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, 2020
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)
130 King Street West, Exchange Tower Suite 1940
Toronto, Ontario
Canada M5X 2A2
(Address
of principal executive offices)
Craig Scherba, Telephone (416)
364-4911
130 King Street West, Exchange Tower Suite 1940,
Toronto, Ontario
Canada M5X 2A2
(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, $nil 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, 2020:
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536,494,789
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, 2020 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, 2020, 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, 2020 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, 2020 is attached as
Exhibit 99.4 and 99.4.1 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, 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
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)
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)
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)
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)
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)
Form of Warrant
relating to private placement completed during October 2019
(Previously filed with our 20-F filed with the SEC on November 13,
2019)
Form of Warrant
relating to private placement completed during July
2020
Employment
Agreement with Craig Scherba (Previously filed with our Annual
Report on Form 10-K filed with the SEC on September 28,
2017)
Employment
Agreement with Brent Nykoliation (Previously filed with our Annual
Report on Form 10-K filed with the SEC on September 28,
2017)
Management
Consulting Agreement with Marc Johnson (Previously filed with our
Annual Report on Form 10-K filed with the SEC on September 28,
2017)
Management
Consulting Agreement with Robin Borley (Previously filed with our
Annual Report on Form 10-K filed with the SEC on September 28,
2017)
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.)
Code of Ethics and
Business Conduct (Previously filed with our 20-F filed with the SEC
on October 31, 2018).
Certification of
the Chief Executive Officer pursuant to Rule 13a-14(a) or Rule
15d-14(a) of the Securities Exchange Act of 1934.
Certification of
the Chief Financial Officer pursuant to Rule 13a-14(a) or Rule
15d-14(a) of the Securities Exchange Act of 1934.
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.
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.
Annual Information
Form for the fiscal year ended June 30, 2020.
Audited Annual
Consolidated Financial Statements for the fiscal year ended June
30, 2020.
Management's
Discussion and Analysis for the fiscal year ended June 30,
2020.
Notice of Annual
Meeting and Management Proxy Circular for the fiscal year ended
June 30, 2020.
Management Proxy
Circular for the fiscal year ended June 30, 2020 Appendix
C
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: December 4,
2020
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By:
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/s/ Marc
Johnson
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Name:
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Marc
Johnson
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Title:
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Chief Financial
Officer
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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 JULY 2, 2022.
UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THIS
SECURITY MUST NOT TRADE THE SECURITY BEFORE NOVEMBER 3,
2020.
NEXTSOURCE MATERIALS INC.
a
corporation incorporated under the laws of Canada and having
its registered office
at
130
King Street West, Exchange Tower Suite 1940, Toronto, Ontario, M5X
2A2
CERTIFICATE
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2020-07-###
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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 JULY 2,
2022 (the “Expiry Time”), at a price per Share
equal to $0.065 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 July 2, 2020 shall bear, in addition to
any other legends required by applicable laws, the following
legend:
“UNLESS
PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY
MUST NOT TRADE THE SECURITY BEFORE NOVEMBER 3,
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.
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 July 2,
2020.
3.
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.
4.
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.
5.
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.
6.
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.
7.
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.
8.
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.
9.
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.
10.
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.
11.
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.
12.
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.
13.
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.
14.
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.
15.
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.
16.
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.
17.
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.
18.
Time is of the
essence hereof.
19.
This Warrant
Certificate is binding upon the Corporation and its successors and
assigns.
20.
This Warrant
Certificate may be delivered using an electronic signature, which
will be treated as an original by the Company.
21.
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 JULY 2, 2020
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NEXTSOURCE
MATERIALS INC.
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Per:
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Authorized Signing
Officer
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SUBSCRIPTION NOTICE
TO:
NextSource
Materials Inc.,
130
King Street West, Exchange Tower Suite 1940,
Toronto, Ontario,
M5X 2A2
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 $0.065 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:
Share
Certificate Registration Instructions:
___________________________________________________________
(Registration
Name)
___________________________________________________________
(Account Reference
/ Number, if applicable)
___________________________________________________________
(Registration
Mailing Address, including Postal Code)
___________________________________________________________
(Contact
Name)
(Contact Telephone
Number) (Contact Fax Number)
(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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Share
Certificate Delivery Instructions:
___________________________________________________________
(Delivery
Name)
___________________________________________________________
(Account Reference
/ Number, if applicable)
___________________________________________________________
(Delivery Mailing
Address, including Postal Code)
___________________________________________________________
(Contact
Name)
___________________________________________________________
(Contact Telephone
Number) (Contact Fax Number)
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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,
2020 of NextSource Materials Inc.;
2.
Based on my
knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period
covered by this report;
3.
Based on my
knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in
this report;
4.
The registrant's
other certifying officer(s) and I are responsible for establishing
and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such
disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this report is being prepared;
(b)
Designed such
internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles;
(c)
Evaluated the
effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the
end of the period covered by this report based on such evaluation;
and
(d)
Disclosed in this
report any change in the registrant's internal control over
financial reporting that occurred during the registrant's most
recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5.
The registrant's
other certifying officer and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the
equivalent functions):
(a)
All significant
deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record,
process, summarize and report financial information;
and
(b)
Any fraud, whether
or not material, that involves management or other employees who
have a significant role in the registrant's internal control over
financial reporting.
Date:
December 4, 2020
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 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,
2020 of NextSource Materials Inc.;
2.
Based on my
knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period
covered by this report;
3.
Based on my
knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in
this report;
4.
The registrant's
other certifying officer(s) and I are responsible for establishing
and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such
disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this report is being prepared;
(b)
Designed such
internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles;
(c)
Evaluated the
effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the
end of the period covered by this report based on such evaluation;
and
(d)
Disclosed in this
report any change in the registrant's internal control over
financial reporting that occurred during the registrant's most
recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5.
The registrant's
other certifying officer and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the
equivalent functions):
(a)
All significant
deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record,
process, summarize and report financial information;
and
(b)
Any fraud, whether
or not material, that involves management or other employees who
have a significant role in the registrant's internal control over
financial reporting.
Date:
December 4, 2020
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
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, 2020 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:
December 4, 2020
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, 2020 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:
December 4, 2020
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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NextSource Materials Inc.
Annual Information Form (AIF)
For the
year ended June 30, 2020
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2020
Table of Contents
1
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Introduction
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3
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2
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General Description of the Business
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4
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3
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Corporate Highlights
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8
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4
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Molo Graphite Property, Southern Madagascar Region,
Madagascar
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9
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5
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Green Giant Vanadium Project, Southern Madagascar Region,
Madagascar
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32
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6
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Sagar Property, Labrador Trough Region, Quebec, Canada
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32
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7
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Risk Factors
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33
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8
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Market for Securities
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40
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9
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Directors and Officers
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41
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10
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Legal Proceedings and Regulatory Actions
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46
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11
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Interest of Management and Others in Material
Transactions
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47
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12
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Interest of Experts
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47
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13
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Material Contracts
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47
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14
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Transfer Agent and Registrar
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47
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15
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Auditors
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47
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16
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Additional Information
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48
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SCHEDULE A
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49
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NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2020
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 22, 2020, 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, 2020
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. The Company
has yet to 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.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2020
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.
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.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2020
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. The Company’s common shares trade on the
Toronto Stock Exchange (the “TSX”) under the symbol
“NEXT” and the OTCQB under the symbol
“NSRCF”.
As of June 30, 2020, the Company had 536,494,789 common shares
issued and outstanding (June 30, 2019: 507,417,021).
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2020
As of June 30, 2020, the Company had 36,250,000 stock options
issued and outstanding (June 30, 2019: 40,670,000) with a weighted
average expiration of 2.28 years (June 30, 2019: 3.0 years), which
are exercisable into 36,250,000 common shares (June 30, 2019:
40,670,000) at a weighted average exercise price of $0.067 (June
30, 2019: $0.08). All stock options that are currently outstanding
vested on the grant date.
As of June 30, 2020, the Company had 25,191,522 common share
purchase warrants issued and outstanding (June 30, 2019:
10,652,636) with a weighted average expiration of 0.82 years (June
30, 2019: 1.1 years), which are exercisable into 25,191,522 (June
30, 2019: 10,652,636) common shares at a weighted average exercise
price of $0.07 (June 30, 2019: $0.08). All warrants that are
currently outstanding vested on the issue date.
On July
2, 2020, the Company completed a non-brokered private placement of
61,578,783 units at a price of $0.024 (CAD$0.0325) for gross
proceeds of $1,476,572 (CAD$2,001,310). Each Unit consists of one
common share of the Company and one-half of one common share
purchase warrant (a “Warrant”), with each full Warrant
entitling the holder to acquire one additional common share of the
Company at a price of $0.048 (CAD$0.065) per share for a period of
24 months. No finder fees or commissions were paid in association
with the private placement. In connection with the private
placement, the Company incurred $9,292 (CAD$12,619) in share
issuance costs. As at June 30, 2020, the Company had received share
subscriptions received in advance totaling $68,411.
On
August 17, 2020, the 10,652,636 common share purchase warrants
exercisable at a price of CAD$0.10 expired.
As of
the date of this AIF, the Company had 598,073,72 common shares,
36,250,000 stock options and 45,328,278 common share purchase
warrants issued and outstanding.
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, 2020, the Company had $22,115 outstanding in its Canada
Emergency Business Account, which is not subject to an interest
rate. As of June 30, 2019, the Company did not have any outstanding
long-term 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, 2020, we had one employee 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.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2020
Three-Year History
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.
On
December 27, 2017, the Company completed a corporate redomicile
from Minnesota to Canada. This was completed to reduce our legal
and regulatory compliance costs and improve our financing
opportunities. The presentation and functional currency of the
Company continued 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.
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.
On
September 27, 2019, the Company reported the results of a new
Feasibility Study (“FS”) for its 100%-owned Molo
Graphite Project in southern Madagascar. The FS outlines 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 FS results are summarized in
further detail in the Molo Graphite Property section.
On
October 24, 2019, the Company announced the successful registration
of Molo SuperFlake® as a trademark in Canada. The successful
registration of this trademark means that NextSource has the
exclusive right to brand all of its natural flake graphite sold in
Canada as Molo SuperFlake® from its fully permitted and
feasibility-stage Molo Graphite Project in Madagascar when it
enters production and begins exploring high-quality flake
graphite.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2020
On October 25, 2019, the Company closed a non-brokered private
placement offering of 29,077,768 units at a price of $0.035
(CAD$0.045) per unit for aggregate gross proceeds of $987,917
(CAD$1,308,500). 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 $0.07
(CAD$0.09) for a period of two years. There were no finder’s
fees in relation to the private placement.
On
September 27, 2019, Quentin Yarie resigned as a director of the
Company.
On
December 2, 2019, Christopher Kruba and David McNeely became
directors of the Company.
On
January 23, 2020, John Sanderson and Dalton Larson resigned as
directors of the Company and Dean Comand was appointed as Chair of
the Board of Directors.
On April 9, 2020, the Company announced that it has executed a
Letter of Agreement (“LOI”) with its Japanese offtake
partner and a leading Chinese processor of graphite anode material
to collaborate on the construction of a value-add, battery anode
plant in a jurisdiction that is proximal to the Company’s
Molo graphite project in Madagascar.
On July 2, 2020, the Company completed a non-brokered private
placement of 61,578,783 units at a price of $0.024 (CAD$0.0325) for
gross proceeds of $1,476,572 (CAD$2,001,310). Each Unit consists of
one common share of the Company and one-half of one common share
purchase warrant (a “Warrant”), with each full Warrant
entitling the holder to acquire one additional common share of the
Company at a price of $0.048 (CAD$0.065) per share for a period of
24 months. No finder fees or commissions were paid in association
with the private placement. In connection with the non-brokered
private placement, the Company incurred $9,292 (CAD$12,619) in
share issuance costs.
On July 20, 2020, Brett Whalen became a director of the
Company.
On August 24, 2020, the Company announced the appointment of Brett
Whalen as Chair of the Board of Directors. The Company also
announced that management agreed to a plan to defer their monthly
compensation payments by up to 30 percent and until total project
financing has been secured. The Company announced its intention to
implement a Performance Share Units (“PSU”) plan for
management.
4.
Molo Graphite Property,
Southern Madagascar Region, Madagascar
Overview
The
Company has received a 40-year mining license for the Molo Graphite
Project from the Madagascar Government which does not limit mining
to any specific volume. The Company has also 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 but 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.
The
Company is currently working to obtain construction financing for
Phase 1 of the Molo Graphite Project. Once constructed, the mine is
expected to produce 17,000 tpa of high-quality SuperFlake™
graphite concentrate.
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.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2020
The
Molo Graphite Project graphitic zone consists of multi-folded
graphitic strata at surface with an 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 first Molo Feasibility Study, which was released in February
2015.
History
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 1½ 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.
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”). 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 reported the results of an updated
Feasibility Study (“FS”) consisting of two phases. The
FS took into account updated mine capital equipment and mining
costs, as well as current 12-month rolling flake graphite pricing
on a Freight-on-Board (“FOB”) China basis, supplied by
UK-based battery mineral commodities research firm, Benchmark
Minerals Intelligence. The FS incorporates the procurement of all
mining equipment, off-site modular fabrication and assembly,
factory acceptance testing, module disassembly, shipping, plant
infrastructure construction, onsite module re-assembly,
commissioning, project contingencies and working capital. All
capital and operating costs expressed for Phase 1 are considered to
be accurate to +/- 10%, and accurate to +/- 12.5% for Phase 2. The
project phases are outlined below:
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2020
PHASE 1: Production of 17,000 tpa
The
first phase of production will consist of a fully operational and
sustainable graphite mine with a permanent processing plant capable
of processing 240,000 tpa of ore and producing approximately 17,000
tpa of high-quality SuperFlake™ graphite concentrate. The
updated build cost of the fully modular process plant marginally
increased from the US$18.4 million reported in the 2017 FS to
US$21.0M due to equipment cost inflation.
PHASE 2: Production Expansion to 45,000 tpa in Year 3
Phase 2
incorporates the processing of 240,000 tpa of ore (producing 17,000
tpa of SuperFlake® concentrate) for the first two years of
operation and then ramping up to 720,000 tpa of processed ore in
the third year to accommodate additional sales, resulting in a
total of 45,000 tpa of SuperFlake® concentrate being produced
for a mine life of 30 years. The costing for Phase 2 is based on
the addition of two modules of the beneficiation plant with a
proportional increase in mining and infrastructure costs. The
capital mine cost for Phase 2 (with contingency) will be US$39.1M,
for a total project cost (Phase 1 and Phase 2 with contingency) of
US$60.1M.
Feasibility Study Extract (Released September 27,
2019)
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
mineralized. Near surface rocks are oxidized, 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 (totaling 2,063 metres) and 9 trenches
(totaling 1,876 metres).
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2020
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 (totaling 11,660
metres) and 35 trenches (totaling 8,492 metres). This new resource
formed the basis of the Molo 2015 FS which targeted 860ktpa of ore
processing capacity.
This
Report utilizes 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.
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 optimized
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 realized.
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.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2020
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.
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)
|
Mining
$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.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2020
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 totaling 308.6
km2.
The
Project is centered 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.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2020
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.
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
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2020
●
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.
●
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 summarized in Table 3 below. The
mineral resources are classified in the Measured, Indicated and
Inferred categories as defined by the Canadian Institute of Mining,
Metallurgy and Petroleum definition standards.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2020
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
mineralized zones for the resource tonnage estimation.
The
total Measured and Indicated Resource is estimated at 100.37
million tonnes, grading at 6.27% carbon. Additionally, an Inferred
Resource of 40.91 million tonnes, grading at 5.78% carbon is
stated. When compared to the November 2012 resource statement,
(Hancox and Subramani, 2013), this shows a 13.7% increase in
tonnage, a 3.4% decrease in grade and a 9.8% increase in graphite
content.
The
reason for the increase in tonnage is due to the 2014 drilling on
the previously untested north eastern limb of the deposit, which
added additional new resources. Additionally, 23.62 million
tonnes, grading at 6.32% carbon, have been upgraded by infill
drilling from the Indicated to Measured Resource
category.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2020
No
further exploration is currently planned.
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.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2020
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
|
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.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2020
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.
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.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2020
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, 2020
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).
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2020
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:
●
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, 2020
Table
7: Capital Costs
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
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2020
Table 9
below summarizes the economic analysis of the project using
discounted cash flow methods.
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
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2020
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
●
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.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2020
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.
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.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2020
No
further recommendations.
The
Project will allow for potential optimization of drilling and
blasting designs during execution that could reduce operating costs
slightly.
From a
pure mining perspective, the 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.
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.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2020
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 utilized 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 utilized 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
sensitize the local communities prior to any project
activities.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2020
●
Monitoring and
auditing to commence at project preparation phase.
●
Compilation of
Standard Operating Procedures for Environmental and Social aspects
requiring direct management and intervention.
●
It is recommended
that actual activity data, (e.g. kilometres travelled, or litres of
diesel consumed) for a financial year is used when a GHG Assessment
is being calculated. Given that this project involves an estimation
of a future GHG assessment for activities yet to begin, a series of
assumptions have been made in order to obtain the activity data
required to undertake this calculation.
●
Community
recruitment, skills development and training should begin at
project preparation phase.
●
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).
19.3
Flake Graphite Pricing
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 <75lm) medium (-80 to 100 mesh, or 75lm to
180lm), large (-50 to 80 mesh, or 180lm to 300lm), and extra-large
or jumbo (+50 mesh, or >300lm). 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. Figure 86 identifies the average monthly flake
graphite pricing for the past 12 months as provided by Benchmark
Mineral Intelligence (Benchmark, 2019).
Figure
86: Monthly Flake Graphite Pricing For Various Flake Sizes And
Carbon Contents (Benchmark, 2019).
As
Table 43 illustrates, the final flake graphite concentrate from the
Molo deposit metallurgical work yielded material ranging from 96.9%
C to 98.1% C. Table 43 summarizes FOB China flake graphite pricing
from Benchmark (2019) 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, 2020
Table
43: 12 Month Flake Graphite Pricing With Carbon Contents Between
96-97% C And On A Fob China Basis.
Using
the flake size distribution arrived at from metallurgical testing
(Table 26) with the average pricing as identified in Table 43,
yields a 12 month average “basket price” of US $1207.55
for Molo graphite as per Table 44 below.
Table
44: Average 12 Month (March 2018 Through March 2019) Flake Graphite
Pricing For Molo Distribution.
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).
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2020
5.
Green Giant Vanadium Project,
Southern Madagascar Region, Madagascar
In
2007, the Company entered into a joint venture agreement with
Madagascar Minerals and Resources Sarl ("MMR") to acquire a 75%
interest in the Green Giant property. Pursuant to the agreement,
the Company paid $765,000 in cash, issued 2,500,000 common shares
and issued 1,000,000 common share purchase warrants, which have now
expired.
On July
9, 2009, the Company acquired the remaining 25% interest by paying
$100,000. MMR retains a 2% NSR. The first 1% NSR can be acquired at
the Company's option by paying $500,000 in cash or common shares
and the second 1% NSR can be acquired at the Company’s option
by paying $1,000,000 in cash or common shares.
On
April 16, 2014, the Company signed a Joint Venture Agreement with
Malagasy, whereby Malagasy acquired a 75% interest in
non-industrial minerals on the Company's 100% owned Green Giant
Property. On May 21, 2015, Malagasy terminated the Joint Venture
Agreement, which as a result, the Company reverted to its original
100% interest in all minerals on the property.
The
Green Giant property is located within exploration permits issued
by the Bureau de Cadastre Minier de Madagascar (“BCMM”)
pursuant to the Mining Code 1999 (as amended) and its implementing
decrees. The Green Giant property exploration permits are currently
held under the name of our Madagascar subsidiary NextSource
Minerals (Madagascar) SARLU. Our Madagascar subsidiary has paid all
taxes and administrative fees to the Madagascar government and its
mining ministry with respect to all the mining permits held in
country. These taxes and administrative fee payments have been
acknowledged and accepted by the Madagascar
government.
Since
early 2012, the Company has focused its efforts on the Molo
Graphite Project and as such only limited work has been completed
on the Green Giant Vanadium Project since that time.
6.
Sagar Property, Labrador Trough
Region, Quebec, Canada
In
2006, the Company purchased from Virginia Mines Inc. ("Virginia") a
100% interest in 369 claims located in northern Quebec, Canada.
Virginia retains a 2% net smelter return royalty ("NSR") on certain
claims within the property. Other unrelated parties also retain a
1% NSR and a 0.5% NSR on certain claims within the property, of
which half of the 1% NSR can be acquired by the Company by paying
$200,000 and half of the 0.5% NSR can be acquired by the Company by
paying $100,000.
On
February 28, 2014, the Company signed an agreement to sell a 35%
interest in the Sagar property to Honey Badger Exploration Inc.
(“Honey Badger”), a public company that is a related
party through common management. The terms of the agreement were
subsequently amended on July 31, 2014 and again on May 8, 2015. To
earn the 35% interest, Honey Badger was required to complete a
payment of $36,045 (CAD$50,000) by December 31, 2015, incur
exploration expenditures of $360,450 (CAD$500,000) by December 31,
2016 and issue 20,000,000 common shares to the Company by December
31, 2015. Honey Badger did not complete the earn-in requirements by
December 31, 2015 resulting in the termination of the option
agreement.
Since
early 2012, the Company has focused its efforts on the Molo
Graphite Project and as such only minimal work has been completed
on the Sagar Property since that time.
As of
June 30, 2020, the Sagar property consisted of 184 claims covering
a total area of 8,539.58 ha.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2020
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.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2020
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.
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.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2020
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.
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.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2020
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.
ANNUAL INFORMATION FORM
For the year ended June 30, 2020
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.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2020
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.
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.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2020
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, 2020
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
2019
|
$0.095
|
$0.080
|
3,142,282
|
August
2019
|
$0.085
|
$0.060
|
5,701,351
|
September
2019
|
$0.070
|
$0.030
|
29,601,898
|
October
2019
|
$0.055
|
$0.040
|
13,014,999
|
November
2019
|
$0.065
|
$0.050
|
5,082,298
|
December
2019
|
$0.055
|
$0.040
|
4,809,663
|
January
2020
|
$0.055
|
$0.045
|
4,601,569
|
February
2020
|
$0.055
|
$0.040
|
4,706,178
|
March
2020
|
$0.045
|
$0.020
|
8,134,999
|
April
2020
|
$0.050
|
$0.030
|
10,099,835
|
May
2020
|
$0.050
|
$0.035
|
12,646,918
|
June
2020
|
$0.045
|
$0.035
|
5,058,173
|
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2020
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)
|
Brett
Whalen (3)
(Markham,
ON, Canada)
|
45
|
Chairman
of the Board of Directors
|
Investor
|
July
2020
|
6,500,000
(1.1%)
|
Craig
Scherba
(Oakville,
ON,
Canada)
|
48
|
Director,
and
President
& Chief Executive Officer
|
|
January
2010
|
600,000
(0.1%)
|
Robin
Borley
(Johannesburg,
South
Africa)
|
52
|
Director,
and
Senior
Vice President – Mine Development,
|
|
December
2013
|
5,743,413
(1.0%)
|
Dean
Comand (3)(4)(5)(6)
(Ancaster,
ON,
Canada)
|
54
|
Director
|
Professional
Engineer,
President
and Chief Executive Officer of TCG corporation
|
October
2014
|
444,445
(0.1%)
|
Christopher
Kruba (3)(4)(5)(6)
(Windsor,
ON, Canada)
|
45
|
Director
|
Vice-President
and Senior Counsel of Nostrum Capital Corporation
|
December
2020
|
2,900,000
(0.5%)
|
David
McNeely (3)(4)(5)(6)
(Surrey,
BC,
Canada)
|
58
|
Director
|
Physician
|
December
2020
|
31,600,000
(5.3%)
|
Marc
Johnson
(Toronto,
ON,
Canada)
|
44
|
Chief
Financial Officer
|
|
|
633,334
(0.1%)
|
Brent
Nykoliation
(Toronto,
ON,
Canada)
|
51
|
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)
Brett Whalen, Dean Comand, Christopher Kruba and David McNeely are
independent directors of the Company.
(4)
Members of the Audit Committee are Christopher Kruba (Chair), David
McNeely and Dean Comand.
(5)
Members of the Nomination Committee are Christopher Kruba, David
McNeely and Dean Comand.
(6)
Members of the Compensation Committee are Christopher Kruba, David
McNeely and Dean Comand.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2020
The
following is a brief biography of each of our
directors:
Brett Whalen (Markham, Canada)
Mr.
Whalen has over 20 years of investment banking and M&A
expertise, spending over 16 of those years at Dundee Corporation
(Dundee Corp.). During his tenure at Dundee Corp., Mr. Whalen was
directly involved in completing approximately $2 billion in M&A
deals and helped raise over $10 billion dollars in capital to the
resource sector. Mr. Whalen became Vice President and Portfolio
Manager of Goodman and Company (a division of Dundee), and was
President and CEO of the CMP Group of Companies. Mr. Whalen has
held Board seats of several TSX-listed and privately held companies
and holds a BA (Honours) degree in Economics and Finance from
Wilfrid Laurier University.
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 TCG corporation, which
provides strategic, consulting and execution services predominantly
in energy, resource and manufacturing sectors. He was previously
the President and Chief Executive officer of Hamilton Utilities
Corporation. From 2009 – 2014, Mr. Comand worked for Sherritt
International as Vice President of Operations of Ambatovy, a
large-scale nickel project in Madagascar. He successfully led the
construction and commissioning of Ambatovy and led the operations
to commercial production. He has extensive business and financial
acumen in large-scale energy, power, and mining industries. He has
consistently held senior positions in operations, business, project
development, environmental management, maintenance, and project
construction. He has managed a variety of complex operations,
including one of the world’s largest mining facilities,
industrial facilities, numerous power plants, renewable energy
facilities and privately held municipal water treatment facilities
across Canada and the United States.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2020
Christopher Kruba (Windsor, Canada)
Christopher R.
Kruba is Vice-President and Senior Counsel to Nostrum Capital
Corporation. Nostrum Capital Corporation is part of the Toldo
Group, which is a group of privately held related corporations
based in Windsor, Ontario, Canada. The Toldo Group corporations are
involved in various manufacturing industries and they have invested
in a global diversified list of asset-based corporations. In
addition to his responsibilities as counsel, Mr. Kruba serves on
the Toldo Group investment committee and assists in overseeing a
diversified portfolio of assets and investments. Prior to joining
the Toldo Group in 2000 Mr. Kruba practiced law at the law firm of
Gignac, Sutts LLP in Windsor, Ontario. Mr. Kruba is a graduate of
the University of Windsor’s Faculty of Law and he is a Member
of the Law Society of Ontario.
David McNeely (Surrey, Canada)
Dr.
McNeely was elected to the Board of Directors in December 2019. He
has over 25 years of experience as a Physician and also brings
significant experience resulting from work in Departmental
Administration, Program Development and Review, Patient Safety and
Advocacy, Contract Negotiations, Regulatory and Professional
Practice Oversight, and University Student Education. He has
volunteered with medical missions to Inuvik, NWT and Ulaanbaatar,
Mongolia and understands the important relationship between health
and responsible environmental/social stewardship. Dr. McNeely has
been an active front-line worker through the COVID-19 Pandemic,
having worked on the Airway Team at Surrey Memorial Hospital, a
COVID referral center, and in policy development and implementation
for this crisis. He is a major shareholder of NextSource
Materials.
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 was appointed as Chief Financial Officer (CFO) of the
Company in October 2015. Mr. Johnson is a senior executive with
over 22 years of experience in corporate finance, accounting and
investment banking. He is a Director and CFO of IC Capitalight
Corp., and CFO of Andean Drilling Services Inc. He was previously
CFO of Red Pine Exploration Inc. and of Honey Badger Exploration
Inc., Equity Research Mining Analyst at M Partners, Investment
Banking Associate at Toll Cross Securities Inc., Accounting Manager
at Teleglobe Inc., Risk Management Analyst at Bell Canada and
started his career in Network Cost Control at Fonorola Inc. Mr.
Johnson holds the Chartered Professional Accountant (CPA)
designation and the Chartered Financial Analyst (CFA) designation.
He also holds a Bachelor of Commerce (Finance) from the John Molson
School of Business at Concordia University in
Montreal.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2020
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 communication initiatives with offtake partners,
institutional investors and analysts 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.
Robin Borley (Johannesburg, South Africa) – SVP Mine
Development
Mr.
Borley was appointed our Senior Vice President (“SVP”)
of Mine Development in December 2013 and has served as a director
since December 2013. Mr. Borley is a Graduate mining engineering
professional and a certified mine manager with more than 25 years
of international mining experience building and operating mining
ventures. He has held senior management positions both
internationally and within the South African mining industry. Until
October 2014, Mr. Borley served as Mining Director for DRA Mineral
Projects. In addition, Mr. Borley was instrumental as the COO of
Red Island Minerals in a developing a Madagascar coal venture. His
diverse career has spanned resource project management, evaluation,
exploration and mine development. Robin has completed several mine
evaluations including operational and financial evaluations of new
and existing operations across a diverse range of resource sectors.
He has experience in the management of underground and surface
mining operations from both the contractor and owner miner
environments. From 2006 through to 2012, Robin participated in the
BEE management buy-out transaction of the Optimum Colliery mining
property from BHP, through its independent listing and its ultimate
sale to Glencore in December 2012.
