2018
|
141,440
|
Nil
|
Nil
|
Nil
|
1,705
|
143,145
|
Development
(D)
|
2017
|
132,594
|
82,720
|
Nil
|
Nil
|
Nil
|
215,314
|
|
|
|
|
|
|
|
|
(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 $nil.
(2)
Other compensation
includes health benefits and other perquisites.
Option-Based Awards Outstanding
As at
June 30, 2019, a total of 19,920,000 Options granted to Named
Executive Officers were outstanding pursuant to the Stock Option
Plan and New Stock Option Plan collectively, as
follows:
Name and Principal Position
|
Number of Securities Underlying Unexercised Options
Exercisable
(#)
|
Option Exercise Price
(USD$)
|
Option Expiration Date
|
Value of unexercised in-the-money stock Options
(USD$)(1)
|
Craig
Scherba
|
250,000
|
0.15
|
July 3,
2019
|
0
|
CEO,
President
|
470,000
|
0.20
|
February
26, 2020
|
0
|
and
Director
|
950,000
|
0.056
|
December
22, 2020
|
15,105
|
|
2,400,000
|
0.066
|
June 9,
2022
|
14,400
|
|
1,600,000
|
0.076
|
March
26, 2024
|
0
|
Marc
Johnson
|
750,000
|
0.056
|
December
22, 2020
|
11,925
|
CFO
|
2,200,000
|
0.066
|
June 9,
2022
|
13,200
|
|
1,400,000
|
0.076
|
March
26, 2024
|
0
|
Robin
Borley
|
350,000
|
0.20
|
February
26, 2020
|
0
|
SVP
Minig and
|
750,000
|
0.056
|
December
22, 2020
|
11,925
|
Director
|
2,200,000
|
0.066
|
June 9,
2022
|
13,200
|
|
1,400,000
|
0.076
|
March
26, 2024
|
0
|
Brent
Nykoliation
|
400,000
|
0.15
|
July 3,
2019
|
0
|
SVP
Corporate
|
450,000
|
0.20
|
February
26, 2020
|
0
|
Development
|
750,000
|
0.056
|
December
22, 2020
|
11,925
|
|
2,200,000
|
0.066
|
June 9,
2022
|
13,200
|
|
1,400,000
|
0.076
|
March
26, 2024
|
0
|
Total
|
19,920,000
|
|
|
|
(1)
Based on a TSX
closing price of USD$ 0.072 (CAD $0.095) on June 30, 2019 and
presuming all Options are exercised.
Option-Based Awards – Value Vested or Earned During the
Year
The
value vested for option and share based awards and the value earned
for non-equity incentive plans during the year ending June 30, 2019
are as follows:
Name
and
Principal
Position
|
Option-based awards
value vested
during the year
($)
|
Share-based awards
value vested
during the year
($)
|
Non-equity incentive plan compensation
value earned
during the year
($)
|
Craig
Scherba,CEO, President and Director
|
$87,992
|
Nil
|
Nil
|
Marc
Johnson,
CFO
|
$76,993
|
Nil
|
Nil
|
Robin
Borley,
SVP
Mining and
Director
|
$76,993
|
Nil
|
Nil
|
Brent
Nykoliation,
SVP
Corporate
Development
|
$76,993
|
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, 2014 against the cumulative total shareholder
return of the S&P/TSX Capped Materials Index and the
S&P/TSX Composite Index to June 30, 2019.
June 30
|
2014
|
2015
|
2016
|
2017
|
2018
|
2019
|
NextSource
Shares
|
CAD$100.00
|
CAD$71.43
|
CAD$57.14
|
CAD$42.86
|
CAD$71.43
|
CAD$67.86
|
S&P/TSX Capped
Materials Index
|
CAD$100.00
|
CAD$84.23
|
CAD$97.58
|
CAD$88.77
|
CAD$98.10
|
CAD$97.12
|
S&P/TSX Composite
Index
|
CAD$100.00
|
CAD$98.11
|
CAD$93.18
|
CAD$100.58
|
CAD$107.84
|
CAD$108.53
|
The
Company was affected by the mining industry slowdown from 2014 to
2015 but failed to recover in 2016/2017 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, 2018 and 2019, which included
the completion of redomicile of the Company to Canada, the update
of the technical report relating to the Molo Graphite Project and
obtaining the Molo Graphite Project mining permit in early
2019.
