ARRKF 20-F
Arras Minerals Corp. (ARRKF)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
| 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 |
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________________________ to ______________________________ |
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 _______________________________________________
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Commission File Number:
(Exact name of registrant as specified in its charter)
N/A
(Translation of Registrant’s name into English)
(Jurisdiction of incorporation or organization)
(Address of principal executive office)
Chief Executive Officer
Tel:
(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)
Copies to:
Brian Boonstra
Davis Graham & Stubbs LLP
1550 Seventeenth Street, Suite 500
Denver, CO 80202
Tel: (303) 892-7348
Securities registered or to be registered pursuant to Section 12(b) of the Act.
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Trading Symbol(s) |
Name of each exchange on which registered | |||
Securities for which there is a reporting obligation pursuant to Section 12(g) of the Act.
Common Shares, without par value
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act. None.
Indicate the number of outstanding shares of
each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐
If this report is an annual or 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 ☐
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 ☐
Indicate by check mark whether the registrant has
submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | Emerging growth company |
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 period
for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.
| † | The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012. |
Indicate by check mark whether the registrant
has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared
or issued its audit report.
If securities are registered pursuant to Section
12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction
of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
| U.S. GAAP ☐ | International Accounting Standards Board ☒ | Other ☐ |
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
TABLE OF CONTENTS
| Page | |
| INTRODUCTION AND USE OF CERTAIN TERMS | 2 |
| MARKET INFORMATION | 2 |
| CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS | 3 |
| PART I | |
| ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS. | 5 |
| ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE. | 5 |
| ITEM 3. KEY INFORMATION. | 5 |
| ITEM 4. INFORMATION ON THE COMPANY. | 17 |
| ITEM 4A. UNRESOLVED STAFF COMMENTS. | 35 |
| ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS. | 35 |
| ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES. | 36 |
| ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS. | 50 |
| ITEM 8. FINANCIAL INFORMATION. | 51 |
| ITEM 9. THE OFFER AND LISTING. | 52 |
| ITEM 10. ADDITIONAL INFORMATION. | 52 |
| ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. | 63 |
| ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES. | 63 |
| PART II | |
| ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES. | 64 |
| ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS. | 64 |
| ITEM 15. CONTROLS AND PROCEDURES. | 64 |
| ITEM 16. [RESERVED]. | 65 |
| ITEM 16A. AUDIT COMMITTEE AND FINANCIAL EXPERT. | 65 |
| ITEM 16B. CODE OF ETHICS. | 65 |
| ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES. | 65 |
| ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES. | 66 |
| ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS. | 66 |
| ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT. | 66 |
| ITEM 16G. CORPORATE GOVERNANCE. | 66 |
| ITEM 16H. MINE SAFETY DISCLOSURE. | 66 |
| ITEM 16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS. | 66 |
| ITEM 16J INSIDER TRADING POLICIES | 66 |
| ITEM 16K CYBERSECURITY | 66 |
| PART III | |
| ITEM 17. FINANCIAL STATEMENTS. | 67 |
| ITEM 18. FINANCIAL STATEMENTS. | 67 |
| ITEM 19. EXHIBITS. | 67 |
| SIGNATURES | 69 |
| 1 |
INTRODUCTION AND USE OF CERTAIN TERMS
We have prepared this annual report on Form 20-F (this “Annual Report”) using a number of conventions, which you should consider when reading the information contained herein. In this Annual Report, the “Company,” “we,” “us,” “our” and “Arras” shall refer to Arras Minerals Corp. as the context may require. As used in this Annual Report, the terms “Mineral Resource,” “Measured Mineral Resource,” “Indicated Mineral Resource,” “Measured Mineral Resource,” and “Inferred Mineral Resource” and any grammatical variations thereof are based on the definitions of such terms set forth in Item 1300 of Regulation S-K.
The Company was incorporated under the Business Corporations Act (British Columbia) on February 5, 2021 as a wholly owned subsidiary of Silver Bull Resources, Inc. (“Silver Bull”). Arras was formed to hold Silver Bull’s interests in the Beskauga Project located in Kazakhstan. On March 19, 2021, Silver Bull transferred its Kazakh assets to the Company pursuant to the terms of an Asset Purchase Agreement (the “APA”) in exchange for the issuance of 36,000,000 common shares of the Company to Silver Bull (the “Asset Transfer”). On May 25, 2021, Silver Bull announced plans to spin off substantially all of its shares of Arras to the Silver Bull shareholders. On September 24, 2021, Silver Bull distributed approximately 34.5 million of the Company’s common shares to its shareholders by way of a special dividend, on the basis of one common share for each share of common stock in the capital of Silver Bull held by such shareholders (the “Distribution,” and together with the Asset Transfer, the “Spin-off”).
The Company publishes financial statements expressed in U.S. dollars. The Company’s consolidated financial statements are prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
MARKET INFORMATION
This Annual Report contains industry and market data prepared by management on the basis of such industry sources and management’s knowledge of and experience in the industry and markets in which the Company operates (including management’s estimates and assumptions relating to such industry and markets based on that knowledge). Management has developed its knowledge of such industry and markets through its experience and participation in these markets.
| 2 |
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report uses certain statements that may be deemed to be “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the United States Private Securities Litigation Reform Act of 1995, and “forward-looking information” within the meaning of applicable Canadian securities legislation. The Company uses words such as “anticipate,” “continue,” “likely,” “estimate,” “expect,” “may,” “will,” “projection,” “should,” “believe,” “potential,” “could,” or similar words suggesting future outcomes (including negative and grammatical variations) to identify forward-looking statements. These statements include statements regarding the following, among other things:
| ● | the sufficiency of existing cash resources to enable the Company to continue operations as a going concern; |
| ● | future exploration expenditures on the Beskauga Property, the potential exercise of the Beskauga Option and potential bonus payments under the Beskauga Option Agreement; |
| ● | future payments that may be made by Teck Resources Limited (“Teck”) under the terms of the Teck Alliance Agreement; |
| ● | the prospects of entering the development or production stage with respect to any of the Company’s projects; |
| ● | planned activities at the Beskauga Project in 2024 and beyond; |
| ● | whether any part of the Beskauga Project will ever be confirmed or converted into Regulation S-K 1300-compliant “reserves”; |
| ● | the Company’s ability to obtain and hold additional concessions in the Beskauga Project area; |
| ● | the sufficiency of surface rights in respect of the Beskauga Property if a mining operation is determined to be feasible; |
| ● | the potential acquisition of additional mineral properties or property concessions; |
| ● | the impact of recent accounting pronouncements on the Company’s financial position, results of operations or cash flows and disclosures; |
| ● | the Company’s ability to raise additional capital and/or pursue additional strategic options, and the potential impact on the Company’s business, financial condition and results of operations of doing so or not; and |
| ● | the impact of changing foreign currency exchange rates on the Company’s financial condition. |
These statements are based on certain assumptions and analyses made in light of the Company’s experience and perception of historical trends, current conditions, expected future developments and other factors believed to be appropriate in the circumstances. Such statements are subject to a number of assumptions, risks and uncertainties, and actual results could differ from those expressed or implied in these forward-looking statements as a result of the risk factors discussed in more detail in this Annual Report under “Item 3. Key Information—Risk Factors,” including without limitation, risks associated with the following:
| ● | the Company’s ability to continue as a going concern as a single-project company; |
| ● | uncertainty whether the Company will be able to maintain sufficient cash to accomplish its business objectives; |
| ●; | exploration activities require significant amounts of capital that may not be recovered; |
| ● | the Company’s ability to meet current and future capital requirements on favorable terms or at all; |
| ● | risks relating to the results of future exploration at the Beskauga Property and the Company’s ability to raise the capital for exploration expenditures on the Beskauga Property to maintain the effectiveness of the Beskauga Option; |
| ● | the Company being an exploration stage mining company with no history of operations; |
| ● | the Company having no commercially mineable ore body; |
| ● | the reliability of Mineral Resource estimates; |
| 3 |
| ● | the Company’s ability to acquire additional mineral properties or property concessions; |
| ● | inherent risks in the mineral exploration industry; |
| ● | risks relating to fluctuations of metal prices; |
| ● | risks relating to competition in the mining industry; |
| ● | risks relating to the title to the Company’s properties; |
| ● | risks relating to option and joint venture agreements; |
| ● | risks associated with joint ventures; |
| ● | ability to obtain required permits; |
| ● | timing of receipt and maintenance of government approvals; |
| ● | compliance with laws is costly and may result in unexpected liabilities; |
| ● | success depends on developing and maintaining relationships with local communities and other stakeholders; |
| ● | risks relating to social and environmental activism; |
| ● | risks relating to evolving corporate governance and public disclosure regulations; |
| ● | risks relating to foreign operations; |
| ● | risks relating to worldwide economic and political events; |
| ● | risk of political and economic instability in Kazakhstan; |
| ● | the Company’s financial condition could be adversely affected by changes in currency exchange rates; |
| ● | risks relating the Company’s “foreign private issuer” status; |
| ● | risks relating to the Company’s possible status as a passive foreign investment company; |
| ● | risks relating to volatility in the Company’s share value; |
| ● | further equity financings leading to the dilution of the Company’s common shares; |
| ● | the Company’s common shares continuing not to pay dividends; |
| ● | risks relating to information systems and cybersecurity; |
| ● | the Company’s ability to retain key management, consultants and experts necessary to successfully operate and grow the business; |
| ● | overlapping officers and directors with Silver Bull may give rise to conflicts of interest; |
| ● | reliance on international advisors and consultants; |
| ● | risks relating to changes in tax laws; and |
| ● | risks relating to changes in regulatory frameworks or regulations affecting the Company’s activities. |
All forward-looking statements speak only as of the date made. All subsequent written and oral forward-looking statements attributable to the Company, or persons acting on its behalf, are expressly qualified in their entirety by the cautionary statements. Except as required by law, the Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which it is made or to reflect the occurrence of anticipated or unanticipated events or circumstances. Readers should not place undue reliance on these forward-looking statements.
Cautionary Note Regarding Exploration Stage Companies
Arras is an exploration stage company and does
not currently have any known reserves and cannot be expected to have known reserves unless and until a feasibility study is completed
for the Beskauga Property concessions that shows proven and probable reserves. There can be no assurance that Arras’ concessions
contain proven and probable reserves or that even if such reserves are found, that the Company will be successful in economically recovering
them. Investors may lose their entire investment.
| 4 |
PART I
| ITEM 1. | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS. |
Directors and Senior Management
Not applicable.
Advisers
Not applicable.
Auditors
Not applicable.
| ITEM 2. | OFFER STATISTICS AND EXPECTED TIMETABLE. |
Not applicable.
| ITEM 3. | KEY INFORMATION. |
[Reserved]
Capitalization and Indebtedness
Not applicable.
Reasons for the Offer and Use of Proceeds
Not applicable.
Risk Factors
Readers should carefully consider the risks described below, together with all other information included in this Annual Report, in evaluating the Company and its shares. The following risk factors could adversely affect the Company’s business, financial condition, results of operations and the price of its shares.
Risks Relating to the Company
If Teck exercises its option to purchase 51% of the ownership of the designated property, Arras will no longer control the development of the designated property.
On December 7, 2023, Arras entered into the Teck Alliance Agreement (described in the “Item 4. Information on the Company”) with Teck, whereby Teck is able to obtain the option to purchase 51% to 75% of the ownership of designated property and oversee the mineral exploration of the property. If Teck exercises the option, then Arras will no longer control the development of this designated property. Teck would have the ability to control the timing and pace of future development, and its decisions may not be in the best interests of the Company and its shareholders.
| 5 |
There is substantial doubt about whether the Company can continue as a going concern.
As of October 31, 2023, Arras has earned no revenues and has incurred accumulated net losses of approximately $[13.8] million, and expects to incur additional losses in the future. In addition, the Company has limited financial resources. As of October 31, 2023, Arras had cash and cash equivalents of approximately $0.3 million and working capital deficit of approximately $134,000. The Company’s ability to continue as a going concern is dependent on raising additional capital or executing other strategic alternatives, such as the Teck Alliance Agreement, to fund exploration plans and ultimately to attain profitable operations. During the year ended October 31, 2023, Arras raised approximately $5.2 million through the issuance of its common shares. However, there is no assurance that the Company will be successful in raising additional capital. Accordingly, there is substantial doubt as to whether existing cash resources and working capital are sufficient to enable the Company to continue its operations as a going concern. Ultimately, in the event that Arras cannot obtain additional financial resources, or achieve profitable operations, it may have to liquidate its business interests and investors may lose their investment. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. Continued operations are dependent on Arras’ ability to obtain additional financial resources or generate profitable operations. Such additional financial resources may not be available or may not be available on reasonable terms. The Company’s consolidated financial statements do not include any adjustments that may result from the outcome of this uncertainty. Such adjustments could be material.
The Company may have difficulty meeting its current and future capital requirements.
Arras is required to incur cumulative exploration expenditures on the Beskauga Project of $15 million over the four-year option period in order to maintain the Beskauga Option. As of October 31, 2023, Arras has incurred approximately $9.9 million of these expenditures, with approximately $5.1 million remaining to be incurred. If the Company elects to exercise the Beskauga Option, it is required to pay an additional $15 million. In addition, Arras must have sufficient funds to pay general and administrative expenses and conduct other exploration activities. If the Company is unable to fund these amounts by way of financings, including public or private offerings of equity or debt securities, it will need to reorganize or significantly reduce its operations, which may result in an adverse impact on its business, financial condition and exploration activities. If Arras is unable to fund the amounts specified under the Beskauga Option, it may lose its ability to acquire the Beskauga Project. Arras does not have a credit, off-take or other commercial financing arrangement in place that would finance continued evaluation or development of the Beskauga Project, and the Company believes that securing credit for these projects may be difficult. Moreover, equity financing may not be available on attractive terms and, if available, will likely result in significant dilution to existing shareholders.
The Company is an exploration stage mining company with no history of operations.
Arras is an exploration stage enterprise engaged in mineral exploration in Kazakhstan. The Company was formed in 2021 and therefore has a very limited operating history and is subject to all the risks inherent in a new business enterprise. As an exploration stage company, Arras may never enter the development and production stages. To date, Arras has had no revenues and has relied upon equity financing to fund its operations. The likelihood of Arras’ success must be considered in light of the problems, expenses, difficulties, complications, and delays frequently encountered in connection with an exploration stage business, and the competitive and regulatory environment in which it operates and will operate, such as under-capitalization, personnel limitations, and limited financing sources.
| 6 |
The Company has no commercially mineable ore body.
No commercially mineable ore body has been delineated on the Beskauga Project, nor has the Beskauga Project been shown to contain proven or probable mineral reserves. Investors should not assume that the Mineral Resource estimates described in “Item 4. Information on the Company—Property, Plant and Equipment—Beskauga Project” will ever be extracted. The Company cannot assure you that any mineral deposits identified on the Beskauga Project will qualify as an ore body that can be legally and economically exploited or that any particular level of recovery of gold, copper or other minerals from discovered mineralization will in fact be realized. Most exploration projects do not result in the discovery of commercially mineable ore deposits. Even if the presence of reserves is established at a project, the legal and economic viability of the project may not justify exploitation.
Mineral Resource estimates may not be reliable.
There are numerous uncertainties inherent in estimating quantities of Mineral Resources such as gold, copper, silver and zinc, including many factors beyond Arras’ control, and no assurance can be given that the recovery of Mineral Resources will be realized. In general, estimates of Mineral Resources are based upon a number of factors and assumptions made as of the date on which the estimates were determined, including:
| ● | geological and engineering estimates that have inherent uncertainties; |
| ● | the anticipated effects of regulation by governmental agencies; |
| ● | the judgment of the geologists and engineers preparing the estimate; |
| ● | estimates of future metals prices and operating costs; |
| ● | the quality and quantity of available data; |
| ● | the interpretation of that data; and |
| ● | the accuracy of various mandated economic assumptions, all of which may vary considerably from actual results. |
All estimates are, to some degree, uncertain. For these reasons, estimates of the Mineral Resources prepared by different geologists or by the same geologists at different times may vary substantially. As such, there is significant uncertainty in any Mineral Resource estimate, and actual deposits encountered and the economic viability of a deposit may differ materially from the Company’s estimates.
Arras’ business plan is highly speculative, and its success largely depends on the successful exploration of its concessions.
Arras’ business plan is focused on exploring the Beskauga Property to identify reserves and, if appropriate, to ultimately develop the property. Although the Company has reported Mineral Resources on the Beskauga Project, it has not established any reserves and remains in the exploration stage. Arras may never enter the development or production stage. Exploration of mineralization and determination of whether the mineralization might be extracted profitably is highly speculative, and it may take a number of years until production is possible, during which time the economic viability of the project may change. Substantial expenditures are required to establish reserves, extract metals from ore and construct mining and processing facilities.
The Beskauga Project is subject to all of the risks inherent in mineral exploration and development. The economic feasibility of any mineral exploration and/or development project is based upon, among other things, estimates of the size and grade of mineral reserves, proximity to infrastructures and other resources (such as water and power), anticipated production rates, capital and operating costs, and metals prices. To advance from an exploration project to a development project, Arras will need to overcome various hurdles, including completing favorable feasibility studies, securing necessary permits, and raising significant additional capital to fund activities. There can be no assurance that Arras will be successful in overcoming these hurdles. Because of the Company’s focus on the Beskauga Project, the success of operations and profitability may be disproportionately exposed to the impact of adverse conditions unique to the Pavlodar, Kazakhstan region due to the Beskauga Project’s proximity to these locales.
| 7 |
The Company is uncertain that it will be able to maintain sufficient cash to accomplish its business objectives.
Arras is not engaged in any revenue producing activities, and does not expect to be in the near future. Currently, potential sources of funding consist of the sale of additional equity securities, entering into joint venture agreements or selling a portion of the Company’s interests in its assets. There is no assurance that any additional capital that will be required will be obtainable on acceptable terms, if at all. Failure to obtain such additional financing could result in delays or indefinite postponement of further exploration of the Company’s projects. Additional financing, if available, will likely result in substantial dilution to existing shareholders.
Exploration activities require significant amounts of capital that may not be recovered.
Mineral exploration activities are subject to many risks, including the risk that no commercially productive or extractable resources will be encountered. There can be no assurance that activities will ultimately lead to an economically feasible project or that Arras will recover all or any portion of its investment. Mineral exploration often involves unprofitable efforts, including drilling operations that ultimately do not further exploration efforts. The cost of minerals exploration is often uncertain, and cost overruns are common. Drilling and exploration operations may be curtailed, delayed or canceled as a result of numerous factors, many of which are beyond the Company’s control, including title problems, weather conditions, protests, compliance with governmental requirements, including permitting issues, and shortages or delays in the delivery of equipment and services.
Arras’ financial condition could be adversely affected by changes in currency exchange rates, especially between the U.S. dollar and the Kazakh tenge (“KZT”) and the U.S dollar and the Canadian dollar given the focus on the Beskauga Project in Kazakhstan, and the Company’s corporate office in Vancouver, Canada.
Arras’ financial condition is affected in part by currency exchange rates, as portions of exploration costs in Kazakhstan and general and administration costs in Canada are denominated in the local currency. Although many Kazakh contracts have an adjustment provision to address substantial changes in foreign currency exchange rates, a weakening U.S. dollar relative to the KZT and Canadian dollar may have the effect of increasing exploration costs and general and administration costs, while a strengthening U.S. dollar may have the effect of reducing exploration costs and general and administration costs. The exchange rates between the Canadian dollar and the U.S. dollar and between the KZT and U.S. dollar have fluctuated widely in response to international political conditions, general economic conditions and other factors beyond the Company’s control.
Success depends on developing and maintaining relationships with local communities and other stakeholders.
Arras’ ongoing and future success depends on developing and maintaining productive relationships with the communities surrounding the Company’s operations and other stakeholders in its operating locations. The Company believes that its operations can provide valuable benefits to surrounding communities, in terms of direct employment, training and skills development. In addition, Arras seeks to maintain its partnerships and relationships with local communities and stakeholders in a variety of ways, including in-kind contributions, sponsorships and donations. Notwithstanding the Company’s ongoing efforts, local communities and stakeholders can become dissatisfied with the Company’s activities or the level of benefits provided, which may result in legal or administrative proceedings, civil unrest, protests, direct action or campaigns against the Company. Any such occurrences could materially and adversely affect the Company’s financial condition, results of operations and cash flows.
| 8 |
Compliance with laws is costly and may result in unexpected liabilities.
The Company is headquartered in Vancouver, Canada and its mineral properties are located in Kazakhstan. The Company’s business operations are subject to various laws and regulations in Canada and Kazakhstan. These laws include compliance with the Extractive Sector Transparency Measures Act (Canada), which requires companies to report annually on payments made to all levels of governments both in Canada and abroad. The Company is also required to comply with anti-corruption and anti-bribery laws, including the Corruption of Foreign Public Officials Act (Canada).
The legal and regulatory requirements in Kazakhstan are different from those in Canada. The Company relies, to a great extent, on the Company’s local advisors in respect of legal, environmental compliance, banking, financing and tax matters in order to ensure compliance with material legal, regulatory and governmental developments as they pertain to and affect the Company’s operations in Kazakhstan. Despite these resources and the Company’s efforts to comply, the Company may fail to comply with a legal or regulatory requirement in Kazakhstan, which may lead to the revocation of certain rights or to penalties or fees and in enforcement actions thereunder.
The Company’s exposure to information systems and cybersecurity risks.
Arras’ information systems (including those of any of its counterparties) may be vulnerable to the increasing threat of continually evolving cybersecurity risks. Unauthorized parties may attempt to gain access to these systems or the Company’s information through fraud or other means of deception. Arras’ operations depend, in part, on how well the Company and its counterparties protect networks, equipment, information technology systems and software against damage from threats. The failure of information systems or a component of information systems could, depending on the nature of any such failure, adversely impact the Company’s reputation and results of operations. There can be no assurance that Arras or its counterparties will not incur such losses in the future. The Company’s risk and exposure to these matters cannot be fully mitigated because of, among other things, the evolving nature of these threats. As a result, cybersecurity and the continued development and enhancement of controls, processes and practices designed to protect systems, computers, software, data and networks from attack, damage or unauthorized access remain an area of attention.
The Company needs and relies upon key personnel.
Presently, Arras employs a limited number of full-time employees, utilizes outside consultants, and in large part relies on the efforts of its officers and directors. Success will depend, in part, upon the ability to attract and retain qualified employees. In particular, Arras has only three executive officers, Timothy Barry, Darren Klinck and Christopher Richards, and the loss of the services of any of these three persons could adversely affect its business.
The Company faces general risks in respect of its option and joint venture agreements.
The Company has and may continue to enter into option agreements and/or joint ventures as a means of acquiring property interests. Any failure of any partner to meet its obligations to the Company or other third parties, or any disputes with respect to third parties’ respective rights and obligations could have a material adverse effect on the Company’s rights under such agreements. Furthermore, the Company may be unable to exert direct influence over strategic decisions made in respect of properties that are subject to the terms of these agreements, and the result may be a materially adverse impact on the strategic value of the underlying mineral claims.
| 9 |
The Company is subject to specific risks associated with joint venture agreements.
The Company holds its interest in the Stepnoe and Ekidos properties through the Stepnoe and Ekidos JV Agreement (as defined below), and the Akkuduk, Nogurbek, Maisor, Elemes, Aktasty, Besshoky, Aimandai and South Bozshakol properties through the Maikain JV Agreement (as defined below). The existence or occurrence of one or more of the following circumstances and events could have a material adverse impact on the Company’s profitability or the viability of the Company’s interest in the properties, which could have a material adverse impact on the Company’s future cash flows, earnings, results of operations and financial condition:
| ● | disagreement amongst joint venture parties on how to conduct business; |
| ● | inability of joint venture parties to meet their obligations to the joint venture or third parties; |
| ● | litigation arising between joint venture shareholders; |
| ● | inability to exert influence over certain strategic decisions; |
| ● | inability of the Company to make its required contributions under the Stepnoe and Ekidos JV Agreement, which may result in dilution to the Company’s interest in the joint venture; and |
| ● | decisions under the dispute resolution provisions of the Stepnoe and Ekidos JV Agreement may not be resolved in the Company’s favor. |
The Company may expand into other geographic areas, which could increase the Company’s operational, regulatory and other risks.
While currently all of the Company’s exploration activities are in Kazakhstan, the Company may in the future expand into other geographic areas, which could increase the Company’s operational, regulatory, compliance, reputational and foreign exchange rate risks. The failure of the Company’s operating infrastructure to support such expansion could result in operational failures and regulatory fines or sanctions. Future international expansion could require the Company to incur a number of up-front expenses, including those associated with obtaining regulatory approvals, as well as additional ongoing expenses, including those associated with infrastructure, staff and regulatory compliance. The Company may not be able to successfully identify suitable acquisition and expansion opportunities, or integrate such operations successfully with the Company’s existing operations.
Risks Relating to the Mineral Exploration Industry
There are inherent risks in the mineral exploration industry.
The Company is subject to all of the risks inherent in the minerals exploration industry, including, without limitation, the following:
| ● | competition from a large number of companies, most of which are significantly larger than Arras, in the acquisition, exploration, and development of mining properties; |
| ● | Arras may not be able raise enough money to pay the fees and taxes and perform the labor necessary to maintain its concessions in good status; |
| ● | exploration for minerals is highly speculative, involves substantial risks and is frequently unproductive, even when conducted on properties known to contain significant quantities of mineralization, and the Company’s exploration projects may not result in the discovery of commercially mineable deposits of ore; |
| ● | Arras’ operations are subject to a variety of existing laws and regulations relating to exploration and development, permitting procedures, safety precautions, property reclamation, employee health and safety, air quality standards, pollution and other environmental protection controls, and it may not be able to comply with these regulations and controls; and |
| ● | a large number of factors beyond the Company’s control, including fluctuations in metal prices, inflation, and other economic conditions, will affect the economic feasibility of mining. |
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Metals prices are subject to extreme fluctuation.
Arras’ activities are influenced by the prices of commodities, including gold, copper, silver, zinc, lead and other metals. These prices fluctuate widely and are affected by numerous factors beyond the Company’s control, including interest rates, expectations for inflation, speculation, currency values (in particular, the strength of the U.S. dollar), global and regional demand, political and economic conditions and production costs in major metal-producing regions of the world.
Arras’ ability to establish reserves through its exploration activities, its future profitability and long-term viability depend, in large part, on the market prices of gold, copper, silver, zinc, lead and other metals. The market prices for these metals are volatile and are affected by numerous factors beyond the Company’s control, including:
| ● | global or regional consumption patterns; |
| ● | supply of, and demand for, gold, copper, silver, zinc and lead; |
| ● | speculative activities and producer hedging activities; |
| ● | expectations for inflation; |
| ● | political and economic conditions; and |
| ● | supply of, and demand for, consumables required for production. |
Future weakness in the global economy could increase volatility in metals prices or depress metals prices, which could in turn reduce the value of the Company’s properties, make it more difficult to raise additional capital, and make it uneconomical for it to continue exploration activities.
Future operations will require additional permits from various governmental authorities.
The Company’s operations are and will continue to be governed by laws and regulations governing prospecting, mineral exploration, exports, taxes, labor standards, occupational health, waste disposal, toxic substances, land use, environmental protection, mine safety, mining royalties and other matters. There can be no assurance that Arras will be able to acquire all required licenses, permits or property rights on reasonable terms or in a timely manner, or at all, that such terms will not be adversely changed, that required extensions will be granted, or that the issuance of such licenses, permits or property rights will not be challenged by third parties.
Title to the Company’s properties may be challenged or defective.
Arras attempts to confirm the validity of its rights of title to, or contract rights with respect to, each mineral property in which it has a material interest. However, the Company cannot guarantee that title to its properties will not be challenged. The Beskauga Property may be subject to prior unregistered agreements, interests or native land claims, and title may be affected by undetected defects. There may be valid challenges to the title of any of the claims comprising the Beskauga Property that, if successful, could impair possible development and/or operations with respect to such properties in the future. Challenges to permits or property rights (whether successful or unsuccessful), changes to the terms of permits or property rights, or a failure to comply with the terms of any permits or property rights that have been obtained could have a material adverse effect on the Company’s business by delaying or preventing or making continued operations economically unfeasible.
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A title defect could result in Arras losing all or a portion of its right, title, and interest to and in the properties to which the title defect relates. Title insurance generally is not available, and the Company’s ability to ensure that it has obtained secure title to individual mineral properties or mining concessions may be severely constrained. In addition, Arras may be unable to operate its properties as permitted or to enforce its rights with respect to its properties. As of February 27, 2024, Arras is not aware of any challenges from the government or from third parties.
The Company is subject to complex environmental and other regulatory risks, which could expose it to significant liability and delay and potentially the suspension or termination of its exploration efforts.