Director Term Limits and Female Representation in Management and on
the Board
The
Company has not instituted director term limits. The Company
believes that in taking into account the nature and size of the
Board and the Company, it is more important to have relevant
experience than to impose set time limits on a director’s
tenure, which may create vacancies at a time when a suitable
candidate cannot be identified and as such would not be in the best
interests of the Company. In lieu of imposing term limits, the
Company regularly monitors director performance through annual
assessments and regularly encourages sharing and new perspectives
through regularly scheduled Board meetings, meetings with only
independent directors in attendance, as well as through continuing
education initiatives. On a regular basis, the Company analyzes the
skills and experience necessary for the Board and evaluates the
need for director changes to ensure that the Company has highly
knowledgeable and motivated Board members, while ensuring that new
perspectives are available to the Board.
The
Company has not implemented a diversity policy; however, the
Company believes that it currently promotes the benefits of, and
need for, extending opportunities to all candidates, without
distinction as to gender, race, colour, religion, sexual
orientation, family or marital status, political belief, age,
national or ethnic origin, citizenship, disability, or any other
basis and will strive for diversity of experience, perspective and
education. The Company believes that it currently focuses on hiring
the best quality individuals for the position and also encourages
representation of women on the Board and in executive officer
positions.
While
the Nomination Committee does not have a formal diversity policy
for Board membership, the Nomination Committee seeks directors who
represent a mix of backgrounds and experiences that will enhance
the quality of the Board’s deliberations and decisions. The
Nomination Committee considers, among other factors, diversity with
respect to viewpoint, skills, experience, character and behavior
qualities in its evaluation of candidates for Board membership. The
Company currently has six Board members and four executive
officers, none of whom are female. The Nomination Committee has
been tasked with identifying and nominating a woman as an eventual
seventh director. The Company has not considered the level of
representation of women in its executive officer positions or on
its Board in previous nominations or appointments (including a
targeted number or percentage).
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.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2020
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 Chris Kruba (Chair), Dean Comand and
David McNeely each of whom is financially literate as per the
meaning of NI 52-110 and independent as per the independence
standards of NI 58-101 (each is an independent director as each is
not involved in the day-to-day operations of the
Company).
The
following is a brief description of the education and experience of
each of the committee members:
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.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2020
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.
David McNeely (Surrey, Canada)
Dr.
McNeely was elected to the Board of Directors in December 2019. He
has over 25 years of experience as a Physician and also brings
significant experience resulting from work in Departmental
Administration, Program Development and Review, Patient Safety and
Advocacy, Contract Negotiations, Regulatory and Professional
Practice Oversight, and University Student Education. He has
volunteered with medical missions to Inuvik, NWT and Ulaanbaatar,
Mongolia and understands the important relationship between health
and responsible environmental/social stewardship. Dr. McNeely has
been an active front-line worker through the COVID-19 Pandemic,
having worked on the Airway Team at Surrey Memorial Hospital, a
COVID referral center, and in policy development and implementation
for this crisis. He is a major shareholder of NextSource
Materials.
During
fiscal 2020, the Audit Committee met six (6) 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, 2020
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, 2020.
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, 2020 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, 2020
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, 2020 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, 2020, 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 MD&A during the fiscal year ending
June 30, 2020 was CAD$43,870 (June 30, 2019:
CAD$49,542).
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2020
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,
2020 were CAD$20,169 (June 30, 2019: CAD$72,549).
Non-Audit Assurance Fees:
The
aggregate fees, including expenses, billed by the Company’s
auditor for assurance services unrelated to the audit and non-audit
tax compliance during the year ended June 30, 2020 were CAD$Nil
(June 30, 2019: CAD$Nil).
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, 2020
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.
NEXTSOURCE MATERIALS INC.
ANNUAL INFORMATION FORM
For the year ended June 30, 2020
COMPOSITION AND MEETINGS
Composition
- (a) The Committee shall be composed of three or more directors,
all of whom are independent as per the independence standards of NI
58-101 in Canada (each are independent directors as they do not
have involvement in the day-to-day operations of the Company). (b)
If at any time, the Company ceases to be exempt from Part 3 of
National Instrument 52-110 - Audit Committees, every audit
committee member shall be Independent, as such term is defined in
said Instrument. (c) Notwithstanding Sections 4.1(a) and 4.1(b) of
this Charter, the Committee and its membership shall at all times
be so constituted as to meet all current, applicable legal,
regulatory and listing requirements, including, without limitation,
securities laws and the requirements of the TSX and of all
applicable securities regulatory authorities. (d) Committee members
will be appointed by the Board. One member shall be designated by
the Board to serve as Chair.
Meetings
- (a) The Committee shall meet at least quarterly, at the
discretion of the Chair or a majority of its members, as
circumstances dictate or are required. A minimum of two and at
least 50% of the members present in person or by telephone shall
constitute a quorum. For quorum to exist, the majority of
members’ present must not be Company’ employees,
Control Persons or officers or any of its Associates or Affiliates,
(capitalized terms as defined by the TSX). (b) If a vacancy in the
Committee exists, the remaining members may exercise all of its
powers and responsibilities provided that a quorum (as herein
defined) remains in office. (c) The time and place at which
meetings of the Committee shall be held, and the procedures at such
meetings, shall be determined by the Committee. A meeting of the
Committee may be called by letter, telephone, facsimile or
electronic means, by giving 48 hours’ notice, or such greater
notice as may be required under the Company’s By-Laws,
provided that no notice shall be necessary if all the members are
present either in person or by telephone or if those absent have
waived notice. (d) The Committee shall keep minutes of its meetings
which shall be submitted to the Board. The Committee may, from time
to time, appoint any person, who need not be a member, to act as a
secretary at any meeting. (e) The Committee may invite such
officers, directors and employees of the Company as it deems
appropriate, from time to time, to attend meetings of the
Committee. Any matters to be determined by the Committee shall be
decided by a majority of the votes cast at a meeting of the
Committee called for such purpose. Actions of the Committee may be
taken by an instrument or instruments in writing signed by all
members of the Committee, and such actions shall be effective as
though they had been decided by a majority of the votes cast at a
meeting of the Committee called for such purpose.
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, 2020 and June 30, 2019
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,
2020 and 2019, and the related consolidated statements of
operations and comprehensive loss, changes in shareholders’
equity, and cash flows for each of the years in the three year
period ended June 30, 2020 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, 2020 and 2019, 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, 2020, 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 in
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
22, 2020
|
|
NextSource Materials Inc.
Consolidated Statements of Financial Position
Expressed in US Dollars
|
|
|
|
|
|
Assets
|
|
|
|
|
|
Current
Assets:
|
|
|
Cash and cash
equivalents (note 4)
|
$222,305
|
$529,331
|
Amounts
receivable
|
7,539
|
33,640
|
Prepaid expenses
(note 16)
|
25,484
|
50,432
|
Total
Current Assets
|
255,328
|
613,403
|
|
|
|
Plant and Equipment
(Note 7)
|
18,111
|
-
|
Total
Assets
|
$273,439
|
$613,403
|
|
|
|
Liabilities
|
|
|
|
|
|
Current
Liabilities:
|
|
|
Accounts payable
(note 16)
|
$323,876
|
$109,020
|
Accrued liabilities
(note 16)
|
370,449
|
654,999
|
Share subscriptions
(note 19)
|
68,411
|
-
|
Short term debt
(note 17)
|
22,115
|
-
|
Provision (note
13)
|
174,418
|
180,652
|
Fair value of
warrant liability (note 12)
|
208,768
|
334,618
|
Current portion of
lease obligations (note 8)
|
5,339
|
-
|
Total
Current Liabilities
|
1,173,376
|
1,279,289
|
|
|
|
Lease obligations
(note 8)
|
10,679
|
-
|
Total
Liabilities
|
1,184,055
|
1,279,289
|
|
|
|
Shareholders’
Deficit
|
|
|
Share capital (note
9)
|
103,901,775
|
103,172,066
|
Accumulated
deficit
|
(104,933,066)
|
(103,955,431)
|
Accumulated other
comprehensive income
|
120,675
|
117,479
|
|
|
|
Total
Shareholders’ Deficit
|
(910,616)
|
(665,886)
|
|
|
|
Total
Liabilities and Shareholders’ Deficit
|
$273,439
|
$613,403
|
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
Events (note 19)
NextSource Materials Inc.
Consolidated Statements of Operations and Comprehensive
Loss
Expressed in US Dollars
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$-
|
$-
|
$-
|
|
|
|
|
Expenses
and other income
|
|
|
|
Exploration and
evaluation expenses (notes 3, 4, 5)
|
160,064
|
238,758
|
371,755
|
Payroll and
benefits (note 16)
|
436,337
|
459,553
|
458,932
|
Management fees
(note 16)
|
331,682
|
368,345
|
381,713
|
Professional and
legal fees (note 6)
|
124,741
|
351,077
|
542,280
|
Consulting
fees
|
91,671
|
852,049
|
522,341
|
Public filing
expenses
|
72,137
|
87,093
|
105,461
|
Travel
expenses
|
54,456
|
153,001
|
174,011
|
Investor relation
expenses
|
22,993
|
49,711
|
86,946
|
Insurance
expenses
|
22,624
|
18,315
|
12,491
|
Rent
expenses
|
19,111
|
34,303
|
23,686
|
Information
technology expenses
|
9,695
|
8,000
|
18,947
|
Telecommunications
|
2,952
|
1,301
|
1
|
General and
administrative expenses
|
6,677
|
11,748
|
5,639
|
Bank
fees
|
4,313
|
3,655
|
5,300
|
Amortization of
plant and equipment
|
6,053
|
-
|
-
|
Foreign currency
translation (gain) loss
|
3,552
|
(4,565)
|
104,387
|
Interest
expense
|
2,098
|
-
|
-
|
Foreign
taxes
|
772
|
-
|
-
|
Government
assistance (note 17)
|
(7,353)
|
-
|
-
|
Change in value of
warrant liability (note 12)
|
(386,940)
|
(73,532)
|
-
|
Share based
compensation
|
-
|
651,692
|
-
|
Impairment (note
7)
|
-
|
-
|
27,805
|
Reversal of
impairment of amount receivable
|
-
|
-
|
(45,132)
|
Part XII.6 taxes
(note 13)
|
-
|
-
|
(11,741)
|
Net
loss for the year
|
(977,635)
|
(3,210,504)
|
(2,784,822)
|
|
|
|
|
Other comprehensive income
|
|
|
|
Items that will be reclassified subsequently to loss
|
|
|
|
Translation
adjustment for foreign operations
|
3,196
|
41,713
|
75,766
|
Net
loss and comprehensive loss for the year
|
(974,439)
|
(3,168,791)
|
(2,709,056)
|
Weighted-average
common shares,
|
527,206,058
|
493,586,450
|
468,252,639
|
-
basic and diluted
|
|
|
|
Net loss per common
shares,
|
(0.00)
|
(0.01)
|
(0.01)
|
-
basic and diluted
|
|
|
|
The accompanying notes are an integral part of these consolidated
financial statements.
NextSource Materials Inc.
Consolidated Statements of Cash Flows
Expressed in US Dollars
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
|
Net
loss for the year
|
$(977,635)
|
$(3,210,504)
|
$(2,784,822)
|
|
|
|
|
Items not affecting
cash:
|
|
|
|
Amortization and
impairment
|
6,053
|
-
|
27,805
|
Change in value of
warrant derivative liability
|
(386,940)
|
(73,532)
|
-
|
Change in value of
lease liability
|
(3,337)
|
-
|
-
|
Government
assistance
|
(7,373)
|
-
|
-
|
Shared based
compensation
|
-
|
651,692
|
-
|
|
|
|
|
Change in working
capital balances:
|
|
|
|
Decrease (increase)
in amounts receivable and prepaid expenses
|
51,049
|
(28,291)
|
22,756
|
(Decrease) increase
in accounts payable and accrued liabilities
|
(69,693)
|
425,320
|
111,311
|
Decrease in
provision
|
(6,234)
|
-
|
(2,231)
|
Increase in share
subscriptions
|
68,411
|
-
|
-
|
|
|
|
|
Net cash used in
operating activities
|
(1,325,698)
|
(2,235,315)
|
(2,625,181)
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
Proceeds from short
term debt
|
29,486
|
-
|
-
|
Lease liability
principal payment
|
(4,810)
|
-
|
-
|
Proceeds from
issuance of common shares
|
998,620
|
2,444,015
|
-
|
Proceeds from
exercise of warrants
|
-
|
-
|
923,169
|
Common share issue
cost finder shares
|
-
|
17,966
|
-
|
Common share issue
costs
|
(7,821)
|
(77,750)
|
-
|
|
|
|
|
Net cash provided
by financing activities
|
1,015,475
|
2,384,231
|
923,169
|
|
|
|
|
Effect of exchange
rate changes on cash
|
3,196
|
41,713
|
75,766
|
|
|
|
|
(Decrease) increase
in cash and cash equivalents
|
(307,026)
|
190,629
|
(1,626,246)
|
Cash and cash
equivalents - beginning of year
|
529,331
|
338,702
|
1,964,948
|
Cash
and cash equivalents - end of year
|
$222,305
|
$529,331
|
$338,702
|
|
|
|
|
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, 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 year
|
|
|
(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)
|
|
|
|
|
|
|
Private
placement of common shares
|
29,077,768
|
998,620
|
|
|
998,620
|
Reclassification
as warrant liability
|
|
(261,090)
|
|
|
(261,090)
|
Cost
of issue of private placement of common shares
|
|
(7,821)
|
|
|
(7,821)
|
Net
loss for the year
|
|
|
(977,635)
|
|
(977,635)
|
Cumulative
translation adjustment
|
|
|
|
3,196
|
3,196
|
|
|
|
|
|
|
Balance
– June 30, 2020
|
536,494,789
|
103,901,775
|
(104,933,066)
|
120,675
|
(910,616)
|
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, 2020 and 2019
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 130 King Street West, Exchange Tower Suite 1940,
Toronto, Ontario, Canada, M5X 2A2.
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. The Company has yet to 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.
In
March 2020 the World Health Organization declared coronavirus
COVID-19 a global pandemic. This contagious disease outbreak, which
has continued to spread, and any related adverse public health
developments, has adversely affected workforces, economies, and
financial markets globally, potentially leading to further economic
downturn. It is not possible for the Company to predict the
duration or magnitude of the adverse results of the outbreak and
its effects on the Company’s business or results of
operations at this time. The impact of COVID-19 on the Company has
been limited since no exploration or development work was ongoing
at the start of the pandemic. The Company was already setup to
operate and communicate remotely through the internet although
certain of our overseas staff and contractors have been indirectly
impacted by intermittent COVID-19 lockdowns in Madagascar and in
South Africa.
These
consolidated financial statements were approved by the Board of
Directors on September 22, 2020.
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) SARLU (“MATMAD”), a
Madagascar subsidiary.
MINMAU
owns 100% of NextSource Minerals (Madagascar) SARLU
(“MINMAD”), a Madagascar subsidiary. MINMAD holds the
Green Giant Vanadium Project exploration permits.
GRAMAU
owns 100% of ERG Madagascar SARLU (“GRAMAD”), a
Madagascar subsidiary. GRAMAD holds the Molo Graphite Project
mining and 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, 2020, the Company had an accumulated deficit of
$104,933,066 (June 30, 2019:
$103,955,431) 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
obtained a mining permit for the Molo Graphite project but has not
secured all supporting permits and has not secured sufficient
financing to begin construction. The Company 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, 2020 and 2019
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 operations 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 consolidated 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 consolidated
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 10.
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 12.
Flow-Through Provision Estimates: The estimation of the
value of the provision for the Part XII.6 taxes for the
indemnification liability to subscribers of the flow-through shares
issued in fiscal 2014 for the additional taxes payable to 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
13.
NextSource Materials Inc.
Notes to Consolidated Financial Statements
For the years ended June 30, 2020 and 2019
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
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.
All
financial assets not classified at amortized cost or FVOCI are
measured at FVTPL. Upon 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 operations 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.
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.
NextSource Materials Inc.
Notes to Consolidated Financial Statements
For the years ended June 30, 2020 and 2019
Expressed in US Dollars
2.
Significant
Accounting Policies (continued)
Financial instruments (continued)
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 costs.
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, short-term
loan, lease obligations 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 are 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 loss.
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.
Expected credit loss impairment model
The
expected credit loss impairment model is based on changes in credit
quality since initial application. 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.
NextSource Materials Inc.
Notes to Consolidated Financial Statements
For the years ended June 30, 2020 and 2019
Expressed in US Dollars
2.
Significant
Accounting Policies (continued)
Financial instruments (continued)
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, 2020, and 2019, except for the warrant liability –
which is a Level 3 financial instrument (see Note 12) - none of the
Company’s financial instruments are recorded at fair value in
the consolidated statements of financial position.
Reclassification of prior year expenditures
For the
year ending June 30, 2020, the Company expanded the expenditure
classifications on the Statement of Operations and Comprehensive
Loss resulting in changes to the presentation of prior year
expenditures for comparative purposes, whereby certain expenditures
for the years ending June 30, 2019 and June 30, 2018 that were
previously included in exploration and evaluation expenses,
management and professional fees, and general and administrative
expenses have been reclassified into other expenditures
classifications.
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 operations and comprehensive
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.
Plant and Equipment
Plant
and equipment are 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 estimates accounted for
on a prospective basis. The useful lives of the equipment are as
follows:
●
Exploration vehicles and equipment 3 to 5
years
● Right
of use
asset
4 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.
NextSource Materials Inc.
Notes to Consolidated Financial Statements
For the years ended June 30, 2020 and 2019
Expressed in US Dollars
2.
Significant
Accounting Policies (continued)
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 and comprehensive loss.
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 pre-tax rate that reflect the time
value of money are used to calculate the net present value. The
related liability is adjusted each period for the unwinding of the
discount rate and for changes to the current market-based discount
rate, amount or timing of the underlying cash flows needed to
settle the obligation.
The
Company’s operations are subject to environmental regulations
in Madagascar. As at the date of these financial statements, the
Company did not have any environmental rehabilitation obligations
and had no asset retirement obligations.
Share-based compensation
The
Company operates a stock option plan, which measures equity-settled
share-based payments to eligible participants at the fair value of
the equity instruments at the grant date. Eligible participants are
the Company’s directors, officers, employees and consultants.
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.
NextSource Materials Inc.
Notes to Consolidated Financial Statements
For the years ended June 30, 2020 and 2019
Expressed in US Dollars
2.
Significant
Accounting Policies (continued)
Foreign currencies (continued)
For the
purpose of presenting consolidated financial statements, the
subsidiary companies 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 and comprehensive
loss.
The
series of loans made to the subsidiary companies are considered
part of the parent company’s net investment in a foreign
operation as the Company does not plan to settle these balances in
the foreseeable future. As a result of this assessment, the
unrealized foreign exchange gains and losses on the intercompany
loans are recorded through comprehensive loss. If the Company
determined that settlement of these amounts was planned or likely
in the foreseeable future, the resultant foreign exchange gains and
losses would be recorded through profit or loss.
Income taxes
Income
tax expense consists of current and deferred tax expense. Current
and deferred tax are recognized in profit or loss except to the
extent they relate to items recognized directly in equity or other
comprehensive income.
Current
tax is recognized and measured at the amount expected to be
recovered from or payable to the taxation authorities based on the
income tax rates enacted or substantively enacted at the end of the
reporting period and includes any adjustment to taxes payable in
respect of previous years.
Deferred
tax is recognized on any temporary differences between the carrying
amounts of assets and liabilities in the consolidated financial
statements and the corresponding tax bases used in the computation
of taxable earnings. Deferred tax assets and liabilities are
measured at the tax rates that are expected to apply in the period
when the asset is realized, and the liability is settled. The
effect of a change in the enacted or substantively enacted tax
rates is recognized in net earnings and comprehensive income or
equity depending on the item to which the adjustment
relates.
Deferred
tax assets are recognized to the extent future recovery is
probable. At each reporting period end, deferred tax assets are
reduced to the extent that it is no longer probable that sufficient
taxable earnings will be available to allow all or part of the
asset to be recovered.
Loss per share
Basic
loss per share is computed using the weighted average number of
common shares outstanding during the period. 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.
NextSource Materials Inc.
Notes to Consolidated Financial Statements
For the years ended June 30, 2020 and 2019
Expressed in US Dollars
2.
Significant
Accounting Policies (continued)
Accounting standards adopted during the period
The
Company adopted IFRS 16, Leases (‘‘IFRS
16’’) with the date of initial application of July 1,
2019. Comparative information has not been restated and continues
to be reported under IAS 17, Leases (‘‘IAS
17’’) (the accounting standard in effect for those
periods).
Policy applicable from July 1, 2019:
At
inception of a contract, the Company assesses whether a contract
is, or contains, a lease. A contract contains a lease if the
contract conveys the right to control the use of an identified
asset for a period of time in exchange for consideration. The
Company assesses whether:
●
The contract
involves the use of an explicitly or implicitly identified
asset;
●
The Company has the
right to obtain substantially all of the economic benefits from the
use of the asset throughout the contract term;
●
The Company has the
right to direct the use of the asset.
The
Company recognizes a right-of-use asset and a lease liability at
the commencement date of the lease (i.e. the date the underlying
asset is available for use).
Right-of-use
assets are measured at cost, less any accumulated depreciation and
impairment losses, and adjusted for any remeasurement of lease
liabilities. The cost of right-of-use assets includes the initial
amount of lease liabilities recognized, initial direct costs
incurred, and lease payments made at or before the commencement
date less any lease incentives received.
Unless
the Company is reasonably certain to obtain ownership of the leased
asset at the end of the lease term, the right-of-use assets are
depreciated on a straight-line basis over the shorter of the
estimated useful life and the lease term. Right-of-use assets are
subject to impairment.
At the
commencement date of the lease, the Company recognizes lease
liabilities measured at the present value of lease payments to be
made over the lease term, discounted using the interest rate
implicit in the lease or, if that rate cannot be readily
determined, the Company’s incremental borrowing rate. The
lease payments include fixed payments, variable lease payments that
depend on an index or a rate, amounts expected to be paid under
residual value guarantees and the exercise price of a purchase
option reasonably certain to be exercised by the
Company.
After
the commencement date, the amount of lease liabilities is increased
to reflect the accretion of interest and reduced for the lease
payments made. In addition, the carrying amount of lease
liabilities is remeasured if there is a modification, a change in
the lease term, a change in the fixed lease payments or a change in
the assessment to purchase the underlying asset.
The
Company presents right-of-use assets in the plant and equipment
line item on the consolidated statement of financial position and
lease liabilities in the lease obligations line item on the
consolidated financial position.
Short-term leases and leases of low value assets
The
Company has elected not to recognize right-of-use assets and lease
liabilities for leases that have a lease term of 12 months or less
and do not contain a purchase option or for leases related to low
value assets. Lease payments on short-term leases and leases of low
value assets are recognized as an expense in the consolidated
statements of operations and comprehensive loss.
NextSource Materials Inc.
Notes to Consolidated Financial Statements
For the years ended June 30, 2020 and 2019
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 GRAMAD. GRAMAD has paid all taxes and
administrative fees to the Madagascar government and its mining
ministry with respect to all the mining permits held in country.
These taxes and administrative fee payments have been acknowledged
and accepted by the Madagascar government.
During
fiscal 2017, the Company applied to the BCMM to have PR 3432
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.
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”) (the Madagascar Environment Ministry) during
fiscal 2018. On April 11, 2019, the Company announced it had
received the Global Environmental Permit for the Molo Graphite
Project from 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, 2020 and 2019
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.
The
Green Giant property is located within exploration permits issued
by the 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
MINMAD. MINMAD 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, 2020, the Sagar property consisted of 184 claims covering
a total area of 8,539.58 ha.
NextSource Materials Inc.
Notes to Consolidated Financial Statements
For the years ended June 30, 2020 and 2019
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:
Exploration and
Evaluation Expenses
|
|
|
|
|
|
|
|
Year ended June 30,
2020
|
153,440
|
6,624
|
160,064
|
Year ended June 30,
2019
|
223,289
|
15,469
|
238,758
|
Year ended June 30,
2018
|
356,899
|
14,856
|
371,755
|
Cash and Cash
Equivalents
|
|
|
|
|
|
|
|
As
of June 30, 2020
|
14,054
|
208,251
|
222,305
|
As
of June 30, 2019
|
54,701
|
474,630
|
529,331
|
As
of June 30, 2018
|
17,958
|
320,744
|
338,702
|
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, mineral claims and
camp operations.
The
following is the breakdown by nature of the expenses:
|
|
|
|
|
|
|
|
|
$
|
$
|
$
|
|
|
|
|
Metallurgical
evaluation
|
-
|
18,863
|
107,185
|
Mineral claims
(Canada)
|
6,623
|
15,469
|
14,856
|
Mineral claims
(Madagascar)
|
143,954
|
121,844
|
227,280
|
Local and camp
expenses (Madagascar)
|
9,487
|
82,582
|
22,434
|
Total
exploration and evaluation expenses
|
160,064
|
238,758
|
371,755
|
|
|
|
|
NextSource Materials Inc.
Notes to Consolidated Financial Statements
For the years ended June 30, 2020 and 2019
Expressed in US Dollars
6.
Professional
and Legal Fees
Professional
and legal fees include accounting, auditor and lawyer
fees.
The
following is the breakdown by nature of the expenses:
|
|
|
|
|
|
|
|
|
$
|
$
|
$
|
Accounting
fees
|
29,778
|
20,141
|
3,475
|
Auditor
fees
|
36,129
|
23,760
|
27,247
|
Tax
advisory fees
|
22,140
|
67,810
|
9,095
|
Legal
fees
|
29,344
|
239,366
|
502,463
|
Offshore
management fees
|
7,350
|
-
|
-
|
Total professional and legal fees
|
124,741
|
351,077
|
542,280
|
|
|
|
|
Additions
to Plant and Equipment include $24,164 of transitional adjustments
for the recognition of leased right-of-use assets in relation to
the long-term lease for the exploration camp in Fotadrevo,
Madagascar upon the Company’s adoption of IFRS 16 on July 1,
2019 (see Note 2).
The
Company owns metallurgical testing equipment and several vehicles
in Madagascar that were previously used for exploration purposes
that have no carrying values.
|
|
|
|
|
$
|
$
|
$
|
|
|
|
|
Balance as of June 30, 2018
|
-
|
-
|
-
|
|
|
|
|
Balance as of June 30, 2019
|
-
|
-
|
-
|
|
|
|
|
Additions
|
24,164
|
-
|
24,164
|
Amortization
|
(6,053)
|
-
|
(6,053)
|
Balance as of June 30, 2020
|
18,111
|
-
|
18,111
|
NextSource Materials Inc.
Notes to Consolidated Financial Statements
For the years ended June 30, 2020 and 2019
Expressed in US Dollars
The
Company is party to a number of contracts that contain a lease,
most of which include office facilities and exploration camp.
Leases of low value assets, short term leases and leases with
variable payments proportional to the rate of use of the underlying
asset do not give rise to a lease obligation.
Leases under IFRS 16 (from July 1, 2019)
The following table sets out the carrying amounts of right-of-use
assets recognized upon adoption of IFRS 16 that are included in
plant and equipment in the consolidated statement of financial
position and the movements during the year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of July 1, 2019
|
-
|
-
|
-
|
-
|
|
|
|
|
|
Adoption
of IFRS 16
|
-
|
24,164
|
-
|
24,164
|
Amortization
of right of use assets
|
-
|
(4,810)
|
-
|
(4,810)
|
Foreign
exchange
|
-
|
(3,336)
|
-
|
(3,336)
|
As of June 30, 2020
|
-
|
16,018
|
-
|
16,018
|
The following table sets out the lease obligations included in the
consolidated statements of financial position:
|
|
|
|
|
|
$
|
$
|
$
|
$
|
|
|
|
|
|
Current
portion of lease obligations
|
-
|
5,339
|
-
|
5,339
|
Long-term
lease obligations
|
-
|
10,679
|
-
|
10,679
|
Total lease obligations
|
-
|
16,018
|
-
|
16,018
|
Future minimum lease payments required to meet obligations that
have initial or remaining non-cancellable lease terms are set out
in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within
1 year
|
-
|
6,589
|
-
|
6,589
|
Between
2 - 3 years
|
-
|
13,178
|
-
|
13,178
|
Total undiscounted lease obligations
|
-
|
19,767
|
-
|
19,767
|
The
Company recognized rent expense relating to short-term leases of
$19,111 and interest expense on lease obligation of $1,779 in the
consolidated statements of operations and comprehensive loss with
respect to leases.
NextSource Materials Inc.
Notes to Consolidated Financial Statements
For the years ended June 30, 2020 and 2019
Expressed in US Dollars
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, 2020, the Company had 536,494,789
common shares issued and outstanding (June 30, 2019:
507,417,021).
The Company issued the following common shares during the year
ended June 30, 2020:
(a)
On
October 25, 2019, the Company closed a non-brokered private
placement offering of 29,077,768 units at a price of $0.034
(CAD$0.045) per unit for aggregate gross proceeds of $998,620
(CAD$1,308,500). Each unit consisted of one common share and
one-half common share purchase warrant, with each full warrant
exercisable into one common share at an exercise price of $0.07
(CAD$0.09) for a period of two years. The share issue costs
consisted of private placement listing fees paid to the
exchange.
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.
NextSource Materials Inc.