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 New Stock Option Plan for such executive
officers.
Prior
to approving any grants 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 2019, the
Compensation Committee met four (4) 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 New 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$15,000 per month. He is eligible to receive specific
bonuses linked to achieving company milestones. His contract has an
18-month termination notice, which increases to 36 months if within
12 months of a change of control the Company gives notice of its
intention to terminate or a triggering event occurs and he elects
to terminate.
Estimated Incremental Payment on Change of Control or
Termination
The
following table provides details regarding the estimated
incremental payments from the Corporation to each of the NEOs upon
termination in connection with a change of control in accordance
with the above provisions, or upon termination without cause,
assuming a triggering event occurs on June 30, 2019.
Name and
Principal
Position
|
Severance Period
Without / With Change of Control
(# of months)
|
Base Salary
per Month
(USD$)(1)
|
Termination Pay Without
Change of Control
(USD$)
|
Termination Pay
with
Change of Control
(USD$)
|
Craig
Scherba,
|
18
months
|
15,000
|
270,000
|
540,000
|
CEO,
President and Director
|
(36
months)
|
|
|
|
Marc
Johnson,
|
18
months
|
11,250
|
202,500
|
405,000
|
CFO
|
(36
months)
|
|
|
|
Robin
Borley,
|
18
months
|
16,400
|
295,200
|
590,400
|
SVP
Mining and Director
|
(36
months)
|
|
|
|
Brent
Nykoliation,
|
18
months
|
11,250
|
202,500
|
405,000
|
SVP
Corporate Development
|
(36
months)
|
|
|
|
(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, 2019, each director was entitled to (i)
a CAD$2,500 monthly fee
(the Chairman is entitled to an additional CAD$1,000 monthly fee
and each Committee Chair is entitled to an additional CAD$667
monthly fee); (ii) $nil per day for each meeting attended
in person; (iii) $nil for each meeting attended by
telephone upon furnishing an invoice for same; (iv) reimbursement
for travel and other meeting-related expenses and (v) may, from
time to time, be awarded Options under the provisions of the New
Stock Option Plan.
There
are no other arrangements under which the directors of the Company
were compensated by the Company during the most recently completed
financial year end for their services in their capacity as
directors.
Summary Compensation Table
The
following table is a summary of the compensation paid, directly or
indirectly, to the directors of the Company whom were not also NEOs
for the three most recently completed financial years ended June
30, 2019.
Name and Principal Position
|
Fiscal Year
|
Fees Earned
($)
|
Option-Based Awards(1)
($)
|
Non-Equity Incentive Plan Compensation
($)
|
Pension Value
($)
|
All Other Compensation
($)
|
Total Compensation
($)
|
John
Sanderson,
|
2019
|
31,500
|
$82,493
|
Nil
|
Nil
|
Nil
|
113,993
|
Chairman
(A)
|
2018
|
33,003
|
Nil
|
Nil
|
Nil
|
Nil
|
33,003
|
|
2017
|
13,475
|
90,240
|
Nil
|
Nil
|
Nil
|
103,715
|
|
|
|
|
|
|
|
|
Quentin
Yarie,
|
2019
|
28,500
|
$79,743
|
Nil
|
Nil
|
Nil
|
108,243
|
Director
(B)
|
2018
|
29,859
|
Nil
|
Nil
|
Nil
|
Nil
|
29,859
|
|
2017
|
5,775
|
82,720
|
Nil
|
Nil
|
Nil
|
88,495
|
|
|
|
|
|
|
|
|
Dean
Comand,
|
2019
|
28,500
|
$79,743
|
Nil
|
Nil
|
Nil
|
108,243
|
Director
(C)
|
2018
|
29,859
|
Nil
|
Nil
|
Nil
|
Nil
|
29,859
|
|
2017
|
9,625
|
82,720
|
Nil
|
Nil
|
Nil
|
92,345
|
|
|
|
|
|
|
|
|
Dalton
Larson,
|
2019
|
28,500
|
$79,743
|
Nil
|
Nil
|
Nil
|
108,243
|
Director
(D)
|
2018
|
29,859
|
Nil
|
Nil
|
Nil
|
Nil
|
29,859
|
|
2017
|
12,191
|
86,480
|
Nil
|
Nil
|
Nil
|
98,671
|
|
|
|
|
|
|
|
|
(A)
Mr. Sanderson
receives chairman fees of CAD$3,500 per month. Mr. Sanderson became
Chairman on March 23, 2016.