Arras’ mineral exploration activities are subject to federal, state and local environmental regulations in Kazakhstan. These regulations mandate, among other things, the maintenance of air and water quality standards and land reclamation. They also set forth limitations on the generation, transportation, storage and disposal of solid and hazardous waste. No assurance can be given that environmental standards imposed by the government of Kazakhstan will not be changed, thereby possibly materially adversely affecting the Company’s proposed activities. Compliance with these environmental requirements may also necessitate significant capital outlays or may materially affect the Company’s earning power.
Environmental legislation is evolving in a manner that will 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.
Future changes in environmental regulations in Kazakhstan may adversely affect Arras’ exploration activities, make them prohibitively expensive, or prohibit them altogether. Environmental hazards may exist on the properties in which the Company currently holds interests, or may hold interests in the future, that are unknown to the Company at present and that have been caused by it or previous owners or operators, or that may have occurred naturally. Arras may be liable for remediating any damage that it may have caused. The liability could include costs for removing or remediating the release and damage to natural resources, including ground water, as well as the payment of fines and penalties.
The industry is highly competitive, attractive mineral properties and property concessions are scarce, and the Company may not be able to obtain quality properties or concessions.
Arras competes with other mining and exploration companies in the acquisition of mineral properties and property concessions. There is competition for a limited number of attractive mineral property acquisition opportunities, some of which is with other companies having substantially greater financial resources, staff and facilities than Arras does. As a result, the Company may have difficulty acquiring quality mineral properties or property concessions.
The Company’s operations are subject to various hazards.
Arras is subject to risks and hazards, including environmental hazards, possible encounters with unusual or unexpected geological formations, cave-ins, flooding and earthquakes, and periodic interruptions due to inclement or hazardous weather conditions. These occurrences could result in damage to, or the destruction of, mineral properties or future production facilities, personal injury or death, environmental damage, delays in exploration activities, asset write-downs, monetary losses and possible legal liability. Arras may not be insured against all losses or liabilities, either because such insurance is unavailable or because it has elected not to purchase such insurance due to high premium costs or other reasons. Although Arras maintains insurance in an amount that it considers to be adequate, liabilities might exceed policy limits, in which event it could incur significant costs that could adversely affect its activities. The realization of any significant liabilities in connection with Arras’ activities as described above could negatively affect its activities.
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Social and environmental activism can negatively impact exploration, development and mining activities.
There is an increasing level of public concern relating to the effects of mining on the natural landscape, on communities and on the environment. Certain non-governmental organizations, public interest groups and reporting organizations (“NGOs”) who oppose resource development can be vocal critics of the mining industry. In addition, there have been many instances in which local community groups have opposed resource extraction activities, which have resulted in disruption and delays to the relevant operation. While the Company seeks to operate in a socially responsible manner and believes it has good relationships with local communities in the regions in which it operates, NGOs or local community organizations could direct adverse publicity against and/or disrupt the operations of the Company in respect of one or more of its properties, regardless of its successful compliance with social and environmental best practices, due to political factors, activities of unrelated third parties on lands in which the Company has an interest or the Company’s operations specifically. Any such actions and the resulting media coverage could have an adverse effect on the reputation and financial condition of the Company or its relationships with the communities in which it operates, which could have a material adverse effect on the Company’s business, financial condition, results of operations, cash flows or prospects.
Risks Relating to Foreign Operations
There are inherent risks with foreign operations.
Arras’ business activities are primarily conducted in Kazakhstan, and as such, its activities are exposed to various levels of foreign political, economic and other risks and uncertainties. These risks and uncertainties include, but are not limited to, terrorism, hostage taking, military repression, extreme fluctuations in currency exchange rates, high rates of inflation, labor unrest, war or civil unrest, expropriation and nationalization, renegotiation or nullification of existing concessions, licenses, permits, approvals and contracts, illegal mining, changes in taxation policies, restrictions on foreign exchange and repatriation, changing political conditions, currency controls and governmental regulations that favor or require the rewarding of contracts to local contractors or require foreign contractors to employ citizens of, or purchase supplies from, a particular jurisdiction.
Changes, if any, in mining or investment policies or shifts in political attitude in Kazakhstan may adversely affect the Company’s exploration and possible future development activities. Arras may also be affected to varying degrees by government regulations with respect to, but not limited to, foreign investment, maintenance of claims, environmental legislation, land use, land claims of local people, water use and mine safety. Failure to comply strictly with applicable laws, regulations and local practices relating to mineral right applications and tenure could result in loss, reduction or expropriation of entitlements, or the imposition of additional local or foreign parties as joint venture partners with carried or other interests.
The occurrence of these various factors and uncertainties cannot be accurately predicted and could have an adverse effect on Arras’ operations. In addition, legislation in Canada or Kazakhstan regulating foreign trade, investment and taxation could have a material adverse effect on the Company’s financial condition.
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The Company faces risks as a result of operating in Kazakhstan.
The Beskauga Project is in Kazakhstan. As is typical of an emerging market, Kazakhstan’s business, legal and regulatory infrastructure has been subject to substantial political, economic and social change. Arras’ business in Kazakhstan is subject to Kazakhstan-specific laws and regulations, including with respect to tax, anti-corruption, and foreign exchange controls. Such laws are often rapidly changing and are unpredictable. The Company’s failure to manage the risks associated with doing business in Kazakhstan could have a material adverse effect upon its results of operations.
The Company’s main project is the Beskauga Project, and any adverse development affecting the Beskauga Project, including the Company’s interests, licenses and permits relating thereto, could be expected have a material adverse effect on the Company, its businesses, prospects, assets, results of operations and condition (financial or otherwise).
The Company has obtained permits from the Government of Kazakhstan that enable it to conduct exploration activities. Notwithstanding these arrangements, the Company’s ability to conduct exploration activities is subject to changes in government regulations or shifts in political attitudes over which the Company has no control.
There can be no assurance that industries deemed of national or strategic importance to Kazakhstan such as mineral production will not be nationalized. Government policy may change to discourage foreign investment, renationalization of mining industries may occur and other government limitations, restrictions or requirements not currently foreseen may be implemented. There can be no assurance that the Company’s assets in Kazakhstan will not be subject to nationalization, requisition or confiscation, whether legitimate or not, by any authority or body. Similarly the Company’s operations may be affected in varying degrees by government regulations with respect to restrictions on production, price controls, export controls, income taxes, expropriation of property, environmental legislation, mine safety and annual payments to maintain mineral properties in good standing. There can be no assurance that the laws of Kazakhstan protecting foreign investments will not be amended or abolished or that these existing laws will be enforced or interpreted to provide adequate protection against any or all of the risks detailed above. There can be no assurance that any agreements with the government of Kazakhstan will prove to be enforceable or provide adequate protection against any or all of the risks described above.
Existing contracts or licenses with respect to the Company’s operations may be subject to selective or arbitrary government action.
The Company’s contracts and licenses in Kazakhstan may be susceptible to arbitrary revision and termination. Legal redress for such actions may be uncertain, delayed or unavailable. In addition, it is often difficult to determine from governmental records whether statutory and corporate actions have been properly completed by the parties or applicable regulatory agencies. In some cases, failure to follow the actions may call into question the validity of the entity or the action taken. Examples include corporate registration or amendments, capital contributions, transfers of assets or issuances or transfers of capital stock. Ensuring the Company’s ongoing rights to mineral properties will require a careful monitoring of performance of its contracts and other licenses and monitoring the evolution of the laws and practices of Kazakhstan. Failure to comply with the terms of the necessary licenses or contracts or show compliance against official records may result in their revocation which may have an adverse effect on the Company’s operations.
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Changes in the political environment in Kazakhstan could have a material impact on the Company’s business, prospects, results of operations and financial condition.
Since Kazakhstan declared its independence in 1991 after the dissolution of the Soviet Union, Kazakhstan has had political stability as an independent nation. Yet, there is potential for social, political, economic, legal and fiscal instability. The Company cannot predict the possibility of any future changes in the political environment in Kazakhstan that would have an impact on Kazakh laws and regulations, their interpretation or enforcement, or the effect of such changes on the Company’s business, prospects, results of operations and financial condition. The risks include, among other things:
| ● | local currency devaluation; |
| ● | exchange controls or availability of hard currency; |
| ● | changes in export and transportation regulations relating to metals; |
| ● | changes in national fiscal regulations; |
| ● | changes in anti-monopoly legislation or its exercise; |
| ● | nationalization or expropriation of property; and |
| ● | interruption or blockage of the export of metals. |
There can be no assurance that changes in the political environment will not affect governmental regulation and policy.
The Company relies on international advisors and consultants.
The legal and regulatory requirements in Kazakhstan with respect to conducting mineral exploration and mining activities, banking system and controls, as well as local business culture and practices are different from those in Canada and the United States. The officers and directors of the Company must rely, to a great extent, on the Company’s local legal counsel and local consultants retained by the Company in order to keep abreast of material legal, regulatory and governmental developments as they pertain to and affect the Company’s business operations, and to assist the Company with its governmental relations. The Company must rely, to some extent, on those members of management and the Company’s board of directors (the “Arras Board”) who have previous experience working and conducting business in Kazakhstan in order to enhance its understanding of and appreciation for the local business culture and practices. The Company also relies on the advice of local experts and professionals in connection with current and new regulations that develop in respect of banking, financing, labor, litigation and tax matters in this jurisdiction. Any developments or changes in such legal, regulatory or governmental requirements or in local business practices are beyond the control of the Company. The impact of any such changes may adversely affect the business of the Company.
Risks Relating to the Company’s Common Shares
Further equity financings may lead to the dilution of the Company’s common shares.
In order to finance future operations, Arras may raise funds through the issuance of common shares or the issuance of debt instruments or other securities convertible into common shares. Arras cannot predict the size of future issuances of common shares or the size and terms of future issuances of debt instruments or other securities convertible into common shares or the effect, if any, that future issuances and sales of the Company’s securities will have on the market price of the Company’s common shares. Any transaction involving the issuance of previously authorized but unissued shares, or securities convertible into common shares, would result in dilution, possibly substantial, to present and prospective security holders. Demand for equity securities in the mining industry has been weak; therefore, equity financing may not be available on attractive terms and, if available, will likely result in significant dilution to existing shareholders.
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Arras may lose its “foreign private issuer” status in the future, which could result in additional costs and expenses.
Arras is a “foreign private issuer,” as such term is defined in Rule 405 under the Securities Act and is not subject to the same requirements that are imposed upon U.S. domestic issuers by the Securities and Exchange Commission (the “SEC”). Arras may in the future lose foreign private issuer status if a majority of its common shares are held in the United States and it fails to meet the additional requirements necessary to avoid loss of foreign private issuer status, such as if (i) a majority of its directors or executive officers are U.S. citizens or residents; (ii) a majority of its assets are located in the United States; or (iii) its business is administered principally in the United States. The regulatory and compliance costs to the Company under U.S. securities laws as a U.S. domestic issuer will be significantly more than the costs incurred as a Canadian foreign private issuer. If Arras is not a foreign private issuer, it may be required to file periodic and current reports and registration statements on U.S. domestic issuer forms with the SEC, which are generally more detailed and extensive than the forms available to a foreign private issuer. In addition, Arras may lose the ability to rely upon exemptions from corporate governance requirements that are available to foreign private issuers. Further, if Arras engages in capital raising activities after losing foreign private issuer status, there is a higher likelihood that investors may require the Company to file resale registration statements with the SEC as a condition to any such financing.
The Company is subject to risks associated with evolving corporate governance and public disclosure regulations.
The Company is subject to changing rules and regulations promulgated by the United States and Canadian governmental and self-regulated organizations, including the SEC, the CSA, any exchange or marketplace on which Arras’s securities are listed or trade, and the Financial Accounting Standards Board. These rules and regulations continue to evolve in scope and complexity making compliance more difficult and uncertain. The Company’s efforts to comply with these and other new and existing rules and regulations have resulted in, and are likely to continue to result in, increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities.
No dividends are anticipated.
At the present time, Arras does not anticipate paying dividends, cash or otherwise, on its common shares in the foreseeable future. Future dividends will depend on earnings, if any, the Company’s financial requirements and other factors. There can be no assurance that Arras will pay dividends.
The Company may be a passive foreign investment company for U.S. federal income tax purposes.
The Company may be, or could become, a passive foreign investment company within the meaning of Section 1297 of the Internal Revenue Code of 1986, as amended, which could result in certain potentially adverse U.S. federal income tax consequences to certain U.S. taxpayers with respect to such taxpayer’s ownership and disposition of the Company’s common shares.
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| ITEM 4. | INFORMATION ON THE COMPANY. |
Business Overview
Arras is an exploration stage company, engaged in the business of mineral exploration. The Company’s exploration is focused on discovering and delineating Mineral Resources at the Company’s material property, the Beskauga Project (as defined below), which is comprised of three contiguous licenses located in Kazakhstan. Arras has not realized any revenues. The Company has not established any reserves with respect to its exploration projects and may never enter into the development stage with respect to any of its projects.
Organizational Structure
The Company was incorporated under the Business Corporations Act (British Columbia) on February 5, 2021 as a wholly owned subsidiary of Silver Bull. Arras was formed to hold Silver Bull’s interests in the Beskauga Project located in Kazakhstan. On March 19, 2021, Silver Bull transferred its Kazakh assets to the Company pursuant to the terms of the APA in exchange for the issuance of 36,000,000 common shares of the Company to Silver Bull. The transferred assets included an option agreement with respect to the Beskauga Property (as defined below), a joint venture agreement with respect to the Stepnoe and Ekidos properties (the “Stepnoe and Ekidos JV Agreement”) and loans payable by Ekidos Minerals LLP (“Ekidos LLP”) to Silver Bull. On September 24, 2021, Silver Bull distributed approximately 34.5 million of its common shares issued to its shareholders by way of a special dividend, on the basis of one common share for each share of common stock in the capital of Silver Bull held by such shareholders. Upon completion of the Spin-off, Silver Bull retained an approximately 4% ownership interest in Arras. As of October 31, 2022, Silver Bull no longer had any ownership interest in Arras. On February 3, 2022, the Company purchased 100% of the issued and outstanding shares of Ekidos LLP, and Ekidos LLP became a wholly owned subsidiary of the Company.
On February 10, 2023, Arras Metals Ltd. (“Arras Metals”) was incorporated at Astana International Financial Centre in Astana, Republic of Kazakhstan, as a wholly owned subsidiary of the Company, for the purpose of holding mineral exploration investments.
History and Development of the Company
The Spin-off
On February 5, 2021, the Company was incorporated under the Business Corporations Act (British Columbia) as a wholly owned subsidiary of Silver Bull. Arras was formed to hold Silver Bull’s interests in the Beskauga Project located in Kazakhstan. On March 19, 2021, Silver Bull transferred its Kazakh assets to the Company pursuant to the terms of the APA in exchange for the issuance of 36,000,000 common shares of the Company to Silver Bull. The transferred assets included an option agreement with respect to the Beskauga Property, a joint venture agreement with respect to the Stepnoe and Ekidos properties and loans payable by Ekidos LLP to Silver Bull. On May 25, 2021, Silver Bull announced plans to spin off substantially all of its shares of Arras to the Silver Bull shareholders. On September 24, 2021, Silver Bull distributed approximately 34.5 million of the Company’s common shares to its shareholders by way of a special dividend, on the basis of one common share for each share of common stock in the capital of Silver Bull held by such shareholders.
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Beskauga Option Agreement
Pursuant to the APA, Silver Bull transferred its interest in an option agreement (the “Beskauga Option Agreement”) among Silver Bull, Copperbelt AG (“Copperbelt”) and Dostyk LLP (“Dostyk,” and together with Copperbelt, “CB”) to Arras.
Silver Bull entered into the Beskauga Option Agreement on August 12, 2020. Upon the execution of the Beskauga Option Agreement, Silver Bull paid Copperbelt $30,000. In addition, Silver Bull paid Copperbelt $40,000 upon completion of its due diligence on the Beskauga Project on January 26, 2021 (the “Option Closing Date”).
Pursuant to the Beskauga Option Agreement, Arras has the exclusive right and option (the “Beskauga Option”) to acquire CB’s right, title and 100% interest in the Beskauga property located in Kazakhstan (the “Beskauga Property”), which consists of the Beskauga Main project (the “Beskauga Main Project”) and the Beskauga South project (the “Beskauga South Project,” and together the Beskauga Main Project, the “Beskauga Project”).
The Beskauga Option Agreement provides that subject to its terms and conditions, in order to maintain the effectiveness of the Beskauga Option, the Company must have incurred $2,000,000 in cumulative exploration expenditures on the Beskauga Project by January 26, 2022 (the first anniversary of the Option Closing Date), $5,000,000 in cumulative exploration expenditures on the Beskauga Project by January 26, 2023 (the second anniversary of the Option Closing Date), $10,000,000 in cumulative exploration expenditures on the Beskauga Project by January 26, 2024 (the third anniversary of the Option Closing Date), and $15,000,000 in cumulative exploration expenditures on the Beskauga Project by January 26, 2025 (the fourth anniversary of the Option Closing Date) (collectively, the “Exploration Expenditures”).
As of October 31, 2023, approximately $9.9 million of the required Exploration Expenditures have been incurred under the Beskauga Option Agreement. The Company expects to finance additional Exploration Expenditures through proceeds from issuances of equity securities of the Company. See “Risk Factors—Risks Relating to the Company—the Company may have difficulty meeting its current and future capital requirements.”
The Beskauga Option Agreement provides that, subject to its terms and conditions, after the Company or its affiliate has incurred the Exploration Expenditures, the Company or its affiliate may exercise the Beskauga Option and acquire (i) the Beskauga Project by paying CB $15,000,000 in cash, (ii) only the Beskauga Main Project by paying CB $13,500,000 in cash, or (iii) only the Beskauga South Project by paying CB $1,500,000 in cash.
In addition, the Beskauga Option Agreement provides that subject to its terms and conditions, the Company or its affiliate may be obligated to make the following bonus payments (collectively, the “Bonus Payments”) to Copperbelt if the Beskauga Main Project or the Beskauga South Project is the subject of a bankable feasibility study in compliance with National Instrument 43-101 – Standards of Disclosure for Mineral Projects of the Canadian Securities Administrators (“National Instrument 43-101”) indicating gold equivalent resources in the amounts set forth below, with (i) (A) 20% of the Bonus Payments payable after completion of the bankable feasibility study or after the Mineral Resource statement is finally determined and (B) the remaining 80% of the Bonus Payments due within 15 business days of commencement of on-site construction of a mine for the Beskauga Main Project or the Beskauga South Project, as applicable, and (ii) up to 50% of the Bonus Payments payable in shares of Silver Bull common to be valued at the 20-day volume-weighted average trading price of the shares on the TSX calculated as of the date immediately preceding the date such shares are issued:
| Gold equivalent resources | Cumulative Bonus Payments ($) |
| Beskauga Main Project | |
| 3,000,000 ounces | $2,000,000 |
| 5,000,000 ounces | $6,000,000 |
| 7,000,000 ounces | $12,000,000 |
| 10,000,000 ounces | $20,000,000 |
| Beskauga South Project | |
| 2,000,000 ounces | $2,000,000 |
| 3,000,000 ounces | $5,000,000 |
| 4,000,000 ounces | $8,000,000 |
| 5,000,000 ounces | $12,000,000 |
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Pursuant to the Beskauga Option Agreement, the bankable feasibility study (i) must be a detailed report in compliance with National Instrument 43-101, in form and substance sufficient for presentation to arm’s length institutional lenders considering project financing, showing the feasibility of placing any part of the Beskauga Property into commercial production as a mine, and (ii) must include a reasonable assessment of the various categories of mineral reserves and their amenability to metallurgical treatment, a complete description of the work, equipment and supplies required to bring such part of the Beskauga Property into commercial production and the estimated cost thereof, a description of the mining methods to be employed and a financial appraisal of the proposed operations. As noted above, the feasibility study must be prepared in compliance with National Instrument 43-101 and the accompanying definition of “feasibility study” prescribed by the Canadian Institute of Mining, Metallurgy and Petroleum. The definition is substantially similar to the definition of “feasibility study” provided in Item 1300 of Regulation S-K.
The Beskauga Option Agreement may be terminated under certain circumstances, including (i) upon the mutual written agreement of the Company and CB; (ii) upon the delivery of written notice by the Company, provided that at the time of delivery of such notice, unless there has been a material breach of a representation or warranty given by CB that has not been cured, the Beskauga Property is in good standing; or (iii) if there is a material breach by a party of its obligations under the Beskauga Option Agreement and the other party has provided written notice of such material breach, which is incapable of being cured or remains uncured.
Stepnoe and Ekidos JV Agreement
Additionally, in connection with the Spin-off and pursuant to the APA, Silver Bull transferred its interest in the Stepnoe and Ekidos JV Agreement to Arras.
On September 1, 2020, Silver Bull entered into the Stepnoe and Ekidos JV Agreement in connection with, among other things, mineral license applications (the “Stepnoe and Ekidos Licenses”) for, and further exploration and evaluation of certain properties, including the Stepnoe and Ekidos properties located in Kazakhstan. The exploration licenses for the Stepnoe and Ekidos properties were granted on October 22, 2020.
Pursuant to the Stepnoe and Ekidos JV Agreement, Ekidos LLP was incorporated on behalf of Copperbelt for the purpose of applying for the Stepnoe and Ekidos Licenses with the funding previously provided by Silver Bull. Pursuant to the terms of the Stepnoe and Ekidos JV Agreement and in connection with the Asset Transfer, 100% of the equity interests in Ekidos LLP were acquired by the Company on February 3, 2022.
The Company (through Ekidos LLP) and Copperbelt have initial participating interests in the joint venture of 80% and 20%, respectively. Pursuant to the Stepnoe and Ekidos JV Agreement, once the Company spends a minimum of $3,000,000 on either the Stepnoe or Ekidos property, the Company has the option to acquire Copperbelt’s participating interest in such property for $1,500,000. As of October 31, 2023, approximately $1,219,000 of the required expenditures have been incurred under the Stepnoe and Ekidos JV Agreement.
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The Stepnoe and Ekidos JV Agreement shall terminate automatically upon there being one participant in the joint venture, or by written agreement between the parties.
On November 11, 2023, the Stepnoe and Ekidos JV Agreement was amended to allow for financing and third- party support of exploration and development activities on some or all of the JV licenses.
Maikain JV Agreement
On May 20, 2021, Ekidos LLP entered into the Maikain Joint Venture Agreement (the “Maikain JV Agreement”) with Orogen LLP, a company incorporated under the laws of Kazakhstan, in connection with, among other things, mineral license applications for, and further exploration and evaluation of, certain properties in an area of interest, including the Akkuduk, Nogurbek, Maisor, Elemes, Aktasty, Besshoky, Aimandai and South Bozshakol properties located in Kazakhstan. The following exploration licenses have been granted for an initial six-year period, with the possibility of a five-year extension.
| Property | Exploration License | Grant Date |
| Akkuduk | 1178-EL | February 2, 2021 |
| Nogurbek | 1413-EL | August 20, 2021 |
| Maisor | 1471-EL | October 22, 2021 |
| Elemes | 1555-EL | January 14, 2022 |
| Aktasty | 1675-EL | March 18, 2022 |
| Besshoky | 1819-EL | August 15, 2022 |
| Aimandai | 1840-EL | September 23, 2022 |
| South Bozshakol | 1866-EL | October 22, 2022 |
The Company (through Ekidos LLP) and Orogen LLP have initial participating interests in the Maikain joint venture of 80% and 20%, respectively. Pursuant to the Maikain JV Agreement, once the Company spends a minimum of $3,000,000 on a property in the area of interest, the Company has the option to acquire Orogen LLP’s participating interest in such property for $1,500,000. As of October 31, 2023, approximately $1,534,000 of the required expenditures have been incurred.
The Maikain JV Agreement shall terminate automatically upon the earlier of (i) there being one participant in the joint venture, (ii) by written agreement between the parties, or (iii) May 20, 2024.
On November 11, 2023, the Maikain JV Agreement was amended to accommodate the Teck Alliance Agreement to allow for third-party financing and support of exploration and development activities on some or all of the JV licenses. The amended agreement also clarifies that the Maikain JV Agreement shall not terminate and will continue in full force and effect with respect to any mineral licenses held by or on behalf of the Maikain joint venture as of the date of expiry (May 20, 2024).
Teck Alliance Agreement
On December 7, 2023. the Company entered into the Teck Alliance Agreement with Teck and received $1.5 million cash, primarily for the reimbursement of certain related expenses made by the Company prior to the Teck Alliance Agreement until December 31, 2023. Upon the terms and subject to the conditions set forth in the Teck Alliance Agreement, in order for Teck to earn and maintain its option, Teck must have contributed for the exploration expenditure of $5 million for two licenses packages totaling approximately 1,736 square kilometers located in Pavlodar, Kazakhstan before December 31, 2025 (the “Initial Exploration Period”). Of this, $2 million is a firm commitment to be completed in calendar year 2024. Funding is made on a quarterly basis based on the subsequent quarter’s exploration budget. The following exploration licenses are included in the Teck Alliance Agreement and have been granted for an initial six-year period, with the possibility of a five-year extension.
| Property | Exploration License | Grant Date |
| Akkuduk | 1178-EL | February 2, 2021 |
| Nogurbek | 1413-EL | August 20, 2021 |
| Maisor | 1471-EL | October 22, 2021 |
| Elemes | 1555-EL | January 14, 2022 |
| Aktasty | 1675-EL | March 18, 2022 |
| Besshoky | 1819-EL | August 15, 2022 |
| South Bozshakol | 1866-EL | October 22, 2022 |
| Azhe-1 | 2207-EL | October 23, 2023 |
| Karatol-1 | Application Pending | NA |
| Karatol-3 | 2367-EL | January 10, 2024 |
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On the completion of the Initial Exploration Period, Teck may exercise an option in the Teck Alliance Agreement by selecting up to four designated properties up to 120 square kilometers each. Teck must have paid $500,000 for each designated property to the Company as an additional reimbursement for the previously invested exploration expenditure.
Teck will have three options to earn and maintain its option:
| ● | “First Option”: Teck may elect to solely fund $5.5 million over the next two years ($2.5 million committed in Year 1) and on completion will be deemed to own 51% of the designated property, |
| ● | “Second Option”: Teck may elect to solely fund $18 million over the next three years ($5 million committed in Year 1) to earn an additional 14% (total of 65%) of the designated property, |
| ● | “Third Option”: Teck may elect to solely fund $24 million over four years ($6 million committed in Year 1) to earn an additional 10% (total of 75%) of the designated property. |
If Teck elects not to continue with the Teck Alliance Agreement before December 31, 2025, the licenses will remain 100% owned by the Company. The exploration programs will be initially managed by the Company, with Teck being able to approve the exploration program funded by it. Thereafter, Teck will have the right to assume the role of manager. If the Teck Alliance Agreement is terminated by Teck without cause at the Initial Exploration Period, the Company is under no obligation to reimburse Teck for amounts contributed under the Teck Alliance Agreement. On February 9, 2024, the Company has received a second payment of $626,000 from Teck pursuant to the Teck Alliance Agreement to fund the alliance exploration activities for the first calendar quarter of 2024.
Financings and Issuances of the Company’s Securities
On November 10, 2022, Arras entered into a series of substantially similar subscription agreements (each, a “November 2022 Subscription Agreement”) pursuant to which Arras issued and sold to certain investors an aggregate of 15,938,250 Arras common shares at a price of CDN$0.45 per share, for gross proceeds of CDN$7,172,213. The private placement included subscriptions from certain members of the board of directors and management team (and their respective affiliates) of Arras for an aggregate of 331,000 Arras common shares (CDN$148,950). All Arras common shares issued in the private placement were subject to a hold period under applicable Canadian securities laws, which expired on March 20, 2023. The Company relied on the exemption from registration under Section 4(a)(2) of the Securities Act, or Rule 506 of Regulation D, or Regulation S, for purposes of the private placement.
See also “Item 6. Directors, Senior Management and Employees—Compensation” and “Item 6. Directors, Senior Management and Employees—Share Ownership—Compensation Plans—Arras Minerals Corp. Equity Incentive Plan” for other issuances of securities of Arras under its equity incentive plan.
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Property, Plant and Equipment
Beskauga Project
Location, Access and Infrastructure
The Beskauga Project is located in the Pavlodar Region of northeastern Kazakhstan, approximately 300 km from the Kazakhstan capital, Astana, approximately 70 kilometers southwest of the city of Pavlodar (population of approximately 330,000), and approximately 65 kilometers east of the town of Ekibastuz (population of approximately 125,000). There is an international airport at Astana. Access to the project area is via sealed road from Pavlodar.