Notes to Consolidated Financial Statements
For the years ended June 30, 2020 and 2019
Expressed in US Dollars
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 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, 2020, the Company had 36,250,000 stock options
issued and outstanding (June 30, 2019: 40,670,000) with a weighted
average expiration of 2.28 years (June 30, 2019: 3.0 years), which
are exercisable into 36,250,000 common shares (June 30, 2019:
40,670,000) at a weighted average exercise price of $0.067 (June
30, 2019: $0.08). 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, 2020:
|
|
|
Balance
Outstanding
June
30,
2019
|
Options Granted
(Expired or
Cancelled)
|
|
Balance
Outstanding
June 30,
2020
|
July 3,
2014
|
July 3,
2019
|
USD
$0.15
|
1,150,000
|
(1,150,000)
|
-
|
-
|
February 26,
2015
|
February 26,
2020
|
USD
$0.20
|
2,870,000
|
(2,870,000)
|
-
|
-
|
December 22,
2015
|
December 22,
2020
|
USD
$0.06
|
6,700,000
|
(400,000)
|
-
|
6,300,000
|
June 9,
2017
|
June 9,
2022
|
USD
$0.07
|
18,100,000
|
-
|
-
|
18,100,000
|
March 26,
2019
|
March 26,
2024
|
CAD
$0.10
|
11,850,000
|
-
|
-
|
11,850,000
|
Total
Outstanding
|
|
|
40,670,000
|
(4,420,000)
|
-
|
36,250,000
|
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, 2017
|
USD
$0.11
|
44,470,000
|
Granted
|
-
|
-
|
Exercised
|
-
|
-
|
Expired/cancelled
|
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
|
Granted
|
-
|
-
|
Exercised
|
-
|
-
|
Expired/cancelled
|
USD
$0.174
|
(4,420,000)
|
Outstanding
as of June 30, 2020
|
USD
$0.067
|
36,250,000
|
The Company did not grant any stock options during the year ended
June 30, 2020.
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
share price on the grant date was CAD$0.10. The stock 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.
NextSource Materials Inc.
Notes to Consolidated Financial Statements
For the years ended June 30, 2020 and 2019
Expressed in US Dollars
The
Company has issued common share purchase warrants as part of equity
private placements.
The
Black-Scholes option valuation model is used 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, 2020, the Company had 25,191,522 common share
purchase warrants issued and outstanding (June 30, 2019:
10,652,636) with a weighted average expiration of 0.82 years (June
30, 2019: 1.1 years), which are exercisable into 25,191,522 (June
30, 2019: 10,652,636) common shares at a weighted average exercise
price of $0.07 (June 30, 2019: $0.08). 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, 2020:
|
|
|
Balance
Outstanding
June
30,
2019
|
Warrants Granted
(Expired)
|
|
Balance
Outstanding
June
30,
2020
|
August 17,
2018
|
August 17,
2020
|
CAD
$0.10
|
10,652,636
|
-
|
-
|
10,652,636
|
October 25,
2019
|
October 25,
2021
|
CAD
$0.09
|
-
|
14,538,886
|
-
|
14,538,886
|
Total
Outstanding
|
|
|
10,652,636
|
14,538,886
|
-
|
25,191,522
|
The
following is the continuity schedule of the Company's common share
purchase warrants:
|
Weighted-Average
Exercise
Price
$
|
Number
of
Warrants
#
|
Outstanding
as of June 30, 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
|
Issued
|
CAD
$0.09
|
14,538,886
|
Expired
|
-
|
-
|
Exercised
|
-
|
-
|
Outstanding
as of June 30, 2020
|
USD
$0.07
|
25,191,522
|
The Company issued the following common share purchase warrants
during the year ended June 30, 2020:
(a)
On
October 25, 2019, the Company closed a non-brokered private
placement offering of 29,077,768 units at a price of $0.034
(CAD$0.045) per unit for aggregate gross proceeds of $998,619
(CAD$1,308,500). Each unit consisted of one common share and
one-half common share purchase warrant, with each full warrant
exercisable into one common share at an exercise price of $0.07
(CAD$0.09) for a period of two years. The share issue costs
consisted of private placement listing fees paid to the
exchange.
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, 2018.
NextSource Materials Inc.
Notes to Consolidated Financial Statements
For the years ended June 30, 2020 and 2019
Expressed in US Dollars
The
warrants issued on August 17, 2018 as part of the units as
described in notes 9 and 11 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 for warrants expiring on August
17, 2020 was estimated using the following model inputs on the
following valuation dates:
|
Warrant
Liability
$
|
As of
August 17, 2018 (issue date)
|
408,150
|
Exercise
price
|
USD$0.076
|
Share
price on measurement date
|
CAD$0.09
|
Risk
free rate
|
1.50%
|
Expected
volatility
|
115%
|
Expected dividend
yield
|
Nil
|
Expected life (in
years)
|
2
|
Change
in fair value
|
(73,532)
|
As of
June 30, 2019
|
334,618
|
Exercise
price
|
USD$0.076
|
Share
price on measurement date
|
CAD$0.10
|
Risk
free rate
|
1.67%
|
Expected
volatility
|
100%
|
Expected dividend
yield
|
Nil
|
Expected life (in
years)
|
1.13
|
Change
in fair value
|
(327,537)
|
As of
June 30, 2020
|
7,081
|
Exercise
price
|
USD$0.073
|
Share
price on measurement date
|
CAD$0.04
|
Risk
free rate
|
0.20%
|
Expected
volatility
|
162%
|
Expected dividend
yield
|
Nil
|
Expected life (in
years)
|
0.13
|
NextSource Materials Inc.
Notes to Consolidated Financial Statements
For the years ended June 30, 2020 and 2019
Expressed in US Dollars
12.
Warrant
Liability (continued)
The
warrants issued on October 25, 2019 as part of the units as
described in notes 9 and 11 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 for the warrants expiring on
October 25, 2021 was estimated using the following model inputs on
the following valuation dates:
|
Warrant
Liability
$
|
As of
October 25, 2019 (issue date)
|
261,090
|
Exercise
price
|
USD$0.069
|
Share
price on measurement date
|
CAD$0.05
|
Risk
free rate
|
1.66%
|
Expected
volatility
|
115%
|
Expected dividend
yield
|
Nil
|
Expected life (in
years)
|
2
|
Change
in fair value
|
(59,403)
|
As of
June 30, 2020
|
201,687
|
Exercise
price
|
USD$0.064
|
Share
price on measurement date
|
CAD$0.04
|
Risk
free rate
|
0.25%
|
Expected
volatility
|
156%
|
Expected dividend
yield
|
Nil
|
Expected life (in
years)
|
1.32
|
13.
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 to the
provision balance. During the year ended June 30, 2020, the
provision was adjusted due to foreign exchange fluctuations to
$174,418.
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.
NextSource Materials Inc.
Notes to Consolidated Financial Statements
For the years ended June 30, 2020 and 2019
Expressed in US Dollars
There
were no changes in the Company's approach to capital management
during the year ended June 30, 2020.
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 or development stage and the Company has yet to
generate any revenue from mining operations, as such the Company is
dependent on external financing to fund its exploration and
evaluation activities and its operating expenditures. 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.
As at
June 30, 2020, the Company had a working capital deficit of
$918,048 (June 30, 2019: deficit of $665,886).
NextSource Materials Inc.
Notes to Consolidated Financial Statements
For the years ended June 30, 2020 and 2019
Expressed in US Dollars
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, 2020, 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, 2020, the Company had cash and cash equivalents of
$222,305 (June 30, 2019: $529,331) to settle current liabilities of
$1,173,376 (June 30, 2019: $1,279,289). 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 liabilities, which will be fully expensed by October 2021,
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.
NextSource Materials Inc.
Notes to Consolidated Financial Statements
For the years ended June 30, 2020 and 2019
Expressed in US Dollars
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 year ended June 30, 2020, 2019 and
2018.:
|
|
|
|
|
|
|
|
|
|
|
|
Management
payroll
|
381,777
|
439,175
|
453,109
|
Management
fees
|
331,682
|
335,045
|
353,643
|
Share
based compensation
|
-
|
640,692
|
-
|
Total
|
713,459
|
1,414,912
|
806,752
|
The
following key management related party balances existed as of June
30, 2020, June 30, 2019 and June 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid payroll to
officers of the Company
|
-
|
26,568
|
26,632
|
Accounts payable
due to officers of the Company
|
86,685
|
16,400
|
16,400
|
Accrued liabilities
due to officers of the Company
|
54,727
|
-
|
-
|
As of
June 30, 2020, the Company had CAD $40,000 outstanding in its
Canada Emergency Business Account, which is not subject to an
interest rate until after December 31, 2022 and has loan
forgiveness provisions whereby CAD $10,000 of principal will be
forgiven if CAD $30,000 of principal is repaid before December 31,
2022. The Company intends to repay CAD $30,000 of principal by
September 30, 2020 and therefore recognized a fair market value
balance of $22,115 as of June 30, 2020. As of June 30, 2019, the
Company did not have any outstanding long-term debt, loans or
credit facilities.
Below
is a reconciliation of the income tax provision, calculated using
the combined Canadian federal and provincial statutory income tax
rate of 26.5%.
NextSource Materials Inc.
Notes to Consolidated Financial Statements
For the years ended June 30, 2020 and 2019
Expressed in US Dollars
18.
Income
Taxes (Continued)
|
|
|
Net
Loss
|
(977,635)
|
(3,210,504)
|
Statutory
rate
|
26.5%
|
26.5%
|
|
|
|
Expected
income tax recovery
|
(259,073)
|
(850,784)
|
Other
adjustments
|
22,553
|
24,585
|
Share
issuance costs booked to equity
|
(2,070)
|
(21,471)
|
Non-deductible
expenses
|
(102,150)
|
153,893
|
Utilization
of losses not previously recognized
|
-
|
-
|
Change
in tax benefits not recognized
|
340,740
|
693,777
|
Income
tax recovery
|
-
|
-
|
Deferred Tax
Deferred
tax is recognized as a result of temporary differences between the
carrying amounts of assets and liabilities in the consolidated
financial statements and the corresponding income tax values.
Deferred tax assets have not been recognized in respect of the
following deductible temporary differences because it is not
probable that future taxable profit will be available against which
the group can utilize the benefits therefrom:
|
|
|
Plant
and equipment
|
188,980
|
188,980
|
Share
issue costs
|
128,300
|
219,290
|
Canadian
capital losses carry-forward
|
53,000
|
53,000
|
Canadian
non-capital losses carry-forward
|
23,419,560
|
22,069,720
|
Canadian
exploration and development tax pools
|
4,198,270
|
4,191,650
|
Non-Canadian
losses
|
1,316,520
|
1,215,070
|
Deferred
tax assets
|
29,304,630
|
27,937,710
|
The
plant and equipment deductible temporary differences may be carried
forward indefinitely. Share issue costs will be fully amortized in
2024. The Canadian capital loss carry-forward may be carried
forward indefinitely but can only be used to reduce capital gains.
The Canadian non-capital loss carry-forward expires as noted in the
table below. Non-Canadian losses will expire in 2024.
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
|
1,777,140
|
2040
|
1,349,840
|
|
$23,419,560
|
NextSource
is treated as a United States corporation for United States federal
income tax purposes and is subject to United States federal income
tax on its worldwide income. However, for Canadian tax purposes,
NextSource is treated as a Canadian resident company for Canadian
income tax purposes. As a result, NextSource is subject to taxation
both in Canada and the United States.
NextSource Materials Inc.
Notes to Consolidated Financial Statements
For the years ended June 30, 2020 and 2019
Expressed in US Dollars
On July
2, 2020, the Company completed a non-brokered private placement of
61,578,783 units at a price of $0.024 (CAD$0.0325) for gross
proceeds of $1,476,572 (CAD$2,001,310). Each Unit consists of one
common share of the Company and one-half of one common share
purchase warrant (a “Warrant”), with each full Warrant
entitling the holder to acquire one additional common share of the
Company at a price of $0.048 (CAD$0.065) per share for a period of
24 months. No finder fees or commissions were paid in association
with the private placement. In connection with the non-brokered
private placement, the Company incurred $9,292 (CAD$12,619) in
share issuance costs. As at June 30, 2020, the Company had received
share subscriptions received in advance totaling
$68,411.
On
August 24, 2020, the Company announced that management has agreed
to a plan to defer their monthly compensation payments by up to 30
percent and until total project financing has been secured. The
Company also announced its intention to implement a Performance
Share Units (“PSU”) plan for management.
Exhibit 99.3
NextSource Materials Inc.
Management’s Discussion and Analysis (MD&A)
For the
years ended June 30, 2020 and 2019
Expressed
in US Dollars
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the years ended June 30, 2020 and 2019
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 22, 2020, should
be read in conjunction with NextSource’s consolidated
financial statements for the year ended June 30, 2020 and
2019.
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 Company’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 Company to be
materially different from those expressed or implied by such
forward-looking information. Such factors include, among others;
negative operating cash flow; the Company’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 Company’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 Company’s
securities and the ability of the Company to develop the Molo
Graphite Project; the Company may not have access to sufficient
capital to develop the Molo Graphite Project; the Company 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
Company’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 Company
may incur liability or damages as the Company conducts business;
the impact of COVID-19 may impact the Company’s business and
its development plans; the Company has no insurance for
environmental problems; should the Company lose the services of key
executives, the Company’s financial condition and proposed
expansion may be negatively impacted; because access to the
Company’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 Company’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 Company’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 Company does not
intend to pay dividends in the foreseeable future; because from
time to time the Company holds a significant portion of cash
reserves in Canadian dollars, the Company may experience losses due
to foreign exchange translations; the Company 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 Company’s
business and financial condition that cannot be predicted; the
market price for the Common Shares is particularly volatile given
the Company’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 Company’s ability to
meet other factors listed from time to time in the Company’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, 2020 and 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 Company 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 Company 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 Company 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 Company 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 Company 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 Company’s expected financial
and operating performance and the Company’s plans and
objectives and may not be appropriate for other
purposes.
The
Company 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 130 King Street West, Exchange
Tower, Suite 1940, Toronto, Ontario Canada, M5X 2A2.
The
Company's principal business is the acquisition, exploration,
development and mining of mineral resources. The Company has
obtained a mining permit for the Molo Graphite project but has not
secured all supporting permits and has not secured sufficient
financing to begin construction. 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 NI 43-101
Technical Report Feasibility Study dated September 27, 2019 that
concluded 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.
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the years ended June 30, 2020 and 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) SARLU (“MATMAD”), a
Madagascar subsidiary.
MINMAU
owns 100% of NextSource Minerals (Madagascar) SARLU
(“MINMAD”), a Madagascar subsidiary. MINMAD holds the
Green Giant Vanadium Project exploration permits.
GRAMAU
owns 100% of ERG Madagascar SARLU (“GRAMAD”), a
Madagascar subsidiary. GRAMAD holds the Molo Graphite Project
mining and exploration permits.
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the years ended June 30, 2020 and 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, 2020, the Company had 536,494,789 common shares
issued and outstanding (June 30, 2019: 507,417,021).
As of June 30, 2020, the Company had 36,250,000 stock options
issued and outstanding (June 30, 2019: 40,670,000) with a weighted
average expiration of 2.28 years (June 30, 2019: 3.0 years), which
are exercisable into 36,250,000 common shares (June 30, 2019:
40,670,000) at a weighted average exercise price of $0.067 (June
30, 2019: $0.08). All stock options that are currently outstanding
vested on the grant date.
As of June 30, 2020, the Company had 25,191,522 common share
purchase warrants issued and outstanding (June 30, 2019:
10,652,636) with a weighted average expiration of 0.82 years (June
30, 2019: 1.1 years), which are exercisable into 25,191,522 (June
30, 2019: 10,652,636) common shares at a weighted average exercise
price of $0.07 (June 30, 2019: $0.08). All warrants that are
currently outstanding vested on the issue date.
The Company’s common shares trade on the Toronto Stock
Exchange (the “TSX”) under the symbol
“NEXT” and the OTCQB under the symbol
“NSRCF”.
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, 2020, the Company had CAD $40,000 outstanding in its
Canada Emergency Business Account, which is not subject to an
interest rate until after December 31, 2022 and has loan
forgiveness provisions whereby CAD $10,000 of principal will be
forgiven if CAD $30,000 of principal is repaid before December 31,
2022. The Company intends to repay CAD $30,000 of principal by
September 30, 2020 and therefore recognized a fair market value
balance of $22,115 as of June 30, 2020. As of June 30, 2019, the
Company did not have any outstanding long-term 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, 2020, we had one employee 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, 2020, the Company had an accumulated deficit of
$104,933,066 (June 30, 2019:
$103,955,431) 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.
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the years ended June 30, 2020 and 2019
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.
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, 2020 that there currently
exists substantial doubt regarding the Company’s ability to
continue as a going concern.
Corporate Highlights
Three-Year History
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.
On
December 27, 2017, the Company completed a corporate redomicile
from Minnesota to Canada. This was completed to reduce our legal
and regulatory compliance costs and improve our financing
opportunities. The presentation and functional currency of the
Company continued 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.
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.
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the years ended June 30, 2020 and 2019
On
September 27, 2019, the Company reported the results of a new
Feasibility Study (“FS”) for its 100%-owned Molo
Graphite Project in southern Madagascar. The FS outlines 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 FS results are summarized in
further detail in the Molo Graphite Property section.
On
October 24, 2019, the Company announced the successful registration
of Molo SuperFlake® as a trademark in Canada. The successful
registration of this trademark means that NextSource has the
exclusive right to brand all of its natural flake graphite sold in
Canada as Molo SuperFlake® from its fully permitted and
feasibility-stage Molo Graphite Project in Madagascar when it
enters production and begins exploring high-quality flake
graphite.
On October 25, 2019, the Company closed a non-brokered private
placement offering of 29,077,768 units at a price of $0.034
(CAD$0.045) per unit for aggregate gross proceeds of $998,620
(CAD$1,308,500). 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 $0.07
(CAD$0.09) for a period of two years. There were no finder’s
fees in relation to the private placement.
On September 27, 2019, Quentin Yarie resigned as a director of the
Company.
On December 2, 2019, Christopher Kruba and David McNeely became
directors of the Company.
On January 23, 2020, John Sanderson and Dalton Larson resigned as
directors of the Company and Dean Comand was appointed as Chair of
the Board of Directors.
On April 9, 2020, the Company announced that it has executed a
Letter of Agreement (“LOI”) with its Japanese offtake
partner and a leading Chinese processor of graphite anode material
to collaborate on the construction of a value-add, battery anode
plant in a jurisdiction that is proximal to the Company’s
Molo graphite project in Madagascar.
On July 2, 2020, the Company completed a non-brokered private
placement of 61,578,783 units at a price of $0.024 (CAD$0.0325) for
gross proceeds of $1,476,572 (CAD$2,001,310). Each Unit consists of
one common share of the Company and one-half of one common share
purchase warrant (a “Warrant”), with each full Warrant
entitling the holder to acquire one additional common share of the
Company at a price of $0.048 (CAD$0.065) per share for a period of
24 months. No finder fees or commissions were paid in association
with the private placement. In connection with the non-brokered
private placement, the Company incurred $9,292 (CAD$12,619) in
share issuance costs.
On July 20, 2020, Brett Whalen became a director of the
Company.
On August 24, 2020, the Company announced the appointment of Brett
Whalen as Chair of the Board of Directors. The Company also
announced that management agreed to a plan to defer their monthly
compensation payments by up to 30 percent and until total project
financing has been secured. The Company announced its intention to
implement a Performance Share Units (“PSU”) plan for
management.
Molo Graphite Property, Southern Madagascar Region,
Madagascar
Overview
The
Company has received a 40-year mining license for the Molo Graphite
Project from the Madagascar Government which does not limit mining
to any specific volume. The Company has also 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 but 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.
The
Company is currently working to obtain construction financing for
Phase 1 of the Molo Graphite Project. Once constructed, the mine is
expected to produce 17,000 tpa of high-quality SuperFlake™
graphite concentrate.
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 at surface with an exposed strike length of over
two kilometres. Outcrop mapping and trenching on the Molo Graphite
Project has shown the surface geology to be dominated by resistant
ridges of graphitic schist and graphitic gneiss, as well as
abundant graphitic schist float. Geological modeling has shown that
the Molo Graphite Project deposit consists of various zones of
mineralized graphitic gneiss, with a barren footwall composed of
garnetiferous gneiss. The host rock of the mineralized zones on the
Molo Graphite Project is graphitic gneiss.
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the years ended June 30, 2020 and 2019
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 first Molo Feasibility Study, which was released in February
2015.
History
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 1½ 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.
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”). 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 reported the results of an updated
Feasibility Study (“FS”) consisting of two phases. The
FS took into account updated mine capital equipment and mining
costs, as well as current 12-month rolling flake graphite pricing
on a Freight-on-Board (“FOB”) China basis, supplied by
UK-based battery mineral commodities research firm, Benchmark
Minerals Intelligence. The FS incorporates the procurement of all
mining equipment, off-site modular fabrication and assembly,
factory acceptance testing, module disassembly, shipping, plant
infrastructure construction, onsite module re-assembly,
commissioning, project contingencies and working capital. All
capital and operating costs expressed for Phase 1 are considered to
be accurate to +/- 10%, and accurate to +/- 12.5% for Phase 2. The
project phases are outlined below:
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the years ended June 30, 2020 and 2019
PHASE 1: Production of 17,000 tpa
The
first phase of production will consist of a fully operational and
sustainable graphite mine with a permanent processing plant capable
of processing 240,000 tpa of ore and producing approximately 17,000
tpa of high-quality SuperFlake™ graphite concentrate. The
updated build cost of the fully modular process plant marginally
increased from the US$18.4 million reported in the 2017 FS to
US$21.0M due to equipment cost inflation.
PHASE 2: Production Expansion to 45,000 tpa in Year 3
Phase 2
incorporates the processing of 240,000 tpa of ore (producing 17,000
tpa of SuperFlake® concentrate) for the first two years of
operation and then ramping up to 720,000 tpa of processed ore in
the third year to accommodate additional sales, resulting in a
total of 45,000 tpa of SuperFlake® concentrate being produced
for a mine life of 30 years. The costing for Phase 2 is based on
the addition of two modules of the beneficiation plant with a
proportional increase in mining and infrastructure costs. The
capital mine cost for Phase 2 (with contingency) will be US$39.1M,
for a total project cost (Phase 1 and Phase 2 with contingency) of
US$60.1M.
Feasibility Study Summary
The
Phase 1 production plan of 17,000 tpa of finished SuperFlake®
concentrate for the first two years of production followed by a
ramp-up to Phase 2 production of 45,000 tpa yields the following
financial metrics.
|
|
|
|
|
NPV
(8% Discount Cash Flow)(1)(2)
|
$237.1m
|
$184.3m
|
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 Mining
Costs ("OPEX") per tonne of concentrate, (year 3
onward)
|
$82.69
|
|
On-site Processing
Costs ("OPEX") per tonne of concentrate, (year 3
onward)
|
$270.27
|
|
Transportation per
tonne of concentrate (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:
(1)
Assumes Project is financed with 100% equity. Unless otherwise
noted, all monetary figures presented throughout this press release
are expressed in US dollars (USD).
(2)
CAPEX includes process equipment, civil & infrastructure,
mining, buildings, electrical infrastructure, project &
construction services. Values shown are based on real graphite
sales pricing
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the years ended June 30, 2020 and 2019
CAPEX and Working Capital Summary
Capital Cost
Breakdown
|
|
|
Process
Equipment
|
$8,438,609
|
$25,315,827
|
Civil &
Infrastructure
|
$2,103,672
|
$6,661,016
|
Tailings
|
$0.00
|
$0.00
|
Mining
|
$2,574,143
|
$4,913,341
|
Buildings
|
$1,154,609
|
$2,886,523
|
Electrical
Infrastructure
|
$128,804
|
$386,412
|
Project
Services/EPCM
|
$931,481
|
$2,794,445
|
Construction
Services
|
$1,474,775
|
$3,686,937
|
Indirect
Costs
|
$372,750
|
$1,118,250
|
Environmental &
Permitting costs
|
$729,827
|
$1,459,655
|
Owner's
Costs
|
$1,197,000
|
$4,189,500
|
Sub-total
|
$19,105,673
|
$53,411,909
|
Contingency (10%/12.5%)
|
$1,910,567
|
$6,676,488
|
3 Months Working
Capital
|
$3,100,000
|
$7,300,000
|
CAPEX
AND WORKING CAPITAL TOTAL
|
$24,116,241
|
$67,388,398
|
Sustaining
CAPEX over Life of Mine
|
|
$3,300,000
|
OPEX Summary
Discussions
with off takers have indicated their preference is to purchase Molo
graphite concentrate at the local Madagascar port at freight on
board (FOB) China prices. As such, FS Operating costs
(“OPEX”) include the all-in FOB cost to ship Molo
SuperFlake® concentrate to the local port of Fort
Dauphin.
Category
|
|
|
|
|
Mining
(US$/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
|
The 2019 Feasibility Study technical report has been filed under
the Company’s profile and on SEDAR at www.sedar.com, and is
posted on NextSource’s website at www.nextsourcematerials.com.
Please see “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
Prepared by Erudite Strategies (Pty) Ltd” dated May 31, 2019
for certain other details and assumptions relating to the above
mineral resource and reserve estimates and data verification
procedures.
The 2019 Feasibility Study was prepared in accordance with National
Instrument 43-101 standards by Mr. Johann de Bruin, Pr. Eng. Mr. de
Bruin is the Qualified Person who verified the technical data using
industry acceptable standards and signed off on the relevant
sections in the 43-101 report filed on SEDAR.
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.
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 MINMAD. MINMAD 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.
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.
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the years ended June 30, 2020 and 2019
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, 2020, the Sagar property consisted of 184 claims covering
a total area of 8,539.58 ha.
Discussion of Operations
During
the year ended June 30, 2020, the Company incurred $160,064 in
exploration expenditures, $91,671 in consulting fees and $54,456 in
travel expenditures to advance the Molo Graphite Project. This
included 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.
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 construction financing. 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.
In
March 2020 the World Health Organization declared coronavirus
COVID-19 a global pandemic. This contagious disease outbreak, which
has continued to spread, and any related adverse public health
developments, has adversely affected workforces, economies, and
financial markets globally, potentially leading to further economic
downturn. It is not possible for the Company to predict the
duration or magnitude of the adverse results of the outbreak and
its effects on the Company’s business or results of
operations at this time. The impact of COVID-19 on the Company has
been limited since no exploration or development work was ongoing
at the start of the pandemic. The Company was already setup to
operate and communicate remotely through the internet although
certain of our overseas staff and contractors have been indirectly
impacted by intermittent COVID-19 lockdowns in Madagascar and in
South Africa.
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the years ended June 30, 2020 and 2019
Financial Results for the years ended June 30, 2020, 2019 and
2018
Expressed in US Dollars
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$-
|
$-
|
$-
|
|
|
|
|
Expenses
and other income
|
|
|
|
Exploration and
evaluation expenses
|
160,064
|
238,758
|
371,755
|
Payroll and
benefits
|
436,337
|
459,553
|
458,932
|
Management
fees
|
331,682
|
368,345
|
381,713
|
Professional and
legal fees
|
124,741
|
351,077
|
542,280
|
Consulting
fees
|
91,671
|
852,049
|
522,341
|
Public filing
expenses
|
72,137
|
87,093
|
105,461
|
Travel
expenses
|
54,456
|
153,001
|
174,011
|
Investor relation
expenses
|
22,993
|
49,711
|
86,946
|
Insurance
expenses
|
22,624
|
18,315
|
12,491
|
Rent
expenses
|
19,111
|
34,303
|
23,686
|
Information
technology expenses
|
9,695
|
8,000
|
18,947
|
Telecommunications
|
2,952
|
1,301
|
1
|
General and
administrative expenses
|
6,676
|
11,748
|
5,639
|
Bank
fees
|
4,313
|
3,655
|
5,300
|
Amortization of
plant and equipment
|
6,053
|
-
|
-
|
Foreign currency
translation (gain) loss
|
3,552
|
(4,565)
|
104,387
|
Interest
expense
|
2,098
|
-
|
-
|
Foreign
taxes
|
772
|
-
|
|
Government
assistance
|
(7,353)
|
-
|
-
|
Change in value of
warrant liability
|
(386,940)
|
(73,532)
|
-
|
Share based
compensation
|
-
|
651,692
|
-
|
Impairment
|
-
|
-
|
27,805
|
Reversal of
impairment of amount receivable
|
-
|
-
|
(45,132)
|
Part XII.6
taxes
|
-
|
-
|
(11,741)
|
Net
loss for the period
|
(977,635)
|
(3,210,504)
|
(2,784,822)
|
|
|
|
|
Other comprehensive income
|
|
|
|
Items that will be reclassified subsequently to loss
|
|
|
|
Translation
adjustment for foreign operations
|
3,196
|
41,713
|
75,766
|
Net
loss and comprehensive loss for the period
|
(974,439)
|
(3,168,791)
|
(2,709,056)
|
Weighted-average
common shares,
|
527,206,058
|
493,586,450
|
468,252,639
|
-
basic and diluted
|
|
|
|
Net loss per common
shares,
|
(0.00)
|
(0.01)
|
(0.01)
|
-
basic and diluted
|
|
|
|
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the years ended June 30, 2020 and 2019
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, mineral claims and
camp operations.