(B)
Mr. Yarie received
director fees of CAD$2,500 per month plus committee chair fees of
CAD$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. Mr.
Yarie resigned as a director on September 27, 2019.
(C)
Mr. Comand receives
director fees of CAD$2,500 per month plus committee chair fees of
CAD$667 per month.
(D)
Mr. Larson receives
director fees of CAD$2,500 per month plus committee chair fees of
CAD$667 per month.
(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 $nil.
Option-Based Awards – Outstanding
As at
June 30, 2019, a total of 19,800,000 Options granted to directors
who are not Named Executive Officers were outstanding pursuant to
the Stock Option Plan and New Stock Option Plan collectively, as
follows:
Name and Principal Position
|
Number of Securities Underlying Unexercised Options
Exercisable
(#)
|
Option Exercise Price
(USD$)
|
Option Expiration Date
|
Value of unexercised in-the- money
stock Options (CDN$)(1)
|
John
Sanderson,
|
200,000
|
0.15
|
July 3,
2019
|
0
|
Chairman
|
350,000
|
0.20
|
February
26, 2020
|
0
|
|
850,000
|
0.056
|
December
22, 2020
|
13,515
|
|
2,400,000
|
0.066
|
June 9,
2022
|
14,400
|
|
1,500,000
|
0.076
|
March
26, 2024
|
0
|
Quentin
Yarie,
|
250,000
|
0.15
|
July 3,
2019
|
0
|
Director(2)
|
350,000
|
0.20
|
February
26, 2020
|
0
|
|
750,000
|
0.056
|
December
22, 2020
|
11,925
|
|
2,200,000
|
0.066
|
June 9,
2022
|
13,200
|
|
1,450,000
|
0.076
|
March
26, 2024
|
0
|
Dean
Comand,
Director
|
400,000
|
0.20
|
February
26, 2020
|
0
|
750,000
|
0.056
|
December
22, 2020
|
11,925
|
2,200,000
|
0.066
|
June 9,
2022
|
13,200
|
1,450,000
|
0.076
|
March
26, 2024
|
0
|
Dalton
Larson,
Director
|
200,000
|
0.20
|
February
26, 2020
|
0
|
750,000
|
0.056
|
December
22, 2020
|
11,925
|
2,300,000
|
0.066
|
June 9,
2022
|
13,800
|
1,450,000
|
0.076
|
March
26, 2024
|
0
|
Total
|
19,800,000
|
|
|
|
(1)
Based on a TSX
closing price of USD$ 0.072 (CAD$0.095) on June 30, 2019 and
presuming all Options are exercised.
(2)
Mr. Yarie resigned
as a director on September 27, 2019.
Option and Share Based Awards – Value Vested or Earned During
the Year
The
value vested for option and share-based awards and the value earned
for non-equity incentive plans during the year ending June 30, 2019
are as follows:
Name
and Principal Position
|
Option-based awards value vested during the year
($)
|
Share-based awards value vested
during the year
($)
|
Non-equity incentive plan compensation value earnedduring the
year
($)
|
John
Sanderson
|
82,493
|
Nil
|
Nil
|
Quentin Yarie(1)
|
79,743
|
Nil
|
Nil
|
Dean
Comand
|
79,743
|
Nil
|
Nil
|
Dalton
Larson
|
79,743
|
Nil
|
Nil
|
(1)
Mr. Yarie resigned
as a director on September 27, 2019.
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 4,
2018, the following individuals were elected as the Company’s
directors: John Sanderson, Craig Scherba, Quentin Yarie, Robin
Borley, Jr., Dean Comand and Dalton Larson. Mr. Yarie subsequently
resigned as a director on September 27, 2019.