The property comprises three licenses, the Beskauga mineral license (40 square kilometers) in the center of the property, which has been the subject of all work carried out thus far, and the Stepnoe (371 square kilometers) and Ekidos (252 square kilometers) mineral exploration licenses.
The region has sufficient infrastructure to host large-scale mining operations and is a sophisticated transportation and communication node with a local economy dominated by activity in the mining and industrial sectors. Some 40% of all of Kazakhstan’s power-generating capacity comes from the region, which contains six power stations, three of which are in Pavlodar. Fresh water is supplied to the area from the Irtysh River/Karaganda Canal, and there is a large, well-trained labor force to draw upon for any future mining activities.
The map below shows the location of the Beskauga Project:
Property History, Title and Ownership Rights
The Beskauga deposit was discovered by a regional shallow drilling program conducted during the Soviet-era in the 1980s. Dostyk maintained minerals rights for the Beskauga deposit based on License No. 785 (series MG) dated January 8, 1996, and a series of subsequent contracts and addendums as per the Republic of Kazakhstan legislation.
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On May 27, 2023, the government of Kazakhstan agreed to convert the Beskauga exploration contract to an exploration license under the current Kazakh mining code. On August 8, 2023, exploration license 2092-EL was granted until February 8, 2024, with the option to renew for an additional five-year period. On November 3, 2023, the exploration license 2092-EL was renewed until February 8, 2029.
Geology and Mineralization
The Beskauga Project is located in northeastern Kazakhstan, an area underlain by the rocks of the Altaid tectonic collage or Central Asian Orogenic Belt (CAOB), an extensive Palaeozoic subduction–accretion complex made up of fragments of sedimentary basins, island arcs, accretionary wedges and tectonically bounded terranes that was progressively developed from the late Neoproterozoic Era, through the Palaeozoic Era to the early Mesozoic Era, and which extends eastwards into Russia, Mongolia and China as the Transbaikal–Mongolian orogenic collage. These tectonic collages contain several major porphyry copper-gold/molybdenum and epithermal gold deposits formed over an extensive period from the Ordovician to the Jurassic and associated with the various magmatic arcs.
Beskauga is thought to be located in the lower Boshchekul–Chingiz volcanic arc, part of the Kipchak arc system. Island-arc volcanism was calc-alkaline in nature, evolving from are more sodic chemistry to more potassic in later stages and formed small hypabyssal intrusive bodies of gabbro, diorites, granodiorite and sodic granite. These intrusives are responsible for the formation of the copper-gold porphyry deposits in the region.
Beskauga is a copper-gold porphyry deposit with elevated grades of molybdenum and silver. The Beskauga Project area is predominantly underlain by sedimentary and volcanogenic-sedimentary rocks of Ordovician age. These have been intruded by small stock-like intrusive bodies of porphyry ranging in composition from granodiorite to quartz diorite to gabbro-diorite, also interpreted to be Ordovician in age. Dikes of diorite porphyry, diabase and graniteporphyry also cut the host sequence. The host rocks are hornfelsed proximal to intrusive contacts. The deposit area is covered by 10–40 meters of younger sediments of upper Eocene and Quaternary age.
The Beskauga Main porphyry-style copper-gold mineralization is largely hosted within granodiorite porphyry, whereas the Beskauga South gold mineralization is hosted within diorite porphyry and may represent an epithermal overprint. The diorite is interpreted to cut and postdate the granodiorite. Diabase is also interpreted to cut granodiorite. Intrusive relationships and timing relative to mineralization have not been clearly established.
Porphyry-style mineralization is hosted in granodiorite and plagiogranite intrusions that have elongated sheet-like shapes, often with offshoots. Mineralized zones are affected by stockwork veining and hydrothermal alteration and dip steeply. Alteration is represented by albitization, sericitization and pyritization, with the most intensive alteration at a depth of 250–500 meters. Tourmaline has also been described. Potassic alteration is described from mineralogical work. Sericite-pyrophyllite-quartz alteration and silicification in steeply dipping alteration zones is also described, indicating a degree of epithermal overprint.
Pyrite and chalcopyrite are the dominant sulphide minerals at Beskauga, with smaller amounts of bornite, chalcocite, tennantite, enargite, and molybdenite, with magnetite and hematite also described. Sulphides occur as fine-grained disseminations as well as in stockwork veins and veinlets, consisting of quartz-carbonate, quartz-carbonate-chlorite, and quartz-pyrite.
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Mineral Resource Estimate
The Company retained Archer, Cathro & Associates (1981) Limited (“Archer Cathro”) to prepare an independent technical report summary on the Beskauga Project dated February 27, 2024 (the “Technical Report Summary”). The purpose of the Technical Report Summary is to support the disclosure of Mineral Resource estimates for the Beskauga Project. The Technical Report Summary conforms to SEC Modernized Property Disclosure Requirements for Mining Registrants as described in Item 1300 of Regulation S-K, Disclosure by Registrants Engaged in Mining Operations (“S-K 1300”) and Item 601(b)(96) (Technical report summary) of Regulation S-K.
To demonstrate potential of the Beskauga deposit for eventual economic extraction, a preliminary pit optimization study was completed. The pit optimisation was carried out using the mining module of the Studio NPVS software application using the Lerch-Grossman algorithm.
The Mineral Resource estimate has been reported for all blocks in the resource model that are contained within the pit and have a gross metal value (“GMV”) exceeding $20/tonne. The GMV was calculated using base-case metal prices and recoveries for copper, gold, and silver.
The entire Mineral Resource estimate has reasonable prospects for eventual economic extraction, and is a realistic inventory of mineralization, which, under assumed and justifiable technical and economic conditions, might, in whole or in part, become economically extractable.
Mineral Resources were classified in accordance with Item 1302(d)(1)(iii)(A) of Regulation S-K into Indicated and Inferred Mineral Resources. The classification is based upon an assessment of geological and mineralization continuity and quality assurance/quality control (“QAQC”) results, considering the level of geological understanding of the deposit, and specific requirements concerning the minimum number of samples and minimum number of drillholes used for grade interpolation for each block as carried out for each search pass. The classification of the Mineral Resources takes into account all uncertainties related to geological interpretation, mineralization continuity and geostatistical analysis, sampling method and sample and data security, drill sample control and quality, data quality and reliability, density, and topographic reliability.
In the Qualified Person’s opinion, further drilling and evaluation work is expected to improve classification of the Mineral Resource and provide better resolution of technical and economic factors that are likely to influence the prospect of economic extraction.
Beskauga Deposit—Summary of Copper, Silver and Gold Mineral Resources as of October 31, 2023
based on a GMV cut-off that uses three-year trailing prices to December 27 2021 of $3.50/pound for copper, $22.00/ounce for silver and $1,750/ounce for gold
| Category | Tonnage (Mt) | Cu (%) | Au (g/t) | Ag (g/t) |
| Indicated Mineral Resources | 111.2 | 0.30 | 0.49 | 1.34 |
| Inferred Mineral Resources | 92.6 | 0.24 | 0.50 | 1.14 |
Notes:
| ● | A GMV $/t cut-off of $20/t was used, and the GMV formula is: GMV $/t = Au(grams)*74.5%*$56.26+ Cu(tonnes)*85%*$7.714 + Ag(grams)*50%*$0.71 |
| ● | Base metal prices considered were $3.50/lb copper, $22.00/oz silver, and $1,750/oz gold. |
| ● | The Mineral Resource is stated within a pit shell using the base-case metal prices. |
| ● | S-K 1300 definitions were followed for the Mineral Resource. |
| ● | The Mineral Resource is not believed to be materially affected by any known environmental, permitting, legal, title, taxation, socio-economic, marketing, political or other relevant factors. |
| ● | These Mineral Resources are not Mineral Reserves as they do not have demonstrated economic viability. |
| ● | The quantity and grade of reported Inferred Resources in this Mineral Resource estimate are uncertain in nature and there has been insufficient exploration to define these Inferred Resources as Indicated or Measured; however, it is reasonably expected that the majority of Inferred Mineral Resources could be upgraded to Indicated Mineral Resources with continued exploration. | |
| ● | See also pages 12 and 13 of the Technical Report Summary (filed as Exhibit 15.3) to this Annual Report on Form 20-F for the material assumptions and criteria for the Mineral Resource estimates. |
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Sample Preparation, Analyses and Security
Sample preparation was carried out at the Dostyk facility in Ekibastuz. Half-core samples were dried, weighed, and crushed and screened to −2 millimeters, and a ~1 kilogram split was milled to 200 mesh fineness (−90 µm). Milled pulps were split and sent to the Stewart Assay and Environmental Laboratory (“SAEL”) in Kara-Balta, Kyrgyzstan for analysis. All equipment used for sample crushing and milling was cleaned and blown with compressed air after each sample, and after each batch of samples a clean blank material was passed though the equipment. The sample preparation area was subject to compulsory wet cleaning once a day. The split core and crushed duplicate sample are stored in the specifically equipped sample storage facility in Ekibastuz, which can be locked and has on-site security.
SAEL has been utilized by Dostyk as the primary laboratory since 2007. SAEL is internationally accredited and independent of Dostyk. Umpire assays were carried out at Genalysis Laboratory in Perth, Australia (“Genalysis”). At both SAEL and Genalysis, samples were analyzed for gold using fire assay (“FA”) with an atomic absorption spectrometry (“AAS”) finish. A 30 gram bead was used in the FA process. A further 33 elements were determined by an aqua regia digest followed by inductively coupled plasma-optical emission spectrometry (ICP-OES) measurement of elemental concentrations.
QAQC samples comprised certified reference materials (“CRMs”), blanks, duplicates, and umpire assays. CRMs used were OREAS 209, OREAS 501b, OREAS 502b, OREAS 503b, and OREAS 54Pa. A total of 187 gold CRMs and 124 copper CRMs were analyzed, representing 0.52% and 0.34%, respectively, of the 36,271 samples in the database, below the recommended amount of 5% of CRMs. A total of 318 blank samples (0.9% of all samples) were submitted for analysis. Of all the blank material sampled, the majority had below detection or very low values reported, indicating that there is very little contamination overall. In 2013, 97 pulp duplicates were submitted for re-assay, and the results show relatively good repeatability. However, this only represents one year and 0.27% of all samples, and no core duplicates have been submitted; this represents a significant gap in QAQC.
External control check assays at Genalysis were completed on 966 samples (2.7% of all assays), and results show relatively good repeatability and similar distribution for gold and copper, although there is a slight positive bias towards the original results, especially for the copper grades.
It is the Qualified Person’s opinion that sample preparation and analyses were done in line with industry standards and are satisfactory. Although the number of CRM, duplicate, and blank samples are lower than what is considered standard, the quality of assays is considered to be adequate to be used for the Mineral Resource estimate.
Exploration Program - Beskauga
Arras commenced an exploration program in the second calendar quarter of 2021 on the Beskauga Property, which commenced after the date of the Technical Report Summary. This involved a geological mapping and sampling program of key select areas, as well as a diamond drilling program targeting extensions to the known mineralization. The exploration program’s design was determined based on historical geological information in the area and an airborne geophysics program that was completed in April 2021.
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Final geophysical products for the airborne magnetic survey were received in July 2021 and confirmed a 300m x 300m “bulls-eye” magnetic high that had been previously identified with a ground magnetic survey completed in 2012. A lower magnetic response surrounds the bulls-eye magnetic high which is interpreted to be an alteration halo around an intrusion. The Beskauga deposit sits on the eastern margin of the interpreted intrusion and the alteration halo. Only 30% of this margin has been tested with the drill.
From the commencement of the project’s exploration program in the second calendar quarter of 2021 to December 31, 2023, approximately 25,000 meters of diamond drilling has been completed.
In 2024, the exploration program at the Beskauga Property will encompass a continuation of geological mapping and sampling, alongside additional diamond drilling. This program’s blueprint draws upon Arras’ 2023 findings, as well as historical geological data from other firms and various geophysical surveys. Its objective is to enhance the current resource and explore the broader, undrilled area.
The program will feature a 5,000-meter exploration drill initiative to comprehensively examine Beskauga’s mineralizing system. It will also involve gathering multi-element litho-geochemical and hyperspectral data from historical pulps and drill cores, along with ongoing relogging of selected drill cores. Furthermore, the program includes follow-up investigations on regional targets using geophysics and prospect drilling within the Beskauga license area.
A key aim of the 2024 program is to determine Arras' decision regarding the potential purchase of the Beskauga license from Copperbelt AG.
Overall, the 2024 program aims to deepen the Company’s understanding of the deposit architecture and support the development of an enhanced three-dimensional (3D) geological model, crucial for guiding additional metallurgical sampling and other objectives. The outlined activities are slated for completion by December 31, 2024.
Apart from the Beskauga license, Arras holds additional regional mineral exploration licenses (Elemes, Aimandai, Stepnoe and Ekidos), all targeting the same geological belt hosting the Beskauga deposit. These areas are early-stage greenfield projects. The 2024 work program builds upon activities from the preceding year and includes:
| ● | Compilation of historical Soviet data on these areas to glean insights into their geology, mineralization, and exploration prospects. |
| ● | Follow-up mapping and prospecting to identify rock types, structures, and other geological features, alongside systematic searches for mineralization. |
| ● | Targeting areas with suitable soil horizons through soil grids to detect anomalies indicative of mineralization. |
| ● | Conducting targeted geophysics and prospect drilling in prospective areas to confirm and delineate mineralization. |
Furthermore, on December 7, 2023, Arras announced a strategic alliance with Teck, encompassing eight additional licenses controlled by Arras (Azhe 1, Karatol 2, Bozshakol South, Maisor, Aktasty, Nogurbek, Akkuduk, and Besshoky). Key aspects of this alliance include Teck’s funding of generative exploration work through 2025, with Arras acting as manager initially. The exploration program with Teck largely mirrors that of Arras’ regional licenses, focusing on compiling historical data, mapping, prospecting, soil grid targeting, geophysics, and prospect drilling.
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The location of all licenses mentioned are shown in the map below.
Figure 1. Map showing Arras’s mineral license situation. Package A and Package B fall under the Strategic Alliance agreement with Teck Resources. Elemes, Aimandai, Stepnoe, and Ekidos are licenses controlled by Arras. The Beskauga license is controlled by Arras via an option to purchase agreement with the Swiss private company Copperbelt AG.
Capital Expenditures
As the Company’s activities are at the exploration stage, minimal capital expenditures are required. Minor costs have been incurred in setting up the program infrastructure, such as a vehicle, computers, tools and equipment being used by the Company’s geologists in Kazakhstan. No major capital expenditures are anticipated in the coming year.
Seasonality
The Company’s mineral exploration activities may be subject to seasonality due to adverse weather conditions including, without limitation, inclement weather, frozen ground and restricted access due to snow, ice or other weather-related factors. In addition, the mining and mineral exploration business is subject to global economic cycles effecting, among other things, the marketability and price of mineral products in the global marketplace.
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Competition
The mineral exploration and mining industry is competitive in all phases of exploration, development and production. The Company competes with a number of other entities and individuals in the search for and the acquisition of attractive mineral properties. As a result of this competition, the Company may not be able to acquire attractive properties in the future on terms it considers acceptable. The Company may also encounter competition from other mining companies in efforts to hire experienced mining professionals. Increased competition could adversely affect the Company’s ability to attract necessary funding or acquire suitable properties or prospects for mineral exploration in the future. See “Risk Factors—Risks Relating to the Mineral Exploration Industry.”
Social and Environmental Policies
The Company is committed to conducting its operations in accordance with sound social and environmental practices. At present, the scale of operations has not required the adoption of formal policies. The Company will re-evaluate this position if and when necessary.
The Company is subject to the laws and regulations relating to environmental matters in all jurisdictions in which it operates, including provisions relating to property reclamation, discharge of hazardous materials and other matters. The Company may also be held liable should environmental problems be discovered that were caused by former owners and operators of its properties. The Company conducts its mineral exploration activities in compliance with applicable environmental protection legislation.
Employees
As of the date hereof, the Company has two employees. The Company also relies on consultants and contractors to carry on its business activities and, in particular, to supervise and carry out mineral exploration on the Beskauga Property.
Corporate Offices
The Company is domiciled in Canada and its registered office is located at Suite 2600, Three Bentall Centre, 595 Burrard Street, Vancouver, British Columbia V7X 1L3, Canada. The principal executive offices are located at 777 Dunsmuir Street, Suite 1605, Vancouver, British Columbia V7Y 1K4, Canada, and the Company’s telephone number is (604) 687-5800.
Available Information
The SEC maintains an Internet website that contains reports and other information about issuers, like Arras, that file electronically with the SEC. The address of that website is www.sec.gov.
Regulatory Overview
Kazakhstan Mining Law
Kazakhstan has recently updated its mining code and since 2018 all new licenses are issued under this code. The new mining code, the Code on Subsoil and Subsoil Use (the “SSU Code”) was adopted on June 29, 2018 and is based on the Western Australian model. Under the SSU Code, Kazakhstan transferred from a contractual regime to a licensing regime for solid minerals (except for uranium, which remains under a contractual regime). The purpose has been to boost investment in exploration and mining in Kazakhstan and remove administrative burdens for subsoil users. The mining industry in Kazakhstan accounts for about 14% of gross domestic product and more than 20% of exports and is seen as a key industry.
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Under the Kazakhstan Constitution, the subsoil is owned by the state. In regulating the mining sector, the state is represented by the competent authority, the Ministry of Industry and Infrastructural Development (“MIID”), which is authorized to grant and terminate subsoil use rights (“SURs”) and control compliance obligations related to SURs. Under the SSU Code, SURs are granted under subsoil use licenses, either for exploration or mining. Under the previous regime, SURs were granted under contracts for the right of exploration, mining, or combined exploration and mining.
Exploration licenses are granted for up to six years with the possibility of an extension for five more years and provide an exclusive right to use the subsoil for the purpose of exploration and for assessment of resources and reserves for subsequent mining. If a deposit is discovered, the exploration license holder has an exclusive right to obtain a mining license if the discovery is confirmed by a report on estimation of resources and reserves of solid minerals. The SSU Code entitles subsoil users to estimate resources and reserves under the KAZRC standard, which is aligned with the CRIRSCO, JORC and CIM reporting codes.
The SSU Code is the principal law regulating the mining sector, with detail provided by a number of government decrees and ministerial orders. Mining of precious metals is also affected by the Law on Precious Metals and Precious Stones (the “Precious Metals Law”) under which the Kazakhstan National Bank can exercise a priority right to buy fine gold at international prices.
Ecological Requirements
The Environmental Code of the Republic of Kazakhstan came into force on July 1, 2021. The Environmental Code provides for the following mechanisms for economic regulation of environmental protection:
| ● | fees for impact on the environment, the rates of which are established by tax legislation; |
| ● | market-based mechanisms for managing emissions into the environment, which include setting limits on emissions into the environment, allocating quotas for emissions into the environment, trading in quotas and commitments to reduce emissions into the environment; |
| ● | environmental insurance, the purpose of which is to ensure the civil liability of a person to compensate for environmental damage caused by an accident; and |
| ● | economic stimulation of activities aimed at environmental protection (establishment of incentives for renewable energy sources, promotion of “green” technologies, etc.). |
The most important features of the Environmental Code that affect exploration and mining of solid minerals are as follows.
The Environmental Code provides that impacts of the planned activity must be evaluated either in a mandatory environmental impact assessment or mandatory screening of the impacts of the planned activity. The screening is a process of identifying potential significant environmental impacts, to determine whether an environmental impact assessment (“EIA”) is necessary or not.
An EIA is mandatory for open-pit mining of solid minerals on an area of more than 25 hectares and primary processing (concentrating) of extracted solid minerals. A screening is mandatory for (i) exploration for solid minerals, which is associated with the extraction of rock mass and soil movement for the purpose of assessing solid mineral resources, (ii) open pit mining on an area of less than 25 hectares, and (iii) underground mining. In certain cases, the authorized body can decide based on the screening results that the full EIA is necessary for the planned activity.
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For those projects that must undergo an EIA, the next step after the EIA is preparation of the potential impact report (“Potential Impact Report”), which based on the results of the EIA. The Potential Impact Report:
| ● | must be considered by the public at a public hearing, with the participation of representatives of state bodies and the public; and |
| ● | is subject to expert examination at the authorized body special commission for expert examination. |
Based on the results of the expert examination, the authorized body issues an opinion on the draft Potential Impact Report (valid for three years).
The conclusions and conditions contained in the Potential Impact Report must be taken into account by state bodies when issuing environmental permits, accepting notifications and during the course of administrative procedures related to the implementation of the planned activities.
The Environmental Code provides for the following types of environmental permits:
| ● | integrated environmental permits; and |
| ● | environmental impact permits. |
An integrated environmental permit is required for facilities of Category I (these include facilities related to the production and processing of solid minerals) with the exception of those facilities of Category I, which were commissioned before July 1, 2021, or facilities a positive conclusion for construction of which was obtained by July 1, 2021. The requirement for the mandatory obtaining an integrated environmental permit comes into force on January 1, 2025. The integrated environmental permit is valid indefinitely.
An environmental impact permit is required for the construction and/or operation of facilities of Category II (these include facilities used in the exploration of solid minerals with the extraction of rock mass and movement of soil for the purpose of assessing the resources of solid minerals), as well as for the operation of facilities of Category I indicated above.
Environmental impact permits are issued for a period not exceeding ten years.
Another important matter is regulation of waste management. There is a hierarchy of measures to be applied in the management of mining waste:
| ● | prevention of waste generation; |
| ● | preparation of waste for re-use; |
| ● | waste processing; |
| ● | waste recycling; and |
| ● | waste disposal. |
Thus, depending on which technological solutions are applied by Arras during exploration and further mining of solid minerals, it will be necessary to comply with the following environmental requirements:
| ● | conducting the screening and/or environmental impact assessment of the planned production activity (including passing environmental impact assessment); and |
| ● | obtaining environmental permit(s). |
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Water Use
The use of surface and underground water resources with or without withdrawal for drinking, household and project needs, as well as the discharge of industrial, domestic, drainage and other wastewater (“special water use”) is carried out on the basis of special water use permits.
One of the types of special water use is its use in injection wells to maintain the reservoir pressure of underground leaching during the production of solid minerals. Special water use also includes the discharge of groundwater (mine, quarry, mine), incidentally taken during the exploration and/or production of solid minerals into surface water bodies, subsoil, water facilities or terrain.
A permit for special water use is not required for:
| ● | the use of the following water intake structures: mine and tubular filter wells and capturing structures operating without forced lowering of the level with the withdrawal of water in all cases no more than 50 cubic meters per day from the first aquifer from the surface not used for centralized water supply; or |
| ● | intake (pumping out) of underground waters (pit, quarry, mine), incidentally taken during the exploration and/or production of solid minerals. |
Payment for special water use is determined by tax legislation.
During exploration and mining operations, Arras may be required to obtain a special water use permit depending on what use of water resources is planned.
Land Use Regulations
During the Exploration Stage
All issues related to obtaining land for exploration and production of solid minerals are governed by the Land Code dated June 20, 2003.
Mineral exploration operations can be carried out on state-owned land that is not provided for land use, on the basis of a public easement. Also, subsoil users have a right to carry out the exploration of mineral operations on land plots in private ownership or land use, on the basis of a private or public easement, without the seizure of land plots from private owners or land users.
A subsoil user conducting exploration operations is entitled to demand that an owner or land user grant it the right to limited use of these areas (i.e., a private servitude).
A public easement is formalized by decisions of local executive bodies on the basis of a relevant subsoil use license or subsoil use contract.
A private easement is established by an agreement on the establishment of a private easement concluded between the subsoil user and the owner or land user. If no agreement is reached on the terms of such an agreement, the terms of the private easement must be determined by the court.
A license for the extraction of solid minerals serves as a basis for the local government body to grant the subsoil user the right to temporary paid land use (i.e., a lease) to a land plot (for the entire period of validity of the license or contract).
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Beskauga Project
Arras’s Beskauga Project consists of three licenses: the Beskauga license, which was re-issued under the current SSU Code in August 2023, and extended until February 8, 2029; and the Ekidos and Stepnoe licenses, which were issued under the SSU Code in October 2020. The Beskauga license is held by Dostyk, a Kazakh entity 100% owned by Copperbelt, a private mineral exploration company registered in Switzerland with which Arras has an option agreement.
Beskauga License
Dostyk maintains minerals rights for the Beskauga deposit based on Exploration License No. 2092-EL dated November 3, 2023, with a license term ending on February 8, 2029.
The subsoil right for the Beskauga area was initially acquired by Goldbelt Resources Ltd in 1996 as part of a much larger License No. 785 (Mykubinsk), issued to its 80% subsidiary, Dostyk, under the old permitting system. In 2000, Goldbelt Resources Ltd sold its interest in Dostyk to Celtic Resources, a London-listed company.
Exploration rights under License No. 785 including Beskauga were re-issued to Dostyk in October 2001 as Contract No. 759 for the Maikuben area. No drilling at the Beskauga deposit was conducted by Goldbelt Resources Ltd or Celtic Resources.
Via its option agreement with Copperbelt, Arras has acquired the right to explore for “All Minerals” (except uranium) on the remaining Dostyk license including the Beskauga deposit. The present contract set forth its validity period as until the last day of validity of License MG No. 785, January 8, 2021, with an ability to extend until the full depletion of resources.
On February 8, 2021, the MIID granted an extension of the exploration rights to Dostyk until February 8, 2024.
On May 27, 2023, MIID agreed to convert the Beskauga exploration contract to an exploration license under the current SSU Code. On August 8, 2023, exploration license 2092-EL was granted until February 8, 2024, with the option to renew for an additional five-year period. On November 3, 2023, exploration license 2092-EL was renewed until February 8, 2029.
Other Exploration Licenses
Ekidos LLP holds twelve exploration licenses. All licenses were applied for under the SSU Code. Under the code, the licenses are granted for “All Minerals” (except uranium) for an initial six-year period. The licenses can be extended once for an additional five years.
An annual exploration commitment for each license is calculated based on the number of 2.1 km2 “blocks” contained within the license. The exploration commitment for each block is calculated based on a “minimum wage index” (MRP) by the Kazakh State which is then multiplied by the index established by the SSU Code. The rates vary slightly from year to year due to changing MRP indices, but the annual expenditure commitment for 2023 for the exploration licenses were calculated via a formula outlined in the SSU Code. It is not expected that the annual exploration commitment cost will materially vary over the first three years.
In addition to the annual exploration commitment costs, there is an annual “land lease” fee, which is calculated using the formula “15MRP x No. of blocks.”
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The annual expenditure commitment in a given year can be covered by expenditure accrued over the years where the exploration expenditure exceeds the calculated commitment amount. The annual expenditure commitment can be reduced by ceding ground.
The map below shows the location of the Company’s exploration properties, including in relation to the Beskauga Property and the Stepnoe and Ekidos properties:
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The Company (through Ekidos LLP) and Orogen LLP have initial participating interests in the Maikain joint venture of 80% and 20%, respectively. Pursuant to the Maikain JV Agreement, once the Company spends a minimum of $3,000,000 on a property in the area of interest, the Company has the option to acquire Orogen LLP’s participating interest in such property for $1,500,000.
The Maikain JV Agreement shall terminate automatically upon the earlier of (i) there being one participant in the joint venture, (ii) by written agreement between the parties, or (iii) May 20, 2024.
On November 11, 2023, the Maikain JV Agreement was amended to accommodate the Teck Alliance Agreement to allow for third-party financing and support of exploration and development activities on some or all of the JV licenses. The amended agreement also clarifies that the Maikain JV Agreement shall not terminate and will continue in full force and effect with respect to any mineral licenses held by or on behalf of the Maikain joint venture as of the date of expiry (May 20, 2024). For sake of clarity, new licenses acquired subsequent to May 20, 2024 will not fall under the Maikain JV Agreement.
The exploration licenses sit in the same Ordovician aged belt of rocks as the Beskauga deposit and are considered highly prospective for porphyry and volcanogenic massive sulphide (VMS) deposits. Historical Soviet reports from between 1965 and 1970 describe a program of mapping and sampling in the area.
Tax Code
In late-2017, Kazakhstan announced substantial changes to its Tax Code (the “Tax Code”) effective as of January 2018, with a mix of generally applicable changes and measures targeted at mining. The new Tax Code includes specific mineral taxation provisions and lists special taxes imposed on subsoil use in addition to such general taxes as the corporate income tax and value added tax, as well as import- and export-related taxes. Notably, several taxes and payments applicable to the mining sector have been removed from the new Tax Code, including the excess profit tax, historical cost payments, and the requirement to pay a commercial discovery bonus.
These reforms are aligned with the SSU Code which will require geological data to be published after a specified period.