The
following is the breakdown by nature of the expenses:
|
|
|
|
|
|
|
|
|
$
|
$
|
$
|
Exploration
activities
|
-
|
-
|
-
|
Metallurgical
evaluation
|
-
|
18,863
|
107,185
|
Mineral claims
(Canada)
|
6,624
|
15,469
|
14,856
|
Mineral claims
(Madagascar)
|
143,953
|
121,844
|
227,280
|
Camp
(Madagascar)
|
9,487
|
82,582
|
22,434
|
Total
exploration and evaluation expenses
|
160,064
|
238,758
|
371,755
|
Exploration
and evaluation expenses for the year ended June 30, 2020 decreased
to $160,064 (2019: $238,758; 2018: $371,755) due to a decrease in
mineral claim expenditures as a result of the COVID-related
shutdown of government offices in March 2020. No metallurgical
evaluation was completed in 2020 and fees were minimal in 2019 and
2018 since most assessment work was completed in 2017. Camp
expenditures decreased by $73,095 to $9,487 as compared to prior
year. No exploration work was completed in 2020, 2019 and 2018
since all exploration work necessary was completed prior to
2017.
Consulting Fees Expenses
Consulting
fees for the year ended June 30, 2020 decreased to $91,671 (2019:
$852,049; 2018: $522,341) due to decreased engineering and project
development expenditures as compared to the prior year
periods.
Professional Fees Expenses
Professional
and legal fees include accounting, auditor and lawyer
fees.
The
following is the breakdown by nature of the expenses:
|
|
|
|
|
|
|
|
|
$
|
$
|
$
|
Accounting
fees
|
29,778
|
20,141
|
3,475
|
Auditor
fees
|
36,129
|
23,760
|
27,247
|
Tax
advisory fees
|
22,140
|
67,810
|
9,095
|
Legal
fees
|
29,344
|
239,366
|
502,463
|
Offshore
management fees
|
7,350
|
-
|
-
|
Total professional and legal fees
|
124,741
|
351,077
|
542,280
|
Professional
fees for the year ended June 30, 2020 decreased to $124,741 (2019:
$351,077; 2018: $542,280) due to decreased tax advisory and legal
fees as compared to the prior year periods whereas the audit
accrual was increased as compared to the prior year
periods.
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the years ended June 30, 2020 and 2019
The
Company did not grant any stock options during the year ended June
30, 2020.
Liquidity and Capital Resources
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, 2020, 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, 2020, the Company had cash and cash equivalents of
$222,305 (June 30, 2019: $529,331) to settle current liabilities of
$1,173,376 (June 30, 2019: $1,279,289). 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 liabilities, which will be fully expensed by October 2021,
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.
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the years ended June 30, 2020 and 2019
Capital Management
There
were no changes in the Company's approach to capital management
during the year ended June 30, 2020.
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.
Working Capital Balance
As at
June 30, 2020. the Company had a working capital deficit of
$918,048 (June 30, 2019: deficit of $665,886).
|
|
|
|
|
|
Assets
|
|
|
|
|
|
Current
Assets:
|
|
|
Cash and cash
equivalents
|
$222,305
|
$529,331
|
Amounts
receivable
|
7,539
|
33,640
|
Prepaid
expenses
|
25,484
|
50,432
|
Total
Current Assets
|
$255,328
|
$613,403
|
|
|
|
Liabilities
|
|
|
|
|
|
Current
Liabilities:
|
|
|
Accounts
payable
|
$323,876
|
$109,020
|
Accrued
liabilities
|
370,449
|
654,999
|
Share
subscriptions
|
68,411
|
-
|
Short term
debt
|
22,115
|
-
|
Provision
|
174,418
|
180,652
|
Fair value of
warrant liability
|
208,768
|
334,618
|
Current portion of
lease obligations
|
5,339
|
-
|
Total
Current Liabilities
|
1,173,376
|
1,279,289
|
|
|
|
Working
capital (deficit) surplus
|
$(918,048)
|
$(665,886)
|
The
working capital deficit increased by $252,162 as compared to the
prior year. The changes in the working capital are discussed in
further detail in the next sections.
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the years ended June 30, 2020 and 2019
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, 2020
|
14,054
|
208,251
|
222,305
|
As
of June 30, 2019
|
54,701
|
474,630
|
529,331
|
Current Assets and Current Liabilities
Amounts
receivables and prepaid expenses decreased by $51,049 which consist
mainly of sales tax receivables and of prepaid insurance premiums.
Accounts payable and accrued liabilities decreased by $69,694 which
consist mainly of trade payables and of accrued legal, payroll and
benefits and consulting expenditures. The provision decreased by
$6,234 from 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 and
Lease Obligations
The
Company does not have any contractual obligations or commitments
other than accounts payable due within one-year totaling $323,876
(June 30, 2019: $109,020) and accrued liabilities totaling $370,449
(June 30, 2019: $654,999).
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 to the provision balance. During the year ended June
30, 2020, the provision was adjusted due to foreign exchange
fluctuations to $174,418.
Lease Obligations
The Company is party to a number of contracts that contain a lease,
most of which include office facilities and exploration camp.
Leases of low value assets, short term leases and leases with
variable payments proportional to the rate of use of the underlying
asset do not give rise to a lease obligation.
Leases
under IFRS 16 (from July 1, 2019)
The following table sets out the carrying amounts of right-of-use
assets included in plant and equipment in the consolidated
statements of financial position and the movements during the
period:
|
|
|
|
|
|
$
|
$
|
$
|
$
|
|
|
|
|
|
As of July 1, 2019
|
-
|
-
|
-
|
-
|
|
|
|
|
|
Adoption
|
-
|
24,164
|
|
24,164
|
Amortization
of right of use assets
|
-
|
(4,810)
|
|
(4,810)
|
Foreign
exchange
|
-
|
(3,336)
|
|
(3,336)
|
As of June 30, 2020
|
-
|
16,018
|
-
|
16,018
|
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the years ended June 30, 2020 and 2019
The following table sets out the lease obligations included in the
consolidated statements of financial position:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
portion of lease obligations
|
-
|
5,339
|
-
|
5,339
|
Non-current
portion of lease obligations
|
-
|
10,679
|
-
|
10,679
|
Total lease obligations
|
-
|
16,018
|
-
|
16,018
|
Future minimum lease payments required to meet obligations that
have initial or remaining non-cancellable lease terms are set out
in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within
1 year
|
-
|
6,589
|
-
|
6,589
|
Between
2 - 3 years
|
-
|
13,178
|
-
|
13,178
|
Total undiscounted lease obligations
|
-
|
19,767
|
-
|
19,767
|
The Company recognized rent expense relating to short-term leases
of $19,111 and interest expense on lease obligation of $1,779 in
the consolidated statements of operations and comprehensive (loss)
with respect to leases.
Warrant Liability
The
warrants issued on August 17, 2018 as part of the units as
described in notes 9 and 11 of the Company’s consolidated
financial statements for the year ended June 30, 2020, 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 for warrants expiring on August
17, 2020 was estimated using the following model inputs on the
following valuation dates:
|
|
|
As of August 17,
2018 (issue date)
|
|
408,150
|
Exercise
price
|
|
|
Share price on
measurement date
|
|
|
Risk free
rate
|
1.50%
|
|
Expected
volatility
|
115%
|
|
Expected dividend
yield
|
|
|
Expected life (in
years)
|
2
|
|
Change in fair
value
|
|
(73,532)
|
|
|
|
As of June 30,
2019
|
|
334,618
|
Exercise
price
|
|
|
Share price on
measurement date
|
|
|
Risk free
rate
|
1.67%
|
|
Expected
volatility
|
100%
|
|
Expected dividend
yield
|
|
|
Expected life (in
years)
|
1.13
|
|
Change in fair
value
|
|
(327,537)
|
As of June 30,
2020
|
|
7,081
|
Exercise
price
|
|
|
Share price on
measurement date
|
|
|
Risk free
rate
|
0.20%
|
|
Expected
volatility
|
162%
|
|
Expected dividend
yield
|
|
|
Expected life (in
years)
|
0.13
|
|
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the years ended June 30, 2020 and 2019
The
warrants issued on October 25, 2019 as part of the units as
described in notes 9 and 11 of the Company’s consolidated
financial statements for the year ended June 30, 2020, 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 for warrants expiring on
October 25, 2021 was estimated using the following model inputs on
the following valuation dates:
|
|
|
As of October 25,
2019 (issue date)
|
|
261,090
|
Exercise
price
|
|
|
Share price on
measurement date
|
|
|
Risk free
rate
|
1.66%
|
|
Expected
volatility
|
115%
|
|
Expected dividend
yield
|
|
|
Expected life (in
years)
|
2
|
|
Change in fair
value
|
|
(59,403)
|
|
|
|
As of June 30,
2020
|
|
201,687
|
Exercise
price
|
|
|
Share price on
measurement date
|
|
|
Risk free
rate
|
0.25%
|
|
Expected
volatility
|
156%
|
|
Expected dividend
yield
|
|
|
Expected life (in
years)
|
1.32
|
|
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,
2020, 2019 and 2018:
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the years ended June 30, 2020 and 2019
Expressed in US Dollars
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
|
Net
loss for the period
|
$(977,635)
|
$(3,210,504)
|
$(2,784,822)
|
|
|
|
|
Items not affecting
cash:
|
|
|
|
Amortization and
impairment
|
6,053
|
-
|
27,805
|
Change in value of
warrant derivative liability
|
(386,940)
|
(73,532)
|
-
|
Change in value of
lease liability
|
(3,337)
|
-
|
-
|
Government
assistance
|
(7,372)
|
-
|
-
|
Shared based
compensation
|
-
|
651,692
|
-
|
|
|
|
|
Change in working
capital balances:
|
|
|
|
(Increase) decrease
in amounts receivable and prepaid expenses
|
51,049
|
(28,291)
|
22,756
|
Increase (decrease)
in accounts payable and accrued liabilities
|
(69,693)
|
425,320
|
111,311
|
Increase (decrease)
in provision
|
(6,234)
|
-
|
(2,231)
|
Increase (decrease)
in share subscriptions
|
68,411
|
-
|
-
|
|
|
|
|
Net cash used in
operating activities
|
(1,325,698)
|
(2,235,315)
|
(2,625,181)
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
Proceeds from short
term debt
|
29,486
|
-
|
-
|
Lease liability
principal payment
|
(4,810)
|
-
|
-
|
Proceeds from
issuance of common shares
|
998,620
|
2,444,015
|
-
|
Proceeds from
exercise of warrants
|
-
|
-
|
923,169
|
Common share issue
cost finder shares
|
-
|
17,966
|
-
|
Common share issue
costs
|
(7,821)
|
(77,750)
|
-
|
|
|
|
|
Net cash provided
by financing activities
|
1,015,475
|
2,384,231
|
923,169
|
|
|
|
|
Effect of exchange
rate changes on cash
|
3,196
|
41,713
|
75,766
|
|
|
|
|
Increase (decrease)
in cash and cash equivalents
|
(307,026)
|
190,629
|
(1,626,246)
|
Cash and cash
equivalents - beginning of period
|
529,331
|
338,702
|
1,964,948
|
Cash
and cash equivalents - end of period
|
$222,305
|
$529,331
|
$338,702
|
|
|
|
|
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 during the years ended June 30, 2020 and
2019.
Financing Activities
The Company issued the following common shares during the year
ended June 30, 2020:
(a)
On
October 25, 2019, the Company closed a non-brokered private
placement offering of 29,077,768 units at a price of $0.034
(CAD$0.045) per unit for aggregate gross proceeds of $998,620
(CAD$1,308,500). Each unit consisted of one common share and
one-half common share purchase warrant, with each full warrant
exercisable into one common share at an exercise price of $0.07
(CAD$0.09) for a period of two years. The share issue costs
consisted of private placement listing fees paid to the
exchange.
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the years ended June 30, 2020 and 2019
Transactions with related parties
Parties
are related if one party has the direct or indirect ability to
control or exercise significant influence over the other party in
making operating and financial decisions. Parties are also related
if they are subject to common control or common significant
influence. A transaction is considered to be a related party
transaction when there is a transfer of economic resources or
financial obligations between related parties. Related party
transactions that are in the normal course of business and have
commercial substance are measured at the fair value.
Balances
and transactions between the Company and its wholly owned
subsidiaries, which are related parties of the Company, have been
eliminated and are not disclosed in this note.
Related
parties include companies controlled by key management personnel.
Key management personnel are composed of the Board of Directors,
Chief Executive Officer, Chief Financial Officer and the Senior
Vice Presidents of the Company.
The
following key management personnel related party transactions
occurred during the year ended June 30, 2020, 2019 and
2018:
|
|
|
|
|
|
|
|
|
|
|
|
Management
payroll
|
381,777
|
439,175
|
453,109
|
Management
fees
|
331,682
|
335,045
|
353,643
|
Share
based compensation
|
-
|
640,692
|
-
|
Total
|
713,459
|
1,414,912
|
806,752
|
The
following key management related party balances existed as of June
30, 2020, June 30, 2019 and June 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid payroll to
officers of the Company
|
-
|
26,568
|
26,632
|
Accounts payable
due to officers of the Company
|
86,685
|
16,400
|
16,400
|
Accrued liabilities
due to officers of the Company
|
54,727
|
-
|
-
|
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
The
Company adopted IFRS 16, Leases (‘‘IFRS
16’’) with the date of initial application of July 1,
2019. Comparative information has not been restated and continues
to be reported under IAS 17, Leases (‘‘IAS
17’’) (the accounting standard in effect for those
periods).
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the years ended June 30, 2020 and 2019
Policy applicable from July 1, 2019:
At
inception of a contract, the Company assesses whether a contract
is, or contains, a lease. A contract contains a lease if the
contract conveys the right to control the use of an identified
asset for a period of time in exchange for consideration. The
Company assesses whether:
●
The contract
involves the use of an explicitly or implicitly identified
asset;
●
The Company has the
right to obtain substantially all of the economic benefits from the
use of the asset throughout the contract term;
●
The Company has the
right to direct the use of the asset.
The
Company recognizes a right-of-use asset and a lease liability at
the commencement date of the lease (i.e. the date the underlying
asset is available for use).
Right-of-use
assets are measured at cost, less any accumulated depreciation and
impairment losses, and adjusted for any remeasurement of lease
liabilities. The cost of right-of-use assets includes the initial
amount of lease liabilities recognized, initial direct costs
incurred, and lease payments made at or before the commencement
date less any lease incentives received.
Unless
the Company is reasonably certain to obtain ownership of the leased
asset at the end of the lease term, the right-of-use assets are
depreciated on a straight-line basis over the shorter of the
estimated useful life and the lease term. Right-of-use assets are
subject to impairment.
At the
commencement date of the lease, the Company recognizes lease
liabilities measured at the present value of lease payments to be
made over the lease term, discounted using the interest rate
implicit in the lease or, if that rate cannot be readily
determined, the Company’s incremental borrowing rate. The
lease payments include fixed payments, variable lease payments that
depend on an index or a rate, amounts expected to be paid under
residual value guarantees and the exercise price of a purchase
option reasonably certain to be exercised by the
Company.
After
the commencement date, the amount of lease liabilities is increased
to reflect the accretion of interest and reduced for the lease
payments made. In addition, the carrying amount of lease
liabilities is remeasured if there is a modification, a change in
the lease term, a change in the fixed lease payments or a change in
the assessment to purchase the underlying asset.
The
Company presents right-of-use assets in the property, plant and
mine development line item on the consolidated balance sheets and
lease liabilities in the lease obligations line item on the
consolidated balance sheets.
Short-term leases and leases of low value assets
The
Company has elected not to recognize right-of-use assets and lease
liabilities for leases that have a lease term of 12 months or less
and do not contain a purchase option or for leases related to low
value assets. Lease payments on short-term leases and leases of low
value assets are recognized as an expense in the consolidated
statements of income.
Selected Annual Information and Selected Quarterly
Results
The
following is selected annual information for the three most
recently completed financial years:
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
-
|
-
|
-
|
Exploration and
evaluation expenses
|
160,064
|
238,758
|
371,755
|
Net loss and
comprehensive loss for the year
|
(974,439)
|
(3,168,791)
|
(2,709,056)
|
Basic and diluted
loss per share for the year
|
(0.00)
|
(0.01)
|
(0.01)
|
Total
assets
|
273,439
|
613,403
|
394,483
|
Total non-current
financial liabilities
|
10,679
|
-
|
-
|
Dividends
|
-
|
-
|
-
|
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the years ended June 30, 2020 and 2019
The
following is selected quarterly information for the eight most
recently completed quarters:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
-
|
-
|
-
|
-
|
Exploration and
evaluation expenses
|
95,009
|
57,180
|
6,179
|
1,696
|
Net loss and
comprehensive loss for the quarter
|
(425,550)
|
(34,999)
|
(340,010)
|
(173,880)
|
Basic and diluted
loss per share for the quarter
|
(0.00)
|
(0.00)
|
(0.00)
|
(0.00)
|
Working capital
(deficit) surplus
|
(918,048)
|
(484,374)
|
(449,374)
|
(839,074)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
-
|
-
|
-
|
-
|
Exploration and
evaluation expenses
|
65,880
|
123,691
|
29,515
|
19,672
|
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
(deficit) surplus
|
(665,886)
|
432,230
|
93,029
|
555,506
|
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, 2020 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.
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the years ended June 30, 2020 and 2019
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.
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.
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the years ended June 30, 2020 and 2019
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.
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.
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the years ended June 30, 2020 and 2019
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
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.
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the years ended June 30, 2020 and 2019
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.
COVID-19 may impact the Corporation’s business and
development plans.
In
March 2020 the World Health Organization declared coronavirus
COVID-19 a global pandemic. This contagious disease outbreak, which
has continued to spread, and any related adverse public health
developments, has adversely affected workforces, economies, and
financial markets globally, potentially leading to an economic
downturn. It is not possible for the Company to predict the
duration or magnitude of the adverse results of the outbreak and
its effects on the Company’s business or results of
operations at this time. The impact of COVID-19 on the Company has
been limited since no exploration or development work was ongoing
at the start of the pandemic. The Company was already setup to
operate and communicate remotely through the internet although
certain of our overseas staff and contractors have been indirectly
impacted by intermittent COVID-19 lockdowns in Madagascar and in
South Africa. Further lockdowns and unforeseen impacts could result
in delays to obtaining Molo Graphite Project construction
financing, the necessary construction and operating permits,
completing construction within the expected timeline, and
initiating and maintaining mining and plant
operations.
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.
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the years ended June 30, 2020 and 2019
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 in the foreseeable
future.
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.
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the years ended June 30, 2020 and 2019
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 expects 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.
The
internal controls are not expected to prevent and detect all
misstatements due to error or fraud.
As at
June 30, 2020, the Corporation’s CEO and CFO have certified
that the disclosure controls and procedures were effective and that
during the year ended June 30, 2020, 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.
NOTICE OF THE 2020 ANNUAL AND SPECIAL MEETING OF
SHAREHOLDERS
I am
pleased to give you notice that the 2020 annual and special meeting
(the “Meeting”)
of holders (the “Shareholders”) of common shares
(the “Shares”)
of NextSource Materials Inc. (the “Company”) will be held at the
Company’s offices at 130 King Street West, Exchange Tower
Suite 1940, Toronto, Ontario on December 29, 2020 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, 2020 and the
Auditors’ Report thereon.
2.
To elect five (5)
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.
3.
To approve the
re-appointment of MNP LLP, Chartered Accountants, as the
Company’s auditors for the fiscal year ending June 30, 2021
and to authorize the Board of Directors to fix their
remuneration.
4.
To ratify, confirm
and approve, in accordance with the policies of the Toronto Stock
Exchange, the Company’s new long-term incentive plan and
certain outstanding awards issued and unallocated awards issuable
thereunder.
5.
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.
6.
To transact other
business as may properly come before the Meeting or any
adjournments thereof.
Particulars
of the foregoing matters are set forth in the accompanying
management information circular of the Company dated November 20,
2020 (the “Circular”).
The
Board of Directors has fixed the close of business on November 19,
2020 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.
The
Meeting Materials will be available at
https://docs.tsxtrust.com/2084 on or about December 7, 2020 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 December 7, 2020.
DUE TO COVID PHYSICAL DISTANCING RESTRICTIONS, ALL SHAREHOLDERS ARE
ENCOURAGED TO VOTE IN ADVANCE USING THE ENCLOSED FORM OF PROXY
SINCE SHAREHOLDERS WILL NOT BE PERMITTED TO ATTEND THE MEETING IN
PERSON.
Any
shareholder that would like to attend the Meeting can join
ELECTRONICALLY through Zoom
using https://zoom.us/j/8234938921
or by dialing (647) 374-4685 and using Zoom meeting code
8234938921. Prior to attending, all attendees MUST obtain the Zoom meeting
PASSCODE in order to login.
The passcode can be obtained by advising the Company of your
intention to attend electronically at least three (3) business days
prior to the Meeting date by sending an email that includes your
full name (as it appears on your proxy/voting instruction form) and
contact information to info@nextsourcematerials.com.
All Shareholders are encouraged to submit your proxy votes online
before the Meeting through voteproxyonline.com
using the control number that has
been provided on your proxy/voting instruction form.
Shareholders that attend electronically and that have not already
voted by proxy will be permitted to vote their Shares during the
Meeting by requesting a ballot from the scrutineer at the start of
the Meeting.
If you
hold your Shares directly (that is, as a registered Shareholder),
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 December 23,
2020.
If you
hold your Shares in "street name", 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
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.
MANAGEMENT INFORMATION CIRCULAR
FOR THE 2020 ANNUAL AND SPECIAL MEETING OF
SHAREHOLDERS
INTRODUCTION
Unless
otherwise stated, the information contained in this Circular is as
of November 20, 2020.
No
person is authorized to give any information or to make any
representation other than those contained in this Circular and, if
given or made, such information or representation should not be
relied upon as having been authorized by the Corporation. The
delivery of this Circular shall not, under any circumstances,
create an implication that there has not been any change in the
information set forth herein since the date hereof.
All
references to shareholders in this Circular and the accompanying
Form of Proxy and Notice of Meeting are to be shareholders of
record unless specifically stated otherwise.
All
dollar amounts referenced herein, unless otherwise indicated, are
expressed in United States dollars and Canadian dollars are
referred to as “CAD”.
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 130
King Street West, Exchange Tower Suite 1940, Toronto, Ontario,
Canada M5X 2A2.
SOLICITATION OF PROXIES
This
Circular is being sent 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
2020 annual and special meeting of Shareholders (the
“Meeting”) to be
held 130 King Street West, Exchange Tower Suite 1940, Toronto,
Ontario, M5X 2A2 on December 29, 2020 at 10:00 a.m. (Toronto time),
or at any adjournment or postponement thereof.
Proxies
will be solicited primarily by mail but may also be solicited
personally, by telephone or electronically by the regular employees
of the Company at nominal costs. The proxy cut-off date for Shares
to be voted in advance of the Meeting will be on December 23, 2020
at 10:00 a.m. (Toronto time).
Record Date
Registered
Shareholders at the close of business on November 19, 2020, 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. 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 130 King Street West, Exchange Tower Suite
1940, Toronto, Ontario, Canada M5X 2A2.
The
Meeting Materials will be available at
https://docs.tsxtrust.com/2084 on or about December 7, 2020 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 December 7, 2020.
COVID Restrictions
DUE TO COVID PHYSICAL DISTANCING RESTRICTIONS, ALL SHAREHOLDERS ARE
ENCOURAGED TO VOTE IN ADVANCE USING THE ENCLOSED FORM OF PROXY
SINCE SHAREHOLDERS WILL NOT BE PERMITTED TO ATTEND THE MEETING IN
PERSON.
Any
shareholder that would like to attend the Meeting can join
ELECTRONICALLY through Zoom
using https://zoom.us/j/8234938921
or by dialing (647) 374-4685 and using Zoom meeting code
8234938921. Prior to attending, all attendees MUST obtain the Zoom meeting
PASSCODE in order to login.
The passcode can be obtained by advising the Company of your
intention to attend electronically at least three (3) business days
prior to the Meeting date by sending an email that includes your
full name (as it appears on your proxy/voting instruction form) and
contact information to info@nextsourcematerials.com.
All Shareholders are encouraged to submit your proxy votes online
before the Meeting through voteproxyonline.com
using the control number that has
been provided on your proxy/voting instruction form.
Shareholders that attend electronically and that have not already
voted by proxy will be permitted to vote their Shares during the
Meeting by requesting a ballot from the scrutineer at the start of
the Meeting.
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 meeting materials have 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. In accordance with National Instrument
54-101 – 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 meeting materials have 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 meeting materials or as otherwise provided to
you by your broker, bank, or other nominee.
Appointment and Submission of Proxies
The
persons named in the enclosed form of proxy are directors and/or
officers of the Company. 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. In all cases, the
completed proxy is to be delivered to the TSX Trust Company, 100
Adelaide Street West, Suite 301, Toronto, Ontario, Canada, M5H 4H1,
Attention: Proxy Department, by December 23, 2020 at 10:00 a.m.
(Toronto time). You can also submit
your proxy votes online through voteproxyonline.com
and using the control number that
will be provided on the Proxy/VIF.
Manner of Voting and Exercise of Discretion by Proxies
Your
Shares will be voted at the Meeting in accordance with the
instructions contained in the form of proxy or voting instruction
form. Your Shares will be voted for, against 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. Shareholders that attend electronically will be permitted
to vote their Shares during the Meeting by requesting a ballot from
the scrutineer at the start of the Meeting.
Revocability of Proxies
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; or (ii) by
timely delivery of a valid, later dated proxy; or (iii) by
electronically 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.
Quorum and Approval
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.
Unless
otherwise noted, approval of matters to be placed before the
Meeting are by “ordinary resolution”, which is a
resolution passed by a simple majority (50% plus 1) of the votes
cast by Shareholders of the Company entitled to vote and present in
person or represented by proxy.
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, 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.
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, the
LTIP Plan Resolution, 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
the date hereof, the Company has 598,073,572 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 the date hereof, 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 22, 2020 (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
The
audited financial statements of the Company for the year ended June
30, 2020, together with the auditor’s report thereon, will be
presented to the Shareholders at the Meeting. The Company’s
financial statements and management discussion and analysis are on
available on SEDAR at www.sedar.com.
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
five (5) nominated directors of the Company 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
(1)
|
Director
Since
|
# and % of
Common Shares Beneficially Owned, Controlled or Directed, Directly
or Indirectly (2)
|
Brett
Whalen (3)
(Markham,
ON, Canada)
|
45
|
Non-Executive
Chairman of the Board of Directors
|
Investor
|
July
2020
|
6,500,000
(1.1%)
|
Craig
Scherba
(Oakville,
ON, Canada)
|
48
|
Director,
and
President
& Chief Executive Officer
|
|
January
2010
|
600,000
(0.1%)
|
Robin
Borley
(Johannesburg,
South Africa)
|
52
|
Director,
and
Senior
Vice President – Mine Development,
|
|
December
2013
|
5,743,413
(1.0%)
|
Christopher
Kruba (3)(4)(5)(6)
(Windsor,
ON, Canada)
|
45
|
Director
|
Vice-President
and Senior Counsel of Nostrum Capital Corporation
|
December
2020
|
2,900,000
(0.5%)
|
David
McNeely (3)(4)(5)(6)
(Surrey,
BC, Canada)
|
58
|
Director
|
Physician
|
December
2020
|
31,600,000
(5.3%)
|
(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)
Brett Whalen, Christopher Kruba and David McNeely are independent
directors of the Company.
(4)
Members of the Audit Committee are Christopher Kruba (Chair), David
McNeely and Dean Comand.
(5)
Members of the Nomination Committee are Dean Comand (Chair),
Christopher Kruba, and David McNeely.
(6)
Members of the Compensation Committee are Dean Comand (Chair),
Christopher Kruba, and David McNeely.
(7)
Mr. Dean Comand has declined to be renominated to the Board of
Directors and will resign on December 29, 2020.
Biographies of the Nominated Directors of the Company
Brett Whalen (Markham, Canada)
Mr.
Whalen has been a director since July 2020 and was appointed as
Non-Executive Chairman in July 2020. Mr. Whalen has over 20 years
of investment banking and M&A expertise, spending over 16 of
those years at Dundee Corporation (Dundee Corp.). During his tenure
at Dundee Corp., Mr. Whalen was directly involved in completing
approximately $2 billion in M&A deals and helped raise over $10
billion dollars in capital to the resource sector. Mr. Whalen
became Vice President and Portfolio Manager of Goodman and Company
(a division of Dundee), and was President and CEO of the CMP Group
of Companies. Mr. Whalen has held Board seats of several TSX-listed
and privately held companies and holds a BA (Honours) degree in
Economics and Finance from Wilfrid Laurier University.
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 been 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 been 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.
Christopher Kruba (Windsor, Canada)
Christopher R.
Kruba has been a director since December 2019. Mr. Kruba is
Vice-President and Senior Counsel to Nostrum Capital Corporation.
Nostrum Capital Corporation is part of the Toldo Group, which is a
group of privately held related corporations based in Windsor,
Ontario, Canada. The Toldo Group corporations are involved in
various manufacturing industries and they have invested in a global
diversified list of asset-based corporations. In addition to his
responsibilities as counsel, Mr. Kruba serves on the Toldo Group
investment committee and assists in overseeing a diversified
portfolio of assets and investments. Prior to joining the Toldo
Group in 2000 Mr. Kruba practiced law at the law firm of Gignac,
Sutts LLP in Windsor, Ontario. Mr. Kruba is a graduate of the
University of Windsor’s Faculty of Law and he is a Member of
the Law Society of Ontario.
David McNeely (Surrey, Canada)
Dr.