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, 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 10
times. Mr. Sanderson attended 10 meetings, Mr. Scherba attended 10
meetings, Mr. Borley attended 9 meetings, Mr. Comand attended 9
meetings, Mr. Larson attended 10 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)
|
4
|
2
|
2
|
Craig
Scherba
|
10
|
N/A
|
N/A
|
N/A
|
Robin
Borley
|
9
|
N/A
|
N/A
|
N/A
|
Dean
Comand
|
9
|
4
(Committee
Chair)
|
N/A
|
2
|
Dalton
Larson
|
10
|
4
|
2
|
2
(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 2019, the Audit Committee
met four (4) 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 Dalton Larson and John Sanderson.
All members are independent as per the standards of National
Instrument 58-101. During fiscal 2019, the Nomination Committee met
2 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 2019, the
Compensation Committee met 2 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
|
Dalton
Larson
|
Cloud
Nine Education Group
|
CSE
|
Director
|
|
SmartCool
Systems Inc.
|
TSX-V
|
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
|
84
|
January
2009
|
10.8
years
|
Craig
Scherba
|
46
|
January
2010
|
9.8
years
|
Robin
Borley
|
51
|
December
2013
|
5.9
years
|
Dean
Comand
|
53
|
October
2014
|
5.1
years
|
Dalton
Larson
|
79
|
October
2014
|
5.1
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 2019, the Audit Committee met four (4) 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, 2019
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, 2019 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, 2019, 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, 2019 was CAD$49,542 (June
30, 2018: CAD$32,100).
Non-Audit Assurance Fees:
The
aggregate fees, including expenses, billed by the Company’s
auditor for assurance services unrelated to the audit for the year
ended June 30, 2019 were CAD$Nil (June 30, 2018:
CAD$23,647).
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,
2019 were CAD$72,549 (June 30, 2018: CAD$6,527).
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION
PLANS
The
Company has two (2) equity compensation plans outstanding, being a
fixed stock option plan (the “Stock Option Plan”) and a 10%
rolling stock option plan that was more recently approved by
Shareholders at the last annual and special meeting of the Company
on December 4, 2018 (the “New
Stock Option Plan” and together with the Stock Option
Plan, the “Option
Plans”).
In
respect of the Option Plans: (i) since December 4, 2018, no further
awards have been or shall be granted under the Stock Option Plan;
(ii) all Options issued under the Stock Option Plan that remain
outstanding shall continue to be governed by the terms and
conditions of the Stock Option Plan; (ii) Stock Option Plan shall
terminate in November 2026; and (iii) on December 4, 2018, the New
Stock Option Plan replaced the Stock Option Plan as the
Company’s primary incentive plan.
Set
forth below is a summary of securities issued and issuable under
all equity compensation plans of the Company (being Option Plans,
collectively) as at June 30, 2019.
Name and Position
|
Number of securities to be issued upon exercise of outstanding
Options, Warrants and rights
(#)
|
Weighted-average exercise price of outstanding Options, Warrants
and rights
($)
|
Number of securities remaining available for future issuance under
equity compensation plans (excluding security reflected in column
(a))
(#)
|
Equity
Compensation Plans Approved by Shareholders (Option
Plans)
|
40,670,000(1)
|
$0.08
|
10,071,702(2)
|
|
|
|
|
Equity
Compensation Plans Not Approved by Shareholders
|
N/A
|
N/A
|
N/A
|
|
|
|
|
(1)
Representing
approximately 8.0% of the 507,417, 021 Shares issued and
outstanding as at June 30, 2019.
(2)
Representing
approximately 2.0% of the 507,417,021 Shares issued and outstanding
as at June 30, 2019.
Set
forth below is a summary of securities issued and issuable under
all equity compensation plans of the Company (being the Option
Plans, collectively) as at October 23, 2019.