Environmental Code
Kazakhstan’s Environmental Code (the “Environmental Code”) was introduced in 2007 and was followed by various changes to the country’s environmental legislation, including the adoption of the Law on Supporting the Use of Renewable Sources of Energy in 2009 and the Law on Energy Saving and Energy Efficiency in 2012. Water resources and related matters are also discussed in separate water legislation. The new Environmental Code took effect on July 1, 2021.
The SSU Code requires subsoil users’ compliance with all relevant environmental legislation.
The Environmental Code separately obliges companies to perform an environmental impact assessment which is reviewed by “the competent environmental authorities” and, in the case of high-risk operations, by the Ministry of Ecology, Geology and Natural Resources. Extending the assessment to involve an initial environmental screening could be considered, as within the current framework the assessment takes place only once the project plans are well advanced.
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An environmental permit is available for subsoil operators in Kazakhstan, setting out limits for emissions of pollutants according to a set of emission limit values (“ELVs”). The new Environmental Code refers to the permit which allows operators to legally emit pollutants into the environment within certain limits. The complex mechanisms of calculating ELVs involve a large number of different pollutants, creating challenges for operators seeking to comply with ELVs even through the application of best available techniques (BATs) for managing emissions. The ELVs also form the basis of environmental taxes for an operator, but these and other taxation issues are not covered by the new SSU Code and instead addressed in the Tax Code.
The Spin-off
Since the completion of the Spin-off on September 24, 2021, Arras has operated as a stand-alone company. Prior to completion of the Spin-off, on August 31, 2021, Arras entered into a Separation and Distribution Agreement with Silver Bull. The Separation and Distribution Agreement set forth the Company’s agreements with Silver Bull regarding in connection with the Distribution and providing a framework for the relationship between the parties after the Distribution.
Pursuant to the Separation and Distribution Agreement, Silver Bull agreed to continue to incur the salaries of its employees and other office-related overhead costs and charge Arras for a portion of these costs on a pro-rata cost-recovery basis until the earlier of (i) the date on which our common shares are listed on a stock exchange or (ii) December 31, 2021. In February 2022, the Company entered into an employment or consulting agreement, effective January 1, 2022, with each member of the senior management team. See “Item 6. Directors, Senior Management and Employees—Compensation—Directors and Senior Management—Employment Agreements with Senior Management” for a description of those agreements.
Pursuant to the Separation and Distribution Agreement, Silver Bull, may, in its sole discretion, offer holders of outstanding Silver Bull warrants who exercise them after the Distribution the right to receive, instead of solely Silver Bull shares, one Silver Bull share and one Arras common share in exchange for the original exercise price, subject to compliance with applicable securities laws. If Silver Bull makes such an offer, then (i) Arras must issue Arras common shares to the holders of Silver Bull warrants who elected to accept such offer and (ii) Silver Bull must remit to Arras a portion of the aggregate cash warrant exercise price received by Silver Bull.
These and other arrangements between Silver Bull and the Company are described in greater detail under “Item 7. Major Shareholders and Related Party Transactions—Related Party Transactions.”
| ITEM 4A. | UNRESOLVED STAFF COMMENTS. |
Not applicable.
| ITEM 5. | OPERATING AND FINANCIAL REVIEW AND PROSPECTS. |
Operating Results
For the year ended October 31, 2023, the Company had a net loss of $5,717,894 compared to a net loss of $5,945,556 for the year ended October 31, 2022.
Liquidity and Capital Resources
As of October 31, 2023, the Company had cash and cash equivalents of $290,684, as compared to cash and cash equivalents of $424,124 as of October 31, 2022. The decrease in liquidity was primarily the result of the exploration activities in Kazakhstan and general and administrative expenses, which were partially offset by the proceeds of the following private placements.
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From November 10, 2022 to December 16, 2022, the Company completed a series of tranches of a private placement, issuing a total of 15,938,250 common shares at a price of $CDN 0.45 per common share for gross proceeds of $CDN 7,172,213 ($5,340,350). The Company paid finder’s fees totaling $CDN 84,432 ($61,629) to agents with respect to certain purchasers who were introduced to the Company. The Company incurred other offering costs associated with this private placement in the amount of $43,749.
As of October 31, 2023, the Company has earned no revenues and has incurred accumulated net losses of approximately $13.8 million. The Company’s ability to continue as a going concern is dependent on raising additional capital to fund the Company’s exploration plans and ultimately to attain profitable operations. Management plans to pursue possible financing options, including but not limited to obtaining additional equity financing or executing other strategic alternatives, such as the Teck Alliance Agreement. However, there is no assurance that the Company will be successful in pursuing these plans.
As future additional financing in the near term will likely be in the form of proceeds from issuances of equity securities, it is likely that there will be dilution to the Company’s existing shareholders. Moreover, Arras may incur fees and expenses in the pursuit of such financings, which will increase the rate at which its cash and cash equivalents are depleted.
Research and Development, Patents and Licenses, Etc.
Not applicable.
Trend Information
Please see “Item 5. Operating and Financial Review and Prospects—Operating Results” for trend information.
Critical Accounting Estimates
Not applicable.
Safe Harbor
This Annual Report contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act and as defined in the Private Securities Litigation Reform Act of 1995. See “Cautionary Statement Regarding Forward-Looking Statements.”
| ITEM 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES. |
Directors and Senior Management
Board of Directors
The Arras Board is comprised of five seats, two of which are filled by current members of the Silver Bull Board. A majority of the members of the Arras Board are independent based on applicable Canadian securities laws and non-U.S. persons.
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The following table sets forth certain summary information in respect of the current directors of the Company.
|
Name and |
Position(s)/title |
Date first |
Principal occupation(s) |
| Brian D. Edgar Vancouver, British Columbia |
Chairman | February 5, 2021 | Corporate Director |
| Timothy T. Barry Squamish, British Columbia |
Director and Chief Executive Officer | February 5, 2021 | President (February 5, 2021–October 1, 2021) and Chief Executive Officer (since February 5, 2021) of Arras; and Chief Executive Officer of Silver Bull (a mining company) (since 2011). |
| Darren E. Klinck, Vancouver, British Columbia | Director and President | October 1, 2021 | President, Arras (since October 1, 2021); President, Silver Bull (a mining company) (October 1, 2021–April 2023); and President (August 2017–April 2021) and Chief Executive Officer (August 2017–January 2020) of Bluestone Resources Inc. |
| G. Wesley Carson Vancouver, British Columbia |
Director | April 1, 2021 | Vice President, Mining Operations at Wheaton Precious Metals Corp. (since 2017); and Vice President, Project Development at Sabina Gold & Silver Corp. (from 2012 to 2017). |
| Daniel J. Kunz Boise, Idaho |
Director | April 1, 2021 | President and Chief Executive Officer of Prime Mining Corp. (a mining company) (since June 2020); and Managing Member of Daniel Kunz & Associates, LLC (an advisory and engineering services company) (since 2014). |
| Vera Kobalia New Westminster, British Columbia |
Director | March 2, 2022 | Founder, Kobalia Consulting (a firm advising public and private sector leaders, including local and federal governments) (since 2013); and Co-founder, Olyn Inc. (an asset registry service) (since 2020). |
| Christian Milau Vancouver, British Columbia |
Director | September 8, 2022 | Chief Executive Officer of Blue Dot Carbon Corp. (since September 2022); and Chief Executive Officer of Equinox Gold Corp. (from August 2016 to August 2022). |
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Brian D. Edgar
Mr. Edgar has served as Chairman of Arras since its inception on February 5, 2021 and as Chairman of the Silver Bull Board since April 2010. Mr. Edgar has broad experience working in junior and mid-size natural resource companies. He served as Dome’s President and Chief Executive Officer from February 2005 to April 2010, when Dome was acquired by Silver Bull. Further, Mr. Edgar served as a director of Dome (1998–2010), Lundin Mining Corp. (September 1994 – May 2015), Lucara Diamond Corp. (2007–May 2020), BlackPearl Resources Inc. (2006–December 2018), and ShaMaran Petroleum Corp. (2007–June 2019). He has served as a director of Denison Mines Corp. since 2005 and of numerous public resource companies over the last 30 years. Mr. Edgar practiced corporate/securities law in Vancouver, British Columbia, Canada for 16 years.
Timothy T. Barry
Mr. Barry has served as President (February 5, 2021–October 1, 2021) and Chief Executive Officer (since February 5, 2021) of Arras and as President (2011–October 1, 2021 and since April 21, 2023), Chief Executive Officer and a director and (since March 2011) of Silver Bull. Since October 2021, he has served as a director of Torrent Gold Inc. From August 2010 to March 2011, he served as Silver Bull’s Vice President – Exploration. Between 2006 and August 2010, Mr. Barry spent five years working as Chief Geologist in West and Central Africa for Dome. During this time, he managed all aspects of Dome’s exploration programs and oversaw corporate compliance for Dome’s various subsidiaries. Mr. Barry also served on Dome’s board of directors. In 2005, he worked as a project geologist in Mongolia for Entree Gold, a company that has a significant stake in the Oyu Tolgoi mine in Mongolia. Between 1998 and 2005, Mr. Barry worked as an exploration geologist for Ross River Minerals Inc. on its El Pulpo copper/gold project in Sinaloa, Mexico, for Canabrava Diamonds Corporation on its exploration programs in the James Bay lowlands in Ontario, Canada, and for Homestake Mining Company on its Plutonic Gold Mine in Western Australia. He has also worked as a mapping geologist for the Geological Survey of Canada in the Coast Mountains, and as a research assistant at the University of British Columbia, where he examined the potential of CO2 sequestration in Canada using ultramafic rocks. Mr. Barry received a bachelor of science degree from the University of Otago in Dundein, New Zealand and is a Chartered Professional Geologist (CPAusIMM).
Darren E. Klinck
Mr. Klinck has served as President of Arras since October 1, 2021. He most recently served as President of Silver Bull (October 1, 2021–April 21, 2023) and as President (August 2017–April 2021) and Chief Executive Officer (August 2017–January 2020) of Bluestone Resources Inc. From April 2007 to June 2017, he served in numerous roles at OceanaGold Corporation, including Executive Vice President and Head of Corporate Development, Head of Business Development, and Vice President of Corporate and Investor Relations. Mr. Klinck has served as a director of ValOre Metals Corp. since June 1, 2021. In addition, he served as a director of Bluestone Resources Inc. from August 2017 to April 2021. Mr. Klinck has a Bachelor of Commerce degree from the Haskayne School of Business at The University of Calgary.
G. Wesley Carson
Mr. Carson, BASc., P.Eng., has over 20 years of experience in the mining industry and has held a variety of leadership roles in operations, project development and engineering with both junior and major mining companies, including multiple M&A integrations. Since June 2017, he has been the Vice President, Mining Operations at Wheaton Precious Metals Corp. From June 2012 to June 2017, Mr. Carson was the Vice President – Project Development with Sabina Gold & Silver Corp. He also worked with Thompson Creek Metals Company Inc. as Vice President and General Manager for the Mt. Milligan project in Central British Columbia from October 2010 to February 2012, and for Terrane Metals Corp. as its Director, Mining from November 2007 to November 2010. Prior to this, he worked for Cominco Ltd., Teck Corporation, Placer Dome Inc. and Barrick Gold Corporation in a variety of operating roles in both North America and Africa. Mr. Carson received his Bachelor of Applied Science, Mining and Mineral Process Engineering at the University of British Columbia, and is a registered Professional Engineer in the Province of British Columbia.
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Daniel J. Kunz
Mr. Kunz has more than 35 years of experience in international mining, energy, engineering and construction, including in executive, business development, management, accounting, finance and operations roles. He has served as a member of the Silver Bull Board since April 2011. In June 2020, he was appointed President and Chief Executive Officer of Prime Mining Corp., serving in this role until his retirement in January 2024. Since 2014, he has been the managing member of Daniel Kunz & Associates, LLC, an advisory and engineering services company focused on the natural resources sector. From 2013 to 2018, he was the Chairman and Chief Executive Officer of Gold Torrent, Inc., a mine development company. In addition, Mr. Kunz is the founder, and from 2003 until he retired in April 2013 was the President and Chief Executive Officer and a director, of U.S. Geothermal, Inc., a renewable energy company that owns and operates geothermal power plants in Idaho, Oregon, and Nevada and was sold to Ormat Technologies, Inc. in 2018. Mr. Kunz was Senior Vice President and Chief Operating Officer of Ivanhoe Mines Ltd. from 1997 to October 2000, and served as its President and Chief Executive Officer and as a director from November 2000 to March 2003. He was part of the team that discovered Oyu Tolgoi, one of the world’s largest copper-gold deposits. From March 2003 to March 2004, Mr. Kunz served as President and Chief Executive Officer of China Gold International Resources Corp. Ltd. and served as a director from March 2003 to October 2009. Mr. Kunz was a founder of MK Resources LLC, formerly known as the NASDAQ-listed company MK Gold Corporation, and directed the company’s 1993 initial public offering as the President and Chief Executive Officer and a director. For 17 years, he held executive positions with NYSE-listed Morrison Knudsen Corporation (including Vice President and Controller). Mr. Kunz holds a Masters of Business Administration and a Bachelor of Science in Engineering Science. He is currently a director of Torrent Gold Inc., Prime Mining Corp., and Greenbriar Capital Corp.
Vera Kobalia
Ms. Kobalia is founder of Kobalia Consulting, a private consultancy advising public and private sector leaders around the world since 2013. Clients have included local and federal governments of Australia, Kazakhstan, Philippines, United Arab Emirates, Indonesia and United Kingdom. She is also co-founder of Olyn Inc., a blockchain based solution for asset registry. Ms. Kobalia previously was Deputy Chair of the Board of the Astana Expo 2017 National Company, which was responsible for the management and construction of associated facilities and infrastructure for the International Exposition held in Astana, Kazakhstan in 2017. Ms. Kobalia served as Advisor to the President of Georgia in 2012-2013 and was Minister of Economy and Sustainable Development for the Republic of Georgia in 2010-2012.
Ms. Kobalia is currently a visiting lecturer at the European Academy of Diplomacy (Warsaw, Poland); a member of the Economic Development Advisory Committee for the City of New Westminster (British Columbia, Canada); and a member of the Board of Directors for Sandstorm Gold (TSX: SSL). Ms. Kobalia was recognized as one of Business in Vancouver’s “Top 40 Under 40” award winners in 2019 and is a frequent speaker at various international forums including the World Economic Forum, where she was a Board Member on the Global Council for Development Finance in 2018-2019.
She is fluent in English, Russian and Georgian and frequently speaks on public policy issues, fighting corruption in public and private institutions, sustainable development as economic growth tool and women leadership at international conferences and forums, including the Council of Europe’s World Forum for Democracy, the World Economic Forum, the Warsaw Security Forum and the International Transport Forum.
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Christian Milau
Mr. Milau has been the CEO of Blue Dot Carbon Corp since September 2022. He was the CEO of Equinox Gold (NYSE:EQX) from August 2016 to August 2022, leading the company through five mergers and acquisitions to grow the company from a single-asset developer to a multi-asset producer. Prior to joining Equinox Gold, Mr. Milau was the CEO of True Gold until it was acquired in April 2016. Prior to True Gold, he held senior executive positions at Endeavour Mining, New Gold, BNP Paribas in London and Deloitte. He has served as a director of Northern Dynasty Minerals Ltd. since 2016. Mr. Milau brings more than 25 years of experience to Arras with expertise in finance and capital markets as well as operational, government and stakeholder relations experience.
Public Company Directorships
The following directors currently serve on the board of directors of the public companies set out below:
|
Name |
Public company directorship(s) |
| Brian D. Edgar | Denison Mines Corp. and Silver Bull |
| Timothy T. Barry | Silver Bull and Torrent Gold Inc. |
| Darren E. Klinck | ValOre Metals Corp. |
| G. Wesley Carson | Prosper Gold Corp. |
| Daniel J. Kunz | Greenbriar Capital Corp., Prime Mining Corp. and Torrent Gold Inc. |
| Vera Kobalia | Sandstorm Gold Ltd. |
| Christian Milau | Northern Dynasty Minerals Ltd. |
Senior Management
The following table sets forth certain summary information in respect of the Company’s senior management as of the date of this Annual Report.
|
Name and |
Position(s)/title |
Principal occupation(s) |
| Timothy T. Barry Squamish, British Columbia |
Chief Executive Officer | President (February 5, 2021–October 1, 2021 and since April 21, 2023) and Chief Executive Officer (since February 5, 2021) of Arras; and Chief Executive Officer of Silver Bull (a mining company) (since 2011). |
| Darren E. Klinck Vancouver, British Columbia |
President | President, Arras (since October 1, 2021); President, Silver Bull (a mining company) (October 1, 2021–April 21, 2023); President (August 2017–April 2021) and Chief Executive Officer (August 2017–January 2020) of Bluestone Resources Inc. |
| Christopher Richards Vancouver, British Columbia |
Chief Financial Officer | Chief Financial Officer of Silver Bull (a mining company) (since September 2020); Vice President of Finance for Great Panther Mining Limited (a mining company) (from June 2018 until February 2020); self-employed senior financial consultant (January 2017 until May 2018). |
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Timothy T. Barry, Chief Executive Officer
See “—Directors and Senior Management—Board of Directors” above.
Darren E. Klinck, President
See “—Directors and Senior Management—Board of Directors” above.
Christopher Richards, Chief Financial Officer
Mr. Richards was appointed as Silver Bull’s Chief Financial Officer effective as of September 28, 2020. Previously, Mr. Richards served as the Vice President of Finance for Great Panther Mining Limited, a U.S. and Canadian dual-listed gold and silver producer, from June 2018 to February 2020. From January 2017 to May 2018, he was self-employed as a senior financial consultant, advising public and private companies in the mining and natural resources industries. Prior to that, Mr. Richards served as the Vice President of Finance and Corporate Secretary (December 2013–December 2016) and Group Controller (April 2009–November 2013) of Kyzyl Gold Ltd., a wholly owned subsidiary of Polymetal International plc, engaged in the development of the Kyzyl Gold Mine located in Kazakhstan. From July 2015 to October 2016, he served as the Chief Financial Officer of TSX Venture Exchange-listed True North Gems Inc. Earlier in his career, Mr. Richards served as the Corporate Controller of U.S. and Canadian dual-listed NovaGold Resources Inc. and as a Senior Manager of Audit for KPMG LLP. He is a CPA (Chartered Professional Accountant, British Columbia), CA, and received a Bachelor of Business Administration degree from Simon Fraser University in 2000 and a certificate in mining studies from the University of British Columbia in 2014.
Arrangements Concerning Election of Directors; Family Relationships
The Company is not a party to, and are not aware of, any arrangements pursuant to which any of its senior management members or directors was selected as such. In addition, there are no family relationships among the Company’s senior management members or directors.
Compensation
Directors and Senior Management
Compensation Expenses for the Year Ended October 31, 2023
Salary and related benefits ($) | Non-Equity Incentive Plan compensation ($) | Share-based compensation ($)(1) | Total ($) | |||||||||||||
| Timothy Barry, CEO and Director | 231,542 | 27,698 | 85,159 | 344,399 | ||||||||||||
| Darren Klinck, President and Director | 231,542 | 27,698 | 85,159 | 344,399 | ||||||||||||
| Christopher Richards, CFO | 139,067 | 16,619 | 51,095 | 206,781 | ||||||||||||
| Brian Edgar, Chairmana nd Director | 44,370 | nil | nil | 44,370 | ||||||||||||
| Wesley Carson, Director | 20,336 | nil | nil | 20,336 | ||||||||||||
| Daniel Kunz, Director | 20,336 | nil | nil | 20,336 | ||||||||||||
| Vera Kobalia, Director | 18,487 | nil | nil | 18,487 | ||||||||||||
| Christian Milau, Director | 22,185 | nil | nil | 22,185 | ||||||||||||
| Total | $ | 727,865 | $ | 72,015 | $ | 221,413 | $ | 1,021,293 | ||||||||
| (1) | In accordance with IFRS, this is the estimated grant date fair value of each restricted share unit (“RSU”) granted during the period. |
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Employment Agreements with Senior Management
In February 2022, the Company entered into an employment or consulting agreement, effective January 1, 2022, with each member of the senior management team.
Timothy T. Barry
In February 2022, the Company entered into a consulting agreement (the “Barry Consulting Agreement”) with Mr. Barry, pursuant to which Mr. Barry serves as the Chief Executive Officer of the Company. Pursuant to the terms and conditions of the Barry Consulting Agreement, Mr. Barry received an annual fee of CDN$300,000 (the “Barry Consulting Fee”) and is eligible to participate in the Company’s annual bonus plans during the term of the Barry Consulting Agreement, with a bonus target of up to 50% of the annual fee, or a target determined by the Arras Board. Effective January 1, 2023, the annual fee was revised to CDN$315,000.
In addition, Mr. Barry is eligible to participate in the Company’s Management Retention Bonus Plan. In the event that the Barry Consulting Agreement is terminated by the Company without cause or by Mr. Barry for “good reason” (as defined in the Barry Consulting Agreement), Mr. Barry is entitled to 12 months of the Barry Consulting Fee plus one month of the Barry Consulting Fee for each additional year of service from February 9, 2022, up to a maximum of 24 months of the Barry Consulting Fee plus a payment equal to a pro-rated portion of the annual cash bonus. If the Company terminates the Barry Consulting Agreement without cause within three months following a “change of control” (as defined in the Barry Consulting Agreement), Mr. Barry is entitled to 24 months of the Barry Consulting Fee plus a lump-sum payment equal to two times the annual cash bonus (such payment, the “Barry Change of Control Payment”). In addition, Mr. Barry has the right to terminate the Barry Consulting Agreement for any reason within six months following a “change of control” and receive the Barry Change of Control Payment from the Company. In addition, upon any termination pursuant to which Mr. Barry receives any of the termination of Barry Change of Control Payments described above, Mr. Barry is further entitled to continued benefits provided under the Company’s insured standard benefit plan for a period of 12 months following such termination.
Darren E. Klinck
In February 2022, the Company entered into an amended consulting agreement (the “Westcott Consulting Agreement”) with Mr. Klinck’s personal service corporation, Westcott Management Ltd. (“Westcott”), pursuant to which Mr. Klinck serves as the President of the Company. Pursuant to the terms and conditions of the Westcott Consulting Agreement, Westcott received an annual fee of CDN$300,000 (the “Westcott Consulting Fee”) and is eligible to participate in the Company’s annual bonus plans during the term of the Westcott Consulting Agreement, with a bonus target of up to 50% of the annual fee, or a target determined by the Arras Board. Effective January 1, 2023, the annual fee was revised to CDN$315,000.
In addition, Wescott is entitled to the following retention amounts, subject to the Company reaching the applicable market capitalization targets by April 15, 2027: (i) CDN$500,000 if and when the Company’s market capitalization reaches at least CDN$250,000,000 for five consecutive trading days, (ii) CDN$500,000 if and when the Company’s market capitalization reaches at least CDN$500,000,000 for five consecutive trading days, and (iii) CDN$1,000,000 if and when the Company’s market capitalization reaches at least CDN$1,000,000,000 for five consecutive trading days (collectively, the “Retention Bonus”). In the event that the Company undergoes a “change of control” (as defined in the Westcott Consulting Agreement) and the Company’s market capitalization at any point prior to such a “change in control” equals or exceeds CDN$250,000,000, Wescott will be entitled to a retention bonus equal to 0.2% of the applicable bid price less any Retention Bonus previously paid to Wescott.
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In the event that the Westcott Consulting Agreement is terminated by the Company without cause or by Wescott for “good reason” (as defined in the Westcott Consulting Agreement), Wescott is entitled to 12 months of the Westcott Consulting Fee plus one month of the Westcott Consulting Fee for each additional year of service from October 1, 2021, up to a maximum of 24 months of the Westcott Consulting Fee plus a payment equal to a pro-rated portion of the annual cash bonus. If the Company terminates the Westcott Consulting Agreement without cause within three months following a “change of control,” Wescott is entitled to 24 months of the Westcott Consulting Fee plus a lump-sum payment equal to two times the annual cash bonus (such payment, the “Westcott Change of Control Payment”). In addition, Wescott has the right to terminate the Westcott Consulting Agreement for any reason within six months following a “change of control” and receive the Westcott Change of Control Payment from the Company. In addition, upon any termination pursuant to which Wescott receives any of the termination of Westcott Change of Control Payments described above, Wescott is further entitled to continued benefits provided under the Company’s insured standard benefit plan for a period of 12 months following such termination.
Christopher Richards
In February 2022, the Company and Silver Bull entered into an amended employment agreement (the “Richards Employment Agreement”) with Mr. Richards, pursuant to which he serves at the Company’s and Silver Bull’s Chief Financial Officer. The Richards Employment Agreement provided for a base salary of CDN$240,000. Of this annual salary, the Company was responsible for CDN$180,000 (the “Company Base Salary”), with Silver Bull paying the remaining CDN$60,000. Mr. Richards is eligible to participate in the Company’s annual bonus plan with a target bonus of up to 50% of the Company Base Salary. Mr. Richards is further eligible to participate in the Company’s Management Retention Bonus Plan and Equity Incentive Plan, as well as any employee benefit plans maintained by the Company. If Mr. Richards is terminated without “cause” or resigns for “good reason” (as such terms are defined in the Richards Employment Agreement), he will be entitled to receive a lump-sum payment equal to 12 months of the Company Base Salary plus a pro-rated portion of the annual bonus. If the Company terminates Mr. Richards without cause within three months of a “change of control” (as defined in the Richards Employment Agreement) or if Mr. Richards resigns with good reason within six months of a change of control, Mr. Richards is entitled to a lump sum payment equal to 24 months of the Company Base Salary and two times the average annual bonus previously paid to Mr. Richards. Effective January 1, 2023, the Company Base Salary was revised to $189,000.
Director Compensation
Each of the Company’s independent directors is compensated CDN$25,000 per year, paid in quarterly installments, and is issued additional stock option grants for their services. In addition, the person serving as the Chair the Arras Board receives an additional annual cash fee of CDN$35,000, the Chair of the Audit Committee of the Arras Board receives an additional annual cash fee of CDN$5,000 (payable in quarterly installments), and the Compensation Committee Chair and Corporate Governance and Nominations Committee Chair receive an additional annual cash fee of CDN$2,500 each (payable in the same manner), in each case in consideration for its respective service as the Chair of the Arras Board or such committee.
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Share-based Compensation
Stock Option Awards
On April 15, 2021 and August 5, 2021, the Arras Board approved the issuance to each of the following persons, in his capacity as a director and/or officer or employee of Arras, of non-qualified options to purchase Arras common shares under the Arras Minerals Corp. Equity Incentive Plan (the “Arras Equity Plan”) in the amounts set forth below:
|
Name and principal position |
Number of Arras common shares underlying option award |
|
Brian D. Edgar Chairman |
800,000 |
|
Timothy T. Barry Chief Executive Officer |
1,000,000 |
|
Darren E. Klinck President |
800,000 |
|
Christopher Richards Chief Financial Officer |
500,000 |
The options have a term of five years and an exercise price of CDN$0.50 per share. One-third of each grant will vest on each of the grant date and the first and second anniversaries of the grant date.
On April 15, 2021, each of the following independent directors, who are not officers of the Company, were issued in partial compensation for his services as a director options to purchase Arras common shares under the Arras Equity Plan in the amounts set forth below:
|
Name |
Number of Arras common shares underlying option award |
| G. Wesley Carson | 300,000 |
| Daniel J. Kunz | 300,000 |
The options have a term of five years and an exercise price of CDN$0.50 per share. One-third of each grant vests on each of the grant date and the first and second anniversaries of the grant date.
On March 2 and September 22, 2022, each of the following independent directors, who are not officers of the Company, were issued in partial compensation for his services as a director options to purchase Arras common shares under the Arras Equity Plan in the amounts set forth below:
|
Name |
Number of Arras common shares underlying option award |
| Vera Kobalia | 300,000 |
| Christian Milau | 300,000 |
The options issued to Ms. Kobalia and Mr. Milau have a term of five years and an exercise price of CDN$1.00 and CDN$0.35 per share, respectively. One-third of each grant vests on each of the grant date and the first and second anniversaries of the grant date.
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Restricted Share Units
On February 24, 2023, the Arras Board approved the issuance to each of the following persons, in his capacity as an officer of Arras and in lieu of 50% of their annual cash bonuses, of non-qualified RSUs to receive Arras common shares under the Arras Equity Plan in the amounts set forth below:
|
Name |
Number of Arras common shares underlying RSU award |
|
Timothy T. Barry Chief Executive Officer |
159,609 |
|
Darren E. Klinck President |
159,609 |
|
Christopher Richards Chief Financial Officer |
95,766 |
The RSUs vest on the first anniversary of the grant date.