McNeely has been a director since December 2019. He has over 25
years of experience as a Physician and also brings significant
experience resulting from work in Departmental Administration,
Program Development and Review, Patient Safety and Advocacy,
Contract Negotiations, Regulatory and Professional Practice
Oversight, and University Student Education. He has volunteered
with medical missions to Inuvik, NWT and Ulaanbaatar, Mongolia and
understands the important relationship between health and
responsible environmental/social stewardship. Dr. McNeely has been
an active front-line worker through the COVID-19 Pandemic, having
worked on the Airway Team at Surrey Memorial Hospital, a COVID
referral center, and in policy development and implementation for
this crisis. He is a major shareholder of NextSource
Materials.
Recommendation
The Board recommends that Shareholders vote “FOR” the
election of each of the nominated directors.
3.
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, 2021 and to authorize the Board to fix their remuneration.
MNP LLP served as auditor for the fiscal year ended June 30, 2020.
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, 2021. 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, 2021
and to authorize the Board to fix their remuneration.
4.
SHAREHOLDER APPROVAL OF LONG TERM INCENTIVE PLAN
At the
Meeting, Shareholders will be asked to consider and, if deemed
appropriate, to pass, with or without variation, the following
resolution to approve the Long Term Incentive Plan and the
unallocated Awards issuable thereunder (the “LTIP Plan
Resolution”):
“WHEREAS
the Board of Directors of the Company approved on November 18, 2020
the adoption of an long-term incentive plan (the
“LTIP Plan”) of
the Corporation, as set out in the management information circular
of the Company dated November 20, 2020 (the “Circular”), for the benefit of
directors, officers, senior executives and other employees of the
Company or a subsidiary, consultants and service providers
providing ongoing services to the Company and its
affiliates;
AND WHEREAS under the LTIP Plan, the total number of Shares
reserved and available for grant and issuance pursuant to Awards
(as defined under the LTIP Plan) under the LTIP Plan, shall not
exceed a number of Shares equal to ten percent (10%) of the total
issued and outstanding Shares of the Company at the time of
granting of Awards (on a non-diluted basis);
AND WHEREAS since the LTIP Plan was adopted by the Board, on
November 18, 2020, the Board of Directors of the Company granted
5,174,440 RSUs to the officers of the Corporation under the LTIP
Plan (the “Granted
RSUs”) which are subject to shareholder ratification.
The Granted RSUs have an exercise price of $Nil, will vest upon
achieving a project financing milestone and 33.33% of the RSUs will
expire on each of Feb 16, 2021, August 16, 2021 and Feb 16,
2022;
NOW THEREFORE BE IT HEREBY RESOLVED THAT:
1.
the LTIP Plan as
set out in the Circular be and is hereby approved;
2.
the Granted RSUs as
set out in the Circular be and are hereby ratified;
3.
the Company be and
is hereby authorized to grant Awards to acquire up to 10% of the
issued and outstanding common shares in the capital of the Company
from time to time in accordance with the terms of the LTIP Plan;
and
4.
any one director or
officer of the Company be and is hereby authorized, for and on
behalf of the Company, to execute and deliver all documents and do
all things as such person may determine to be necessary or
advisable to give effect to this resolution, the execution of any
such document or the doing of any such other act or thing being
conclusive evidence of such determination.”
Recommendation
The Board recommends that Shareholders vote “FOR” the
LTIP Plan Resolution.
General Information About the LTIP Plan
On
November 18, 2020, the Board adopted a new long-term incentive plan
for the Company (the “LTIP
Plan”). Prior to the adoption of the LTIP Plan by the
Board, the security-based compensation plans which the Company had
available in order to attract, retain and motivate directors,
officers, senior executives and other employees of the Company and
consultants and service providers providing ongoing services to the
Company, were its existing stock option plans (the
“Existing Option
Plans”), pursuant to which the Board was able to grant
stock options to such individuals. With the growth of the
Company’s business subsequent to adoption of the Existing
Option Plans, the Board determined it was in the best interests of
the Company to adopt a new security-based compensation plan which
would provide the Board with the ability and flexibility to make
broader and different forms of equity rewards as part of its need
to retain a competitive compensation structure for its directors,
officers, executives, employees, consultants and service
providers.
Consequently,
the Board adopted the LTIP Plan as a means to grant options
(“Options”),
restricted share units (“RSUs”), deferred share units
(“DSUs”), share
appreciation rights (“SARs”) and retention awards
(“Retention
Awards”, and together with the Options, the RSUs, the
DSUs and the SARs, the “Awards”) to directors, officers,
senior executives and other employees of the Company or a
subsidiary, consultants and service providers providing ongoing
services to the Company and its affiliates (“Eligible Participants”, and when
such Eligible Participants are granted Awards (as defined below),
the “Participants”) in order to
attract, retain and motivate such persons as individuals whose
skills, performance and loyalty to the objectives and interests of
the Company are necessary to the Company’s success, to
incentivize them to continue their services for the Company, and to
align their interests with those of the Company.
A
complete copy of the LTIP Plan is set out in Appendix
“C” of this Circular, and a summary of the material
provisions of the LTIP Plan is set out below.
The
adoption of the LTIP Plan by the Board was subject to approval of
the LTIP Plan by the Shareholders in accordance with the rules of
the TSX. Under TSX rules, security-based compensation arrangements
that are “evergreen plans”, like the LTIP Plan, which
contain provisions which provide for the replenishment of the
number of securities reserved when Awards are exercised, must be
approved by shareholders upon adoption and every three years
thereafter. Accordingly, at the Meeting, Shareholders will be asked
to approve the LTIP Plan and the unallocated Awards issuable
pursuant to the LTIP Plan, as set out below. If approval of the
LTIP Plan is obtained at the Meeting, the Company will not be
required to seek further approval of the grant of unallocated
Awards under the LTIP Plan until the Company’s 2023 annual
Shareholders’ meeting (provided that such meeting is held on
or prior to December 29, 2023).
Since
the LTIP Plan was adopted by the Board, 5,174,424 RSUs have been
granted to the officers of the Corporation under the LTIP Plan (the
“Granted RSUs”).
The Granted RSUs have an exercise price of $nil, will vest upon
achieving a project financing milestone and 33.33% of the RSUs will
expire on each six (6) month anniversary of the grant.
The
Granted RSUs cannot be exercised until such time that the
Shareholders have approved and ratified the LTIP Plan and the grant
of the Granted RSUs. Should Shareholders fail to approve the LTIP
Plan, the Granted RSUs will be cancelled forthwith (but could then
be replaced by stock options under the Existing Option Plan as an
alternative to the LTIP Plan).
Summary of the LTIP Plan
The
following is a summary of the material provisions of the LTIP
Plan:
Administration
|
The
LTIP Plan is administered and interpreted by the Board. The Board
may decide by resolution to appoint a committee of at least three
members to administer and interpret the LTIP Plan. The Board and
the committee may also delegate to one or more officers of the
Company, or to a committee of such officers, the authority, subject
to such terms and limitations as the Board or the committee may
determine, to grant, cancel, modify, waive rights with respect to,
alter, discontinue, suspend or terminate Awards.
|
Eligibility
|
The
persons eligible to receive Awards are the Eligible
Participants.
|
Reserve Maximum
|
Subject
to adjustment, the total number of Shares reserved and available
for grant and issuance pursuant to Awards under the LTIP Plan shall
not exceed a number of Shares equal to ten percent (10%) of the
total issued and outstanding Shares of the Company at the time of
granting of Awards (on a non-diluted basis) or such other number as
may be approved by the Shareholders of the Company from time to
time.
The
LTIP Plan is a “rolling plan” and “evergreen
plan”. This means any increase in the issued and outstanding
Shares (whether as a result of exercise of Awards or otherwise)
will result in an increase in the number of Shares that may be
issued on Awards outstanding at any time and any increase in the
number of Awards granted will, upon exercise, make new grants
available under the LTIP Plan.
|
Current Reserve
|
As of
the date of this Circular, the Company had 598,073,572 Shares
issued and outstanding. Consequently, 59,807,357 Shares are
available to be reserved for issuance under the Company’s
security-based compensation plans. This represents 10% of the
issued and outstanding Shares.
The
Company does not currently have any other security-based
compensation plan other than the Existing Option Plans, under which
stock options to acquire 36,250,000 Shares have been granted as of
the date of this Circular. This represents 6.1% of the issued and
outstanding Shares. No additional stock options will be granted
under the Existing Option Plans. The stock options granted under
the Existing Option Plans are in addition to any Awards which may
be made under the LTIP Plan. The exercise, cancellation or
expiration of the stock options granted under the Existing Option
Plans will make new grants available under the LTIP
Plan.
Accordingly,
as of the date of this Circular, there is a current reserve of
23,557,357 Shares available to be reserved for issuance under the
LTIP Plan. This is equivalent to 3.9% of the issued and outstanding
Shares.
|
Participation Limits
|
The
LTIP Plan does not include insider participation
limits.
|
Market Value as of Grant
|
Options
The
option price for Shares that are the subject of any Option shall be
determined by the Board at the time the Option is granted, but may
not be less than Market at the time of grant. The terms of the LTIP
Plan allow for the exercise of an Option on a cashless basis subjet
to approval by the Board o Directors. The number of Shares received
on the cashless exercise of an Option is determined by taking (i)
the difference between (A) the Market Value and (B) the exercise
price of such Option, (ii) multiplying that difference by the
number of Shares to which such Option relates, and then (iii)
dividing that product by the Market Value.
DSUs
Each
Eligible Participant may elect, once each calendar year, to be paid
a percentage of his or her annual retainer in the form of DSUs. The
number of DSUs an Eligible Participant is entitled to receive is
calculated by taking (i) the percentage elected by the Eligible
Participant, (ii) multiplying that percentage by the Eligible
Participant’s annual retainer, and then (iii) dividing that
product by the Market Value.
RSUs
The
purchase price of an RSU is determined by the Board and may be
zero.
SARs
The
exercise price of a SAR shall be fixed by the Board, but may not be
less than the Market Value at the time of grant. Upon exercise, the
holder is entitled to receive the number of Shares equal to the
excess of the Market Value on the effective date of such exercise
over the exercise price of the SAR.
Retention Awards
A
retention award entitles an Eligible Participant to receive the
number of Shares that is equal to the retention payment divided by
the Market Value on the vesting date of the retention award,
disregarding fractions and less any amounts withheld for
taxes.
“Market
Value” means at any date when the Market Value of
Shares of the Company is to be determined, and (i) if the Shares of
the Company are listed on the TSX, the “market price”
as defined in Part I of the TSX Company Manual, as same may be
amended, supplemented or replaced from time to time; or (ii) if the
Shares of the Company are not listed on any stock exchange, the
value as is determined solely by the Board, acting reasonably and
in good faith.
|
Market Appreciation/Dividend Payment
|
The
LTIP Plan contemplates the award of SARs.
In
addition, a holder of DSUs and RSUs is entitled to receive
additional DSUs or RSUs (or fractions thereof) when dividends are
declared and paid on Shares. The additional DSUs and RSUs are based
on (i) the actual amount of dividends that would have been paid if
the Participant had held Shares under the LTIP Plan on the
applicable record date divided by (ii) the Market Value on the date
on which the dividends on Shares are payable.
|
Vesting
|
Options
The
Board shall, from time to time by resolution, determine the vesting
provisions of the Options.
DSUs
The
Board may, at the time of grant, make DSUs subject to restrictions
and conditions (i.e. continuing employment or achievement of
pre-established performance goals). DSUs are exercisable
immediately following the date a Participant resigns or is
terminated.
RSUs
The
relevant conditions and vesting provisions of a RSU are determined
by the Board (including the performance period and criteria, if
any). In making its determination regarding the vesting
requirements applicable to any RSUs, the Board shall ensure that
such requirements are not considered a “salary deferral
arrangement” for purposes of applicable legislation. The
Board also sets a date upon which it is determined whether the
vesting conditions with respect to RSUs have been met (the
“RSU Vesting Determination Date”). This then
establishes the number of RSUs that become vested. The RSU Vesting
Determination Date cannot fall outside the period (the
“Restricted Period”) that ends on December 31 of the
year that is three (3) years after the calendar year in which the
grant of RSUs was made. Any RSU that remains unvested on the RSU
Vesting Determination or at the end of the Restricted Period,
whichever is earlier, is cancelled.
SARs
The
relevant conditions and vesting provisions of a SAR are determined
by the Board (including the performance period and criteria, if
any).
Retention Awards
The
relevant conditions and vesting provisions of a Retention Award are
determined by the Board (including the performance period and
criteria, if any).
|
Term
|
Options
The
Board shall determine the period in which an Option is exercisable.
An Option cannot expire later than ten (10) years from the date it
is granted.
DSUs
A
Participant may redeem his or her DSUs up to the 120th day after
the date of his or her termination.
RSUs
The
Board shall determine the Restricted Period, provided such
Restricted Period cannot expire later than December 31 of the year
that is three (3) years after the calendar year in which the grant
of RSUs was made.
SARs
The
Board shall determine the period during which a SAR is exercisable,
provided such period cannot expire more than ten (10) years from
the date the SAR was granted.
Retention Awards
The
relevant conditions and vesting provisions of a Retention Award are
determined by the Board (including the performance period and
criteria, if any).
|
Cessation
|
Options, SARs and Retention Awards
Termination
for Cause.
Any
Option, SAR or Retention Award, or any unexercised or unvested
portion thereof, shall terminate when a Participant ceases to be an
Eligible Participant for “cause”. “Cause”
shall include, among other things, gross misconduct, theft, fraud,
breach of confidentiality or breach of the any code of conduct of
the Company (or equivalent policy) and any reason determined by the
Company to be cause for termination.
Death.
Any
vested Option, SAR or Retention Award or the unexercised portion
thereof (“Vested
Award”), may be exercised by the estate of a
Participant if such Participant dies while he or she is an Eligible
Participant. However, a Vested Award must be exercised (i) within
one (1) year of the Participant’s death or (ii) prior to the
expiration of the original term of such Vested Award, whichever is
earlier.
Disability.
Any
Option, SAR or Retention Award, or any unexercised portion thereof,
may be exercised by the Participant or his/her representative as
the rights to exercise accrue. However, the Award must be exercised
(i) within three (3) years of the disability, (ii) until the
Participant becomes eligible for long-term disability benefits, or
(iii) prior to the expiration of the original term of the Award,
whichever is earlier.
Other.
If a
Participant ceases to be an Eligible Participant for any reason
other than for “cause”, death, or disability, the right
to exercise an Option, SAR or Retention Award shall be limited to
and expire on the earlier of (i) one (1) year after the date the
Participant ceases to be an Eligible Participant or (ii) the expiry
date of the Award set forth in the agreement pursuant to which the
Award was granted.
RSUs
Termination
for Cause.
Any
unvested RSUs credit to a Participant’s account shall be
forfeited and cancelled immediately upon such Participant ceasing
to be an Eligible Participant for “cause” or by
resignation.
Cessation
of Employment.
When a
Participant retires, becomes eligible to receive long-term
disability benefits, or has his or her employment terminated for
reasons other than “cause” or by reason of injury or
disability, such Participant’s participation in the LTIP Plan
shall be terminated immediately. Unvested RSUs shall remain in
effect until the applicable RSU Vesting Determination
Date.
Retirement.
If a
Participant retires and becomes involved in another business or
activity in the cannabis industry prior to the applicable RSU
Determination Date, then (i) if the Board determines the vesting
conditions have not been met on the RSU Vesting Determination Date,
the unvested RSUs of such Participant shall be forfeited and
cancelled, or (ii) if the Board determines the vesting conditions
have been met on the RSU Vesting Determination Date, such
Participant is entitled to receive the number of Shares he or she
is entitled to in respect of such RSUs adjusted for the length of
service provided by the Participant to the Company.
Death.
If a
Participant dies, his or her participation in the LTIP Plan
terminates immediately. All unvested RSUs remain in effect until
the RSU Vesting Determination Date. If the Board determines the
vesting conditions have not been met on the RSU Vesting
Determination Date, the unvested RSUs of such deceased Participant
shall be forfeited and cancelled. If the Board determines the
vesting conditions have been met on the RSU Vesting Determination
Date, such deceased Participant is entitled to receive the number
of Shares he or she is entitled to in respect of such RSUs adjusted
for the length of service provided by the Participant to the
Company.
Leave
of Absence.
If a
Participant voluntarily takes a leave of absence, his or her
participation in the LTIP Plan terminates immediately. All unvested
RSUs remain in effect until the RSU Vesting Determination Date. If
the Board determines the vesting conditions have not been met on
the RSU Vesting Determination Date, the unvested RSUs of such
Participant shall be forfeited and cancelled. If the Board
determines the vesting conditions have been met on the RSU Vesting
Determination Date, such Participant is entitled to receive the
number of Shares he or she is entitled to in respect of such RSUs
adjusted for the length of service provided by the Participant to
the Company.
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Assignability
|
Awards
granted under the LTIP Plan are transferrable or assignable only to
a “permitted assign”. A permitted assign means the
spouse of a Participant or a trustee, holding entity, or RRSP/RRIF
of the Participant or his or her spouse.
|
Amendments
|
The
Board may amend the LTIP Plan or any Award without consent of the
Participants provided that the amendment shall:
● not
adversely alter or impair any Award previously
granted;
● be
subject to any regulatory approvals;
● be
subject to Shareholder approval, where required, provided that
Shareholder approval is not required for following amendments and
the Board may make any changes which may include but are not
limited to: (i) amendments of a “housekeeping” nature;
(ii) a change to the vesting provisions of any Award; (iii) the
introduction or amendment of a cashless exercise feature payable in
securities, whether or not such feature provides for a full
deduction of the number of underlying securities from the LTIP Plan
reserve; and (iv) the addition of or amendment to any form of
financial assistance.
The
Board needs Shareholder approval to make the following
amendments:
● any
change to the maximum number of Shares issuable under the LTIP
Plan, except any increase due to an adjustment or due to the
evergreen nature of the plan;
● any
amendment that reduces the exercise price of an Award;
● any
amendment that extends the expiry date of an Award;
● any
amendment that changes the Eligible Participants;
● any
amendment that would permit an Award to be transferable or
assignable other than as currently permitted; and
● any
amendment to the amendment provisions of the LTIP
Plan.
Shares
held directly or indirectly by insiders that may benefit from
certain amendments shall be excluded from voting when obtaining
Shareholder approval.
|
Financial Assistance
|
The
LTIP Plan does not contain any form of financial
assistance.
|
Ratification
|
The
Granted RSUs are subject to ratification.
|
Black-out Period
|
If the
expiration date of an Option or SAR falls within a black-out period
or within the ten (10) business days following the end of the
black-out period, then the expiration of the Option or SAR is
extended to the tenth (10th) business day following the end of the
black-out period.
|
Change of Control
|
In the
event of a “Change in Control”, a reorganization of the
Company, an amalgamation of the Company, an arrangement involving
the Company, a take-over bid (as that term is defined in the
Securities Act (Ontario)) for all of the Shares or the sale or
disposition of all or substantially all of the property and assets
of the Company, the Board may make such provision for the
protection of the rights of the Participants as the Board in its
discretion considers appropriate in the circumstances.
“Change
in Control” means an event whereby (i) any person becomes the
beneficial owner, directly or indirectly, of 50% or more of either
the issued and outstanding Shares or the combined voting power of
the Company’s then outstanding voting securities entitled to
vote generally; (ii) any person acquires, directly or indirectly,
securities of the Company to which is attached the right to elect
the majority of the directors of the Company; (iii) the Company
undergoes a liquidation or dissolution or sells all or
substantially all of its assets; or (iv) the Board adopts a
resolution to the effect that a Change in Control as defined herein
has occurred or is imminent.
|
Adjustments
|
The
LTIP Plan may be adjusted if certain changes are made to the
Company’s capitalization (e.g. subdivision, consolidation or
reclassification of or a distribution of assets on (other than an
ordinary course dividend) the Shares) in order to preclude a
dilution or enlargement of the benefits due to Participants under
the LTIP Plan.
|
5.
APPROVAL OF SHARE CONSOLIDATION
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.
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.
General Information About the Share Consolidation
At the
annual and special meeting of our Shareholders held on December 2,
2019, 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
following 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
the date hereof, 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
|
598,073,572
|
86,752,702
|
684,826,274
|
Post-Consolidation 1:5 ratio
|
119,614,714
|
17,350,540
|
136,965,255
|
Post-Consolidation 1:6 ratio
|
99,678,929
|
14,458,784
|
114,137,712
|
Post-Consolidation 1:7 ratio
|
85,439,082
|
12,393,243
|
97,832,325
|
Post-Consolidation 1:8 ratio
|
74,759,197
|
10,844,088
|
85,603,284
|
Post-Consolidation 1:9 ratio
|
66,452,619
|
9,639,189
|
76,091,808
|
Post-Consolidation 1:10 ratio
|
59,807,357
|
8,675,270
|
68,482,627
|
(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, as of the date hereof, there are 598,073,572 Shares issued
and outstanding and 86,752,702 Shares reserved for issuance
pursuant to outstanding Options, RSUs (if the LTIP Plan Resolution
is approved by Shareholders) and Warrants, resulting in 684,826,274
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
119,614,714 Shares issued and outstanding and 17,350,540 Shares
reserved for issuance pursuant to outstanding Options, RSUs and
Warrants, resulting in 136,965,255 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).
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, RSUs and
Warrants
The
number of Shares subject to outstanding Options, RSUs (if the LTIP
Plan Resolution is approved by Shareholders) 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, Options or RSUs (if the
LTIP Plan Resolution is approved by Shareholders).
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
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, 2020 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, 2020 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
independent directors of the Company are Brett Whalen, Chris Kruba,
Dave McNeely and Dean Comand.
Executive 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. If the LTIP Plan
Resolution is approved by Shareholders at the Meeting, the
compensation program will also include other long-term
security-based Awards.
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).
Security-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 2018 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.
If the
LTIP Plan Resolution is approved by Shareholders at the Meeting,
Named Executive Officers may be issued other long-term
security-based Awards for the financial year ended June 30,
2021.
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, 2020.
Name
and
Principal
Position
|
Fiscal
Year
|
Salary and
Consulting Fees
($)
|
Option-Based
Awards
($)(1)
|
Non-Equity
Incentive Plan Compensation
($)
|
Pension
Value
($)
|
All Other
Compensation
($)(2)
|
Total
Compensation
($)
|
Craig
Scherba,CEO, President and Director (A)
|
2020
|
179,603
|
Nil
|
Nil
|
Nil
|
3,746
|
183,349
|
2019
|
179,989
|
87,992
|
Nil
|
Nil
|
4,998
|
272,979
|
2018
|
188,586
|
Nil
|
Nil
|
Nil
|
Nil
|
188,586
|
|
|
|
|
|
|
|
Marc
Johnson,
CFO
(B)
|
2020
|
134,882
|
Nil
|
Nil
|
Nil
|
3,746
|
138,628
|
2019
|
136,989
|
76,993
|
Nil
|
Nil
|
4,998
|
218,980
|
2018
|
141,346
|
Nil
|
16,000
|
Nil
|
1,622
|
158,968
|
|
|
|
|
|
|
|
Robin
Borley,
SVP
Mining and Director (C)
|
2020
|
196,800
|
Nil
|
Nil
|
Nil
|
Nil
|
196,800
|
2019
|
196,800
|
76,993
|
Nil
|
Nil
|
Nil
|
273,793
|
2018
|
196,800
|
Nil
|
Nil
|
Nil
|
Nil
|
196,800
|
|
|
|
|
|
|
|
Brent
Nykoliation, SVP Corporate Development (D)
|
2020
|
134,882
|
Nil
|
Nil
|
Nil
|
3,746
|
138,628
|
2019
|
136,989
|
76,993
|
Nil
|
Nil
|
4,998
|
218,980
|
2018
|
141,440
|
Nil
|
Nil
|
Nil
|
1,705
|
143,145
|
|
|
|
|
|
|
|
(A)
Mr. Scherba became
the Chief Executive Officer on July 30, 2015. 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.
(B)
Mr. Johnson became
the Chief Financial Officer on October 23, 2015. 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 $nil.
(2)
Other compensation
includes health benefits and other perquisites.
Option-Based Awards Outstanding
As at
June 30, 2020, a total of 18,000,000 Options granted to Named
Executive Officers were outstanding pursuant to the Existing Option
Plans, collectively, as follows:
Name and
Principal Position
|
Number of
Securities Underlying Unexercised Options
Exercisable
(#)
|
Option Exercise
Price
(USD$)
|
Option
Expiration Date
|
Value of unexercised in-the-money stock Options
(USD$)(1)
|
Craig
Scherba
|
950,000
|
0.056
|
December
22, 2020
|
Nil
|
CEO,
President
|
2,400,000
|
0.066
|
June 9,
2022
|
Nil
|
and
Director
|
1,600,000
|
0.076
|
March
26, 2024
|
Nil
|
Marc
Johnson
|
750,000
|
0.056
|
December
22, 2020
|
Nil
|
CFO
|
2,200,000
|
0.066
|
June 9,
2022
|
Nil
|
|
1,400,000
|
0.076
|
March
26, 2024
|
Nil
|
Robin
Borley
|
750,000
|
0.056
|
December
22, 2020
|
Nil
|
SVP
Mining and
|
2,200,000
|
0.066
|
June 9,
2022
|
Nil
|
Director
|
1,400,000
|
0.076
|
March
26, 2024
|
Nil
|
Brent
Nykoliation
|
750,000
|
0.056
|
December
22, 2020
|
Nil
|
SVP
Corporate
|
2,200,000
|
0.066
|
June 9,
2022
|
Nil
|
Development
|
1,400,000
|
0.076
|
March
26, 2024
|
Nil
|
Total
|
18,000,000
|
|
|
|
(1)
Based on a TSX
closing price of USD$ 0.029 (CAD $0.04) on June 30, 2020 and
presuming all Options are exercised.
Option-Based Awards – Value Vested or Earned During the
Year
The
value vested for option and share based awards and the value earned
for non-equity incentive plans during the year ending June 30, 2020
are as follows:
Name
and
Principal
Position
|
Option-based awards
value vested
during the year
($)
|
Share-based awards
value vested
during the year
($)
|
Non-equity incentive plan compensation
value earned
during the year
($)
|
Craig
Scherba,CEO, President and Director
|
Nil
|
Nil
|
Nil
|
Marc
Johnson,
CFO
|
Nil
|
Nil
|
Nil
|
Robin
Borley,
SVP
Mining and
Director
|
Nil
|
Nil
|
Nil
|
Brent
Nykoliation,
SVP
Corporate
Development
|
Nil
|
Nil
|
Nil
|
Performance Graph
The
following table and graph compares the cumulative total shareholder
return for CDN$100 invested in Shares of the Company on June 30,
2015 against the cumulative total shareholder return of the
S&P/TSX Capped Materials Index and the S&P/TSX Composite
Index to June 30, 2020.
June
30
|
2015
|
2016
|
2017
|
2018
|
2019
|
2020
|
NextSource
Shares
|
CAD
$100.00
|
CAD
$80.00
|
CAD
$60.00
|
CAD
$100.00
|
CAD
$95.00
|
CAD
$40.00
|
S&P/TSX Capped
Materials Index
|
CAD
$100.00
|
CAD
$115.85
|
CAD
$105.39
|
CAD
$116.47
|
CAD
$115.31
|
CAD
$141.80
|
S&P/TSX Composite
Index
|
CAD
$100.00
|
CAD
$94.98
|
CAD
$102.53
|
CAD
$109.92
|
CAD
$110.63
|
CAD
$104.77
|
The
Company stock price was affected by the mining industry slowdown
prior to 2015 but the stock price weakened throughout 2016 and 2017
due to weakness in the price of graphite during this period. The
price of the Shares of the Company improved significantly in 2018
and 2019 due to the strengthening of price of graphite and the
achievement of company-specific milestones, 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.
The stock price has declined in 2020 due to delays in obtaining the
necessary capital to begin construction of the Molo Graphite
Project and uncertainty due to COVID.
The
Compensation Committee renegotiated the employment and consulting
contracts of the executive officers in 2017, which was concurrent
with the submission of the mining permit for the Molo Graphite
Project to the Government of Madagascar.
Security-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 2018 Stock Option Plan (and, if approved, the
LTIP 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 Dean Comand, Chris Kruba and
David McNeely. All members are independent as per the standards of
National Instrument 58-101. During fiscal 2020, 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 2018 Stock Option Plan (and, if approved, the
LTIP 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$15,000 per month. He is eligible to receive specific
bonuses linked to achieving company milestones. His contract has an
18-month termination notice, which increases to 36 months if within
12 months of a change of control the Company gives notice of its
intention to terminate or a triggering event occurs and he elects
to terminate.
Estimated Incremental Payment on Change of Control or
Termination
The
following table provides details regarding the estimated
incremental payments from the Corporation to each of the NEOs upon
termination in connection with a change of control in accordance
with the above provisions, or upon termination without cause,
assuming a triggering event occurs on June 30, 2020.
Name
and
Principal
Position
|
Severance
Period
Without / With
Change of Control
(# of
months)
|
Base
Salary
per
Month
(USD$)(1)
|
Termination Pay
Without
Change of
Control
(USD$)
|
Termination
Pay
with
Change of
Control
(USD$)
|
Craig
Scherba,
CEO,
President and Director
|
18
months
(36
months)
|
15,000
|
270,000
|
540,000
|
Marc
Johnson,
CFO
|
18
months
(36
months)
|
11,250
|
202,500
|
405,000
|
Robin
Borley,
SVP
Mining and Director
|
18
months
(36
months)
|
16,400
|
295,200
|
590,400
|
Brent
Nykoliation,
SVP
Corporate Development
|
18
months
(36
months)
|
11,250
|
202,500
|
405,000
|
(1)
Conversion from CAD to USD using an exchange rate of $0.75 USD per
CAD
Director Compensation
The
Board, with the recommendation of the Compensation Committee,
determines the compensation payable to the directors of the Company
and reviews such compensation annually.