Name and Position
|
Number of securities to be issued upon exercise of outstanding
Options, Warrants and rights
(#)
|
Weighted-average exercise price of outstanding Options, Warrants
and rights
($)
|
Number of securities remaining available for future issuance under
equity compensation plans (excluding security reflected in column
(a))
(#)
|
|
|
|
|
Equity
Compensation Plans Approved by Shareholders (Option
Plans)
|
39,520,000
|
$0.08
|
11,221,702
|
|
|
|
|
|
|
|
|
Equity
Compensation Plans Not Approved by Shareholders
|
N/A
|
N/A
|
N/A
|
|
|
|
|
As at
October 23, 2019, there were 39,520,000 Options issued under the
Option Plans collectively, representing approximately 8.0% of the
507,417,021 Shares
issued and outstanding. Of such Options, 38,620,000 Options are
issued to existing insiders (which represents approximately 7.8% of
the currently issued and outstanding Shares of the Company) and
700,000 to current employees or consultants (which represents
approximately 0.2% of the currently issued and outstanding Shares
of the Company). The number of Options remaining for further
issuance under the Option Plans is 11,221,702, representing
approximately 2.0% of the 507,417,021 Shares issued and
outstanding.
The
following table provides details of the burn rate under the Option
Plans for the three financial years ended June 30, 2019, June 30,
2018, and the year ended June 30, 2017.
Fiscal Year Ended
|
Burn Rate(1)
|
Number of Options Granted
|
Weighted Average Number of Shares Outstanding
|
Year
Ended June 30, 2019
|
2.4%
|
11,850,000
|
493,586,450
|
Year
Ended June 30, 2018
|
0.0%
|
Nil
|
468,252,639
|
Year
Ended June 30, 2017
|
4.7%
|
21,140,000
|
448,187,140
|
|
|
|
|
(1)
Calculated by dividing the number of Options granted under the
Option Plans during the applicable period by the weighted average
number of Shares outstanding for the applicable
period.
Summary of the Option Plans
Stock Option Plan
The
purpose of the 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.
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.
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.
New Stock Option Plan
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 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.
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:
1.
Responsible for the
stewardship of the Corporation.
2.
To oversee the
management of the business and affairs of the
Corporation.
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.
4.
To oversee the
Corporation’s strategic direction, organizational structure
and succession planning of the Chief Executive
Officer.
5.
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.
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.
7.
To ensure that the
Board receives from senior management the information and input
required to enable the Board to effectively perform its
duties.
8.
To ensure the
integrity of the Corporation’s internal controls and
management information systems.
9.
To review and
approve all material transactions.
10.
To review the
performance of the Corporation on a consolidated basis and approve
all annual and quarterly financial statements and the declaration
of dividends.
11.
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.
12.
To approve the
appointment and compensation of executive management and training
and monitoring of executive management.
13.
To develop the
Corporation’s approach to corporate governance and its
corporate governance principles and guidelines.
14.
To provide advice
and counsel the Chief Executive Officer.
15.
To establish
committees of the Board, delegate the appropriate responsibilities
to those said committees, and appoint the Chairs for committees of
the Board.
16.
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.
17.
From its
membership, to appoint a non-executive Chairman of the Board or
Lead Director.
18.
To conduct and act
upon annual assessments and evaluations of the Board, committees of
the Board and individual directors.
19.
To oversee the
establishment of processes for accurate, timely and full public
disclosure, including the Corporation’s disclosure
policy.
20.
To ensure that
there is an ongoing, appropriate and effective process in place for
ensuring adherence to the Corporation’s Code of
Ethics.
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.
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 2019 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, 2019 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
2017
(%)
|
Number
of
Common Shares
Beneficially Owned
October
2018
(%)
|
Number
of
Common Shares
Beneficially Owned
October
2019
(%)
|
Goodman &
Company, Investment Counsel Inc.,(1)
|
45,714,286(1a)
|
45,714,286(1a)
|
45,714,286(1a)
|
2100-1 Adelaide
Street East,
|
43,516,714(1b)
|
43,516,714(1b)
|
43,516,714(1b)
|
Ontario,
Canada
|
(19.3%)
|
(18.2%)
|
(17.5%)
|
VR Capital Group
Ltd., (2)
|
30,658,713
|
30,658,713
|
30,658,713
|
Dubai International
Financial Centre,
|
(6.6%)
|
(6.2%)
|
(5.9%)
|
Gate Village 4,
Suite 402, Dubai, UAE
|
|
|
|
JP Morgan Chase
& Co., (3)
|
33,428,200(3b)
|
11,278,000(3c)
|
11,278,000(3c)
|
270 Park Avenue,
New York,
|
(7.0%)
|
(2.4%)
|
(2.2%)
|
NY10017
|
|
|
|
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.