Board Practices
On February 5, 2021, Brian Edgar and Timothy Barry were confirmed as the first directors of the Company to hold office until the Company’s next annual general meeting of shareholders or until the directors cease to hold office. On March 31, 2021, G. Wesley Carson, Daniel Kunz and John McClintock were confirmed as additional directors of the Company to hold office until the Company’s next annual general meeting of shareholders or until the directors cease to hold office. On October 1, 2021, Darren Klinck was confirmed as an additional director of the Company to hold office until the Company’s next annual general meeting of shareholders or until the directors cease to hold office. On November 30, 2021, John McClintock retired from the Arras Board. On March 2, 2022, Vera Kobalia was confirmed as an additional director of the Company to hold office until the Company’s next annual general meeting of shareholders or until she ceases to hold office. On September 8, 2022, Christian Milau was confirmed as an additional director of the Company to hold office until the Company’s next annual general meeting of shareholders or until he ceases to hold office.
Audit Committee
The Company has a separately designated standing Audit Committee. The following persons currently serve on its Audit Committee: Christian Milau (Chair), Daniel Kunz and Vera Kobalia. The charter of the Audit Committee provides that it is responsible for, among other things, overseeing the Company’s consolidated financial statements and financial disclosures; overseeing the work of the Company’s external auditors; reviewing the Company’s system of internal controls; overseeing management’s identification and assessment of the principal risks to the operations of the Company and the establishment and management of appropriate systems to manage such risks; reviewing legal or compliance matters, including the effectiveness of the Company’s compliance policies; establishing procedures for the receipt, retention, and treatment of complaints or concerns received by the Company regarding accounting, internal accounting controls or auditing matters; reviewing the Company’s policies relating to the avoidance of conflicts of interest; and reviewing and approving all payments to be made pursuant to any related party transactions. The Audit Committee’s charter was adopted by the Board on December 7, 2021.
Compensation Committee
The Company’s Compensation Committee currently consists of G. Wesley Carson (Chair), Daniel Kunz and Brian Edgar. The charter of the Compensation Committee provides that it is responsible for, among other things, reviewing and making compensation related recommendations to the Arras Board and determinations regarding senior executives and directors; reviewing and making recommendations to the Arras Board regarding equity-based compensation plans of the Company and any grants under such plans; and considering the potential risks associated with the adoption of the Company’s compensation policies and practices. The Compensation Committee’s charter was adopted by the Board on December 7, 2021.
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Corporate Governance and Nominations Committee
The Company’s Corporate Governance and Nominations Committee currently consists of G. Wesley Carson (Chair) and Daniel Kunz. The charter of the Corporate Governance and Nominations Committee provides that it is responsible for, among other things, ensuring that an appropriate system is in place to formally and regularly evaluate the effectiveness of the Arras Board, its committees, and individual directors; reviewing the governance policies of the Company to ensure compliance with applicable requirements and where necessary or desirable, on account of governance trends that are appropriate for the Company; monitoring conflicts of interest of members of the Arras Board and management in accordance with the Company’s code of business conduct and ethics; and reviewing any shareholder proposals submitted to the Company. The Corporate Governance and Nominations Committee’s charter was adopted by the Board on December 7, 2021.
Other Board Committees
The Board established a Health, Safety and Sustainability (“HSS”) Committee in September 2022. The Company’s HSS Committee currently consists of Daniel Kunz (Chair), Christian Milau and Brian Edgar. The Charter for the HSS Committee is posted on the Company’s website.
Employees
Please see “Item 4. Information on the Company—Employees” for information regarding employees of the Company.
Share Ownership
Share Ownership of Directors and Management
The following sets forth the beneficial ownership of Arras shares by each director and member of senior management of the Company based on 68,504,400 Arras common shares outstanding as of February 27, 2024.
| Holder | Arras shares | Percentage Arras ownership | ||||||
| Brian D. Edgar (1) | 2,201,204 | 2.86 | % | |||||
| Timothy T. Barry (2) | 1,520,758 | 1.97 | % | |||||
| Christian Milau (3) | 1,395,855 | 1.83 | % | |||||
| Darren E. Klinck (4) | 1,395,109 | 1.82 | % | |||||
| Daniel J. Kunz (5) | 872,096 | 1.14 | % | |||||
| Christopher Richards (6) | 659,766 | * | ||||||
| G. Wesley Carson (7) | 340,000 | * | ||||||
| Vera Kobalia (8) | 300,000 | * | ||||||
| Directors and senior management as a group (8 persons) | 10,200,788 | 13.92 | % | |||||
| * | The percentage of Arras common shares beneficially owned is less than one percent (1%). |
| (1) | Holdings of Mr. Edgar include (i) 1,045,102 Arras common shares held directly, (ii) 249,602 Arras common shares owned by Tortuga Investments Corp., a company wholly owned by Mr. Edgar, (iii) 800,000 stock options that are vested or will vest within 60 days and (iv) warrants to purchase 106,500 Arras common shares that are exercisable or will be exercisable within 60 days but exclude (A) 475,000 Arras common shares and warrants to purchase 212,500 Arras common shares, in each case that are owned by 0893306 B.C. Ltd., a company wholly owned by Mr. Edgar’s spouse, and of which Mr. Edgar disclaims beneficial ownership, and (B) 50,000 Arras common shares that are owned by Mr. Edgar’s spouse and of which Mr. Edgar disclaims beneficial ownership. |
| (2) | Holdings of Mr. Barry include (i) 361,119 Arras common shares held directly, (ii) 1,000,000 stock options that are vested or will vest within 60 days and (iii) 159,609 RSUs that are vested or will vest within 60 days but exclude (A) 319,000 Arras common shares and warrants to purchase 159,500 Arras common shares, in each case that are owned by Mr. Barry’s spouse, and of which Mr. Barry disclaims beneficial ownership. |
| (3) | Holdings of Mr. Milau include (i) 1,195,855 Arras common shares held directly, and (ii) 200,000 stock options that are vested or will vest within 60 days, but exclude 100,000 stock options that will not vest within 60 days. |
| (4) | Holdings of Mr. Klinck include (i) 122,500 Arras common shares held directly, (ii) 300,000 Arras common shares that are owned by Mr. Klinck’s spouse and of which Mr. Klinck claims beneficial ownership, (iii) 800,000 stock options that are vested or will vest within 60 days and (iv) 159,609 RSUs that are vested or will vest within 60 days. |
| (5) | Holdings of Mr. Kunz include (i) 492,096 Arras common shares held directly, (ii) 300,000 stock options that are vested or will vest within 60 days and (iii) warrants to purchase 80,000 Arras common shares that are exercisable or will be exercisable within 60 days. |
| (6) | Holdings of Mr. Richards include (i) 56,000 Arras common shares held directly, (ii) 500,000 stock options that are vested or will vest within 60 days, (iii) 95,766 RSUs that are vested or will vest within 60 days and (iv) warrants to purchase 8,000 Arras common shares that are exercisable or will be exercisable within 60 days. |
| (7) | Holdings of Mr. Carson include (i) 40,000 Arras common shares held directly and (ii) 300,000 stock options that are vested or will vest within 60 days. |
| (8) | Holdings of Ms. Kobalia include 300,000 stock options that are vested or will vest within 60 days. |
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Except as otherwise noted, each person or entity identified above has sole voting and investment or dispositive power with respect to the securities they hold.
As of October 31, 2023, approximately 8.9% of the Company’s outstanding shares were held of record by residents of the United States.
Beneficial ownership is determined in accordance with the rules and regulations of the SEC. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, Arras has included shares that such person has the right to acquire within 60 days, including through the exercise of any option, warrant or other right or the conversion of any RSU or other security. These shares, however, are not included in the computation of the percentage ownership of any other person.
The Company is not aware of any arrangement that may, at a subsequent date, result in a change of control of the Company.
Compensation Plans
Arras Minerals Corp. Equity Incentive Plan
As of October 31, 2023, Arras had one formal equity compensation plan under which equity securities were authorized for issuance to the Company’s officers, directors, employees and consultants: the Arras Equity Plan. The maximum number of shares of Arras issuable pursuant to grants made under the Arras Equity Plan, together with all other security-based compensation arrangements of Arras, was 10,295,030 common shares. As of October 31, 2023, 5,160,000 options and 414,984 RSUs were issued under the Arras Equity Plan that were outstanding to acquire Arras common shares. As of October 31, 2023, there were 4,720,046 Arras common shares remaining available for future issuance under the Arras Equity Plan.
The Arras Equity Plan was adopted and approved by the Arras Board on April 15, 2021, amended and approved by the shareholders of Arras on July 5, 2021. The Arras Equity Plan was further amended and approved by the Arras Board on March 4, 2022, and by shareholders on September 8, 2022.
Under the Arras Equity Plan, Arras may grant incentive or nonqualified stock options, RSUs or performance share units (“PSUs”), and restricted stock to employees (including officers), directors, and consultants of Arras or any subsidiary thereof.
For so long as Arras shares are listed on a stock exchange, the maximum number of shares of Arras that may be reserved for issuance to any one participant under the Arras Equity Plan, together with all other security-based compensation arrangements of Arras, is 5.0% of the total issued and outstanding shares of Arras from time to time. For so long as Arras shares are listed on a stock exchange, the maximum number of shares of Arras that may be issued to a director or officer of Arras or other “insider” within any one-year period, or that may be issuable to such persons at any time, under the Arras Equity Plan, or when combined with all other security-based compensation arrangements of Arras, is 10.0% of the total issued and outstanding shares of Arras from time to time. Except with respect to certain U.S. persons, there are no limitations on the maximum number of shares of Arras that may be reserved for issuance to participants under the Arras Equity Plan prior to the listing of the Arras shares on a stock exchange.
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For so long as Arras common shares are listed or trade on a stock exchange or other market, options granted under the Arras Equity Plan must have an exercise price that is not less than 100% of the “fair market value” on the grant date. With respect to any incentive stock options granted to a person owning more than 10.0% of the total voting securities of Arras or certain parent or subsidiary corporations, the exercise price of such options must be at a price of not less than 110% of the fair market value on the grant date, and the exercise period of such options must not exceed five years. Options may be exercised on a cash or cashless basis. Unless otherwise designated by the Arras Board in the applicable grant agreement, one-third of the options granted under the Arras Equity Plan must vest on each of the grant date and the first and second anniversaries of the grant date, subject to acceleration in certain circumstances. The exercise period of any option must not exceed 10 years from the grant date. Subject to the terms of the applicable grant agreement and the board of directors’ discretion, upon the termination of an optionholder’s employment or other relationship with Arras, including as a result of death or disability, outstanding options held by such person are subject to accelerated expiry, as follows: (i) upon the death or disability of an optionholder, vested options shall continue to be exercisable for 12 months while unvested options shall be forfeited; (ii) upon a resignation from Arras by an optionholder or termination of an optionholder without cause, vested options shall continue to be exercisable for 90 days while unvested options shall be forfeited; and (iii) upon the termination of an optionholder for cause, all outstanding options (vested or unvested) shall be forfeited.
Settlement of RSUs and PSUs must be made by the issuance of one share for each RSU or PSU being settled, a cash payment equal to the market price on the vesting date of the RSUs or PSUs being settled, or a combination of shares and cash, all as determined by the Arras Board or as specified in the applicable grant agreement. Unless the applicable grant agreement specifies that RSUs and PSUs must be settled through the issuance of shares, settlement will occur upon or as soon as reasonably practicable following vesting and, in any event, on or before December 31 of the third year following the year in which the participant performed the services to which the grant of RSUs or PSUs relates. Subject to the terms of the applicable grant agreement and the board of directors’ discretion, upon the termination of the employment or other relationship with Arras, including as a result of death or disability, of a holder of RSUs or PSUs, all unvested entitlements shall be forfeited.
Unless otherwise specified in the grant agreement in respect of a particular award, awards granted pursuant to the Arras Equity Plan are not assignable other than by testamentary disposition or the laws of intestate succession.
The Arras Equity Plan, and any grant made pursuant to the Arras Equity Plan, may be amended without approval of the Arras shareholders, except (i) no amendment to the Arras Equity Plan or any grant made pursuant to the Arras Equity Plan may be made without the consent of a participant in the Arras Equity Plan if it adversely alters or impairs the rights of such participant in respect of any previous grant to such participant; and (ii) for so long as the Arras shares are listed on a stock exchange, Arras shareholder approval will be required to (A) increase the maximum number of shares issuable pursuant to the Arras Equity Plan, (B) reduce the exercise price of an outstanding option, except as permitted by the Arras Equity Plan, (C) extend the maximum term of any grant made under the Arras Equity Plan, except as permitted by the Arras Equity Plan, (D) amend the assignment provisions of the Arras Equity Plan, (E) increase the number of shares issuable to “insiders” of Arras or removing the restriction on “insider” participation in the Arras Equity Plan, (F) include other types of equity compensation involving the issuance of shares of Arras under the Arras Equity Plan or (G) amend the amendment provisions of the Arras Equity Plan or to grant additional powers to the Arras Board to amend the Arras Equity Plan without shareholder approval.
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The following table sets forth the outstanding equity awards for each of the following officers of Arras at October 31, 2023.
Outstanding Equity Awards at October 31, 2023
| Option-Based Awards | Share-Based Awards | |||||||||||||||||
| Name | Number of securities underlying unexercised options (1) | Option exercise price (2) | Option expiration date | Number of shares or units of shares that have not vested (3) | Market or payout value of shares that have not vested (4) | |||||||||||||
| Timothy T. Barry | 1,000,000 | $ | 0.36 | 4/15/26 | 159,609 | $ | 14,958 | |||||||||||
| Darren E. Klinck | 800,000 | $ | 0.36 | 8/04/26 | 159,609 | $ | 14,958 | |||||||||||
| Christopher Richards | 500,000 | $ | 0.36 | 4/15/26 | 95,766 | $ | 8,975 | |||||||||||
| (1) | Options vest in three equal installments: one-third on the grant date, one-third on the first anniversary of the grant date and one-third on the second anniversary of the grant date. All options granted have vested as of October 31, 2023. |
| (2) | Exercise price of CDN$0.50 was converted based on the foreign currency exchange rate as of October 31, 2023 (CDN$1.00 = US$0.7209). |
| (3) | RSUs granted on February 24, 2023, vest on the first anniversary of the grant date. |
| (4) | Based on closing share price on the TSX Venture Exchange of CDN$0.13 per share, converted at the foreign currency exchange rate as of October 31, 2023 (CDN$1.00 = US$0.7209). |
The following table gives information about the Company’s common shares that may be issued upon the exercise of options, warrants and rights under its compensation plans as of October 31, 2023.
Equity Compensation Plan Information
| Plan category | Number of securities to be issued upon exercise of outstanding options | Weighted average exercise price of outstanding options | Number of securities remaining available for future issuance | |||||||||
| Equity compensation plans approved by security holders | 5,160,000 | (1) | $ | 0.38 | (1) | 4,720,046 | ||||||
| Equity compensation plans not approved by security holders | — | — | — | |||||||||
| Total | 5,160,000 | $ | 0.38 | 4,720,046 | ||||||||
| (1) | Weighted average exercise price of CDN$0.53 was converted based on the foreign currency exchange rate as of October 31, 2023 (CDN$1.00 = US$0.7209). |
Arras Minerals Corp. Management Retention Bonus Plan
The Arras Board adopted and approved on April 15, 2021, and further amended in February, 2022, the Arras Minerals Corp. Management Retention Bonus Plan (the “Arras Retention Plan”) in order to encourage the retention of the management team of Arras amidst the mining industry’s highly competitive market for talent and to align the team’s interests with those of the shareholders of Arras.
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Pursuant to the Arras Retention Plan, Arras will pay cash bonuses to each of the following persons in the amounts set forth in the following table upon Arras reaching a market capitalization target for five consecutive trading days as set forth in the table (it being understood that that the common shares of Arras are not currently listed or posted for trading on any stock exchange or market):
Name and principal position | CDN$250 million market capitalization | CDN$500 million market capitalization | CDN$1 billion market capitalization | Total bonus opportunity | ||||
| Brian D. Edgar Chairman | CDN$750,000 | CDN$750,000 | CDN$1,500,000 | CDN$3,000,000 | ||||
| Timothy T. Barry Chief Executive Officer | CDN$1,125,000 | CDN$1,125,000 | CDN$2,250,000 | CDN$4,500,000 | ||||
| Christopher Richards Chief Financial Officer | CDN$375,000 | CDN$375,000 | CDN$750,000 | CDN$1,500,000 |
The Arras Retention Plan further provides that if Arras is the subject of a Change of Control (as defined in the Arras Retention Plan) that exceeds CDN$250 million, Arras must pay to Mr. Edgar, Mr. Barry, and Mr. Richards cash bonuses equal to 0.30%, 0.45%, and 0.15%, respectively, of the Change of Control transaction amount, less any cash bonuses that may have previously been paid to such persons pursuant to the market capitalization targets noted above. The market capitalization targets or Change of Control must be achieved or completed by April 15, 2027 in order for any officer or employee of Arras to earn the applicable bonus payment described above. Any bonus payable in the future to an officer or employee of Arras will be cancelled (subject to the discretion of the Arras Board) if such officer or employee is not employed directly or indirectly by Arras when such bonus is earned and becomes payable. At the sole discretion of the Arras Board, Arras shall not be obligated to pay a bonus in cash under the Arras Retention Plan if it lacks funds at the time. In lieu of cash, the Arras Board may choose to settle any bonus by issuing and delivering shares of Arras for such amount valued at the five-day trading volume-weighted average price for Arras’s shares on the market calculated up to the day before the issuance of the shares.
Please see “—Compensation—Directors and Senior Management—Employment Agreements with Senior Management—Darren E. Klinck” above for the amounts owed to Westcott, Mr. Klinck’s personal service corporation, pursuant to the Westcott Consulting Agreement upon Arras reaching certain market capitalization targets and upon the Company undergoing a Change of Control (as defined in the Westcott Consulting Agreement).
| ITEM 7. | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS. |
Major Shareholders
Teck Resources Limited, which owns approximately 6.65 million shares of the Company (9.7%), is the only person or entity that the Company knows that beneficially owns 5% or more of its shares based on 68,504,400 Arras common shares outstanding as of February 27, 2024. Teck acquired its shares via private placements completed by the Company in November and December 2022. The Company has granted Teck an equity participation right to maintain its pro-rata ownership in the Company, provided that Teck’s ownership interest remains above 5% of the Company’s outstanding shares. Teck is a widely held, publicly listed company, with no individual or entity owning or controlling more than 10% of the voting power of Teck or either class of its shares.
Related Party Transactions
Separation and Distribution Agreement
On August 31, 2021, the Company entered into a Separation and Distribution Agreement with Silver Bull. The Separation and Distribution Agreement sets forth Arras’ agreements with Silver Bull in connection with the Distribution and providing a framework for the relationship between the parties after the Distribution.
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Silver Bull Warrants
Pursuant to the Separation and Distribution Agreement, Silver Bull, may, in its sole discretion, offer holders of outstanding Silver Bull warrants who exercise them after the Distribution the right to receive, instead of solely Silver Bull shares, one Silver Bull share and one Arras common share in exchange for the original exercise price, subject to compliance with applicable securities laws. If Silver Bull makes such an offer, then (i) Arras must issue Arras common shares to the holders of Silver Bull warrants who elected to accept such offer and (ii) Silver Bull must remit to Arras a portion of the aggregate cash warrant exercise price received by Silver Bull.
Beskauga Option Agreement
Pursuant to the Separation and Distribution Agreement, Arras may, in its sole discretion, seek the consent of the other parties to the Beskauga Option Agreement to make certain amendments thereto such that the Bonus Payments that Arras or its affiliate may be obligated to pay Copperbelt pursuant to the Beskauga Option Agreement could be satisfied, at the option of Arras, in Arras common shares. If Arras is not successful in obtaining such consents, Silver Bull will agree to use commercially reasonable efforts to enter into an arrangement with Arras providing for (i) the issuance of Silver Bull common stock to Copperbelt upon (A) Arras becoming obligated to make the Bonus Payments and (B) Arras electing to pay a portion of such Bonus Payments in Silver Bull common stock in accordance with the Beskauga Option Agreement and (ii) a payment by Arras to Silver Bull in consideration for the issuance by Silver Bull of Silver Bull common stock to Copperbelt.
Termination
The Separation and Distribution Agreement may not be terminated following the completion of the Distribution unless the parties mutually agree in writing to terminate it.
This description of the Separation and Distribution Agreement is only a summary and does not purport to be complete and is qualified by reference to the full text of the agreement, which is incorporated by reference as an exhibit to this Annual Report.
Interests of Experts and Counsel
Not applicable.
| ITEM 8. | FINANCIAL INFORMATION. |
Consolidated Statements and Other Financial Information
Please refer to pages F-1 through F-30 of this Annual Report.
Significant Changes
A discussion of significant changes in the Company’s business can be found under “Item 4. Information on the Company—History and Development of the Company” and “Item 5. Operating and Financial Review and Prospects—Operating Results.”
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| ITEM 9. | THE OFFER AND LISTING. |
Offer and Listing Details
Not applicable.
Plan of Distribution
Not applicable.
Markets
Since June 14, 2022, Arras common shares have been listed and trading on the TSX Venture Exchange (ticker: ARK.V).
Selling Shareholders
Not applicable.
Dilution
Not applicable.
Expenses of the Issue
Not applicable.
| ITEM 10. | ADDITIONAL INFORMATION. |
Share Capital
Not applicable.
Memorandum and Articles of Association
Copies of the Company’s notice of articles and articles of incorporation are attached as Exhibits 1.1 and 1.2, respectively, to this Annual Report. The information called for by this Item is set forth in Exhibit 2.1 to this Annual Report and is incorporated by reference into this Annual Report.
Material Contracts
For information concerning the Company’s material contracts, please refer to the following sections in this Annual Report:
|
Section |
Material Contract(s) |
| “Item 4. Information on the Company—History and Development of the Company” |
● the APA ● the Beskauga Option Agreement ● the Stepnoe and Ekidos JV Agreement |
| “Item 6. Directors, Senior Management and Employees—Compensation—Directors and Senior Management—Employment Agreements with Senior Management” |
● Barry Consulting Agreement ● Westcott Consulting Agreement ● Richards Employment Agreement |
| “Item 6. Directors, Senior Management and Employees—Share Ownership—Compensation Plans” |
● the Arras Equity Plan ● the Arras Retention Plan |
| “Item 7. Major Shareholders and Related Party Transactions—Related Party Transactions” | ● the Separation and Distribution Agreement |
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Exchange Controls
Arras is not aware of any laws, decrees or regulations in Canada relating to restrictions on the export or import of capital, or affecting the remittance of interest, dividends or other payments to non-resident holders of its common shares.
Taxation
Material U.S. Federal Income Tax Considerations
The following is a discussion of certain U.S. federal income tax considerations to the U.S. Holders (as defined below) of the ownership and disposition of the Company’s common shares. This discussion does not address all tax considerations that might be relevant to particular beneficial owners of the Company’s common shares in light of their personal circumstances or to persons that are subject to special tax rules. In particular, this description of the material U.S. federal income tax considerations does not address the tax treatment of special classes of beneficial owners of the Company’s common shares, such as:
| ● | financial institutions; |
| ● | regulated investment companies; |
| ● | real estate investment trusts; |
| ● | subchapter S corporations; |
| ● | tax exempt entities; |
| ● | insurance companies; |
| ● | persons that do not hold common shares as capital assets within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the “Code”); |
| ● | persons holding Arras common shares, as part of an integrated or conversion transaction or a constructive sale or a straddle; |
| ● | persons that own, have owned or will own (directly, indirectly, or by attribution) 10% or more of the total combined voting power or value of Arras’ outstanding common shares; |
| ● | U.S. expatriates; |
| ● | dealers or traders in securities; or |
| ● | a person whose functional currency is not the U.S. dollar. |
This summary does not address the alternative minimum tax, U.S. federal estate and gift tax consequences or tax consequences under any state, local or non-U.S. laws.
For purposes of this discussion, a person is a “U.S. Holder” if it is a beneficial owner of Arras common shares that is: (1) an individual citizen or resident alien of the United States for U.S. federal income tax purposes; (2) a corporation, or other entity treated as a corporation for U.S. federal income tax purposes, created or organized under the laws of the United States, any state thereof, or the District of Columbia; (3) an estate the income of which is subject to U.S. federal income taxation regardless of its source; or (4) a trust (A) if a court within the United States is able to exercise primary supervision over its administration and one or more U.S. persons have authority to control all substantial decisions of the trust or (B) that has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. person.
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If a partnership, or other pass through entity or arrangement treated as a partnership for U.S. federal income tax purposes, is a beneficial owner of Arras common shares, the U.S. federal income tax consequences to the partners (or other owners) will generally depend upon the status of the partners (or other owners) and the activities of the entity. Partners (or other owners) of a partnership or other pass through entity that holds Arras common shares should consult with their tax advisors regarding the tax consequences of owning and disposing of such common shares.
The following discussion is based upon the Code, U.S. judicial decisions, administrative pronouncements and existing and proposed Treasury Regulations, all as in effect as of the date hereof. All of the preceding authorities are subject to change, possibly with retroactive effect, so as to result in U.S. federal income tax consequences different from those discussed below. Arras has not requested, and will not request, a ruling or other guidance from the U.S. Internal Revenue Service (the “IRS”) with respect to any of the U.S. federal income tax considerations described below, and as a result there can be no assurance that the IRS will not disagree with or challenge any of the conclusions described herein.
The following discussion is for general information only and is not intended to be, nor should it be construed to be, legal or tax advice to any beneficial owner of the Company’s common shares and no opinion or representation with respect to the U.S. federal income tax consequences to any such beneficial owner is given. Holders of Arras common shares are urged to consult their tax advisors as to the particular consequences to them under U.S. federal, state and local, and any applicable non-U.S. tax laws of owning and disposing of its common shares.
Tax Consequences to U.S. Holders of the Ownership and Disposition of Our Common Shares
The following discussion is subject in its entirety to the rules described below under the heading “—Passive Foreign Investment Company Rules.”
Taxation of Distributions on Our Common Shares
A U.S. Holder that receives a distribution, including a constructive distribution, with respect to Arras common shares generally will be required to include the amount of such distribution in gross income as a dividend (without reduction for any foreign income tax withheld from such distribution) to the extent such distribution is paid out of the Company’s current or accumulated earnings and profits (as determined under U.S. federal income tax principles). If a distribution with respect to Arras common shares exceeds its current and accumulated earnings and profits, the excess will be treated as a tax free return of the capital up to such U.S. Holder’s tax basis in Arras common shares. Any remaining excess distribution generally will be treated as capital gain. However, the Company may not maintain the calculations of its earnings and profits in accordance with U.S. federal income tax principles, and each U.S. Holder may have to assume that any distribution with respect Arras common shares will constitute ordinary dividend income.
Dividends received with respect to Arras common shares by corporate U.S. Holders generally will not be eligible for the “dividends received deduction.” Provided that Arras is eligible for the benefits of the Canada–United States Tax Convention (1980) (the “Canada–U.S. Tax Convention”) or that Arras common shares are “readily tradable” on a U.S. securities market, dividends paid by us to non-corporate U.S. Holders 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 will not be classified as a PFIC (as defined below) in the tax year of distribution or in the preceding tax year.
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Foreign Tax Credit
In general, any Canadian withholding tax imposed on dividend payments in respect of Arras common shares will be treated as a foreign income tax eligible for credit against a U.S. Holder’s U.S. federal income tax liability (or, at a U.S. Holder’s election, may, in certain circumstances, be deducted in computing taxable income). Dividends paid with respect to Arras common shares will generally be treated as foreign-source income, and generally will be treated as “passive category income” for U.S. foreign tax credit purposes. The Code applies various complex limitations on the amount of foreign taxes that may be claimed as a credit by U.S. taxpayers. U.S. Holders are urged to consult their own tax advisors with respect to the amount of foreign taxes that can be claimed as a credit.
Sale or Other Taxable Disposition of Arras Common Shares
A U.S. Holder will generally recognize capital gain or loss upon the sale or other taxable disposition of Arras common shares in an amount equal to the difference between the U.S. Holder’s tax basis in such common shares disposed of and the amount realized on the disposition. Gain or loss realized by a U.S. Holder on the sale or other taxable disposition of Arras common shares will be capital gain or loss for U.S. federal income tax purposes, and will be long term capital gain or loss if the U.S. Holder’s holding period for such common shares is more than one year. In the case of a non-corporate U.S. Holder, long term capital gains will be subject to reduced rates of taxation. The deductibility of capital losses is subject to limitations.
Receipt of Foreign Currency
The amount of any distributions on or proceeds on the sale, exchange or other taxable disposition of Arras common shares paid to a U.S. Holder in foreign currency, 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. U.S. Holders are urged to consult their own tax advisors regarding the U.S. federal income tax consequences of receiving, owning, and disposing of foreign currency.