From
July 1, 2019 to December 31, 2019, each director was entitled to
(i) a CAD$2,500 monthly
fee (the Non-Executive Chairman was entitled to an additional
CAD$1,000 monthly fee and each Committee Chair was 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 2018
Stock Option Plan.
From
December 1, 2020 to June 30, 2020, each director was entitled to
(i) a CAD$1,250 monthly
fee (the Non- Executive Chairman was entitled to an additional
CAD$500 monthly fee); (ii) $nil per day for each meeting attended
in person; (iii) $nil for each meeting attended by
telephone upon furnishing an invoice for same; (iv) reimbursement
for travel and other meeting-related expenses and (v) may, from
time to time, be awarded Options under the provisions of the 2018
Stock Option Plan.
There
are no other arrangements under which the directors of the Company
were compensated by the Company during the most recently completed
financial year end for their services in their capacity as
directors. If the LTIP Plan Resolution is approved by Shareholders
at the Meeting, directors may be issued other long-term
security-based Awards for the financial year ended June 30,
2021.
Summary Compensation Table
The
following table is a summary of the compensation paid, directly or
indirectly, to the directors of the Company whom were not also NEOs
for the three most recently completed financial years ended June
30, 2020.
Name
and
Principal
Position
|
Fiscal
Year
|
Fees
Earned
($)
|
Option-Based
Awards(1)
($)
|
Non-Equity
Incentive Plan Compensation
($)
|
Pension
Value
($)
|
All Other
Compensation
($)
|
Total
Compensation
($)
|
Brett
Whalen,
Non-Executive
Chairman (A)
|
2020
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
2019
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
2018
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Chris
Kruba,
Director
(B)
|
2020
|
6,563
|
Nil
|
Nil
|
Nil
|
Nil
|
6,563
|
2019
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
2018
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
David
McNeely, Director (B)
|
2020
|
6,563
|
Nil
|
Nil
|
Nil
|
Nil
|
6,563
|
2019
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
2018
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Dean
Comand,
Director
(C)
|
2020
|
29,752
|
Nil
|
Nil
|
Nil
|
Nil
|
29,752
|
2019
|
28,500
|
79,743
|
Nil
|
Nil
|
Nil
|
108,243
|
2018
|
29,859
|
Nil
|
Nil
|
Nil
|
Nil
|
29,859
|
John
Sanderson (D)
|
2020
|
13,125
|
Nil
|
Nil
|
Nil
|
Nil
|
13,125
|
2019
|
31,500
|
82,493
|
Nil
|
Nil
|
Nil
|
113,993
|
2018
|
33,003
|
Nil
|
Nil
|
Nil
|
Nil
|
33,003
|
Dalton
Larson (E)
|
2020
|
11,877
|
Nil
|
Nil
|
Nil
|
Nil
|
11,877
|
2019
|
28,500
|
79,743
|
Nil
|
Nil
|
Nil
|
108,243
|
2018
|
29,859
|
Nil
|
Nil
|
Nil
|
Nil
|
29,859
|
Quentin
Yarie (F)
|
2020
|
7,126
|
Nil
|
Nil
|
Nil
|
Nil
|
7,126
|
2019
|
28,500
|
79,743
|
Nil
|
Nil
|
Nil
|
108,243
|
2018
|
29,859
|
Nil
|
Nil
|
Nil
|
Nil
|
29,859
|
(A)
Mr. Whalen receives
chairman fees of CAD$1,750 per month and became a director on July
17, 2020. He was appointed as Non-Executive Chairman on August 19,
2019.
(B)
Mr. Kruba and Mr.
McNeely receive director fees of $1,250 per month and became
directors on December 2, 2019.
(C)
Mr. Comand receives
director fees of CAD$1,250 per month. From January 2020 to August
2020, he received Chairman fees of $1,750 per month. Prior to
December 31, 2019, he received director fees of CAD$2,500 per month
plus committee chair fees of CAD$667 per month. Mr. Comand has
declined to be renominated to the Board of Directors and will
resign on December 29, 2020.
(D)
Mr. Sanderson
resigned as director on January 24, 2020. Prior to December 31,
2019, he received Chairman fees of CAD$3,500 per
month.
(E)
Mr. Larson resigned
as director on January 24, 2020. Prior to December 31, 2019, he
received director fees of CAD$2,500 per month plus committee chair
fees of CAD$667 per month.
(F)
Mr. Yarie resigned
as a director on September 27, 2019. Prior to resigning, he
received 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 $nil.
Option-Based Awards – Outstanding
As at
June 30, 2020, a total of 36,250,000 Options granted to directors
who are not Named Executive Officers were outstanding pursuant to
the Existing Option Plans, collectively, as follows:
Name and
Principal Position
|
Number of
Securities Underlying Unexercised Options
Exercisable
(#)
|
Option Exercise
Price
(USD$)
|
Option
Expiration Date
|
Value of unexercised in-the- money stock Options
(CDN$)(1)
|
Dean
Comand,
Director
|
750,000
|
0.056
|
December
22, 2020
|
Nil
|
2,200,000
|
0.066
|
June 9,
2022
|
Nil
|
1,450,000
|
0.076
|
March
26, 2024
|
Nil
|
Total
|
4,400,000
|
|
|
|
(1)
Based on a TSX
closing price of USD$ 0.029 (CAD $0.04) on June 30, 2020 and
presuming all Options are exercised.
Option and Share Based Awards – Value Vested or Earned During
the Year
The
value vested for option and share-based awards and the value earned
for non-equity incentive plans during the year ending June 30, 2020
are as follows:
Name and
Principal
Position
|
Option-based awards
value vested
during the year
($)
|
Share-based awards
value vested
during the year
($)
|
Non-equity incentive plan compensation
value earned
during the year
($)
|
Chris
Kruba
|
Nil
|
Nil
|
Nil
|
David
McNeely
|
Nil
|
Nil
|
Nil
|
Dean
Comand
|
Nil
|
Nil
|
Nil
|
John
Sanderson (1)
|
Nil
|
Nil
|
Nil
|
Dalton Larson (1)
|
Nil
|
Nil
|
Nil
|
Quentin Yarie (2)
|
Nil
|
Nil
|
Nil
|
(1)
Mr. Sanderson and
Mr. Larson resigned as directors on January 24, 2020.
(2)
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 2,
2019, the following individuals were elected as the Company’s
directors: Craig Scherba, Robin Borley, Jr., Dean Comand, Chris
Kruba and David McNeely. John Sanderson and Dalton Larson did not
receive a plurality of votes for and subsequently resigned as
directors. Brett Whalen was appointed as a director on July 17,
2020.
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. Brett Whalen, Chris Kruba, Dean Comand and David McNeely
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 21
times. Director attendance is set out in the following table with
the meetings attended out of the total meetings held while they
were directors. No director attended fewer than 75% of the total
number of board and committee meetings.
Attendance
|
Board
Meetings
|
Audit
Committee
|
Nomination
Committee
|
Compensation
Committee
|
Brett
Whalen
|
3 /
3
(Non-Executive
Chairman)
|
N/A
|
N/A
|
N/A
|
Craig
Scherba
|
21 /
21
|
N/A
|
N/A
|
N/A
|
Robin
Borley
|
19 /
21
|
N/A
|
N/A
|
N/A
|
Chris
Kruba
|
21 /
21
|
6
(Committee
Chair)
|
2
|
4
|
Dean
Comand
|
21 /
21
|
6
|
2
(Committee
Chair)
|
4
(Committee
Chair)
|
David
McNeely
|
20 /
21
|
6
|
2
|
4
|
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.
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
have 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 Shareholder 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
Circular, there are no known existing or potential conflicts of
interest between the Company and any of the directors or
officers.
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 Chris Kruba (Chair), Dean Comand and
David McNeely. All members are independent as per the standards of
National Instrument 58-101. During fiscal 2020, the Audit Committee
met six (6) 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 Dean Comand (Chair), Chris Kruba
and David McNeely. All members are independent as per the standards
of National Instrument 58-101. During fiscal 2020, the Nomination
Committee met two (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 Dean Comand (Chair), Chris Kruba
and David McNeely. All members are independent as per the standards
of National Instrument 58-101. During fiscal 2020, the Compensation
Committee met four (4) 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
None of
the directors of the Company are presently directors of other
issuers that are reporting issuers, or the equivalent, in a
Canadian or foreign jurisdiction.
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
|
Brett
Whalen
|
45
|
July
2020
|
0.3
years
|
Craig
Scherba
|
48
|
January
2010
|
10.8
years
|
Robin
Borley
|
52
|
December
2013
|
6.9
years
|
Dean
Comand
|
54
|
October
2014
|
6.1
years
|
Chris
Kruba
|
45
|
December
2019
|
0.8
years
|
David
McNeely
|
58
|
December
2019
|
0.8
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. 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
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 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 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 Chris Kruba (Chair), Dean Comand and
David McNeely. All members are independent and “financially
literate” as per the standards of National Instrument 52-110.
During fiscal 2020, the Audit Committee met four (6) times in person or by telephone.
All Audit Committee members attended all six 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
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.
Dean Comand P. Eng, CET MMP CDir. (Ancaster, Canada)
Mr.
Comand 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.
David McNeely (Surrey, Canada)
Dr.
McNeely has over 25 years of experience as a Physician and also
brings significant experience resulting from work in Departmental
Administration, Program Development and Review, Patient Safety and
Advocacy, Contract Negotiations, Regulatory and Professional
Practice Oversight, and University Student Education. He has
volunteered with medical missions to Inuvik, NWT and Ulaanbaatar,
Mongolia and understands the important relationship between health
and responsible environmental/social stewardship. Dr. McNeely has
been an active front-line worker through the COVID-19 Pandemic,
having worked on the Airway Team at Surrey Memorial Hospital, a
COVID referral center, and in policy development and implementation
for this crisis. He is a major shareholder of NextSource
Materials.
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, 2020
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, 2020 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, 2020, 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 MD&A during the fiscal year ending
June 30, 2020 was CAD$43,870 (June 30, 2019:
CAD$49,542).
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,
2020 were CAD$20,169 (June 30, 2019: CAD$72,549).
Non-Audit Assurance Fees:
The
aggregate fees, including expenses, billed by the Company’s
auditor for assurance services unrelated to the audit and non-audit
tax compliance during the year ended June 30, 2020 were CAD$Nil
(June 30, 2019: CAD$Nil).
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION
PLANS
The
Company has two (2) equity compensation plans approved by
shareholders, being a fixed stock option plan (the
“2016 Stock Option Plan”) and a 10%
rolling stock option plan that was approved by Shareholders at the
2018 annual and special meeting of the Company on December 4, 2018
(the “2018 Stock Option
Plan” and together with the Stock Option Plan, the
“Existing Option
Plans”). In respect of
the Existing Option Plans: (i) since December 4, 2018, no further
awards have been or shall be granted under the 2016 Stock Option
Plan; (ii) all Options issued under the 2016 Stock Option Plan that
remain outstanding shall continue to be governed by the terms and
conditions of the 2018 Stock Option Plan; (iii) 2016 Stock Option
Plan shall terminate in November 2026; and (iv) on December 4,
2018, the 2018 Stock Option Plan replaced the 2016 Stock Option
Plan as the Company’s primary incentive plan.
The
Company has adopted a security-based compensation plan that has not
yet been approved by Shareholders, being the LTIP Plan. In respect
of the LTIP Plan: (i) since August 19, 2020, no further awards have
been or shall be granted under the Existing Option Plans; (ii) all
Options issued under the Existing Option Plans that remain
outstanding shall continue to be governed by the terms and
conditions of the respective Existing Option Plans; (iii) on August
19, 2020, the LTIP Plan replaced the 2018 Stock Option Plan as the
Company’s primary incentive plan; and (iv) if the LTIP Plan
Resolution is approved by Shareholders at the Meeting, no further
awards shall be granted under the 2018 Stock Option Plan and it
shall terminate in accordance with its terms.
Set
forth below is a summary of securities issued and issuable under
all security-based compensation plans of the Company, being the
Existing Option Plans, as at June 30, 2020.
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 securities reflected in column
(a))
(#)
|
Equity
Compensation Plans Approved by Shareholders (Existing Option
Plans)
|
|
|
|
36,250,000(1)(3)
|
$0.067
|
17,399,479(2)
|
|
|
|
(1)
Representing
approximately 6.8% of the 536,494,789 Shares issued and outstanding
as at June 30, 2020.
(2)
Representing
approximately 3.2% of the 536,494,789 Shares issued and outstanding
as at June 30, 2020.
(3)
Of such Options,
22,400,000 Options are issued to existing insiders (which
represents approximately 3.75% of the currently issued and
outstanding Shares of the Company) and Nil to current employees or
consultants (which represents approximately Nil% of the currently
issued and outstanding Shares of the Company).
Set
forth below is a summary of securities issued and issuable under
all security-based compensation plans of the Company, being the
Existing Option Plans and LTIP Plan, as at November 20,
2020.
Name and
Position
|
Number of
securities to be issued upon exercise of outstanding Options,
Warrants, Awards, and rights(4)
(#)
|
Weighted-average
exercise price of outstanding Options, Warrants, Awards and
rights
($)
|
Number of
securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
(a))
(#)
|
Equity
Compensation Plans Approved by Shareholders (Existing Option
Plans)
|
|
|
|
36,250,000(1)
|
$0.067
|
Nil
|
|
|
|
Equity
Compensation Plans Not Approved by Shareholders
(LTIP
Plan)
|
|
|
|
5,174,424(2)
|
Nil
|
22,782,230(3)
|
|
|
|
(1)
Representing
approximately 6.1% of the 598,073,572 Shares issued and outstanding
as at November 20, 2020.
(2)
Representing
approximately 0.9% of the 598,073,572 Shares issued and outstanding
as at November 20, 2020.
(3)
Representing
approximately 3.8% of the 598,073,572 Shares issued and outstanding
as at November 20, 2020.
(4)
Of such securities,
22,400,000 Options and 5,174,424 Granted RSUs are issued to
existing insiders (which represents approximately 4.6% of the
currently issued and outstanding Shares of the Company) and Nil
Options to current employees or consultants (which represents
approximately Nil% of the currently issued and outstanding Shares
of the Company). The
remainder of the outstanding Options are held by former insiders
and consultants, which will be cancelled on the anniversaries of
their resignations.
The
following table provides details of the burn rate under the
Existing Option Plans for the three financial years ended June 30,
2020, June 30, 2019, and the year ended June 30, 2018.
Fiscal Year
Ended
|
Burn Rate(1)
|
Number
of
Options
Granted
|
Weighted Average
Number of Shares Outstanding
|
Year
Ended June 30, 2020
|
0.0%
|
Nil
|
527,206,058
|
Year
Ended June 30, 2019
|
2.4%
|
11,850,000
|
493,586,450
|
Year
Ended June 30, 2018
|
0.0%
|
Nil
|
468,252,639
|
(1)
Calculated by dividing the number of Options granted under the
Existing Option Plans during the applicable period by the weighted
average number of Shares outstanding for the applicable
period.
Summary of the Existing Option Plans
The
following are summaries of the Existing Option Plans, each of which
has been approved by Shareholders.
2016 Stock Option Plan
The
purpose of the 2016 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 2016 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 2016 Stock Option
Plan.
The
Board (or a committee appointed by the Board) administers the 2016
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 2016 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 2016
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 2016
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 2016
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 2016 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 2016 Stock Option Plan
shall be immediately cancelled.
Under
the terms of the 2016 Stock Option Plan, the Board is permitted to
make certain adjustments or modifications to the 2016 Stock Option
Plan and any Option that may have been issued under the 2016 Stock
Option Plan. Notwithstanding the amendment provisions included in
the 2016 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 2016 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
2016 Stock Option Plan shall terminate in November
2026.
2018 Stock Option Plan
The
principal purposes of the 2018 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 2018 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 2018 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 2018
Stock Option Plan. The 2018 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 2018 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 2018 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 2018 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 2018 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 2018 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 2018 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 2018 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 2018 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 2018 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 2018
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 2018 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 2018 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 2018 Stock Option Plan (other than by virtue
of adjustments permitted under the 2018 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
2018 Stock Option Plan, or
●
Modifying the
amending provisions of the 2018 Stock Option Plan.
If the
LTIP Plan Resolution is approved by Shareholders at the Meeting, no
further awards shall be granted under the 2018 Stock Option Plan
and it shall terminate in accordance with its terms.
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., 130
King Street West, Exchange Tower Suite 1940, Toronto, Ontario, M5X
2A2.
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.
APPENDIX “C”
LONG-TERM INCENTIVE PLAN
NEXTSOURCE MATERIALS INC.
LONG-TERM
INCENTIVE PLAN
Approved by the Board of Directors on
November 18, 2020
NEXTSOURCE MATERIALS INC.
LONG-TERM INCENTIVE PLAN
TABLE OF CONTENTS
Article
1 − DEFINITIONS
|
1
|
Section
1.1
|
Definitions.
|
1
|
Article
2 − PURPOSE AND ADMINISTRATION OF THE PLAN; GRANTING OF
AWARDS
|
5
|
Section
2.1
|
Purpose of the
Plan.
|
5
|
Section
2.2
|
Implementation and
Administration of the Plan.
|
5
|
Section
2.3
|
Eligible
Participants.
|
6
|
Section
2.4
|
Shares
Subject to the Plan.
|
6
|
Section
2.5
|
Granting of
Awards.
|
7
|
Article
3 − OPTIONS
|
7
|
Section
3.1
|
Nature
of Options.
|
7
|
Section
3.2
|
Option
Awards.
|
7
|
Section
3.3
|
Option
Price.
|
7
|
Section
3.4
|
Option
Term.
|
7
|
Section
3.5
|
Exercise of
Options.
|
8
|
Section
3.6
|
Method
of Exercise and Payment of Purchase Price.
|
8
|
Section
3.7
|
Option
Agreements.
|
9
|
Article
4 − DEFERRED SHARE UNITS
|
9
|
Section
4.1
|
Nature
of DSUs.
|
9
|
Section
4.2
|
Election to
Participate.
|
9
|
Section
4.3
|
DSU
Awards.
|
10
|
Section
4.4
|
Redemption of
DSUs.
|
10
|
Section
4.5
|
Award
of Dividend Equivalents.
|
10
|
Section
4.6
|
Unfunded
Plan.
|
11
|
Section
4.7
|
DSU
Agreements.
|
11
|
Article
5 − RESTRICTED SHARE UNITS
|
11
|
Section
5.1
|
Nature
of RSUs.
|
11
|
Section
5.2
|
RSU
Awards.
|
11
|
Section
5.3
|
Restriction
Period.
|
12
|
Section
5.4
|
Performance
Criteria and Performance Period.
|
12
|
Section
5.5
|
RSU
Vesting Determination Date.
|
12
|
Section
5.6
|
Settlement of
RSUs.
|
12
|
Section
5.7
|
Determination of
Amounts.
|
13
|
Section
5.8
|
RSU
Agreements.
|
14
|
Section
5.9
|
Award
of Dividend Equivalents.
|
14
|
Article
6 − SHARE APPRECIATION RIGHTS
|
14
|
Section
6.1
|
Nature
of SARs.
|
14
|
Section
6.2
|
SAR
Awards.
|
14
|
Section
6.3
|
SAR
Price.
|
14
|
Section
6.4
|
SAR
Term.
|
15
|
Section
6.5
|
Exercise of
SARs.
|
15
|
Section
6.6
|
Method
of Exercise and Payment of Purchase Price.
|
15
|
Section
6.7
|
SAR
Agreements.
|
16
|
Article
7 − RETENTION AWARDS
|
16
|
Section
7.1
|
Nature
of Retention Awards.
|
16
|
Section
7.2
|
Retention
Awards.
|
16
|
Section
7.3
|
Payment to
Participant.
|
16
|
Section
7.4
|
Retention Award
Agreements.
|
17
|
Article
8 − GENERAL CONDITIONS
|
17
|
Section
8.1
|
General Conditions
applicable to Awards.
|
17
|
Section
8.2
|
General Conditions
applicable to Options, SARs and Retention Awards.
|
18
|
Section
8.3
|
General Conditions
applicable to RSUs.
|
19
|
Article
9 − ADJUSTMENTS AND AMENDMENTS
|
21
|
Section
9.1
|
Adjustment to
Shares Subject to Outstanding Awards.
|
21
|
Section
9.2
|
Amendment or
Discontinuance of the Plan.
|
22
|
Article
10 − MISCELLANEOUS
|
24
|
Section
10.1
|
Use of
an Administrative Agent and Trustee.
|
24
|
Section
10.2
|
Tax
Withholding.
|
24
|
Section
10.3
|
Reorganization of
the Company.
|
24
|
Section
10.4
|
Personal
Information
|
25
|
Section
10.5
|
Governing
Laws.
|
25
|
Section
10.6
|
Severability.
|
25
|
Section
10.7
|
Effective Date of
the Plan.
|
25
|
NEXTSOURCE MATERIALS INC.
LONG-TERM INCENTIVE PLAN
NextSource
Materials Inc. (the “Company”) hereby establishes this
Omnibus Long-Term Incentive Plan for Eligible Participants and for
the purposes set out herein.
ARTICLE 1 − DEFINITIONS
Where
used herein or in any amendments hereto or in any communication
required or permitted to be given hereunder, the following terms
shall have the following meanings, respectively, unless the context
otherwise requires:
“Account” means an account
maintained for each Participant on the books of the Company which
will be credited with Awards, including any Dividend Equivalents,
in accordance with the terms of this Plan;
“Affiliate” has the meaning given
to this term in the Securities
Act (Ontario), as such legislation may be amended,
supplemented or replaced from time to time;
“Associate”, where used to indicate
a relationship with a Participant, means (i) any partner of that
Participant and (ii) the spouse of that Participant and that
Participant’s children, as well as that Participant’s
relatives and that Participant’s spouse’s relatives, if
they share that Participant’s residence;
“Awards” means an Option, a SAR, a
RSU, a DSU or a Retention Award granted to a Participant pursuant
to the terms of the Plan;
“Black-Out Period” means a period
of time when pursuant to any policies of the Company, any
securities of the Company may not be traded by certain persons
designated by the Company;
“Board” has the meaning ascribed
thereto in Section 2.1(1)
hereof;
“Business Day” means a day other
than a Saturday, Sunday or statutory holiday, when banks are
generally open for business in Toronto, Ontario, for the
transaction of banking business;
“Cash Equivalent” means the amount
of money equal to the Market Value multiplied by the number of
vested RSUs in the Participant’s Account, net of any
applicable taxes in accordance with Section 10.2, on the RSU Settlement
Date;
“Cause” has the meaning ascribed
thereto in Section 8.2(1)
hereof;
“Change in Control” means an event
whereby (i) any Person becomes the beneficial owner, directly or
indirectly, of 50% or more of either the issued and outstanding
Shares or the combined voting power of the Company’s then
outstanding voting securities entitled to vote generally; (ii) any
Person acquires, directly or indirectly, securities of the Company
to which is attached the right to elect the majority of the
directors of the Company; (iii) the Company undergoes a liquidation
or dissolution or sells all or substantially all of its assets; or
(iv) the Board adopts a resolution to the effect that a Change in
Control as defined herein has occurred or is imminent.
“Committee” has the meaning
ascribed thereto in Section
2.1(1) hereof;
“Consultant” means a person, other
than an officer, director, senior executive, or employee of the
Company or a Subsidiary, that provides ongoing services to the
Company, and includes for an individual Consultant, a corporation
of which the individual Consultant is an employee or shareholder,
or a partnership of which the individual Consultant is an employee
or partner;
“Consulting Agreement” means, with
respect to any Participant, any written consulting agreement
between the Company or an affiliate and such
Participant;
“Dividend Equivalent” means a
bookkeeping entry equivalent in value to a dividend paid on a Share
credited to a Participant’s Account in accordance with
Section 4.5
hereof;
“DSU” means a deferred share unit,
which is a bookkeeping entry equivalent in value to a Share
credited by the Company to a Participant’s Account in
accordance with Article 4
hereof, subject to the provisions of this Plan;
“DSU Agreement” means a written
letter agreement between the Company and a Participant evidencing
the grant of DSUs and the terms and conditions
thereof;
“Eligibility Date” has the meaning
ascribed thereto in Section
8.2(3) hereof;
“Eligible Participants” has the
meaning ascribed thereto in Section
2.3(1) hereof;
“Employment Agreement” means, with
respect to any Participant, any written employment agreement
between the Company or an affiliate and such
Participant;
“Exercise Notice” means a notice in
writing signed by a Participant and stating the Participant’s
intention to exercise a particular Award, if
applicable;
“Grant Agreement” means an
agreement evidencing the grant to a Participant of an Award,
including an Option Agreement, a SAR Agreement, a DSU Agreement, a
RSU Agreement, a Retention Award Agreement, an Employment
Agreement, or a Consulting Agreement;
“Insider” has the meaning given to
the term in Part I of the TSX Company Manual, as same may be
amended, supplemented or replaced from time to time;
“Market Value” means at any date
when the Market Value of Shares of the Company is to be determined,
and (i) if the Shares of the Company are listed on the TSX, the
“market price” as defined in Part I of the TSX Company
Manual, as same may be amended, supplemented or replaced from time
to time; or (ii) if the Shares of the Company are not listed on any
stock exchange, the value as is determined solely by the Board,
acting reasonably and in good faith;
“Notice of Redemption” means the
written notice by a Participant, or the administrator or liquidator
of the estate of the Participant, to the Company of the
Participant’s wish to redeem his or her DSUs for cash or
Shares;
“Option” means an option granted by
the Company to a Participant entitling such Participant to acquire
a designated number of Shares from treasury at the Option Price,
subject to the provisions of this Plan;
“Option Agreement” means a written
letter agreement between the Company and a Participant evidencing
the grant of Options and the terms and conditions
thereof;
“Option Price” has the meaning
ascribed thereto in Section 3.2
hereof;
“Option Term” has the meaning
ascribed thereto in Section
3.4(1) hereof;
“Participants” means Eligible
Participants that are granted Awards under the Plan;
“Participant’s Account” means
an account maintained for each Participant’s participation in
DSUs and/or RSUs under the Plan;
“Performance Criteria” means
criteria established by the Board which, without limitation, may
include criteria based on the Participant’s personal
performance and/or the financial performance of the Company and/or
of its Affiliates, and that may be used to determine the vesting of
the Awards, when applicable;
“Performance Period” means the
period determined by the Board pursuant to Section 5.3 hereof;
“Person” means an individual,
corporation, company, cooperative, partnership, trust,
unincorporated association, entity with juridical personality or
governmental authority or body, and pronouns which refer to a
Person shall have a similarly extended meaning;
“Plan” means this Omnibus Long-Term
Incentive Plan, as amended and restated from time to
time;
“Restriction Period” means the
period determined by the Board pursuant to Section 5.4(1) hereof;
“Retention Award” means any payment
to a Participant that is not payable periodically for services
provided by the Participant, as determined by the Board from time
to time, as provided in Article
7 hereof.
“Retention Award Agreement” means a
written letter agreement between the Company and a Participant
evidencing the grant of Retention Awards and the terms and
conditions thereof;
“Retention Payment” means the
retention payment specified in the Retention Agreement, Employment
Agreement, or Consulting Agreement;
“RSU” means a right awarded by the
Company to a Participant to receive a payment in the form of Shares
as provided in Article 5
hereof, subject to the provisions of this Plan;
“RSU Agreement” means a written
letter agreement between the Company and a Participant evidencing
the grant of RSUs and the terms and conditions
thereof;
“RSU Settlement Date” has the
meaning determined in Section
5.6(1)(a);
“RSU Settlement Notice” means a
notice by a Participant to the Company electing the desired form of
settlement of vested RSUs.
“RSU Vesting Determination Date”
has the meaning described thereto in Section 5.5 hereof;
“SAR” means a right granted to a
Participant as provided in Article
6 hereof to receive, upon exercise by the Participant, the
excess of (i) the Market Value of one Share on the date of exercise
over (ii) the grant price of the right on the date of grant, or if
granted in connection with an outstanding Option on the date of
grant of the related Option, as specified by the Board in its sole
discretion, which, except in the case of Substitute Awards, shall
not be less than the Market Value of one Share on such date of
grant of the right or the related Option, as the case may be,
subject to the provisions of this Plan;
“SAR Agreement” means a written
letter agreement between the Company and a Participant evidencing
the grant of SARs and the terms and conditions
thereof;
“SAR Price” has the meaning
ascribed thereto in Section 6.2
hereof;
“SAR Term” has the meaning ascribed
thereto in Section 6.4(1)
hereof;
“Share Compensation Arrangement”
means a stock option, stock option plan, employee stock purchase
plan, long-term incentive plan or any other compensation or
incentive mechanism involving the issuance or potential issuance of
Shares to one or more full-time employees, directors, officers,
insiders, service providers or Consultants of the Company or a
Subsidiary including a share purchase from treasury by a full-time
employee, director, officer, insider, service provider or
Consultant which is financially assisted by the Company or a
Subsidiary by way of a loan, guarantee or otherwise;
“Shares” means the common shares in
the share capital of the Company;
“Subsidiary” means a corporation,
company or partnership that is controlled, directly or indirectly,
by the Company;
“Successor Company” has the meaning
ascribed thereto in Section
9.1(3) hereof;
“Tax Act” means the Income Tax Act (Canada) and its
regulations thereunder, as amended from time to time.