Medicare Tax
An additional 3.8% Medicare tax is imposed on the “net investment income” of certain U.S. Holders who are individuals, estates or trusts. Among other items, “net investment income” generally includes gross income from dividends, and certain net gains from sales or other taxable dispositions of Arras common shares. Special rules apply to PFICs (as defined below). U.S. Holders are urged to consult their tax advisors with respect to the Medicare tax and its applicability in their particular circumstances to income and gains in respect of the ownership and disposition of Arras common shares.
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Backup Withholding and Information Reporting
In general, information reporting will apply to payments made with respect toArras common shares through a U.S. paying agent or U.S. intermediary to a U.S. Holder other than certain exempt recipients, such as corporations. In general, payments to U.S. Holders may be subject to backup withholding, currently at a rate of 24%, if the U.S. Holder fails to provide its taxpayer identification number or otherwise comply with the backup withholding rules. Backup withholding is not an additional tax. Any amounts withheld from payments to a U.S. Holder under the backup withholding rules will be allowed as a credit against such U.S. Holder’s U.S. federal income tax liability and may entitle such U.S. Holder to a refund, provided the required information is furnished to the IRS. Each U.S. Holder is urged to consult its own tax advisor regarding the information reporting and backup withholding tax rules.
Owners of “specified foreign financial assets” with an aggregate value in excess of $50,000 (and in some circumstances, a higher threshold), may be required to file an information report with respect to such assets with their tax returns. “Specified foreign financial assets” generally include any financial accounts maintained by foreign financial institutions, as well as any of the following, but only if they are not held in accounts maintained by financial institutions: (i) stocks and securities issued by non-U.S. persons, (ii) financial instruments and contracts held for investment that have non-U.S. issuers or counterparties and (iii) interests in foreign entities. U.S. Holders are urged to consult their own tax advisors regarding this legislation and any other information reporting that may be required in connection with their ownership of Arras common shares.
Passive Foreign Investment Company Rules
If Arras was to be classified as 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 the Company’s common shares.
PFIC Status of the Company
The Company generally will be a PFIC if, for a given tax year, (a) 75% or more of the gross income of the Company for such tax year is passive income or (b) 50% or more of the assets held by the Company either produce passive income or are held for the production of passive income, based on the fair market value of such assets. “Gross income” generally includes all income less the cost of goods sold, and “passive income” includes, for example, dividends, interest, certain rents and royalties, certain gains from the sale of stock and securities, and certain gains from commodities transactions. Active business gains arising from the sale of commodities generally are excluded from passive income if substantially all (85% or more) of a foreign corporation’s commodities are stock in trade or inventory, depreciable property used in a trade or business, or supplies regularly used or consumed in a trade or business.
For purposes of the PFIC income test and asset test described above, if the Company owns, directly or indirectly, 25% or more of the total value of the outstanding shares of another corporation, the Company will be treated as if it (a) held a proportionate share of the assets of such other corporation and (b) received directly a proportionate share of the income of such other corporation. In addition, for purposes of the PFIC income test and asset test described above, “passive income” does not include any interest, dividends, rents or royalties that are received or accrued by the Company from a “related person” (as defined in Section 954(d)(3) of the Code), to the extent such items are properly allocable to the income of such related person that is not passive income.
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Under certain attribution rules, if the Company is a PFIC, U.S. Holders will be deemed to own their proportionate share of any subsidiary of the Company which is also a PFIC (a “lower-tier PFIC”), and will be subject to U.S. federal income tax on (a) a distribution on the shares of a lower-tier PFIC and (b) a disposition of shares of a lower-tier PFIC, both as if the U.S. Holder directly held the shares of such lower-tier PFIC.
The Company may (or may not) be a PFIC for the current tax year and may (or may not) be a PFIC in subsequent years. The determination of whether the Company (or a subsidiary of the Company) 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 (or subsidiary) will be a PFIC for any tax year depends on the assets and income of the Company (and each such subsidiary) over the course of each such tax year and, as a result, cannot be predicted with certainty as of the date of this Annual Report. Accordingly, there can be no assurance that the IRS will not challenge any determination made by the Company (or subsidiary) concerning its PFIC status or that the Company (and any subsidiary) was not, or will not be, a PFIC for any tax year. U.S. Holders should consult their own tax advisors regarding the PFIC status of the Company and any subsidiary of the Company.
Default PFIC rules under Section 1291 of the Code
If the Company is a PFIC, the U.S. federal income tax consequences to a U.S. Holder of the acquisition, ownership and disposition of Arras common shares will depend on whether such U.S. Holder makes a “qualified electing fund” or “QEF” election (a “QEF Election”) or makes a mark-to-market election under Section 1296 of the Code (a “Mark-to-Market Election”) with respect to Arras common shares. A U.S. Holder that does not make either a QEF Election or a Mark-to-Market Election will be referred to in this summary as a “Non-Electing U.S. Holder.”
A Non-Electing U.S. Holder will be subject to the rules of Section 1291 of the Code with respect to (a) any gain recognized on the sale or other taxable disposition of Arras common shares and (b) any excess distribution paid on its common shares. A distribution generally will be an “excess distribution” to the extent that such distribution (together with all other distributions received in the current tax year) exceeds 125% of the average distributions received during the three preceding tax years (or during a U.S. Holder’s holding period for Arras common shares, if shorter).
If the Company is a PFIC, under Section 1291 of the Code any gain recognized on the sale or other taxable disposition of Arras common shares (including an indirect disposition of shares of a lower-tier PFIC), and any excess distribution paid on its common shares (or a distribution by a lower-tier PFIC to its shareholder that is deemed to be received by a U.S. Holder) must be rateably allocated to each day of a Non-Electing U.S. Holder’s holding period for Arras common shares, as applicable. The amount of any such gain or excess distribution allocated to the tax year of disposition or excess distribution and to years before the Company became a PFIC, if any, would be taxed as ordinary income. The amounts allocated to any other tax year would be subject to U.S. federal income tax at the highest tax rate applicable to ordinary income in each such year without regard to the U.S. Holder’s other tax attributes, and an interest charge would be imposed on the tax liability for each such year, calculated as if such tax liability had been due in each such year. A Non-Electing U.S. Holder that is not a corporation must treat any such interest paid as “personal interest,” which is not deductible.
If the Company is a PFIC for any tax year during which a Non-Electing U.S. Holder holds Arras common shares, the Company will continue to be treated as a PFIC with respect to such Non-Electing U.S. Holder, regardless of whether the Company ceases to be a PFIC in one or more subsequent years. If the Company ceases to be a PFIC, a Non-Electing U.S. Holder may terminate this deemed PFIC status with respect to Arras common shares by electing to recognize gain (which will be taxed under the rules of Section 1291 of the Code discussed above) as if such common shares were sold on the last day of the last tax year for which the Company was a PFIC.
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QEF Election
If the Company is a PFIC and a U.S. Holder makes a QEF Election for the first tax year in which its holding period of Arras common shares begins, such U.S. Holder generally will not be subject to the rules of Section 1291 of the Code discussed above with respect to Arras common shares. However, a U.S. Holder that makes a QEF Election will be subject to U.S. federal income tax on such U.S. Holder’s pro rata share of (a) the net capital gain of the Company, which will be taxed as long-term capital gain to such U.S. Holder, and (b) the ordinary earnings of the Company, which will be taxed as ordinary income to such U.S. Holder. Generally, “net capital gain” is the excess of (i) net long-term capital gain over (ii) net short-term capital gain, and “ordinary earnings” are the excess of (i) “earnings and profits” over (ii) net capital gain. A U.S. Holder that makes a QEF Election will be subject to U.S. federal income tax on such amounts for each tax year in which the Company is a PFIC, regardless of whether such amounts are actually distributed to such U.S. Holder by the Company. However, a U.S. Holder that makes a QEF Election may, subject to certain limitations, elect to defer payment of current U.S. federal income tax on such amounts, subject to an interest charge. If such U.S. Holder is not a corporation, any such interest paid will be treated as “personal interest,” which is not deductible.
A U.S. Holder that makes a QEF Election generally (a) may receive a tax-free distribution from the Company to the extent that such distribution represents “earnings and profits” of the Company that were previously included in income by the U.S. Holder because of such QEF Election and (b) will adjust such U.S. Holder’s tax basis in Arras common shares to reflect the amount included in income or allowed as a tax-free distribution because of such QEF Election. In addition, a U.S. Holder that makes a QEF Election generally will recognize capital gain or loss on the sale or other taxable disposition of Arras common shares.
The procedure for making a QEF Election, and the U.S. federal income tax consequences of making a QEF Election, will depend on whether such QEF Election is timely. A QEF Election will be treated as timely if it is made for the first year in the U.S. Holder’s holding period for Arras common shares in which the Company was a PFIC. A U.S. Holder may make a timely QEF Election by filing the appropriate QEF Election documents at the time such U.S. Holder files a U.S. federal income tax return for such year.
A QEF Election will apply to the tax year for which such QEF Election is made and to all subsequent tax years, unless such QEF Election is invalidated or terminated or the IRS consents to revocation of such QEF Election. If a U.S. Holder makes a QEF Election and, in a subsequent tax year, the Company ceases to be a PFIC, the QEF Election will remain in effect (although it will not be applicable) during those tax years in which the Company is not a PFIC. Accordingly, if the Company becomes a PFIC in a subsequent tax year, the QEF Election will be effective, and the U.S. Holder will be subject to the QEF rules described above during a subsequent tax year in which the Company qualifies as a PFIC.
The Company will use commercially reasonable efforts to make available to U.S. Holders, upon their written request, for each year in which the Company may be a PFIC, all information and documentation that a U.S. Holder making a QEF Election with respect to the Company, and any lower-tier PFIC in which the Company owns, directly or indirectly, more than 50% of such lower-tier PFIC’s total aggregate voting power, is required to obtain for U.S. federal income tax purposes in the event it is a PFIC. However, U.S. Holders should be aware that the Company provides no assurances that it will attempt to provide any such information relating to any lower-tier PFIC in which the Company owns, directly or indirectly, 50% or less of such lower-tier PFIC’s aggregate voting power. Because the Company may own shares in one or more lower-tier PFICs, and may acquire shares in one or more lower-tier PFICs in the future, they will continue to be subject to the rules discussed above with respect to the taxation of gains and excess distributions with respect to any lower-tier PFIC for which the U.S. Holders do not obtain the required information. U.S. Holders should consult their tax advisors regarding the availability of, and procedure for making, a QEF Election with respect to the Company and any lower-tier PFIC.
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Mark-to-Market Election
A U.S. Holder may make a Mark-to-Market Election only if Arras common shares are marketable stock. The Company’s common shares generally will be “marketable stock” if they are regularly traded on (a) a national securities exchange that is registered with the SEC; (b) the national market system established pursuant to Section 11A of the Exchange Act; or (c) a foreign securities exchange that is regulated or supervised by a governmental authority of the country in which the market is located, provided that (i) such foreign exchange has trading volume, listing, financial disclosure and other requirements and the laws of the country in which such foreign exchange is located, together with the rules of such foreign exchange, ensure that such requirements are actually enforced; and (ii) the rules of such foreign exchange ensure active trading of listed stocks. If such stock is traded on such a qualified exchange or other market, such stock generally will be “regularly traded” for any calendar year during which such stock is traded, other than in de minimis quantities, on at least 15 days during each calendar quarter. It is anticipated that Arras common shares will not initially be marketable stock, but may become marketable stock in the future if the conditions described above are met.
A U.S. Holder that makes a Mark-to-Market Election with respect to Arras common shares generally will not be subject to the rules of Section 1291 of the Code discussed above. However, if a U.S. Holder does not make a Mark-to-Market Election beginning in the first tax year of such U.S. Holder’s holding period for Arras common shares or such U.S. Holder has not made a timely QEF Election, the rules of Section 1291 of the Code discussed above will apply to certain dispositions of, and distributions on, Arras common shares.
A U.S. Holder that makes a Mark-to-Market Election will include in ordinary income, for each tax year in which the Company is a PFIC, an amount equal to the excess, if any, of (a) the fair market value of Arras common shares, as of the close of such tax year over (b) such U.S. Holder’s tax basis in such common shares. A U.S. Holder that makes a Mark-to-Market Election will be allowed a deduction in an amount equal to the excess, if any, of (i) such U.S. Holder’s adjusted tax basis in Arras common shares over (ii) the fair market value of such common shares (but only to the extent of the net amount of previously included income as a result of the Mark-to-Market Election for prior tax years).
U.S. Holders that make a Mark-to-Market Election generally also will adjust their tax basis in Arras common shares to reflect the amount included in gross income or allowed as a deduction because of such Mark-to-Market Election. In addition, upon a sale or other taxable disposition of Arras common shares, a U.S. Holder that makes a Mark-to-Market Election will recognize ordinary income or loss (not to exceed the excess, if any, of (a) the amount included in ordinary income because of such Mark-to-Market Election for prior tax years over (b) the amount allowed as a deduction because of such Mark-to-Market Election for prior tax years).
A Mark-to-Market Election applies to the tax year in which such Mark-to-Market Election is made and to each subsequent tax year, unless Arras common shares cease to be “marketable stock” or the IRS consents to revocation of such election. U.S. Holders should consult their own tax advisors regarding the availability of, and procedure for making, a Mark-to-Market Election.
Although a U.S. Holder may become eligible in the future to make a Mark-to-Market Election with respect to Arras common shares, no such election may be made with respect to the stock of any lower-tier PFIC that a U.S. Holder is treated as owning because such stock would not be marketable. Hence, the Mark-to-Market Election will not be effective to eliminate the interest charge described above with respect to deemed dispositions of lower-tier PFIC stock or distributions from a lower-tier PFIC.
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Other PFIC Rules
Under Section 1291(f) of the Code, the IRS has issued proposed Treasury Regulations that, subject to certain exceptions, would cause a U.S. Holder that had not made a timely QEF Election to recognize gain (but not loss) upon certain transfers of Arras common shares that would otherwise be tax-deferred (e.g., gifts and exchanges pursuant to corporate reorganizations) in the event the Company is a PFIC during such U.S. Holder’s holding period for the relevant shares. However, the specific U.S. federal income tax consequences to a U.S. Holder may vary based on the manner in which Arras common shares are transferred.
Certain additional adverse rules will apply with respect to a U.S. Holder if the Company is a PFIC, regardless of whether such U.S. Holder makes a QEF Election. For example, under Section 1298(b)(6) of the Code, a U.S. Holder that uses Arras common shares as security for a loan will, except as may be provided in Treasury Regulations, be treated as having made a taxable disposition of such common shares.
If the Company were a PFIC, a U.S. Holder would be required to attach a completed IRS Form 8621 to its tax return every year in which it recognized gain on a disposition of Arras common shares or received an excess distribution. In addition, subject to certain rules intended to avoid duplicative filings, U.S. Holders may also be required to file an annual information return on IRS Form 8621 with respect to each PFIC in which the U.S. Holder holds a direct or indirect interest. U.S. Holders should consult their own tax advisors regarding their filing obligations with respect to such information returns.
In addition, a U.S. Holder who acquires Arras common shares from a decedent will not receive a “step up” in tax basis of such common shares to fair market value unless such decedent had a timely and effective QEF Election in place.
Special rules also apply to foreign tax credits that a U.S. Holder may claim on a distribution from a PFIC.
The PFIC rules are complex, and U.S. Holders should consult their own tax advisors regarding the PFIC rules and how they may affect the U.S. federal income tax consequences of the ownership, and disposition of Arras common shares in the event the Company is a PFIC at any time during the holding period for such common shares.
THE ABOVE SUMMARY IS NOT INTENDED TO CONSTITUTE A COMPLETE ANALYSIS OF ALL U.S. FEDERAL INCOME TAX CONSIDERATIONS APPLICABLE WITH RESPECT TO THE OWNERSHIP AND DISPOSITION OF ARRAS COMMON SHARES. U.S. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE TAX CONSIDERATIONS APPLICABLE TO THEM IN THEIR OWN PARTICULAR CIRCUMSTANCES.
Material Canadian Income Tax Considerations
The following summarizes, as of the date hereof, certain Canadian federal income tax considerations generally applicable under the Income Tax Act (Canada) and the regulations thereunder (collectively, the “Canadian Tax Act”) and the Canada–United States Tax Convention (1980) (the “Convention”) to the holding and disposition of the common shares.
Comment is restricted to beneficial owners of the common shares, whom, at all relevant times and for purposes of the Canadian Tax Act and the Convention: (i) have not been and will not be deemed to be resident in Canada; (ii) are resident solely in the United States and are entitled to benefits of the Convention; (iii) do not use or hold, and are not deemed to use or hold, the common shares in, or in the course of, carrying on a business in Canada; (iv) deal at arm’s length with and are not affiliated with the Company; (v) hold the common shares as capital property; and (vi) are not an “authorized foreign bank” (as defined in the Canadian Tax Act) or an insurer that carries on business in Canada and elsewhere (each such holder, a “U.S. Resident Holder”). Generally, a U.S. Resident Holder’s common shares will be considered to be capital property of the holder provided that the holder is not a trader or dealer in securities, does not acquire, hold or dispose of (or is not deemed to have acquired, held or disposed of) the common shares in one or more transactions considered to be an adventure or concern in the nature of trade, and does not hold or use (or is not deemed to hold or use) the common shares, in the course of carrying on a business of trading or dealing in securities.
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Certain U.S.-resident entities that are fiscally transparent for U.S. federal income tax purposes (including limited liability companies) may not in all circumstances be entitled to benefits under the Convention. U.S. Resident Holders are urged to consult with their own tax advisors to determine their entitlement to benefits under the Convention based on their particular circumstances.
This summary is based upon the current provisions of the Canadian Tax Act and the Convention in effect as of the date hereof, and the Company’s understanding of the current published administrative policies and assessing practices of the Canada Revenue Agency (“CRA”) published in writing prior to the date hereof. This summary does not anticipate or take into account any changes in law or in the administrative policies or assessing practices of the CRA, whether by legislative, governmental or judicial decision or action, except only the specific proposals to amend the Canadian Tax Act publicly and officially announced by or on behalf of the Minister of Finance (Canada) prior to the date hereof (the “Tax Proposals”). This summary assumes that the Tax Proposals will be enacted in the form proposed. This summary does not take into account any other federal or any provincial, territorial or foreign tax legislation or considerations, which may differ significantly from those set out herein. No assurances can be given that the Tax Proposals will be enacted as proposed or at all, or that legislative, judicial or administrative changes will not modify or change the statements expressed herein.
This summary is of a general nature only, is not exhaustive of all possible Canadian federal income tax considerations and is not intended and should not be construed as legal or tax advice to any particular U.S. Resident Holder. No representations with respect to the income tax consequences to any holder of the common shares are made herein. Accordingly, holders of the common shares are urged to consult their own tax advisors with respect to their own particular circumstances. This summary is qualified accordingly.
Dividends
Under the Canadian Tax Act, dividends paid or credited or deemed to be paid or credited to a U.S. Resident Holder by the Company are subject to Canadian withholding tax at the rate of 25% on the gross amount of the dividend, unless such rate is reduced by the terms of an applicable tax treaty. Under the Convention, the rate of withholding tax on dividends paid or credited to a U.S. Resident Holder is generally reduced to 15% of the gross amount of the dividend (or 5% in the case of a U.S. Resident Holder that is a company beneficially owning at least 10% of the Company’s voting shares). U.S. Resident Holders should consult their own tax advisors.
Disposition of Common Shares
A U.S. Resident Holder generally will not be subject to tax under the Canadian Tax Act in respect of a capital gain realized by such U.S. Resident Holder on the disposition or deemed disposition of a common share nor will capital losses arising therefrom be recognized under the Canadian Tax Act unless the common share constitutes “taxable Canadian property” of the U.S. Resident Holder for purposes of the Canadian Tax Act, and is not “treaty protected property” of the U.S. Resident Holder for purposes of the Canadian Tax Act at the time of disposition.
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Common shares generally will not be “taxable Canadian property” to a U.S. Resident Holder unless at any time during the 60-month period immediately preceding the disposition, more than 50% of the fair market value of the common shares was derived directly or indirectly, from one or any combination of real or immovable property situated in Canada, “Canadian resource properties”, “timber resource properties” (each as defined in the Canadian Tax Act), and options in respect of or interests in, or for civil law rights in, any such properties (whether or not such property exists). Notwithstanding the foregoing, in certain circumstances set out in the Canadian Tax Act, the common shares may be deemed to be “taxable Canadian property”.
Even if a common share is “taxable Canadian property” to a U.S. Resident Holder, any capital gain realized upon the disposition or deemed disposition of such common share may not be subject to tax under the Canadian Tax Act if the common shares is “treaty-protected property” (as defined in the Canadian Tax Act). The common shares of a U.S. Resident Holder will generally constitute “treaty-protected property” for purposes of the Tax Act unless the value of the common shares is derived principally from real property situated in Canada. For this purpose, “real property” has the meaning that term has under the laws of Canada and includes any option or similar right in respect thereof and in any case, includes usufruct of real property, rights to explore for or to exploit mineral deposits, sources and other natural resources and rights to amounts computed by reference to the amount or value of production from such resources.
A U.S. Resident Holder contemplating a disposition of common shares that may constitute taxable Canadian property should consult a tax advisor prior to such disposition.
Dividends and Paying Agents
Not applicable.
Statement by Experts
Not applicable.
Documents on Display
Any statement in this Annual Report about any of the Company’s contracts or other documents is not necessarily complete. If the contract or document is filed as an exhibit to this Annual Report, the contract or document is deemed to modify the description contained in this Annual Report. You must review the exhibits themselves for a complete description of the contract or document.
After completion of the Spin-off on September 24, 2021, Arras became subject to the informational requirements of the Exchange Act. Accordingly, the Company is required to file reports and other information with the SEC, including annual reports on Form 20-F and periodic reports on Form 6-K. The SEC maintains an Internet website that contains reports and other information about issuers, like Arras, that file electronically with the SEC. The address of that website is www.sec.gov.
As an FPI, Arras is exempt under the Exchange Act from, among other things, the rules prescribing the furnishing and content of proxy statements, and the Company’s executive officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, the Company is not required under the Exchange Act to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act. However, the Company intends to furnish or make available to its shareholders annual reports containing its consolidated financial statements prepared in accordance with IFRS.
Subsidiary Information
As of October 31, 2023, the Company had two wholly owned subsidiaries, Ekidos LLP and Arras Metal Ltd. Pursuant to the terms of the Stepnoe and Ekidos JV Agreement and in connection with the Asset Transfer, 100% of the equity interests in Ekidos LLP were transferred to the Company on February 3, 2022.
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| ITEM 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. |
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: interest rate risk, foreign currency exchange rate risk and other price risk. The Company is not currently exposed to any significant interest rate risk or other price risk. The Company is exposed to foreign currency exchange rate risk with respect to cash denominated in Canadian dollars. As at October 31, 2023, a 10% strengthening (weakening) of the Canadian dollar against the U.S. dollar would have increased (decreased) the Company’s comprehensive loss by approximately $20,000 for the year ended October 31, 2023.
For additional information about the effects of foreign currency translation and foreign currency exchange rate risk on the Company’s consolidated financial statements, see the statement of comprehensive loss and statement of cash flows on pages F-5 and F-7 of the Company’s consolidated financial statements and “Note 17. Financial Instruments” on page F-28 of the Company’s consolidated financial statements and related notes included elsewhere in this Annual Report.
| ITEM 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES. |
Debt Securities
Not applicable.
Warrants and Rights
Not applicable.
Other Securities
Not applicable.
American Depositary Shares
Not applicable.
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PART II
| ITEM 13. | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES. |
None.
| ITEM 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS. |
Not applicable.
| ITEM 15. | CONTROLS AND PROCEDURES. |
Disclosure Controls and Procedures
As of October 31, 2023, the Company has carried out an evaluation under the supervision of, and with the participation of its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Based on the evaluation as of October 31, 2023, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) were effective.
Disclosure controls and procedures are designed to ensure that information required to be disclosed in the Company’s reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the Company’s reports filed under the Exchange Act is accumulated and communicated to its management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as that term is defined in Rule 13a-15(f) under the Exchange Act. Under the supervision and with the participation of the Company’s management, including its principal executive and principal financial officers, the Company assessed, as of October 31, 2023, the effectiveness of its internal control over financial reporting. This assessment was based on criteria established in the Internal Control–Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the Company’s assessment using those criteria, management concluded that its internal control over financial reporting as of October 31, 2023 was effective.
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the internal control system are met. Because of the inherent limitations of any internal control system, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected.
Attestation Report of the Registered Public Accounting Firm
This Annual Report does not include an attestation report of the Company’s registered public accounting firm due to a transition period established by rules of the SEC for newly public companies (i.e. those who’ve listed in the previous five years). In addition, the Company’s registered public accounting firm will not be required to opine on the effectiveness of its internal control over financial reporting until the Company is no longer an emerging growth company.
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Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting during the fiscal period ended October 31, 2023 that materially affected, or were reasonably likely to materially affect, the Company’s internal control over financial reporting.
| ITEM 16. | [RESERVED]. |
| ITEM 16A. | AUDIT COMMITTEE AND FINANCIAL EXPERT. |
The Arras Board has determined that Christian Milau, Daniel J. Kunz, and Vera Kobalia each satisfy the “independence” requirements set forth in Rule 10A-3 under the Exchange Act The Arras Board has also determined that Christian Milau, Daniel J. Kunz, and Vera Kobalia shall each be considered an “audit committee financial expert” as defined in Item 16A of Form 20-F under the Exchange Act.
| ITEM 16B. | CODE OF ETHICS. |
Arras has adopted a Code of Business Conduct and Ethics that applies to all of its directors, officers and employees, including its principal executive officer, principal financial officer, principal accounting officer, and those of its officers performing similar functions. If the Arras Board approves an amendment to or waiver from any provision of the Code of Business Conduct and Ethics, Arras will disclose the required information pertaining to such amendment or waiver on its website. The information contained on the Company’s website is not incorporated by reference in this Annual Report.
| ITEM 16C. | PRINCIPAL ACCOUNTANT FEES AND SERVICES. |
Auditors
The
Company’s independent registered auditors are Smythe LLP (PCAOB ID No,
Audit Fees
During the year ended October 31, 2023, Smythe billed the Company audit fees and expenses in the amount of $31,651.
Audit-Related Fees
During the year ended October 31, 2023, Smythe billed the Company audit-related fees and expenses in the amount of $29,241.
| 65 |
Tax Fees
There were no tax fees and expenses billed by Smythe during the year ended October 31, 2023.
All Other Fees
There were no other fees and expenses billed by Smythe during the year ended October 31, 2023.
Audit Committee’s Pre-Approval Policies and Procedures
Section 10A(i) of the Exchange Act prohibits the Company’s auditors from performing audit services for it as well as any services not considered to be “audit services” unless such services are pre-approved by the Audit Committee of the Arras Board, or unless the services meet certain de minimis standards.
The Audit Committee’s charter, effective as of December 7, 2021, provides that the Audit Committee (i) must approve in advance any and all audit services and permissible non-audit services to be performed by the auditors for the Company or its subsidiary entities that the Audit Committee deems advisable in accordance with applicable requirements and Arras Board-approved policies and procedures, and adopt and implement policies for such pre-approval; (ii) must consider the impact of such service and fees on the independence of the auditor; and (iii) may delegate pre-approval authority to a member of the Audit Committee, provided that the decisions of any member of the Audit Committee to whom this authority has been delegated must be presented to the full Audit Committee at its next scheduled Audit Committee meeting.
| ITEM 16D. | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES. |
Not applicable.
| ITEM 16E. | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS. |
None.
| ITEM 16F. | CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT. |
None.
| ITEM 16G. | CORPORATE GOVERNANCE. |
Not applicable.
| ITEM 16H. | MINE SAFETY DISCLOSURE. |
Not applicable.
| ITEM 16I. | DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS. |
Not applicable.
| ITEM 16J. | INSIDER TRADING POLICIES. |
Not applicable.
| ITEM 16K. | CYBERSECURITY. |
Not applicable.
| 66 |
PART III
| ITEM 17. | FINANCIAL STATEMENTS. |
Historical Financial Statements
Please refer to pages F-1 through F-30 of this Annual Report.
| ITEM 18. | FINANCIAL STATEMENTS. |
Not applicable.
| ITEM 19. | EXHIBITS . |
The Company has filed the following documents as exhibits to this Annual Report:
| 67 |
| X | Filed herewith. |
| XX | Furnished herewith. |
| + | Indicates a management contract or compensatory plan, contract or arrangement. | |
| ‡ | Portions of this exhibit have been omitted in accordance with Form 20-F. The omitted information is not material and would likely cause competitive harm to the registrant if publicly disclosed. The registrant hereby agrees to furnish supplementally an unredacted copy of this exhibit to the Securities and Exchange Commission upon request. |
| * | The following financial information from the Annual Report on Form 20-F of Arras Minerals Corp. for the fiscal year ended October 31, 2023, formatted in XBRL (Extensible Business Reporting Language): Statement of Financial Position, Statement of Comprehensive Loss, Statement of Changes in Shareholders’ Equity, Statement of Cash Flows. |
| 68 |
SIGNATURES
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.
| ARRAS MINERALS CORP. | ||
| By: | /s/ Timothy T. Barry | |
| Timothy T. Barry Chief Executive Officer |
||
| By: | /s/ Christopher Richards | |
| Christopher Richards Chief Financial Officer |
||
Date: February 28, 2024
| 69 |
Consolidated Financial Statements
For the years ended October 31, 2023 and 2022
(Expressed in United States dollars)
| Index | Page | |||
| Report of Independent Registered Public Accounting Firm | F-2 | |||
| Consolidated Financial Statements | ||||
| Consolidated Statements of Financial Position | F-4 | |||
| Consolidated Statements of Comprehensive Loss | F-5 | |||
| Consolidated Statements of Changes in Shareholders’ Equity | F-6 | |||
| Consolidated Statements of Cash Flows | F-7 | |||
| Notes to the Consolidated Financial Statements | F-8 — F-30 | |||
| F-1 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE SHAREHOLDERS AND DIRECTORS OF ARRAS MINERALS CORP.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements of financial position of Arras Minerals Corp. (the “Company”) and subsidiaries as of October 31, 2023 and 2022, and the related consolidated statements of comprehensive loss, changes in shareholders’ equity, and cash flows for the years ended October 31, 2023 and 2022, 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 October 31, 2023 and 2022, and the results of its operations and its cash flows for the years ended October 31, 2023 and 2022, in conformity with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board.