“Termination Date” means (i) in the
event of a Participant’s resignation, the date on which such
Participant ceases to be an employee of the Company or a Subsidiary
and (ii) in the event of the termination of the Participant’s
employment by the Company or a Subsidiary, the effective date of
the termination as specified in the notice of termination provided
to the Participant by the Company or the Subsidiary, as the case
may be;
“TSX” means the Toronto Stock
Exchange; and
“Vested Awards” has the meaning
described thereto in Section
8.2(2) hereof.
ARTICLE 2 − PURPOSE AND ADMINISTRATION OF THE PLAN;
GRANTING OF AWARDS
Section
2.1 Purpose of the Plan.
(1)
The purpose of
the Plan is to permit the Company to grant Awards to Eligible
Participants, subject to certain conditions as hereinafter set
forth, for the following purposes:
(a)
to increase the
interest in the Company’s welfare of those Eligible
Participants, who share responsibility for the management, growth
and protection of the business of the Company or a
Subsidiary;
(b)
to provide an
incentive to such Eligible Participants to continue their services
for the Company or a Subsidiary and to encourage such Eligible
Participants whose skills, performance and loyalty to the
objectives and interests of the Company or a Subsidiary are
necessary or essential to its success, image, reputation or
activities;
(c)
to reward the
Participants for their performance of services while working for
the Company or a Subsidiary; and
(d)
to provide a means
through which the Company or a Subsidiary may attract and retain
able Persons to enter its employment.
Section
2.2 Implementation and Administration of the Plan.
(1)
The Plan shall be
administered and interpreted by the Board of Directors of the
Company (the “Board”) or, if the Board by
resolution so decides, by a committee appointed by the Board (the
“Committee”) and
consisting of not less than three (3) members of the Board. If a
Committee is appointed for this purpose, all references to the term
“Board” will be deemed to be references to the
Committee.
(2)
The Board or, for
greater certainty, the Committee, may, from time to time, as it may
deem expedient, adopt, amend and rescind rules, regulations and
policies for carrying out the provisions and purposes of the Plan,
subject to any applicable rules of the TSX. Subject to the
provisions of the Plan, the Board or, for greater certainty, the
Committee, is authorized, in its sole discretion, to make such
determinations under, and such interpretations of, and take such
steps and actions in connection with, the proper administration of
the Plan as it may deem necessary or advisable. The interpretation,
construction and application of the Plan and any provisions hereof
made by the Board or, for greater certainty, the Committee, shall
be final and binding on all Eligible Participants.
(3)
No member of the
Board or, for greater certainty, the Committee, shall be liable for
any action or determination taken or made in good faith in the
administration, interpretation, construction or application of the
Plan or any Award granted hereunder.
(4)
Any determination
approved by a majority of the Board or, for greater certainty, the
Committee, shall be deemed to be a determination of that matter by
the Board or, for greater certainty, the Committee.
(5)
Subject to the
terms of this Plan and applicable law, the Board or, for greater
certainty, the Committee, may delegate to one or more officers of
the Company, or to a committee of such officers, the authority,
subject to such terms and limitations as the Board or the Committee
may determine, to grant, cancel, modify, waive rights with respect
to, alter, discontinue, suspend or terminate Awards.
(6)
The Plan shall not
in any way fetter, limit, obligate, restrict or constrain the Board
with regard to the allotment or issuance of any Shares or any other
securities in the capital of the Company. For greater clarity, the
Company shall not by virtue of this Plan be in any way restricted
from declaring and paying stock dividends, repurchasing Shares or
varying or amending its share capital or corporate
structure.
Section
2.3 Eligible Participants.
(1)
The Persons who
shall be eligible to receive Awards (“Eligible Participants”) shall be
the directors, officers, senior executives and other employees of
the Company or a Subsidiary, Consultants and service providers
providing ongoing services to the Company and its Affiliates. In
determining Awards to be granted under the Plan, the Board shall
give due consideration to the value of each Eligible
Participant’s present and potential future contribution to
the Company’s success. For greater certainty, a Person whose
employment with the Company or a Subsidiary has ceased for any
reason, or who has given notice or been given notice of such
cessation, whether such cessation was initiated by such employee,
the Company or such Subsidiary, as the case may be, shall cease to
be eligible to receive Awards hereunder as of the date on which
such Person provides notice to the Company or the Subsidiary, as
the case may be, in writing or verbally, of such cessation, or on
the Termination Date for any cessation of a Participant’s
employment initiated by the Company.
(2)
Participation in
the Plan shall be entirely voluntary and any decision not to
participate shall not affect an Eligible Participant’s
relationship or employment with the Company.
(3)
Notwithstanding any
express or implied term of this Plan to the contrary, the granting
of an Award pursuant to the Plan shall in no way be construed as a
guarantee of employment by the Company to the
Participant.
Section
2.4
Shares Subject to the Plan.
(1)
Subject to
adjustment pursuant to provisions of Article 9 hereof, the total number of
Shares reserved and available for grant and issuance pursuant to
Awards under the Plan shall not exceed a number of Shares equal to
ten percent (10%) of the total issued and outstanding Shares of the
Company at the time of granting of Awards (on a non-diluted basis)
or such other number as may be approved by the shareholders of the
Company from time to time. Any increase in the issued and
outstanding Shares (whether as a result of exercise of Awards or
otherwise) will result in an increase in the number of Shares that
may be granted and issued pursuant to Awards under the Plan and any
Awards granted will, upon exercise, make new grants and issuances
available under the Plan.
(2)
Shares in respect
of which an Award is granted under the Plan, but not exercised
prior to the termination of such Award or not vested or delivered
prior to the termination of such Award due to the expiration,
termination or lapse of such Award, shall be available for Awards
to be granted thereafter pursuant to the provisions of the
Plan.
(3)
All Shares issued
pursuant to the exercise or the vesting of the Awards granted under
the Plan shall be so issued as fully paid and non-assessable
Shares.
Section
2.5 Granting of Awards.
(1)
Any Award granted
under the Plan shall be subject to the requirement that if at any
time counsel to the Company shall determine that the listing,
registration or qualification of the Shares subject to such Award,
if applicable, upon any securities exchange or under any law or
regulation of any jurisdiction, or the consent or approval of any
securities exchange or any governmental or regulatory body, is
necessary as a condition of, or in connection with, the grant or
exercise of such Award or the issuance or purchase of Shares
thereunder, if applicable, such Award may not be accepted or
exercised in whole or in part unless such listing, registration,
qualification, consent or approval shall have been effected or
obtained on conditions acceptable to the Board. Nothing herein
shall be deemed to require the Company to apply for or to obtain
such listing, registration, qualification, consent or
approval.
(2)
Any Award granted
under the Plan shall be subject to the requirement that the Company
has the right to place any restriction or legend on any securities
issued pursuant to this Plan including, but in no way limited to
placing a legend to the effect that the securities have not been
registered under the United States Securities Act of 1933 and may
not be offered or sold in the United States unless registration or
an exemption from registration is available.
ARTICLE 3 − OPTIONS
Section
3.1 Nature of Options.
An
Option is an option granted by the Company to a Participant
entitling such Participant to acquire a designated number of Shares
from treasury at the Option Price, subject to the provisions of
this Plan. For the avoidance of doubt, no Dividend Equivalents
shall be granted in connection with an Option.
Section
3.2
Option Awards.
Subject
to the provisions set forth in this Plan and any shareholder or
regulatory approval which may be required, the Board shall, from
time to time by resolution, in its sole discretion, (i) designate
the Eligible Participants who may receive Options under the Plan,
(ii) fix the number of Options, if any, to be granted to each
Eligible Participant and the date or dates on which such Options
shall be granted, (iii) determine the price per Share to be payable
upon the exercise of each such Option (the “Option Price”) and the relevant
vesting provisions (including Performance Criteria, if applicable)
and Option Term, the whole subject to the terms and conditions
prescribed in this Plan, in any Option Agreement and any applicable
rules of the TSX.
Section
3.3 Option Price.
The
Option Price for Shares that are the subject of any Option shall be
fixed by the Board when such Option is granted, but shall not be
less than the Market Value of such Shares at the time of the
grant.
(1)
The Board shall
determine, at the time of granting the particular Option, the
period during which the Option is exercisable, commencing on the
date such Option is granted to the Participant and ending as
specified in this Plan, or in the Option Agreement, but in no event
shall an Option expire on a date which is later than ten (10) years
from the date the Option is granted (“Option Term”). Unless otherwise
determined by the Board, all unexercised Options shall be cancelled
at the expiry of such Options.
(2)
Should the
expiration date for an Option fall within a Black-Out Period or
within ten (10) Business Days following the expiration of a
Black-Out Period, such expiration date shall be automatically
extended without any further act or formality to that date which is
the tenth Business Day after the end of the Black-Out Period, such
tenth Business Day to be considered the expiration date for such
Option for all purposes under the Plan. Notwithstanding
Section 9.2 hereof, the ten
(10) Business Day-period referred to in this Section 3.4 may not be extended by the
Board.
Section
3.5
Exercise of Options.
(1)
Subject to the
provisions of this Plan, a Participant shall be entitled to
exercise an Option granted to such Participant at any time prior to
the expiry of the Option Term, subject to vesting limitations which
may be imposed by the Board at the time such Option is
granted.
(2)
Prior to its
expiration or earlier termination in accordance with the Plan, each
Option shall be exercisable as to all or such part or parts of the
optioned Shares and at such time or times and/or pursuant to the
achievement of such Performance Criteria and/or other vesting
conditions as the Board at the time of granting the particular
Option, may determine in its sole discretion. For greater
certainty, no Option shall be exercised by a Participant during a
Black-Out Period.
Section
3.6 Method of Exercise and Payment of Purchase Price.
(1)
Subject to the
provisions of the Plan, an Option granted under the Plan shall be
exercisable (from time to time as provided in Section 3.5 hereof) by the Participant (or
by the liquidator, executor or administrator, as the case may be,
of the estate of the Participant) by delivering a fully completed
Exercise Notice to the Company at its registered office to the
attention of the Corporate Secretary of the Company (or the
individual that the Corporate Secretary of the Company may from
time to time designate) or give notice in such other manner as the
Company may from time to time designate, which notice shall specify
the number of Shares in respect of which the Option is being
exercised and shall be accompanied by full payment, by cash, cheque
or bank draft of the purchase price for the number of Shares
specified therein.
(2)
Upon the exercise
of an Option, the Company shall, as soon as practicable after such
exercise but no later than ten (10) Business Days following such
exercise, forthwith cause the transfer agent and registrar of the
Shares to either:
(a)
deliver to the
Participant (or to the liquidator, executor or administrator, as
the case may be, of the estate of the Participant) a certificate in
the name of the Participant representing in the aggregate such
number of Shares as the Participant (or to the liquidator, executor
or administrator, as the case may be, of the estate of the
Participant) shall have then paid for and as are specified in such
Exercise Notice; or
(b)
in the case of
Shares issued in uncertificated form, cause the issuance of the
aggregate number of Shares as the Participant (or the liquidator,
executor or administrator, as the case may be, of the estate of the
Participant) shall have then paid for and as are specified in such
Exercise Notice to be evidenced by a book position on the register
of the shareholders of the Company to be maintained by the transfer
agent and registrar of the Shares.
(3)
With the consent of
the Board, a Participant may, rather than exercise the Option which
the Participant is entitled to exercise under this Plan as provided
above, elect to surrender such Option, in whole or in part and, in
lieu of receiving the Shares to which the exercised Option relates,
receive, as consideration for the surrender of such Option, the
number of Shares, disregarding fractions, which, when multiplied by
the Market Value of the Shares to which the exercised Option
relates, have a value equal to the product of the number of Shares
to which the exercised Option relates multiplied by the difference
between the Market Value of such Shares and the Option Price of
such Option. The Company makes no representation to any Participant
(or to the liquidator, executor or administrator, as the case may
be, of the estate of the Participant) that it will waive or
renounce its right to claim a deduction in respect of such
payment.
Section
3.7 Option Agreements.
Options
shall be evidenced by an Option Agreement or included in an
Employment Agreement or Consulting Agreement, in such form not
inconsistent with the Plan as the Board may from time to time
determine, provided that the substance of Article 3 and Article 8 hereof be included therein. The
Option Agreement shall contain such terms that may be considered
necessary in order that the Option will comply with any provisions
respecting options in the income tax or other laws in force in any
country or jurisdiction of which the Participant may from time to
time be a resident or citizen or the rules of any regulatory body
having jurisdiction over the Company.
ARTICLE 4 − DEFERRED SHARE UNITS
Section
4.1 Nature of DSUs.
A DSU
is an Award of phantom share units to an Eligible Participant,
subject to restrictions and conditions as the Board may determine
at the time of grant. Conditions may be based on continuing
employment (or other service relationship) and/or achievement of
pre-established performance goals and objectives.
Section
4.2 Election to Participate.
Each
Eligible Participant may elect, once each calendar year, to be paid
a percentage of his or her annual retainer in the form of DSUs,
with the balance being paid in cash. In the case of an existing
Eligible Participant, the election must be completed, signed and
delivered to the Company by the end of the fiscal year preceding
the fiscal year to which such election is to apply. In the case of
a new Eligible Participant, the election must be completed, signed
and delivered to the Company as soon as possible, and, in any
event, no later than thirty (30) days, after the Eligible
Participant’s appointment, with such election to be effective
on the first day of the fiscal quarter of the Company next
following the date of the Company’s receipt of the election
until the final day of the fiscal year of appointment. For the
first year of the Plan, Eligible Participants must make such
election as soon as possible, and, in any event, no later than
thirty (30) days, after adoption of the Plan and the election shall
be effective on the first day of the fiscal quarter of the Company
next following the date of the Company’s receipt of the
election until the final day of such fiscal year. If no election is
made in respect of a particular fiscal year, the new or existing
Eligible Participant will receive the annual retainer in
cash.
Section
4.3 DSU Awards.
The
number of DSUs that an Eligible Participant is entitled to receive
in a fiscal year is based upon the percentage that the Eligible
Participant has elected to receive in DSUs multiplied by the
Participant’s annual retainer divided by the Market Value. At
the discretion of the Board, fractional DSUs will not be issued and
any fractional entitlements will be rounded down to the nearest
whole number.
Section
4.4 Redemption of DSUs.
(1)
Each Participant
shall be entitled to redeem his or her DSUs during the period
commencing on the business day immediately following the
Termination Date and ending on the 90th day following the
Termination Date by providing a written Notice of Redemption to the
Company. In the event of death of a Participant, the Notice of
Redemption shall be filed by the administrator or liquidator of the
estate of the Participant. The Notice of Redemption must specify an
election to receive:
(a)
a cash payment
equal to the number of DSUs credited to the Participant’s
Account as of the Termination Date multiplied by the Market Value
on the Termination Date, net of any applicable withholding taxes;
or
(b)
in the case of
settlement of DSUs for Shares, delivery of a share certificate to
the Participant or the entry of the Participant’s name on the
share register for the Shares (or in the case of Shares issued in
uncertificated form, cause the issuance of the aggregate number of
Shares as the Participant shall then be entitled to receive to be
evidenced by a book position on the register of the shareholders of
the Company maintained by the transfer agent and registrar of the
Shares); or
(c)
a percentage of the
DSUs paid out in cash and the remaining percentage of the DSUs paid
out as Shares.
In the
event a Notice of Redemption is not provided by a Participant, such
Participant will be deemed to have elected to receive Shares as
provided for in Section
4.4(1)(b). Notwithstanding an election by a Participant to
receive a cash payment in accordance with Section 4.4(1)(a) or (c), the Company may,
in its sole discretion, elect to settle amounts owing to a
Participant pursuant to DSUs by the issuance of Shares
only.
(2)
Where Shares are to
be issued to a Participant, the Company will be required to (within
ten (10) business days) issue the Shares. The number of Shares will
be computed by taking the number of DSUs that the Participant
elected to receive in Shares, net of the number of DSUs that would
equal to any applicable withholding taxes.
(3)
The Company will
make all of the payments described in this Article 4 (referred to hereinafter as the
“Final Payment”) to the Participant, within 120 days of
the Termination Date. Upon making such payment to the Participant,
the DSUs upon which such payment was based shall be cancelled and
no further payments shall be made from the Plan in relation to such
DSUs.
Section
4.5 Award
of Dividend Equivalents.
Dividend
Equivalents may, as determined by the Board in its sole discretion,
be awarded in respect of DSUs in a Participant’s Account on
the same basis as dividends declared and paid on Shares as if the
Participant was a shareholder of record of Shares on the relevant
record date. These Dividend Equivalents will, if awarded, be
credited to the Participant’s Account as additional DSUs (or
fractions thereof), with the number of additional DSUs based on (a)
the actual amount of dividends that would have been paid if the
Participant had held Shares under the Plan on the applicable record
date divided by (b) the Market Value per Share on the date on which
the dividends on Shares are payable. For greater certainty, no DSUs
representing Dividend Equivalents will be credited to a
Participant’s Account in relation to DSUs that have been
previously cancelled or paid out of the Plan and all additional
DSUs credited as a result of a Dividend Equivalent will be credited
at the same time as any applicable Final Payment.
Section
4.6 Unfunded Plan.
Unless
otherwise determined by the Board, this Plan shall be unfunded. To
the extent any Participant or his or her estate holds any rights by
virtue of a grant of DSUs under this Plan, such rights (unless
otherwise determined by the Board) shall be no greater than the
rights of an unsecured creditor of the Company. Notwithstanding the
foregoing, any determinations made shall be such that the Plan
continuously meets the requirements of paragraph 6801(d) of the
Income Tax Regulations, adopted under the Tax Act or any successor
provision thereto.
Section
4.7 DSU Agreements.
DSUs
shall be evidenced by a DSU Agreement or included in an Employment
Agreement or Consulting Agreement, in such form not inconsistent
with the Plan as the Board may from time to time determine,
provided that the substance of Article
4 and Article 8 hereof
be included therein. The DSU Agreement shall contain such terms
that may be considered necessary in order that the DSU will comply
with any provisions respecting deferred share units in the income
tax or other laws in force in any country or jurisdiction of which
the Participant may from time to time be a resident or citizen or
the rules of any regulatory body having jurisdiction over the
Company.
ARTICLE 5 − RESTRICTED SHARE UNITS
Section
5.1 Nature of RSUs.
A RSU
is an Award entitling the recipient to acquire Shares, at such
purchase price (which may be zero) as determined by the Board, or
receive or receive a Cash Equivalent, subject to such restrictions
and conditions as the Board may determine at the time of grant.
Conditions may be based on continuing employment (or other service
relationship) and/or achievement of pre-established performance
goals and objectives.
Section
5.2 RSU Awards.
(1)
Subject to the
provisions herein set forth and any shareholder or regulatory
approval which may be required, the Board shall, from time to time
by resolution, in its sole discretion, (i) designate the
Eligible Participants who may receive RSUs under the Plan, (ii) fix
the number of RSUs, if any, to be granted to each Eligible
Participant and the date or dates on which such RSUs shall be
granted, and (iii) determine the relevant conditions and vesting
provisions (including the applicable Performance Period and
Performance Criteria, if any) and Restriction Period of such RSUs,
the whole subject to the terms and conditions prescribed in this
Plan and in any RSU Agreement.
(2)
The RSUs are
structured so as to be considered to be a plan described in section
7 of the Tax Act or any successor provision thereto.
(3)
Subject to the
vesting and other conditions and provisions herein set forth and in
the RSU Agreement, each RSU awarded to a Participant shall entitle
the Participant, at his or her election, to receive one Share
issued from treasury or the Cash Equivalent at any time beginning
on the first Business Day following their RSU Vesting Determination
Date but no later than the RSU Settlement Date.
Section
5.3
Restriction Period.
The
applicable restriction period in respect of a particular RSU award
shall be determined by the Board but in all cases shall end no
later than December 31 of the calendar year which is three (3)
years after the calendar year in which the Award is granted
(“Restriction
Period”). For example, the Restriction Period for a
grant made in June 2020 shall end no later than December 31, 2023.
Subject to the Board’s determination, any vested RSUs with
respect to a Restriction Period will be paid to Participants in
accordance with Article 5, no
later than the end of the Restriction Period. Unless otherwise
determined by the Board, all unvested RSUs shall be cancelled on
the RSU Vesting Determination Date (as such term is defined in
Section 5.5) and, in any event,
no later than the last day of the Restriction Period.
Section
5.4 Performance Criteria and Performance Period.
(1)
For each award of
RSUs, the Board shall establish the period in which any Performance
Criteria and other vesting conditions must be met in order for a
Participant to be entitled to receive Shares in exchange for all or
a portion of the RSUs held by such Participant (the
“Performance
Period”), provided that such Performance Period may
not expire after the end of the Restriction Period, being no longer
than three (3) years after the financial year in which the Award
was granted. For example, a Performance Period determined by the
Board to be for a period of three (3) financial years will start on
the first day of the financial year in which the award is granted
and will end on the last day of the second financial year after the
year in which the grant was made. In such a case, for a grant made
on August 5, 2020, the Performance Period will start on July 1,
2020 and will end on June 30, 2022.
(2)
For each award of
RSUs, the Board shall establish any Performance Criteria and other
vesting conditions which must be met during the Performance Period
in order for a Participant to be entitled to receive Shares in
exchange for his or her RSUs.
Section
5.5 RSU
Vesting Determination Date.
The
vesting determination date means the date on which the Board
determines if the Performance Criteria and/or other vesting
conditions with respect to a RSU have been met (the
“RSU Vesting Determination
Date”), and as a result, establishes the number of
RSUs that become vested, if any. For greater certainty, the RSU
Vesting Determination Date must fall after the end of the
Performance Period, if any, but no later than the last day of the
Restriction Period.
Section
5.6
Settlement of RSUs.
(1)
Except as
otherwise provided in the RSU Agreement, in the event that the
vesting conditions, the Performance Criteria and Performance
Period, if applicable, of an RSU are satisfied:
(a)
all of the vested
RSUs covered by a particular grant may, subject to Section 5.6(4), be settled at any time
beginning on the first Business Day following their RSU Vesting
Determination Date but no later than the date that is ten (10)
years from their RSU Vesting Determination Date (the
“RSU Settlement
Date”);
(b)
a Participant is
entitled to deliver to the Company, on or before the RSU Settlement
Date, an RSU Settlement Notice in respect of any or all vested RSUs
held by such Participant; and
(c)
with the consent of
the Board in the RSU Settlement Notice, the Participant may elect,
in such Participant’s sole discretion, including with respect
to any fractional RSUs, to settle vested RSUs for their Cash
Equivalent, Shares issued from treasury, or a combination
thereof.
(2)
Subject to
Section 5.6(4), settlement of
RSUs shall take place promptly following the RSU Settlement Date
and take the form set out in the RSU Settlement Notice
through:
(a)
in the case of
settlement of RSUs for their Cash Equivalent, delivery of a cheque
to the Participant representing the Cash Equivalent;
(b)
in the case of
settlement of RSUs for Shares, delivery of a share certificate to
the Participant or the entry of the Participant’s name on the
share register for the Shares (or in the case of Shares issued in
uncertificated form, cause the issuance of the aggregate number of
Shares as the Participant shall then be entitled to receive to be
evidenced by a book position on the register of the shareholders of
the Company maintained by the transfer agent and registrar of the
Shares); or
(c)
in the case of
settlement of the RSUs for a combination of Shares and the Cash
Equivalent, a combination of (a) and (b) above.
(3)
If an RSU
Settlement Notice is not received by the Company on or before the
RSU Settlement Date, settlement shall take the form of Shares
issued from treasury as set out in Section 5.7(2). Notwithstanding an election
by a Participant to receive a cash payment in accordance with
Section 5.4(1)(a) or (c), the
Company may, in its sole discretion, elect to settle amounts owing
to a Participant pursuant to RSUs by the issuance of Shares
only.
(4)
Notwithstanding
any other provision of this Plan, in the event that an RSU
Settlement Date falls during a Black-Out Period or other trading
restriction imposed by the Company and the Participant has not
delivered an RSU Settlement Notice, then such RSU Settlement Date
shall be automatically extended to the tenth (10th) Business Day
following the date that such Black-Out Period or other trading
restriction is lifted, terminated or removed.
Section
5.7 Determination of Amounts.
(1)
Cash Equivalent of
RSUs. For purposes of determining the Cash Equivalent of RSUs to be
made pursuant to Section 5.6,
such calculation will be made on the RSU Settlement Date and shall
equal the Market Value on the RSU Settlement Date multiplied by the
number of vested RSUs in the Participant’s Account which the
Participant desires to settle in cash pursuant to the RSU
Settlement Notice, less any amount withheld on account of taxes in
accordance with Section 11.2.
(2)
Payment in
Shares; Issuance of Shares from Treasury. For the purposes of
determining the number of Shares from treasury to be issued and
delivered to a Participant upon settlement of RSUs pursuant to
Section 5.6, such calculation
will be made on the RSU Settlement Date and be the whole number of
Shares equal to the whole number of vested RSUs then recorded in
the Participant’s Account which the Participant desires to
settle pursuant to the RSU Settlement Notice. Shares issued from
treasury will be issued in consideration for the past services of
the Participant to the Company and the entitlement of the
Participant under this Plan shall be satisfied in full by such
issuance of Shares.
Section
5.8 RSU Agreements.
RSUs
shall be evidenced by a RSU Agreement or included in an Employment
Agreement or Consulting Agreement, in such form not inconsistent
with the Plan as the Board may from time to time determine,
provided that the substance of Article
5 and Article 8 hereof
be included therein. The RSU Agreement shall contain such terms
that may be considered necessary in order that the RSU will comply
with any provisions respecting restricted share units in the income
tax or other laws in force in any country or jurisdiction of which
the Participant may from time to time be a resident or citizen or
the rules of any regulatory body having jurisdiction over the
Company.
Section
5.9 Award of Dividend Equivalents.
Dividend
Equivalents may, as determined by the Board in its sole discretion,
be awarded in respect of RSUs in a Participant’s Account on
the same basis as dividends declared and paid on Shares as if the
Participant was a shareholder of record of Shares on the relevant
record date. These Dividend Equivalents will, if awarded, be
credited to the Participant’s Account as additional RSUs (or
fractions thereof), with the number of additional RSUs based on (a)
the actual amount of dividends that would have been paid if the
Participant had held Shares under the Plan on the applicable record
date divided by (b) the Market Value per Share on the date on which
the dividends on Shares are payable. For greater certainty, no RSUs
representing Dividend Equivalents will be credited to a
Participant’s Account in relation to RSUs that have been
previously cancelled or paid out of the Plan and all additional
RSUs credited as a result of a Dividend Equivalent will be credited
at the same time as any applicable Final Payment. In the event that
the Participant’s applicable RSUs do not vest, all Dividend
Equivalents, if any, associated with such RSUs will be forfeited by
the Participant and returned to the Company’s
account.
ARTICLE 6 − SHARE APPRECIATION RIGHTS
Section
6.1 Nature of SARs.
A SAR
is an Award entitling the recipient to receive Shares having a
value equal to the excess of the Market Value of one Share on the
date of exercise over the grant price of the right on the date of
grant, multiplied by the number of Shares with respect to which the
SAR shall have been exercised. The grant price of shall not be less
than the Market Value of one Share on such date of grant of the
right.
Subject
to the provisions herein set forth and any shareholder or
regulatory approval which may be required, the Board shall, from
time to time by resolution, in its sole discretion, (i) designate
the Eligible Participants who may receive SAR Awards under the
Plan, (ii) fix the number of SAR Awards to be granted to each
Eligible Participant and the date or dates on which such SAR Awards
shall be granted, and (iii) determine the price per Share to be
payable upon the vesting of each such SAR (the “SAR Price”) and the relevant
conditions and vesting provisions (including the applicable
Performance Period and Performance Criteria, if any) and the SAR
Term, the whole subject to the terms and conditions prescribed in
this Plan and in any SAR Agreement.
Section
6.3 SAR Price.
The SAR
Price for the Shares that are the subject of any SAR shall be fixed
by the Board when such SAR is granted, but shall not be less than
the Market Value of such Shares at the time of the
grant.
(1)
The Board shall
determine, at the time of granting the particular SAR, the period
during which the SAR is exercisable, which shall not be more than
ten (10) years from the date the SAR is granted
(“SAR Term”) and
the vesting schedule of such SAR, which will be detailed in the
respective SAR Agreement. Unless otherwise determined by the Board,
all unexercised SARs shall be cancelled at the expiry of such
SAR.
(2)
Should the
expiration date for a SAR fall within a Black-Out Period or within
ten (10) Business Days following the expiration of a Black-Out
Period, such expiration date shall be automatically extended
without any further act or formality to that date which is the
tenth (10th) Business Day after the end of the Black-Out Period,
such tenth (10th) Business Day to be considered the expiration date
for such SAR for all purposes under the Plan. Notwithstanding
Section 9.2 hereof, the ten
(10) Business Day-period referred to in this Section 6.4 may not be extended by the
Board.
Section
6.5
Exercise of SARs.
Prior
to its expiration or earlier termination in accordance with the
Plan, each SAR shall be exercisable as to all or such part or parts
of the granted Shares and at such time or times and/or pursuant to
the achievement of such Performance Criteria and/or other vesting
conditions as the Board at the time of granting the particular SAR,
may determine in its sole discretion. For greater certainty, no SAR
shall be exercised by a Participant during a Black-Out
Period.
Section
6.6 Method of Exercise and Payment of Purchase Price.
(1)
Subject to the
provisions of the Plan, a SAR granted under the Plan shall be
exercisable (from time to time as provided in Section 6.5 hereof) by the Participant (or
by the liquidator, executor or administrator, as the case may be,
of the estate of the Participant) by delivering a fully completed
Exercise Notice to the Company at its registered office to the
attention of the Corporate Secretary of the Company (or to the
individual that the Corporate Secretary of the Company may from
time to time designate) or give notice in such other manner as the
Company may from time to time designate, no less than three (3)
business days in advance of the effective date of the proposed
exercise, which notice shall specify the number of Shares with
respect to which the SAR is being exercised and the effective date
of the proposed exercise.
(2)
The exercise of a
SAR with respect to any number of Shares shall entitle the
Participant to Shares equal to the excess of the Market Value of a
Share on the effective date of such exercise over the per share SAR
Price.
(3)
Upon the exercise,
the Company shall, as soon as practicable after such exercise but
no later than ten (10) Business Days following such exercise,
forthwith cause the transfer agent and registrar of the Shares to
either:
(4)
deliver to the
Participant (or to the liquidator, executor or administrator, as
the case may be, of the estate of the Participant) a certificate in
the name of the Participant representing in the aggregate such
number of Shares as the Participant (or to the liquidator, executor
or administrator, as the case may be, of the estate of the
Participant) shall be entitled to receive (unless the Participant
intends to simultaneously dispose of any such Shares);
or
(5)
in the case of
Shares issued in uncertificated form, cause the issuance of the
aggregate number of Shares as the Participant (or the liquidator,
executor or administrator, as the case may be, of the estate of the
Participant) shall be entitled to receive to be evidenced by a book
position on the register of the shareholders of the Company to be
maintained by the transfer agent and registrar of the
Shares.
Section
6.7 SAR Agreements.
SARs
shall be evidenced by a SAR Agreement or included in an Employment
Agreement or Consulting Agreement, in such form not inconsistent
with the Plan as the Board may from time to time determine,
provided that the substance of Article
6 and Article 8 hereof
be included therein. The SAR Agreement shall contain such terms
that may be considered necessary in order that the SAR will comply
with any provisions respecting stock appreciation rights in the
income tax or other laws in force in any country or jurisdiction of
which the Participant may from time to time be a resident or
citizen or the rules of any regulatory body having jurisdiction
over the Company.
ARTICLE 7 − RETENTION AWARDS
Section
7.1 Nature of Retention Awards.
Retention
Awards are any payment to an Eligible Participant that is not
payable periodically for services provided by the Eligible
Participant, as determined by the Board from time to
time.
Section
7.2 Retention Awards.
(1)
Subject to the
provisions herein set forth, the Board shall, from time to time by
resolution, in its sole discretion, (i) designate the Eligible
Participants who may receive Retention Awards under the Plan, (ii)
fix the number of Retention Awards, if any, to be granted to each
Eligible Participant and the date or dates on which such Retention
Awards shall be granted, and (iii) determine the relevant
conditions and vesting provisions (including the applicable
Performance Period and Performance Criteria, if any) of such
Retention Awards, the whole subject to the terms and conditions
prescribed in this Plan and in any Retention Award Agreement,
Employment Agreement or Consulting Agreement.
(2)
Subject to the
vesting and other conditions and provisions herein set forth and in
the Retention Award Agreement, Employment Agreement or Consulting
Agreement, each Retention Award awarded to a Participant shall
entitle the Participant to receive, on the vesting date of the
Retention Award, such number of Shares, disregarding fractions,
which, when multiplied by the Market Value of the Shares on the
vesting date of the Retention Award, to which the Retention Awards
relate, have a value equal to the Retention Payment, less any
amount withheld on account of income taxes, which withheld income
taxes will be remitted by the Company.
Section
7.3 Payment to Participant.
In the
event that the vesting conditions of a Retention Award are
satisfied, the Company shall, as soon as possible after the date of
vesting of the Retention Awards cause the transfer agent and
registrar of the Shares to either:
(1)
deliver to the
Participant (or to the liquidator, executor or administrator, as
the case may be, of the estate of the Participant) a certificate in
the name of the Participant representing in the aggregate such
number of Shares as the Participant (or to the liquidator, executor
or administrator, as the case may be, of the estate of the
Participant) shall be entitled to receive (unless the Participant
intends to simultaneously dispose of any such Shares);
or
(2)
in the case of
Shares issued in uncertificated form, cause the issuance of the
aggregate number of Shares as the Participant (or the liquidator,
executor or administrator, as the case may be, of the estate of the
Participant) shall be entitled to receive to be evidenced by a book
position on the register of the shareholders of the Company to be
maintained by the transfer agent and registrar of the
Shares.
Section
7.4 Retention Award Agreements.
Retention
Awards shall be evidenced by a Retention Award Agreement or
included in an Employment Agreement or Consulting Agreement, in
such form not inconsistent with the Plan, as the Board may from
time to time determine, provided that the substance of Article 7 and Article 8 hereof be included therein. The
Retention Award Agreement shall contain such terms that may be
considered necessary in order that the Retention Award will comply
with any provisions respecting such awards in the income tax or
other laws in force in any country or jurisdiction of which the
Participant may from time to time be a resident or citizen or the
rules of any regulatory body having jurisdiction over the
Company.
ARTICLE 8 − GENERAL CONDITIONS
Section
8.1 General Conditions applicable to Awards.
Each
Award, as applicable, shall be subject to the following
conditions:
(1)
Employment - The granting of an Award to
a Participant shall not impose upon the Company or a Subsidiary any
obligation to retain the Participant in its employ in any capacity.
For greater certainty, the granting of Awards to a Participant
shall not impose any obligation on the Company to grant any awards
in the future nor shall it entitle the Participant to receive
future grants.
(2)
Rights as a Shareholder - Neither the
Participant nor such Participant’s personal representatives
or legatees shall have any rights whatsoever as shareholder in
respect of any Shares covered by such Participant’s Awards
until the date of issuance of a share certificate to such
Participant (or to the liquidator, executor or administrator, as
the case may be, of the estate of the Participant). Without in any
way limiting the generality of the foregoing, no adjustment shall
be made for dividends or other rights for which the record date is
prior to the date such share certificate is issued.
(3)
Conformity to Plan – In the event
that an Award is granted or a Grant Agreement is executed which
does not conform in all particulars with the provisions of the
Plan, or purports to grant Awards on terms different from those set
out in the Plan, the Award or the grant of such Award shall not be
in any way void or invalidated, but the Award so granted will be
adjusted to become, in all respects, in conformity with the
Plan.
(4)
Transferrable Awards – Awards
granted under this Plan shall be transferrable or assignable only
to a “permitted assign” and shall be exercisable only
by the Participant or his or her permitted assign. For the purposes
hereof, “permitted assign” means for such
Participant:
(a)
a trustee,
custodian or administrator acting on behalf, or for the benefit, of
the Participant;
(b)
a holding entity of
the Participant; or
(c)
a registered
retirement savings plan (“RRSP”) or registered retirement
income fund (“RRIF”) of the Participant, as such
terms are defined in the Tax Act;
Section
8.2 General Conditions applicable to Options, SARs and Retention
Awards.
Each
Option, SAR or Retention Award, as applicable, shall be subject to
the following conditions:
(1)
Termination for Cause. Upon a
Participant ceasing to be an Eligible Participant for
“Cause”, any Option, SAR or Retention Award or the
unexercised or unvested portion thereof, as applicable, when
granted to such Participant shall terminate on the effective date
of the termination as specified in the notice of termination. For
the purposes of the Plan, the determination by the Company that the
Participant was discharged for cause shall be binding on the
Participant. “Cause” shall include, among other things,
gross misconduct, theft, fraud, breach of confidentiality or breach
of the any code of conduct of the Company (or equivalent policy)
and any reason determined by the Company to be cause for
termination.
(2)
Death. If a Participant dies while in
his or her capacity as an Eligible Participant, any vested Option,
SAR or Retention Award or the unexercised portion thereof, granted
to such Participant may be exercised by the liquidator, executor or
administrator, as the case may be, of the estate of the Participant
for that number of Shares only which such Participant was entitled
to acquire under the respective Options, SARs or Retention Awards
(the “Vested Awards”) hereof on the date of such
Participant’s death. Such Vested Award shall only be
exercisable within one (1) year after the Participant’s death
or prior to the expiration of the original term of the Options,
SARs or Retention Awards, as applicable, whichever occurs earlier.
All Options, SARs or Retention Awards or the unexercised or
unvested portion thereof, as applicable, other than such Vested
Awards on the date of such Participant’s death, will be
cancelled on the date of such Participant’s
death.
(3)
Disability. Upon a Participant ceasing
to be an Eligible Participant by reason of injury or disability or
upon a Participant becoming eligible to receive long-term
disability benefits, any Option, SAR or Retention Award or the
unexercised portion thereof, granted to such Participant may be
exercised by such Participant or his/her representative as the
rights to exercise accrue. Such Option, SAR or Retention Award
shall only be exercisable (i) within three (3) years after such
cessation or (ii) the effective date on which the Participant
becomes eligible to receive long-term disability benefits (provided
that, for greater certainty, such effective date shall be confirmed
in writing to the Company by the insurance company providing such
long-term disability benefits) (the “Eligibility
Date”)) or (iii) prior to the expiration of the original term
of the Option, SAR or Retention Award, whichever occurs earlier.
All Options, SARs or Retention Awards or the unexercised or
unvested portion thereof, as applicable, on the date that is three
(3) years after such cessation, will be cancelled on such
date.
(4)
Termination or Cessation. In the case of
a Participant ceasing to be an Eligible Participant for any reason
(other than for “cause”, death or disability) the right
to exercise an Option, SAR or Retention Award shall be limited to
and shall expire on the earlier of one year after the Termination
Date, or the expiry date of the Award set forth in the Grant
Agreement, to the extent such Award was exercisable by the
Participant on the Termination Date.
Section
8.3 General Conditions applicable to RSUs.
Each
RSU shall be subject to the following conditions:
(1)
Termination for Cause. Upon a
Participant ceasing to be an Eligible Participant for
“Cause” or the Participant’s resignation from
employment with the Company or a Subsidiary, the
Participant’s participation in the Plan shall be terminated
immediately, all RSUs credited to such Participant’s Account
that have not vested shall be forfeited and cancelled, and the
Participant’s rights to Shares that relate to such
Participant’s unvested RSUs shall be forfeited and cancelled
on the Termination Date.
(2)
Cessation of Employment. Except as
otherwise determined by the Board from time to time, at its sole
discretion, upon a Participant’s (i) retirement, (ii)
employment with the Company or a Subsidiary being terminated by the
Company or a Subsidiary for reasons other than for
“cause”, (iii) employment with the Company or a
Subsidiary being terminated by reason of injury or disability or
(iv) becoming eligible to receive long-term disability benefits,
the Participant’s participation in the Plan shall be
terminated immediately (provided that, for the Participant becoming
eligible to receive long-term disability benefits, such termination
shall occur on the Eligibility Date), provided that all unvested
RSUs in the Participant’s Account as of such date relating to
a Restriction Period in progress shall remain in effect until the
applicable RSU Vesting Determination Date.
(3)
Retirement. In the case of a
Participant’s retirement, this Section 8.3(3) shall not apply to a
Participant in the event such Participant, directly or indirectly,
in any capacity whatsoever, alone, through or in connection with
any person, carries on or becomes employed by, engaged in or
otherwise commercially involved in, any activity or business in the
mining industry prior to the applicable RSU Vesting Determination
Date. In such event, Section
8.3(2) shall apply to such Participant.
(a)
If, on the RSU
Vesting Determination Date, the Board determines that the vesting
conditions were not met for such RSUs, then all unvested RSUs
credited to such Participant’s Account shall be forfeited and
cancelled and the Participant’s rights to Shares that relate
to such unvested RSUs shall be forfeited and
cancelled.
(b)
If, on the RSU
Vesting Determination Date, the Board determines that the vesting
conditions were met for such RSUs, the Participant shall be
entitled to receive that number of Shares equal to the number of
RSUs outstanding in the Participant’s Account in respect of
such Restriction Period multiplied by a fraction, the numerator of
which shall be the number of completed months of service of the
Participant with the Company or a Subsidiary during the applicable
Performance Period, if any, as of the date of the
Participant’s retirement, termination or Eligibility Date and
the denominator of which shall be equal to the total number of
months included in the applicable Performance Period, if any (which
calculation shall be made on the applicable RSU Vesting
Determination Date) and the Company shall distribute such number of
Shares to the Participant as soon as practicable thereafter, but no
later than the end of the Restriction Period, the Company shall
debit the corresponding number of RSUs from such
Participant’s Account, and the Participant’s rights to
all other Shares that relate to such Participant’s RSUs shall
be forfeited and cancelled.
(4)
Death. Except as otherwise determined by
the Board from time to time, at their sole discretion, upon the
death of a Participant, the Participant’s participation in
the Plan shall be terminated immediately, provided that all
unvested RSUs in the Participant’s Account as of such date
relating to a Restriction Period in progress shall remain in effect
until the applicable RSU Vesting Determination Date or any earlier
date as may be determined by the Board.
(a)
If, on the
applicable RSU Vesting Determination Date or any earlier date as
may be determined by the Board, the Board determines that the
vesting conditions were not met for such RSUs, then all unvested
RSUs credited to such Participant’s Account shall be
forfeited and cancelled and the Participant’s rights to
Shares (or cash or a combination of Shares and cash as permitted
under this Plan) that relate to such unvested RSUs shall be
forfeited and cancelled.
(b)
If, on the
applicable RSU Vesting Determination Date or any earlier date as
may be determined by the Board, the Board determines that the
vesting conditions were met, the liquidator, executor or
administrator, as the case may be, of the estate of the Participant
shall be entitled to receive that number of Shares equal to the
number of RSUs outstanding in the Participant’s Account in
respect of such Restriction Period multiplied by a fraction, the
numerator of which shall be the number of completed months of
service of the Participant with the Company or a Subsidiary during
the applicable Performance Period, if any, as of the date of death
of the Participant and the denominator of which shall be equal to
the total number of months included in the applicable Performance
Period, if any (which calculation shall be made on the applicable
RSU Vesting Determination Date or any earlier date as may be
determined by the Board) and the Company shall distribute such
number of Shares to the liquidator, executor or administrator, as
the case may be, of the estate of the Participant as soon as
practicable thereafter but no later than the end of the Restriction
Period, the Company shall debit the corresponding number of RSUs
from such deceased Participant’s Account, and the
Participant’s right to all other Shares that relate to such
deceased Participant’s RSUs shall be forfeited and
cancelled.
(5)
Leave of Absence. Except as otherwise
determined by the Board from time to time, at their sole
discretion, upon a Participant electing a voluntary leave of
absence, the Participant’s participation in the Plan shall be
terminated immediately, provided that all unvested RSUs in the
Participant’s Account as of such date relating to a
Restriction Period in progress shall remain in effect until the
applicable RSU Vesting Determination Date.
(a)
If, on the
applicable RSU Vesting Determination Date, the Board determines
that the vesting conditions were not met for such RSUs, then all
unvested RSUs credited to such Participant’s Account shall be
forfeited and cancelled and the Participant’s rights to
Shares (or cash or a combination of Shares and cash as permitted
under this Plan) that relate to such unvested RSUs shall be
forfeited and cancelled.
(b)
If, on the
applicable RSU Vesting Determination Date, the Board determines
that the vesting conditions were met, the Participant shall be
entitled to receive that number of Shares equal to the number of
RSUs outstanding in the Participant’s Account in respect of
such Restriction Period multiplied by a fraction, the numerator of
which shall be the number of completed months of service of the
Participant with the Company or a Subsidiary during the relevant
Performance Period, if any, as of the date the Participant elects
for a voluntary leave of absence and the denominator of which shall
be equal to the total number of months included in the relevant
Performance Period, if any (which calculation shall be made on the
applicable RSU Vesting Determination Date) and the Company shall
distribute such number of Shares (or cash or a combination of
Shares and cash as permitted under this Plan) to the Participant as
soon as practicable thereafter but no later than the end of the
applicable Restriction Period, the Company shall debit the
corresponding number of RSUs from such Participant’s Account,
and the Participant’s right to all other Shares that relate
to such Participant’s RSUs shall be forfeited and
cancelled.
(c)
Subject to
applicable laws, the Board may decide, at their sole discretion
that Section 8.3(5) should not
apply to voluntary leaves granted to a Participant by the Company
for a period of twelve (12) months or less. In such event, all
unvested RSUs in such Participant’s Account as of such date
relating to a Restriction Period in progress shall remain in effect
until the applicable RSU Vesting Determination Date.
(6)
General. For greater certainty, where
(i) a Participant’s employment with the Company or a
Subsidiary is terminated pursuant to Section 8.3(1), Section 8.3(2) or Section 8.3(4) hereof or (ii) a Participant
elects for a voluntary leave of absence pursuant to Section 8.3(5) hereof following the
satisfaction of all vesting conditions in respect of particular
RSUs but before receipt of the corresponding distribution or
payment in respect of such RSUs, the Participant shall remain
entitled to such distribution or payment.
ARTICLE 9 − ADJUSTMENTS AND AMENDMENTS
Section
9.1 Adjustment to Shares Subject to Outstanding
Awards.
(1)
In the event of
any subdivision of the Shares into a greater number of Shares at
any time after the grant of an Award to a Participant and prior to
the expiration of the term of such Award, the Company shall deliver
to such Participant, at the time of any subsequent exercise or
vesting of such Award in accordance with the terms hereof, in lieu
of the number of Shares to which such Participant was theretofore
entitled upon such exercise or vesting of such Award, but for the
same aggregate consideration payable therefor, such number of
Shares as such Participant would have held as a result of such
subdivision if on the record date thereof the Participant had been
the registered holder of the number of Shares to which such
Participant was theretofore entitled upon such exercise or vesting
of such Award.
(2)
In the event of any
consolidation of Shares into a lesser number of Shares at any time
after the grant of an Award to any Participant and prior to the
expiration of the term of such Award, the Company shall deliver to
such Participant at the time of any subsequent exercise or vesting
of such Award in accordance with the terms hereof in lieu of the
number of Shares to which such Participant was theretofore entitled
upon such exercise or vesting of such Award, but for the same
aggregate consideration payable therefor, such number of Shares as
such Participant would have held as a result of such consideration
if on the record date thereof the Participant had been the
registered holder of the number of Shares to which such Participant
was theretofore entitled upon such exercise or vesting of such
Award.
(3)
If at any time
after the grant of an Award to any Participant and prior to the
expiration of the term of such Award, the Shares shall be
reclassified, reorganized or otherwise changed, otherwise than as
specified in Section 9.1(1) or
Section 9.1(2) hereof or,
subject to the provisions of Section
9.2(3) hereof, the Company shall consolidate, merge or
amalgamate with or into another corporation (the corporation
resulting or continuing from such consolidation, merger or
amalgamation being herein called the “Successor Company”), the
Participant shall be entitled to receive upon the subsequent
exercise or vesting of Award, in accordance with the terms hereof
and shall accept in lieu of the number of Shares then subscribed
for but for the same aggregate consideration payable therefor, the
aggregate number of shares of the appropriate class or other
securities of the Company or the Successor Company (as the case may
be) or other consideration from the Company or the Successor
Company (as the case may be) that such Participant would have been
entitled to receive as a result of such reclassification,
reorganization or other change of shares or, subject to the
provisions of Section 9.2(3)
hereof, as a result of such consolidation, merger or amalgamation,
if on the record date of such reclassification, reorganization or
other change of shares or the effective date of such consolidation,
merger or amalgamation, as the case may be, such Participant had
been the registered holder of the number of Shares to which such
Participant was immediately theretofore entitled upon such exercise
or vesting of such Award.
(4)
If, at any time
after the grant of an Award to any Participant and prior to the
expiration of the term of such Award, the Company shall make a
distribution to all holders of Shares or other securities in the
capital of the Company, or cash, evidences of indebtedness or other
assets of the Company (excluding an ordinary course dividend in
cash or shares, but including for greater certainty shares or
equity interests in a Subsidiary or business unit of the Company or
one of its Subsidiaries or cash proceeds of the disposition of such
a Subsidiary or business unit), or should the Company effect any
transaction or change having a similar effect, then the price or
the number of Shares to which the Participant is entitled upon
exercise or vesting of Award shall be adjusted to take into account
such distribution, transaction or change. The Board shall determine
the appropriate adjustments to be made in such circumstances in
order to maintain the Participants’ economic rights in
respect of their Awards in connection with such distribution,
transaction or change.
Section
9.2
Amendment or Discontinuance of the
Plan.
(1)
The Board may
amend the Plan or any Award at any time without the consent of the
Participants provided that such amendment shall:
(a)
not adversely alter
or impair any Award previously granted except as permitted by the
provisions of Article 9
hereof;
(b)
be subject to any
regulatory approvals including, where required, the approval of the
TSX; and
(c)
be subject to
shareholder approval, where required by law or the requirements of
the TSX, provided that shareholder approval shall not be required
for the following amendments and the Board may make any changes
which may include but are not limited to: amendments of a
“housekeeping” nature; a change to the vesting
provisions of any Award; the introduction or amendment of a
cashless exercise feature payable in securities, whether or not
such feature provides for a full deduction of the number of
underlying securities from the Plan reserve; and the addition of a
form of financial assistance and any amendment to a financial
assistance provision which is adopted.
(2)
Notwithstanding
Section 9.2(1)(c), the Board
shall be required to obtain shareholder approval to make the
following amendments:
(a)
any change to the
maximum number of Shares issuable from treasury under the Plan,
except such increase by operation of Section 2.4 and in the event of an
adjustment pursuant to Article
9;
(b)
any amendment which
reduces the exercise price of any Award, as applicable, after such
Awards have been granted or any cancellation of an Award and the
substitution of that Award by a new Award with a reduced price,
except in the case of an adjustment pursuant to Article 9;
(c)
any amendment which
extends the expiry date of any Award, or the Restriction Period of
any RSU beyond the original expiry date, except in case of an
extension due to a Black- Out Period;
(d)
any amendment which
would permit a change to the Eligible Participants;
(e)
any amendment which
would permit any Award granted under the Plan to be transferable or
assignable by any Participant other than as allowed by Section 8.1(4);
(f)
any amendment to
the amendment provisions of the Plan,
provided that
Shares held directly or indirectly by Insiders benefiting from the
amendments in Sections (b) and (c) shall be excluded when obtaining
such shareholder approval.
(3)
Notwithstanding
anything contained to the contrary in the Plan, in a Grant
Agreement contemplated herein, but subject to any specific
provisions contained in any Employment Agreements or Consulting
Agreements, in the event of a Change in Control, a reorganization
of the Company, an amalgamation of the Company, an arrangement
involving the Company, a take-over bid (as that term is defined in
the Securities Act (Ontario)) for all of the Shares or the sale or
disposition of all or substantially all of the property and assets
of the Company, the Board may make such provision for the
protection of the rights of the Participants as the Board in its
discretion considers appropriate in the circumstances, including,
without limitation, changing the Performance Criteria and/or other
vesting conditions for the Awards and/or the date on which any
Award expires or the Restriction Period, the Performance Period,
the Performance Criteria and/or other vesting conditions for the
Awards.
(4)
The Board may, by
resolution, advance the date on which any Award may be exercised or
payable or, subject to applicable regulatory provisions, including
the rules of the TSX, and shareholder approval, extend the
expiration date of any Award, in the manner to be set forth in such
resolution provided that the period during which an Option or a SAR
is exercisable or RSU is outstanding does not exceed ten (10) years
from the date such Option or SAR is granted in the case of Options
and SARs and three (3) years after the calendar year in which the
award is granted in the case of RSUs. The Board shall not, in the
event of any such advancement or extension, be under any obligation
to advance or extend the date on or by which any Option or SAR may
be exercised or RSU may be outstanding by any other
Participant.
(5)
The Committee may,
by resolution, but subject to applicable regulatory approvals,
decide that any of the provisions hereof concerning the effect of
termination of the Participant’s employment shall not apply
for any reason acceptable to the Committee.
(6)
The Board may,
subject to regulatory approval, discontinue the Plan at any time
without the consent of the Participants provided that such
discontinuance shall not materially and adversely affect any Awards
previously granted to a Participant under the Plan.
ARTICLE 10 − MISCELLANEOUS
Section
10.1 Use
of an Administrative Agent and Trustee.
The
Board may in its sole discretion appoint from time to time one or
more entities to act as administrative agent to administer the
Awards granted under the Plan and to act as trustee to hold and
administer the assets that may be held in respect of Awards granted
under the Plan, the whole in accordance with the terms and
conditions determined by the Board in its sole discretion. The
Company and the administrative agent will maintain records showing
the number of Awards granted to each Participant under the
Plan.
Section
10.2 Tax
Withholding.
(1)
Notwithstanding any
other provision of this Plan, all distributions, delivery of Shares
or payments to a Participant (or to the liquidator, executor or
administrator, as the case may be, of the estate of the
Participant) under the Plan shall be made net of applicable source
and tax withholding deductions. If the event giving rise to the
withholding obligation involves an issuance or delivery of Shares,
then, the withholding obligation may be satisfied by (a) having the
Participant elect to have the appropriate number of such Shares
sold by the Company, the Company’s transfer agent and
registrar or any trustee appointed by the Company pursuant to
Section 10.1 hereof, on behalf
of and as agent for the Participant as soon as permissible and
practicable, with the proceeds of such sale being delivered to the
Company, which will in turn remit such amounts to the appropriate
governmental authorities, or (b) any other mechanism as may be
required or appropriate to conform with local tax and other
rules.
(2)
Notwithstanding the
first paragraph of this Section
10.2, the applicable tax withholdings may be waived where
the Participant directs in writing that a payment be made directly
to the Participant’s registered retirement savings plan in
circumstances to which regulation 100(3) of the regulations of the
Tax Act apply.
Section
10.3 Reorganization of the Company.
The
existence of any Awards shall not affect in any way the right or
power of the Company or its shareholders to make or authorize any
adjustment, recapitalization, reorganization or other change in the
Company’s capital structure or its business, or any
amalgamation, combination, merger or consolidation involving the
Company or to create or issue any bonds, debentures, shares or
other securities of the Company or the rights and conditions
attaching thereto or to affect the dissolution or liquidation of
the Company or any sale or transfer of all or any part of its
assets or business, or any other corporate act or proceeding,
whether of a similar nature or otherwise.
Section
10.4
Personal Information
Each
Participant shall provide the Company and the Board with all
information they require in order to administer the Plan. The
Company and the Board may from time to time transfer or provide
access to such information to a third party service provider for
purposes of the administration of the Plan provided that such
service providers will be provided with such information for the
sole purpose of providing such services to the Company. By
participating in the Plan, each Participant acknowledges that
information may be so provided and agrees to its provision on the
terms set forth herein. Except as specifically contemplated in this
Section 10.4, the Company and
the Board shall not disclose the personal information of a
Participant except: (i) in response to regulatory filings or other
requirements for the information by a governmental authority with
jurisdiction over the Company; (ii) for the purpose of complying
with a subpoena, warrant or other order by a court, person or body
having jurisdiction to compel production of the information; or
(iii) as otherwise required by law. In addition, personal
information of Participants may be disclosed or transferred to
another party during the course of, or completion of, a change in
ownership of, or the grant of a security interest in, all or a part
of the Company or its Affiliates including through an asset or
share sale, or some other form of business combination, merger or
joint venture, provided that such party is bound by appropriate
agreements or obligations.
Section
10.5 Governing Laws.
The
Plan and all matters to which reference is made herein shall be
governed by and interpreted in accordance with the laws of the
Province of Ontario and the laws of Canada applicable
therein.
Section
10.6 Severability.
The
invalidity or unenforceability of any provision of the Plan shall
not affect the validity or enforceability of any other provision
and any invalid or unenforceable provision shall be severed from
the Plan.
Section
10.7 Effective Date of the Plan.
The
Plan was approved by the Board on November 18, 2020 and shall take
effect on December 29, 2020, subject to the acceptance of the Plan
by the shareholders of the Company, the TSX and any other
applicable regulatory authorities.
Exhibit 99.5 Additional Information
Item 16A.
The
Audit committee financial expert is Chris Kruba.
Item 7A
In
addition to the major shareholders disclosed in the 2020 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 November 30, 2020 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
November 2018
(%)
|
Number of
Common Shares Beneficially Owned
November 2019
(%)
|
Number of
Common Shares Beneficially Owned
November 2020
(%)
|
Goodman
& Company, Investment Counsel Inc.,(1)
2100-1
Adelaide Street East,
Ontario,
Canada
|
45,714,286(1a)
43,516,714
(1b)
(18.2%)
|
45,714,286(1a)
43,516,714
(1b)
(17.5%)
|
<
5%
|
VR
Capital Group Ltd., (2)
Dubai
International Financial Centre,
Gate
Village 4, Suite 402, Dubai, UAE
|
30,658,713
(6.2%)
|
30,658,713
(5.9%)
|
<
5%
|
JP
Morgan Chase & Co., (3)
270
Park Avenue, New York,
NY10017
|
11,278,000(3c)
(2.4%)
|
11,278,000(3c)
(2.2%)
|
Nil
|
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 than 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.