Material Uncertainty Related to Going Concern
Without modifying our opinion, we draw attention to Note 1 of the consolidated financial statements, which indicates that the Company incurred a net loss during the year ended October 31, 2023 and has not yet commenced revenue producing operations. As stated in Note 1 to the consolidated financial statements, these conditions, along with other matters as set forth in Note 1, indicate that a material uncertainty exists that casts substantial doubt on the Company’s ability to continue as a going concern.
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 audit 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.
| F-2 |
Critical Audit Matters
Critical audit matters are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.
We have determined that there are no critical audit matters to communicate in our auditors’ report.
/s/
Smythe LLP, Chartered Professional Accountants
We have served as the Company's auditor since 2021.
February 27, 2024
| F-3 |
ARRAS MINERALS CORP.
Consolidated Statements of Financial Position
As at October 31, 2023 and 2022
(Expressed in United States Dollars)
| Notes | October 31, 2023 | October 31, 2023 | ||||||||||
| $ | $ | |||||||||||
| Assets | ||||||||||||
| Current | ||||||||||||
| Cash and cash equivalents | 16 | |||||||||||
| Other receivables | ||||||||||||
| Prepaid expenses and deposits | 7 | |||||||||||
| Non-Current | ||||||||||||
| Office and equipment | 4,5,9 | |||||||||||
| Mineral properties | 4,5,6,10 | |||||||||||
| Right-of use assets | 11 | |||||||||||
| Prepaid expenses and deposits | 7 | |||||||||||
| Total Assets | ||||||||||||
Liabilities | ||||||||||||
| Current | ||||||||||||
| Accounts payable and accrued liabilities | 14 | |||||||||||
| Lease liability | 11 | |||||||||||
| Due to related party | 14, 20 | |||||||||||
| Non-Current | ||||||||||||
| Lease liability | 11 | |||||||||||
| Total Liabilities | ||||||||||||
Shareholders’ Equity | ||||||||||||
| Share capital | 12 | |||||||||||
| Reserves | 12 | |||||||||||
| Deficit | ( | ) | ( | ) | ||||||||
| Total Shareholders’ Equity | ||||||||||||
| Total Liabilities and Shareholders’ Equity | ||||||||||||
On behalf of the Board
| /s/ Brian Edgar | /s/ Christian Milau | |
| Director | Director | |
The accompanying notes are an integral part of these in consolidated financial statements.
| F-4 |
ARRAS MINERALS CORP.
Consolidated Statements of Comprehensive Loss
For the years ended October 31, 2023 and 2022
(Expressed in United States Dollars)
| Notes | 2023 | 2022 | ||||||||||
| $ | $ | |||||||||||
| Expenses | ||||||||||||
| Exploration | 9,12 | |||||||||||
| Personnel | 12,14 | |||||||||||
| Marketing and shareholders’ communication | ||||||||||||
| Directors’ fees | 12,14 | |||||||||||
| Professional services | 14 | |||||||||||
| Office and administrative | 11,14 | |||||||||||
| Depreciation | 9,11 | |||||||||||
| Loss from operations | ( | ) | ( | ) | ||||||||
| Foreign currency exchange gain (loss) | ( | ) | ||||||||||
| Interest income | ||||||||||||
| Other income (expenses) | ( | ) | ||||||||||
Net and Comprehensive Loss for the Year | ( | ) | ( | ) | ||||||||
| ( | ) | ( | ) | |||||||||
Weighted Average Number of Common Shares Outstanding | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-5 |
ARRAS MINERALS CORP.
Consolidated Statements of Changes in Shareholders’ Equity
For the years ended October 31, 2023 and 2022
(Expressed in United States Dollars)
| Share Capital | Reserves | |||||||||||||||||||||||
| Common | Shareholders’ | |||||||||||||||||||||||
| Shares | Amount | Options | Warrants | Deficit | Equity | |||||||||||||||||||
| $ | $ | $ | $ | $ | ||||||||||||||||||||
| Balance, October 31, 2022 | ( | ) | ||||||||||||||||||||||
| Private placement, net of share issue costs | ||||||||||||||||||||||||
| Share-based payment | — | |||||||||||||||||||||||
| Net loss for the year | — | ( | ) | ( | ) | |||||||||||||||||||
| Balance, October 31, 2023 | ( | ) | ||||||||||||||||||||||
| Share Capital | Reserves | |||||||||||||||||||||||
| Common | Shareholders’ | |||||||||||||||||||||||
| Shares | Amount | Options | Warrants | Deficit | Equity | |||||||||||||||||||
| $ | $ | $ | $ | $ | ||||||||||||||||||||
| Balance, October 31, 2021 | ( | ) | ||||||||||||||||||||||
| Private placement, net of share issue costs | ||||||||||||||||||||||||
| Shares issued to agents | ||||||||||||||||||||||||
| Share-based payment | — | |||||||||||||||||||||||
| Net loss for the year | — | ( | ) | ( | ) | |||||||||||||||||||
| Balance, October 31, 2022 | ( | ) | ||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-6 |
ARRAS MINERALS CORP.
Consolidated Statement of Cash Flows
For the years ended October 31, 2023 and 2022
(Expressed in United States Dollars)
| 2023 | 2023 | |||||||
| $ | $ | |||||||
| Operating Activities | ||||||||
| Net loss for the year | ( | ) | ( | ) | ||||
| Items not affecting cash | ||||||||
| Depreciation | ||||||||
| Share-based payment | ||||||||
| Interest expense | ||||||||
| Unrealized foreign exchange loss | ||||||||
| ( | ) | ( | ) | |||||
| Changes in non-cash working capital, net of acquisition | ||||||||
| Other receivables | ||||||||
| Prepaid expenses and deposits | ( | ) | ( | ) | ||||
| Due to related party | ||||||||
| Accounts payable and accrued liabilities | ( | ) | ||||||
| Due from related party | ||||||||
| Other non-current assets | ( | ) | ||||||
| Cash Used in Operating Activities | ( | ) | ( | ) | ||||
| Financing Activities | ||||||||
| Issuance of common shares, net of share issue costs | ||||||||
| Repayment of lease liability | ( | ) | ( | ) | ||||
| Payment of share issuance costs | ( | ) | ||||||
| Cash Provided by Financing Activities | ||||||||
| Investing Activities | ||||||||
| Purchase of office and equipment | ( | ) | ( | ) | ||||
| Net cash received on acquisition of Ekidos Minerals LLP | ||||||||
| Loans to Ekidos Minerals LLP | ( | ) | ||||||
| Cash Used in Investing Activities | ( | ) | ( | ) | ||||
| Net Change in Cash and Cash Equivalents | ( | ) | ( | ) | ||||
| Cash and Cash Equivalents, Beginning of Year | ||||||||
| Cash and Cash Equivalents, End of Year | ||||||||
Supplemental Cash Flow Information (Note 16)
The accompanying notes are an integral part of these consolidated financial statements.
| F-7 |
Arras Minerals Corp.
Notes to the Consolidated Financial Statements
For years ended October 31, 2023 and 2022
(Expressed in United States dollars)
| 1. | NATURE OF OPERATIONS AND GOING CONCERN |
Arras Minerals Corp. (the “Company”) was incorporated on February 5, 2021 under the Business Corporations Act (British Columbia) as part of an asset purchase agreement to reorganize Silver Bull Resources, Inc. (“Silver Bull”) as described in Note 5. The Company’s head office is located at 1605-777 Dunsmuir Street, Vancouver, British Columbia, Canada, V7Y 1K4.
The Company is engaged in the acquisition, exploration, and
development of mineral property interests in Kazakhstan. On February 3, 2022, the Company purchased
On February 10, 2023, Arras Metals Ltd. (“Arras Metals”) was incorporated at Astana International Financial Centre in Astana, Republic of Kazakhstan, as a wholly owned subsidiary of the Company, for the purpose of holding mineral exploration investments.
The Company’s assets consist
primarily of the option to acquire a
The Company has not yet determined whether the properties contain mineral reserves where extraction is both technically feasible and commercially viable. The business of mining and the exploration for minerals involves a high degree of risk and there can be no assurance that such activities will result in profitable mining operations.
These consolidated financial statements
are prepared on a going concern basis, which contemplate that the Company will continue in operation for the foreseeable future and will
be able to realize its assets and discharge its liabilities in the normal course of business. The Company has incurred operating losses
since inception and has no current sources of revenue or cash inflows from operations. The Company relies on share issuances in order
to fund its exploration and other business objectives. During the year ended October 31, 2023, the Company raised gross amounts of $
The Company’s ability to continue as a going concern and fulfill its commitments under the Beskauga option agreement and exploration licenses is dependent upon successful execution of its business plan, raising additional capital, or evaluating other strategic alternatives, such as the Teck Agreement. The Company expects to continue to raise the necessary funds primarily through the issuance of common shares and funding from strategic partners. There can be no guarantees that future equity financing will be available, in which case the Company may need to reduce its exploration activities. There can be no assurance that management’s plan will be successful. If the going concern assumption was not appropriate for these consolidated financial statements, then adjustments would be necessary to the carrying values of assets and liabilities, the reported expenses and the balance sheet classifications used. Such adjustments could be material.
| F-8 |
Arras Minerals Corp. Notes to the Consolidated Financial Statements For years ended October 31, 2023 and 2022 (Expressed in United States dollars) |
| 2. | BASIS OF PRESENTATION |
| a) | Statement of compliance |
These consolidated financial statements were prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”) appliable to the preparation of financial statements.
These consolidated financial statements are presented in $USD, which is the Company’s and its subsidiaries’ functional currency.
| b) | Basis of measurement |
These consolidated financial statements have been prepared on a historical cost basis, except for certain financial instruments which are measured at fair value. In addition, these consolidated financial statements have been prepared using the accrual basis of accounting, except for cash flow information. Certain comparative figures have been reclassified to conform to the presentation in the current period. Such reclassifications were not considered significant.
| c) | Approval of the consolidated financial statements |
These consolidated financial statements were authorized for issue by the Board of Directors on February 27, 2024.
| 3. | SIGNIFICANT ACCOUNTING POLICIES |
The accounting policies set out below have been applied in these consolidated financial statements.
| a) | Foreign currency translation |
Consolidated statement of financial position: monetary assets and liabilities are translated into USD using period end exchange rates. Non-monetary assets and liabilities are translated into USD using historical exchange rates. All exchange differences are recognized in profit or loss.
Consolidated statement of comprehensive loss: income, expenses, and other comprehensive income are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions). All exchange differences are recognized in profit or loss.
Consolidated statement of changes in shareholders’ equity: all resulting exchange differences are recognized as a separate component of equity and in other comprehensive loss.
| b) | Financial instruments |
Recognition and measurement of financial assets
The Company recognizes a financial asset when it becomes a party to the contractual provisions of the instrument.
Classification of financial assets
The Company classifies financial assets at initial recognition as financial assets: measured at amortized cost, measured at fair value through other comprehensive income or measured at fair value through profit or loss.
| i. | Financial assets measured at amortized cost |
A financial asset that meets both of the following conditions is classified as a financial asset measured at amortized cost:
| ● | The Company’s business model for such financial assets is to hold the assets in order to collect contractual cash flows. |
| ● | The contractual terms of the financial asset gives rise on specified dates to cash flows that are solely payments of principal and interest on the amount outstanding. |
| F-9 |
Arras Minerals Corp. Notes to the Consolidated Financial Statements For years ended October 31, 2023 and 2022 (Expressed in United States dollars) |
A financial asset measured at amortized cost is initially recognized at fair value plus transaction costs directly attributable to the asset. After initial recognition, the carrying amount of the financial asset measured at amortized cost is determined using the effective interest method, net of impairment loss, if necessary. As at October 31, 2023 and 2022, the Company has no financial assets as amortized cost.
| ii. | Financial assets measured at fair value through other comprehensive income (“FVTOCI”) |
A financial asset measured at fair value through other comprehensive income is recognized initially at fair value plus transaction cost directly attributable to the asset. After initial recognition, the asset is measured at fair value with changes in fair value included as “financial asset at fair value through other comprehensive income” in other comprehensive income. As at October 31, 2023 and 2022, the Company has no financial assets as FVTOCI.
| iii. | Financial assets measured at fair value through profit or loss (“FVTPL”) |
A financial asset measured at fair value through profit or loss is recognized initially at fair value with any associated transaction costs being recognized in profit or loss when incurred. Subsequently, the financial asset is re-measured at fair value, and a gain or loss is recognized in profit or loss in the reporting period in which it arises. The Company classifies its cash and cash equivalents as fair value through profit or loss.
Derecognition of financial assets
The Company derecognizes a financial asset if the contractual rights to the cash flows from the asset expire, or the Company transfers substantially all the risks and rewards of ownership of the financial asset. Any interests in transferred financial assets that are created or retained by the Company are recognized as a separate asset or liability. Gains and losses on derecognition are generally recognized in the statement of comprehensive loss. However, gains and losses on derecognition of financial assets classified as FVTOCI remain within accumulated other comprehensive income (loss).
Recognition and measurement of financial liabilities
The Company recognizes financial liabilities when it becomes a party to the contractual provisions of the instruments.
Classification of Financial Liabilities
The Company classifies financial liabilities at initial recognition as financial liabilities: measured at amortized cost or measured at fair value through profit or loss.
i. Financial liabilities measured at amortized cost
A financial liability at amortized cost is initially measured at fair value less transaction cost directly attributable to the issuance of the financial liability. Subsequently, the financial liability is measured at amortized cost based on the effective interest rate method. The Company classifies its accounts payable and accrued liabilities, lease liability and due to related party as amortized cost.
ii. Financial liabilities measured at fair value through profit or loss
A financial liability measured at fair value through profit or loss is initially measured at fair value with any associated transaction costs being recognized in profit or loss when incurred. Subsequently, the financial liability is re-measured at fair value, and a gain or loss is recognized in profit or loss in the reporting period in which it arises. As at October 31, 2023 and 2022, the Company has no financial liabilities at fair value through profit or loss.
Derecognition of financial liabilities
The Company derecognizes a financial liability when the financial liability is discharged, cancelled or expired. Generally, 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.
Offsetting financial assets and liabilities
Financial assets and liabilities are offset and the net amount is presented in the consolidated statement of financial position only when the Company has a legally enforceable right to set off the recognized amounts and intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously.
All financial assets except for those at fair value through profit or loss are subject to review for impairment at least at each reporting date. Financial assets are impaired when there is any objective evidence that a financial asset or a group of financial assets is impaired. Different criteria to determine impairment are applied for each category of financial assets, which are described above.
| F-10 |
Arras Minerals Corp. Notes to the Consolidated Financial Statements For years ended October 31, 2023 and 2022 (Expressed in United States dollars) |
| c) | Fair value hierarchy |
Fair value measurements of financial instruments are required to be classified using a fair value hierarchy that reflects the significant of inputs used in making the measurements. The levels of the fair value hierarchy are defined as follows:
Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3 – Inputs for assets or liabilities that are not based on observable market data.
Company’s financial instruments classified as Level 1 in the fair value hierarchy are cash and cash equivalents, other receivable, prepaid expenses and deposits, loans to Ekidos, accounts payable and accrued liabilities, and due to related party. The lease liability is classified as Level 3 financial instruments. The carrying values approximate the fair values due to the short-term maturity of these instruments. There were no transfers between fair value levels during the years ended October 31, 2023 and 2022.
| d) | Mineral properties |
Costs directly related to the acquisition of mineral properties are capitalized. Option payments are considered acquisition costs if the Company has the intention of exercising the underlying option.
Exploration, evaluation and property maintenance costs incurred on sites without an existing mine and on areas outside the boundary of a known mineral deposit which contains proven and probable reserves are expensed as incurred up to the date of establishing that property costs are economically recoverable and that the project is technically feasible.
Mineral properties are not subject to depletion or amortization, but rather are tested for impairment when circumstances indicate that the carrying value may not be recoverable.
Development expenditures are those incurred subsequent to the establishment of economic recoverability and after receipt of project development approval from the Board of Directors. The approval from the Board of Directors will be dependent upon the Company obtaining sufficient financial resources, permits, and licenses to develop the mineral property. Development costs are capitalized and included in the carrying amount of the related property.
Mineral property and mine development costs capitalized are amortized using the units-of-production method over the estimated life of the proven and probable reserves.
| e) | Office and equipment |
Items of office and equipment are recorded at cost less accumulated depreciation. Cost includes all expenditures incurred to bring assets to the location and condition necessary for them to be operated in the manner intended by management, including estimated decommissioning and restoration costs and, where applicable, borrowing costs. If significant parts of an item of office and equipment have different useful lives, then they are accounted for as separate items (major components) of office and equipment.
No depreciation is recorded until the asset is substantially complete and ready for use. Capital assets are depreciated over their estimated useful lives as follows:
| Mining equipment | Straight-line over five years |
| Computer equipment and software | Straight-line over one year |
| Vehicles | Straight-line over five to ten years |
| Office equipment | Straight-line over three years |
| F-11 |
Arras Minerals Corp. Notes to the Consolidated Financial Statements For years ended October 31, 2023 and 2022 (Expressed in United States dollars) |
| f) | Impairment of non-financial assets |
The Company reviews the carrying amounts of its non-financial assets, including mineral properties and office and equipment every reporting period. If there is any indication that the assets or Cash-Generating Units (the “CGU”) may not be fully recoverable, the recoverable amount of the asset or CGU is estimated in order to determine the extent of the impairment loss, if any. CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflow from other assets or group of assets.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows to be derived from continuing use of the asset or CGU are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Fair value less cost to sell is the amount obtainable from the sale of an asset or CGU in an arm’s length transaction between knowledgeable, willing parties, less the cost of disposal. When a binding sale agreement is not available, fair value less costs to sell is estimated using a discounted cash flow approach with inputs and assumptions consistent with those at market. If the recoverable amount of an asset or CGU is estimated to be less than its carrying amount, the carrying amount of the asset or CGU is reduced to its recoverable amount. An impairment loss is recognized immediately in profit or loss. Where an impairment loss subsequently reverses, the carrying amount of the asset or CGU is increased to the revised estimate of its recoverable amount, such that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized.
| g) | Restoration provisions |
The Company recognizes liabilities for legal, contractual and constructive obligations for decommissioning and restoration when those obligations result from the acquisition, construction, development or normal operation of the asset. Provisions are measured at the present value of the expected expenditures required to settle the obligation using a discount rate reflecting the time value of money and risks specific to the liability. Upon initial recognition of the liability, the corresponding decommissioning and restoration cost is capitalized to the carrying amount of the related asset and amortized as an expense over the useful life of the related asset. Following the initial recognition of the restoration provision, the carrying amount of the liability is increased for the passage of time and adjusted for changes to the current market-based discounted rate and the amount or timing of cash flows needed to settle the obligation.
| h) | Other provisions |
Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of past events, and it is probable that an outflow of resources that can be reliably estimated will be required to settle the obligation. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation.
| i) | Income taxes |
Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to taxation authorities. The tax rates and tax laws used are those that are enacted or substantively enacted by the reporting date.
Deferred income tax is provided for based on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred tax liabilities are generally recognized for all taxable temporary differences, and deferred tax assets are generally recognized for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized. Such assets and liabilities are not recognized if the temporary difference arises from goodwill or from the initial recognition of assets and liabilities in a transaction that is not a business combination and affects neither the taxable profit nor the accounting profit. The change in the net deferred income tax asset or liability is included in net income (loss) except for deferred income tax relating to equity items, which are recognized directly in equity. Deferred income tax assets and liabilities are measured using the substantively enacted statutory income tax rates which are expected to apply to taxable income in the years in which temporary differences are expected to be recovered or settled.
The carrying amount of deferred tax assets is reviewed at each financial position reporting date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
| F-12 |
Arras Minerals Corp. Notes to the Consolidated Financial Statements For years ended October 31, 2023 and 2022 (Expressed in United States dollars) |
Deferred income tax assets and liabilities are offset only if a legally enforceable right exists to offset current tax assets against liabilities and the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on the same taxable entity.
The determination of current and deferred taxes requires interpretation of tax legislation, estimates of expected timing of reversal of deferred tax assets and liabilities, and estimates of future earnings.
| j) | Share-based compensation |
The Company’s stock option plan (Note 12) allows the Company’s employees, directors, officers and service providers to acquire shares of the Company. The fair value of options granted is recognized as share-based payment expense with a corresponding increase in reserves. An individual is classified as an employee when the individual is an employee for legal or tax purposes (direct employee) or provides services similar to those performed by a direct employee. Where stock options are subject to vesting, each vesting tranche is considered a separate award with its own vesting period and grant date fair value. The fair value of each tranche is measured at the grant date using the Black-Scholes option pricing model, taking into account the terms and conditions upon which the options were granted. Share-based payment expense is recognized over the tranche’s vesting period by a charge to profit or loss. At each financial position reporting date, the amount recognized as an expense is adjusted to reflect the actual number of stock options that are expected to vest. In situations where equity instruments are issued to service providers and some or all of the goods or services received by the entity as consideration cannot be specifically identified, they are measured at the fair value of the share-based payment. Otherwise, share-based payments are measured at the fair value of goods or services received.
Equity-settled share-based compensation arrangements such as the Company’s stock option plan and restricted share unit (“RSUs”) plan are measured at fair value at the date of grant and recorded within equity. The restricted share unit plan includes restricted share units without performance-based criteria. The fair value at grant date of all share-based compensation is recognized as compensation expense over the vesting period, with a corresponding credit to shareholders’ equity. The amount recognized as an expense is adjusted to reflect share options forfeited.
| k) | Share capital |
Equity instruments are contracts that give a residual interest in the net assets of the Company. Financial instruments issued by the Company are classified as equity only to the extent that they do not meet the definition of a financial asset or financial liability. The Company’s common shares and warrants are classified as equity instruments. Share issuance costs are recorded against share proceeds.
| l) | Loss per share |
Basic loss per share is computed by dividing net loss available to common shareholders by the weighted average number of shares outstanding during the reporting period. Diluted loss per share is computed similarly to basic loss per share except that the weighted average shares outstanding are increased to include additional shares for the assumed exercise of stock options and warrants, if dilutive. The number of additional shares is calculated by assuming that outstanding stock options and warrants were exercised and that the proceeds from such exercises were used to acquire common shares at the average market price during the reporting periods.
| m) | Non-monetary transactions |
Shares issued for consideration other than cash are valued at the fair value of assets received or services rendered. If the fair value of assets received or services rendered cannot be reliably measured, shares issued for consideration will be valued at the quoted market price at the date of issuance.
| n) | Economic recoverability of future economic benefits of exploration and evaluation assets |
The Company capitalizes the acquisition costs of mineral properties. Exploration and evaluation expenditures are expensed as incurred.
| F-13 |
Arras Minerals Corp. Notes to the Consolidated Financial Statements For years ended October 31, 2023 and 2022 (Expressed in United States dollars) |
When a project is deemed to no longer have commercially viable prospects for the Company, mineral property assets in respect of that project are deemed to be impaired. As a result, those mineral property assets, in excess of estimated recoveries, are written off to net income (loss). The Company assesses mineral properties for indicators of impairment at each reporting date. Management uses several criteria in its assessments of indicators of impairment and probability of future economic benefit including geological data, scoping studies, accessible facilities, and existing and future permits.
| o) | Principle of consolidation |
Subsidiaries are entities controlled by the Company and are included in the consolidated financial statements from the date that control commences until the date that control ceases. The accounting policies of subsidiaries are changed where necessary to align with the policies adopted by the Company. All intercompany balances are eliminated on consolidation.
The consolidated financial statements include accounts of the Company and its wholly owned subsidiaries, Ekidos, from the date of acquisition on February 3, 2022 and Arras Metals from the date of incorporation.
| p) | Leases |
As per IFRS 16 Leases (“IFRS 16”), at inception, the Company assesses whether a contract contains an embedded lease. A contract contains a lease when the contract conveys a right to control the use of an identified asset for a period of time in exchange for consideration.
The Company, as lessee, is required to recognize a right-of-use asset (“ROU asset”), representing its right to use the underlying asset, and a lease liability, representing its obligation to make lease payments.
The Company may elect to not apply IFRS 16 to leases with a term of less than 12 months, or to low value assets, which is made on an asset by asset basis.
The Company recognizes a ROU asset and a lease liability at the commencement of the lease. The ROU asset is initially measured based on the present value of lease payments, plus initial direct cost, less any incentives received. It is subsequently measured at cost less accumulated amortization, impairment losses and adjusted for certain remeasurements of the lease liability. The ROU asset is amortized from the commencement date over the shorter of the lease term or the useful life of the underlying as set. The ROU asset is subject to testing for impairment if there is an indicator of impairment.
The lease liability is initially measured at the present value of the lease payments that are paid at the commencement date, discounted by the interest rate implicit in the lease, or if that rate cannot be readily determined, the incremental borrowing rate. The incremental borrowing rate is the rate which the operation would have to pay to borrow over a similar term and with similar security, the funds necessary to obtain an asset of similar value to the ROU asset in a similar economic environment.
Lease payments included in the measurement of the lease liability are comprised of:
• fixed payments, including in-substance fixed payments;
• variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date;
• amounts expected to be payable under a residual value guarantee;
• the exercise price under a purchase option that the Company is reasonably certain to exercise;
• lease payments in an optional renewal period if the Company is reasonably certain to exercise an extension option; and
• penalties for early termination of a lease unless the Company is reasonably certain not to terminate early.
The lease liability is subsequently increased by the interest cost on the lease liability and decreased by lease payments made. It is remeasured when there is a change in future lease payments arising from a change in an index or a rate, a change in the estimate of the amount expected to be payable under a residual value guarantee, or as appropriate, changes in the assessment of whether a purchase or extension option is reasonably certain to be exercised or a termination option is reasonably certain not to be exercised.
| F-14 |
Arras Minerals Corp. Notes to the Consolidated Financial Statements For years ended October 31, 2023 and 2022 (Expressed in United States dollars) |
Variable lease payments that do not depend on an index or a rate not included in the initial measurement of the ROU asset and lease liability are recognized as an expense in profit or loss in the period in which they are incurred.
The ROU assets are presented within “Right-of-use assets” and the lease liabilities are presented in “Lease liability” on the consolidated statement of financial position.
| q) | Cash and cash equivalents |
Cash and cash equivalents consist of cash on hand, bank deposits and highly liquid investments with an original maturity of three months or less.
| r) | New standards not yet adopted |
In May 2021, the IASB issued Deferred Tax related to Assets and Liabilities Arising from a Single Transaction which amended IAS 12, Income Taxes (“IAS 12”). The amendments narrowed the scope of the recognition exemption in IAS 12, relating to the recognition of deferred tax assets and liabilities, so that it no longer applies to transactions that, on initial recognition, give rise to equal taxable and deductible temporary differences such as leases and reclamation and closure cost provisions. The amendments are effective for annual reporting periods beginning on or after January 1, 2023 to transactions that occur on or after the beginning of the earliest comparative period presented. Earlier application is permitted. At this time, the Company does not expect this standard to affect the Company’s financial position, results of operations or cash flows and disclosures.
Other recent accounting pronouncements issued by the IASB did not or are not expected to have a significant impact on the Company’s present or future consolidated financial statements.
| s) | Critical accounting estimates, judgments and assumptions |
The preparation of the Company’s consolidated financial statements in conformity with IFRS requires management to make judgments, estimates, and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The Company’s management reviews these estimates and underlying assumptions on an ongoing basis, based on experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Revisions to estimates are adjusted for prospectively in the period in which the estimates are revised.
| i) | Determination of functional currency |
The determination of the Company’s and its subsidiaries’ functional currency is a matter of judgment based on an assessment of the specific facts and circumstances relevant to determining the primary economic environment of the Company. The Company reconsiders the functional currencies used when there is a change in events and conditions considered in determining the primary economic environment of the entities.
| ii) | Going concern |
The assessment of whether the going concern assumption is appropriate requires management to take into account all available information about the future, which is at least, but not limited to, 12 months from the end of the reporting period. The Company is aware that material uncertainties exist related to events or conditions that cast substantial doubt upon the Company’s ability to continue as a going concern.
| F-15 |
Arras Minerals Corp. Notes to the Consolidated Financial Statements For years ended October 31, 2023 and 2022 (Expressed in United States dollars) |
| iii) | Asset acquisition versus business combination |
Management had to apply judgment with respect to whether the acquisition through the asset purchase agreement (as discussed in Notes 4 and 5) was an asset acquisition or business combination. The assessment required management to assess the inputs, processes and outputs of the company acquired at the time of the acquisition. Pursuant to the assessment, the asset purchase agreement with Silver Bull and acquisition of Ekidos were considered to be asset acquisitions.
| iv) | Valuation of mineral properties |
The Company carries the acquisition costs of its mineral properties at cost less any provision for impairment. The Company undertakes periodic reviews of the carrying values of mineral properties and whenever events or changes in circumstances indicate that their carrying values may exceed their fair value. In undertaking these reviews, management of the Company is required to make significant estimates. These estimates are subject to various risks and uncertainties, which may ultimately have an effect on the expected recoverability of the carrying values of the mineral properties and related expenditures.
| v) | Fair value of net assets acquired |
The Company makes estimates in determining the fair value of the assets acquired as part of an acquisition. Management exercises judgment in estimating the probability and timing of when cash flows are expected to be achieved, which is used as the basis for estimating fair value. Future performance results that differ from management’s estimates could result in changes to liabilities recorded, which are recorded as they arise through profit or loss.
| vi) | Indicators of impairment |
Judgement is required in assessing whether certain factors would be considered an indicator of impairment. The Company considers both external and internal sources of information in assessing whether there are any indications that the Company’s assets are impaired, or reversal of impairment is needed. Factors considered include current and forecast economic conditions, internal projections and the Company’s market capitalization relative to its net asset carrying amount.
| vii) | Share-based payments |
The computation amount of share-based compensation is not based on historical cost but is derived based on subjective assumptions input into appropriate option pricing model to determine fair value at granting and the reporting dates. The model requires management to make forecasts as to future events, including estimates of: expected price volatility, the average future hold period of options and units, and the appropriate risk-free rate of interest. Changes in these input assumptions can significantly affect the fair value estimate.
| viii) | Right-of-use assets and lease liabilities |
The right of use assets and lease liabilities are measured by discounting the future lease payments at incremental borrowing rate. The incremental borrowing rate is an estimated rate the Company would have to obtain an asset of a similar value to the right-of-use assets in a similar economic environment.
| ix) | Related party transactions |
Silver Bull incurs certain expenditures on behalf of the Company (note 14). If specific identification of the expenses is not practicable, a proportional cost allocation based on management's estimation is applied. A change to the cost allocation could impact the Company's operating expenses.
| 4. | ACQUISITION OF EKIDOS MINERALS LLP |
On February 3, 2022, the Company purchased
The acquisition has been accounted for by the Company as a purchase of assets and assumption of liabilities. The acquisition did not qualify as a business combination under IFRS 3 - Business Combinations, as the significant inputs, processes and outputs, that together constitute a business, did not exist in Ekidos at the time of acquisition.
| F-16 |
Arras Minerals Corp. Notes to the Consolidated Financial Statements For years ended October 31, 2023 and 2022 (Expressed in United States dollars) |
| Purchase price: | ||||
| Cash | $ | |||
| Total consideration | ||||
| Net assets acquired: | ||||
| Cash | ||||
| Other receivables | ||||
| Prepaid expenses and deposits | ||||
| Vehicles, Office and equipment | ||||
| Mineral properties | ||||
| Accounts payable and accrued liabilities | ( | ) | ||
| Loans payable to Arras | ( | ) | ||
| Total net assets acquired | $ | |||
| 5. | ASSET PURCHASE AND SEPARATION AND DISTRIBUTION AGREEMENTS |
On March 19, 2021, pursuant to an
asset purchase agreement with Silver Bull, a majority shareholder (
| Mineral properties | $ | |||
| Mining equipment | ||||
| Computer equipment and software | ||||
| Loans to Ekidos (the “Silver Bull Loans”) (Note 8) | ||||
| Net assets acquired | $ | |||
At the date of the Distribution, the assets transferred did not meet the definition of a business, as there were no substantive processes in place, and the transaction has been accounted for as an acquisition of assets, rather than a business combination. The transaction is accounted for in accordance with IFRS 2 – Share-based Payments.
| F-17 |
Arras Minerals Corp. Notes to the Consolidated Financial Statements For years ended October 31, 2023 and 2022 (Expressed in United States dollars) |
| 6. | BESKAUGA OPTION AGREEMENT |
On August 12, 2020,
Silver Bull entered into the Beskauga Option Agreement with Copperbelt AG (“Copperbelt”) pursuant to which it has the exclusive
right and option to acquire Copperbelt’s right, title and
On March 19, 2021, pursuant
to an asset purchase agreement, Silver Bull transferred all its rights, title and interest in and to the Beskauga Option Agreement to
the Company. The consideration payable by the Company to Silver Bull for the purchased assets was $
| Period | Annual Expenditure Required | Cumulative Expenditure Required | Annual Expenditure Incurred | Cumulative
Expenditure Incurred | ||||
| By January 26, 2022 (1 year from Closing Date) | $ | $ | $ | |||||
| By January 26, 2023 (2 years from Closing Date) | $ | $ | $ | |||||
| By January 26, 2024 (3 years from Closing Date) | $ | $ | ||||||
| By January 26, 2025 (4 years from Closing Date) | $ | $ |
As
of October 31, 2023, approximately $
The Beskauga Option Agreement
also provides that subject to the terms and conditions set forth in the Beskauga Option Agreement, after the Company or its affiliate
has incurred the exploration expenditures (outlined above), the Company or its affiliate may exercise the Beskauga Option and acquire
(i) the Beskauga Property by paying Copperbelt $
In addition, the Beskauga Option Agreement
provides that subject to its terms and conditions, the Company or its affiliate may be obligated to make the following bonus payments
(collectively, the “Bonus Payments”) to Copperbelt if the Beskauga Main Project or the Beskauga South Project is the subject
of a bankable feasibility study in compliance with National Instrument 43-101 – Standards of Disclosure for Mineral Projects
of the Canadian Securities Administrators (“National Instrument 43-101”) indicating gold equivalent resources in the
amounts set forth below, with (i) (A)
| Gold equivalent resources | Cumulative Bonus Payments | |||
| Beskauga Main Project | ||||
| 3,000,000 ounces | $ | |||
| 5,000,000 ounces | $ | |||
| 7,000,000 ounces | $ | |||
| 10,000,000 ounces | $ | |||
| Beskauga South Project | ||||
| 2,000,000 ounces | $ | |||
| 3,000,000 ounces | $ | |||
| 4,000,000 ounces | $ | |||
| 5,000,000 ounces | $ | |||
The Beskauga Option Agreement may be terminated under certain circumstances, including (i) upon the mutual written agreement of the Company and Copperbelt; (ii) upon the delivery of written notice by the Company, provided that at the time of delivery of such notice, unless there has been a material breach of a representation or warranty given by Copperbelt that has not been cured, the Beskauga Property is in good standing; or (iii) if there is a material breach by a party of its obligations under the Beskauga Option Agreement and the other party has provided written notice of such material breach, which is incapable of being cured or remains uncured.
| F-18 |
Arras Minerals Corp. Notes to the Consolidated Financial Statements For years ended October 31, 2023 and 2022 (Expressed in United States dollars) |
| 7. | PREPAID EXPENSES AND DEPOSITS |
| October 31, 2023 | October 31, 2022 | |||||||
| General insurance | $ | $ | ||||||
| Other prepaid deposits - current | ||||||||
| Exploration license insurance - current | ||||||||
| Prepaid expenses and deposits – current | ||||||||
| Prepaid deposits - non-current | ||||||||
| Exploration license insurance - non-current | ||||||||
| Prepaid expenses and deposits – non-current | ||||||||
| Total prepaid expenses and deposits | $ | $ | ||||||
| 8. | LOANS TO EKIDOS MINERALS LLP |
On March 19, 2021, pursuant to an asset purchase agreement,
Silver Bull transferred $
| 9. | OFFICE AND EQUIPMENT |
| Mining Equipment | Computer Equipment and Software | Office Equipment | Vehicles | Total | ||||||||||||||||
| Cost | ||||||||||||||||||||
| Balance, October 31, 2021 | $ | |||||||||||||||||||
| Acquisition (Note 4) | ||||||||||||||||||||
| Additions | ||||||||||||||||||||
| Balance, October 31, 2022 | ||||||||||||||||||||
| Additions | ||||||||||||||||||||
| Balance, October 31, 2023 | $ | |||||||||||||||||||
| Accumulated depreciation | ||||||||||||||||||||
| Balance, October 31, 2021 | $ | |||||||||||||||||||
| Depreciation expense | ||||||||||||||||||||
| Balance, October 31, 2022 | ||||||||||||||||||||
| Depreciation expense | ||||||||||||||||||||
| Balance, October 31, 2023 | $ | |||||||||||||||||||
| Net book value | ||||||||||||||||||||
| Balance, October 31, 2022 | $ | |||||||||||||||||||
| Balance, October 31, 2023 | $ | |||||||||||||||||||
During the year ended October 31, 2023, the Company
acquired mining equipment of $
During the year ended October 31, 2022, the Company
acquired vehicles of $
| F-19 |
Arras Minerals Corp. Notes to the Consolidated Financial Statements For years ended October 31, 2023 and 2022 (Expressed in United States dollars) |
| 10. | MINERAL PROPERTIES |
The
Company, through the asset purchase agreement (Note 5), entered into an option agreement dated August 12, 2020 with Copperbelt, to earn
up to a
On
February 3, 2022, the Company acquired Ekidos, including a $
| Balance, October 31, 2021 | $ | |||
| Acquisition of Ekidos (Note 4) | ||||
| Balance, October 31, 2022 | $ | |||
| Balance, October 31, 2023 and 2022 | $ | |||
Additionally, the Company holds its interest in the Stepnoe and Ekidos properties through the Stepnoe and Ekidos Joint Venture Agreement (the “Stepnoe and Ekidos JV Agreement”), and the Akkuduk, Nogurbek, Maisor, Elemes, Aktasty, Besshoky, Aimandai and South Bozshakol properties through the Maikain Joint Venture Agreement (the “Maikain JV Agreement”).
Stepnoe and Ekidos JV Agreement
In connection with the spin-off and pursuant to the Separation and Distribution Agreement (Note 5), Silver Bull transferred its interest in the Stepnoe and Ekidos JV Agreement to Arras.
On September 1, 2020, Silver Bull entered into the Stepnoe and Ekidos JV Agreement in connection with, among other things, mineral license applications (the “Stepnoe and Ekidos Licenses”) for, and further exploration and evaluation of certain properties, including the Stepnoe and Ekidos properties located in Kazakhstan. The exploration licenses for the Stepnoe and Ekidos properties were granted on October 22, 2020.
The Company (through Ekidos LLP) and Copperbelt
have initial participating interests in the joint venture of
The Stepnoe and Ekidos JV Agreement shall terminate automatically upon there being one participant in the joint venture, or by written agreement between the parties.
On November 11, 2023, the Stepnoe and Ekidos JV Agreement was amended to allow for financing and third- party support of exploration and development activities on some or all of the JV licenses.
Maikain JV Agreement
On May 20, 2021, Ekidos LLP entered into the Maikain JV Agreement with Orogen LLP, a company incorporated under the laws of Kazakhstan, in connection with, among other things, mineral license applications for, and further exploration and evaluation of, certain properties in an area of interest, including the Akkuduk, Nogurbek, Maisor, Elemes, Aktasty, Besshoky, Aimandai and South Bozshakol properties located in Kazakhstan. The following exploration licenses have been granted for an initial six-year period, with the possibility of a five-year extension.
| F-20 |
Arras Minerals Corp. Notes to the Consolidated Financial Statements For years ended October 31, 2023 and 2022 (Expressed in United States dollars) |
The Company (through Ekidos LLP) and Orogen
LLP have initial participating interests in the Maikain joint venture of
The Maikain JV Agreement shall terminate automatically upon the earlier of (i) there being one participant in the joint venture, (ii) by written agreement between the parties, or (iii) May 20, 2024.
On November 11, 2023, the Maikain JV Agreement was amended to accommodate the Teck Alliance Agreement to allow for third-party financing and support of exploration and development activities on some or all of the JV licenses. The amended agreement also clarifies that the Maikain JV Agreement shall not terminate and will continue in full force and effect with respect to any mineral licenses held by or on behalf of the Maikain joint venture as of the date of expiry (May 20, 2024).
| 11. | RIGHT-OF-USE ASSET AND LEASE LIABILITY |
The Company entered into a lease agreement
for its corporate head office commencing March 1, 2022, until February 28, 2026. Upon entering into this lease, the Company recognized
a right-of use (“ROU”) asset in the amount of $
The continuity of the ROU asset and lease liability for the years ended October 31, 2023 and 2022 is as follows:
| Value of ROU asset as of October 31, 2021 | $ | ||||
| Additions | |||||
| Depreciation | ( | ) | |||
| Value of ROU asset as of October 31, 2022 | |||||
| Depreciation | ( | ) | |||
| Value of ROU asset as of October 31, 2023 | $ | ||||
| Lease liability recognized as of October 31, 2021 | $ | |||
| New office lease | ||||
| Lease payments | ( | ) | ||
| Lease interest | ||||
| Lease liability recognized as of October 31, 2022 | ||||
| Lease payments | ( | ) | ||
| Lease interest | ||||
| Lease liability recognized as of October 31, 2023 | $ | |||
| Current portion | $ | |||
| Non-current portion | ||||
| Closing balance | $ | |||
| Less than one year | $ | |||
| One to three years | ||||
| Total undiscounted lease liabilities | $ | |||
| F-21 |
Arras Minerals Corp. Notes to the Consolidated Financial Statements For years ended October 31, 2023 and 2022 (Expressed in United States dollars) |
| 12. | SHARE CAPITAL |
| a) | Authorized |
Unlimited number of common shares and an unlimited number of preferred shares, without par value.
| b) | Issued and outstanding |
Preferred shares
No preferred shares have been issued.
Common shares
As of October 31, 2023 and 2022, there were
During the year ended October 31, 2023, the following transactions occurred:
From November 10, 2022 to December 16,
2022, the Company completed a series of tranches of a private placement, issuing a total of
During the year ended October 31, 2022, the following transactions occurred:
On November 21, 2021, the Company completed
the second tranche of a private placement for
On December 20, 2021, the Company
completed the third and final tranche of a private placement for
On May 30, 2022,
the Company completed a private placement for
Shares held in escrow
As a requirement of the Company’s listing on the TSX Venture Exchange on June 14, 2022 (the “Listing Date”), certain directors, officers and their affiliates were required to have their shares held in escrow by the Company’s transfer agent.
As at October 31,
2023,
| ● | 1/4 of remaining escrow securities on the 18-month anniversary of the Listing Date (released subsequent to year-end); |
| ● | 1/3 of remaining escrow securities on the 24-month anniversary of the Listing Date; |
| ● | 1/2 of remaining escrow securities on the 30-month anniversary of the Listing Date; and |
| ● | The remaining escrow securities on the 36-month anniversary of the Listing Date. |
| F-22 |
Arras Minerals Corp. Notes to the Consolidated Financial Statements For years ended October 31, 2023 and 2022 (Expressed in United States dollars) |
| c) | Stock options |
Pursuant to the Company’s Equity Incentive Plan (the “Plan”) approved by the Board of Directors, the Company grants stock options to employees, directors, officers and advisors. Under the Plan, options can be granted for a maximum term of ten years and the stock options shall vest in three equal installments, with one third of the options vesting on each of the grant date, the first-year anniversary of the grant date and the second anniversary of the grant date, unless otherwise designated by the Board. Further, the exercise price shall not be less than the price of the Company’s common shares on the date of the stock option grant.
No options were granted or exercised during the year ended October 31, 2023.
During the year ended
October 31, 2022, the Company granted options to acquire
No options were exercised during year ended October 31, 2022
| Number of Options | Weighted Average Exercise Price | |||||||||
| Balance, October 31, 2021 | ||||||||||
| Granted | ||||||||||
| Cancelled | ( | ) | ||||||||
| Balance, October 31, 2022 | ||||||||||
| Cancelled | ( | ) | ||||||||
| Balance, October 31, 2023 | ||||||||||
| Grant Date | Expiry Date | Exercise Price | Number of Options Outstanding | Number of Options Exercisable | Weighted Average Remaining Life | |||||||||||||
| $CDN | ||||||||||||||||||
| $CDN | ||||||||||||||||||
| $CDN | ||||||||||||||||||
| $CDN | ||||||||||||||||||
| $CDN | ||||||||||||||||||
| $CDN | ||||||||||||||||||
| F-23 |
Arras Minerals Corp. Notes to the Consolidated Financial Statements For years ended October 31, 2023 and 2022 (Expressed in United States dollars) |
| Grant Date | Expiry Date | Exercise Price | Number of Options Outstanding | Number of Options Exercisable | Weighted Average Remaining Life | |||||||||||||
| $CDN | ||||||||||||||||||
| $CDN | ||||||||||||||||||
| $CDN | ||||||||||||||||||
| $CDN | ||||||||||||||||||
| $CDN | ||||||||||||||||||
| $CDN | ||||||||||||||||||
The weighted average remaining contractual
life for options outstanding is
The total fair value of options granted
during the year ended October 31, 2023, was $ (2022 – $
As of October 31, 2023, there is a total
remaining unrecognized compensation expenses of $
Total share-based payments recognized
during the year ended October 31, 2023, was $
The Company applies the fair value method
using the Black-Scholes Option Pricing Model in accounting for its stock options granted. Accordingly, share-based payments of $
| Options | For the Year Ended October 31, 2023 | For the Year Ended October 31, 2022 | ||||||
| Expected volatility | ||||||||
| Risk-free interest rate | ||||||||
| Expected life (in years) | ||||||||
| Dividend rate | — | — | ||||||
The expected volatility assumption
is based on the historical and implied volatility of the comparable companies’ common share price. The risk-free interest rate assumption
is based on yield curves on government zero-coupon bonds with a remaining term equal to the stock options’ expected life. The Company
has not paid and does not anticipate paying dividends on its common stock. Companies are required to utilize an estimated forfeiture rate
when calculating the expense for the reporting period. Based on the best estimate, management applied the estimated forfeiture rate of
| d) | Restricted shares units (“RSUs”) |
On
February 24, 2023, the Company granted
Compensation expense for RSUs was $
Number of RSUs Outstanding | Fair Value Per Arras Share issuable | |||||||||||||
| Balance, October 31, 2022 and 2021 | $CDN | |||||||||||||
| Granted | $CDN | |||||||||||||
| Balance, October 31, 2023 | $CDN | |||||||||||||
| F-24 |
Arras Minerals Corp. Notes to the Consolidated Financial Statements For years ended October 31, 2023 and 2022 (Expressed in United States dollars) |
| e) | Shares issuable for Silver Bull Warrants |
Pursuant to the Distribution (Note 5),
warrant holders will receive, upon exercise of any Silver Bull Warrant, one Silver Bull common share and one common share of the Company.
The Company will receive $
| Warrants | Shares | Weighted Average Exercise Price Per Arras share issuable | Weighted Average Exercise Price Per Silver Bull Share issuable | |||||||||||
| Balance, October 31, 2021 | $ | $ | ||||||||||||
| Balance, October 31, 2023 and 2022 | $ | $ | ||||||||||||
No warrants were issued or exercised during the years ended October 31, 2023 and 2022.
| Expiry Date | Exercise Price | Number of Options Outstanding | Weighted Average Remaining Life | |||||||||
| $ | ||||||||||||
| 13. | INCOME TAXES |
| For the Year Ended October 31, 2023 | For the Year Ended October 31, 2022 | |||||||
| Loss before income taxes | $ | ( | ) | $ | ( | ) | ||
| Statutory income tax rate | % | % | ||||||
| Income tax benefit computed at statutory tax rate | ( | ) | ( | ) | ||||
| Differences between Canadian and foreign tax rates | ||||||||
| Items not deductible for income tax purposes | ||||||||
| Impact of foreign exchange | ( | ) | ||||||
| Unrecognized benefit of deferred income tax assets | ||||||||
| Income tax benefit | $ | $ | ||||||
| F-25 |
Arras Minerals Corp. Notes to the Consolidated Financial Statements For years ended October 31, 2023 and 2022 (Expressed in United States dollars) |
The Company recognizes tax benefits on losses or other
deductible amounts where it is probable the Company will generate sufficient taxable income to utilize its deferred tax assets.
| For the Year Ended October 31, 2023 | For the Year Ended October 31, 2022 | |||||||
| Deferred tax liabilities: | ||||||||
| Mineral properties | $ | ( | ) | $ | ( | ) | ||
| Office and equipment | ( | ) | ( | ) | ||||
| Deferred tax assets: | ||||||||
| Non-capital losses | ||||||||
| Net deferred income tax liabilities | $ | $ | ||||||
| For the Year Ended October 31, 2023 | For the Year Ended October 31, 2022 | |||||||
| Share issuance costs | $ | $ | ||||||
| Office and equipment | ||||||||
| Non-capital losses carried forward | ||||||||
| Unrecognized deductible temporary differences | $ | $ | ||||||
The Company has available Canadian net operational
losses of approximately $
| 14. | RELATED PARTY TRANSACTIONS |
Included
in accounts payable and accrued liabilities at October 31, 2023 is $
As at October 31, 2023, due to related party consists
of $
During the years ended October 31, 2023 and 2022, expenses
totalling $
| For the Year Ended October 31, 2023 | For the Year Ended October 31, 2022 | |||||||
| Directors’ fees | $ | $ | ||||||
| Personnel | ||||||||
| Office and administrative | ||||||||
| Office rent reimbursement | ( | ) | ( | ) | ||||
| $ | $ | |||||||
| F-26 |
Arras Minerals Corp. Notes to the Consolidated Financial Statements For years ended October 31, 2023 and 2022 (Expressed in United States dollars) |
| For the Year Ended October 31, 2023 | For the Year Ended October 31, 2022 | |||||||
| Share-based payment | $ | $ | ||||||
| Directors’ fees | ||||||||
| Personnel | ||||||||
| $ | $ | |||||||
| 15. | COMMITMENTS AND CONTINGENCIES |
< 1 year $ | 1-2 years $ | 2-3 years $ | 3-4 years $ | 4-5 years $ | Thereafter $ | Total $ | ||||||||||||||||||||||
| Lease commitments (Note 11) | ||||||||||||||||||||||||||||
| Beskauga Option agreement commitments (Note 6) | ||||||||||||||||||||||||||||
| Exploration licenses expenditure commitments | ||||||||||||||||||||||||||||
The Company’s commitments include contractually obligated payments associated to its office lease (Note 11), the exploration expenditure requirements under the Beskauga Option Agreement (detailed in Note 6), and minimum expenditure requirements to maintain its exploration licenses as mandated by Kazakh government authorities to keep the tenements in good standing.
| 16. | SUPPLEMENTAL CASH FLOW INFORMATION |
As at October 31, 2023, cash and cash equivalents
consist of guaranteed investment certificates (the “GIC”) of $
| For the Year Ended October 31, 2023 | For the Year Ended October 31, 2022 | |||||||
| Supplemental Information | ||||||||
| Interest paid | $ | $ | ||||||
| Income taxes paid | ||||||||
| Non-cash investing and financing activities | ||||||||
| Shares issued to agent | $ | $ | ||||||
| Right-of-use assets recognized (Note 11) | ||||||||
| F-27 |
Arras Minerals Corp. Notes to the Consolidated Financial Statements For years ended October 31, 2023 and 2022 (Expressed in United States dollars) |
| 17. | FINANCIAL INSTRUMENTS |
The Company’s financial instruments consist of cash and cash equivalents, accounts payable and accrued liabilities, lease liability, and due to related party. The Company’s risk exposure and the impact on the Company’s financial instruments are summarized below.
| a) | Credit risk |
Credit risk is the risk of financial loss to the Company if a counter party to a financial instrument fails to meet its payment obligations. The Company is exposed to credit risk with respect to its cash and cash equivalents. Management believes that the credit risk concentration with respect to cash and cash equivalents is remote as it maintains accounts with highly rated financial institutions. Cash and cash equivalents are denominated in $USD, $CDN and Kazakh Tenge, and consist of guaranteed investment certificates for the terms of less than 100 days acquired from a Canadian financial institution.
| b) | Liquidity risk |
Liquidity
risk is the risk that the Company will encounter difficulty in satisfying its financial obligations as they become due. The Company manages
its liquidity risk by forecasting cash flows from operations and anticipating investing and financing activities. As at October 31, 2023,
the Company had net working capital deficit of $
Accounts payable and accrued liabilities and due to related party are non-interest-bearing and are normally settled on 30-day terms.
| c) | Market risk |
Market
risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices.
The Company also maintains a minimum cash balance of local currency in bank account in Kazakhstan and the Company assessed such foreign currency risk as low.
The Company has not hedged any of its foreign currency risks.
| d) | Commodity price risk |
The ability of the Company to raise funds to explore and develop its exploration and evaluation assets and the future profitability of the Company are directly related to the price of copper and gold. The Company monitors copper and gold prices to determine the appropriate course of action to be taken.
| e) | Fair value hierarchy |
Fair value measurements of financial instruments are required to be classified using a fair value hierarchy that reflects the significant of inputs used in making the measurements. The levels of the fair value hierarchy are defined as follows:
Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3 – Inputs for assets or liabilities that are not based on observable market data.
The Company’s financial instruments classified as Level 1 in the fair value hierarchy are cash and cash equivalents, accounts payable and accrued liabilities, and due to related party. The lease liability is classified as Level 3 financial instruments. The carrying values approximate the fair values due to the short-term maturity of these instruments except the lease liability. There were no transfers between fair value levels during the year ended October 31, 2023.
| F-28 |
Arras Minerals Corp. Notes to the Consolidated Financial Statements For years ended October 31, 2023 and 2022 (Expressed in United States dollars) |
| 18. | CAPITAL MANAGEMENT |
The Company defines its capital as shareholders’ equity. Capital requirements are driven by the Company’s general operations and exploration. To effectively manage the Company’s capital requirements, the Company monitors expenses and overhead to ensure costs and commitments are being paid. The Company is not subject to any externally imposed capital requirements. The Company did not change its approach to capital management during the year ended October 31, 2023.
| 19. | SEGMENTED INFORMATION |
Operating segments
The Company operated in a single reportable operating segment - the acquisition, exploration and evaluation of mineral properties, with its head office function in Canada. As at October 31, 2023, the Company’s exploration and evaluation assets are currently located in Kazakhstan.
| Canada | Kazakhstan | Total | ||||||||||
| Cash and cash equivalents | $ | $ | $ | |||||||||
| Other receivables | ||||||||||||
| Prepaid expenses | ||||||||||||
| Office and equipment | ||||||||||||
| Minerals properties | ||||||||||||
| Right-of use assets | ||||||||||||
| Other non-current assets | ||||||||||||
| Prepaid expense non-current | ||||||||||||
| $ | $ | $ | ||||||||||
| Canada | Kazakhstan | Total | ||||||||||
| Cash and cash equivalents | $ | $ | $ | |||||||||
| Other receivables | ||||||||||||
| Prepaid expenses | ||||||||||||
| Office and equipment | ||||||||||||
| Minerals properties | ||||||||||||
| Right-of use assets | ||||||||||||
| Other non-current assets | ||||||||||||
| Prepaid expense non-current | ||||||||||||
| $ | $ | $ | ||||||||||
| F-29 |
Arras Minerals Corp. Notes to the Consolidated Financial Statements For years ended October 31, 2023 and 2022 (Expressed in United States dollars) |
| 20. | SUBSEQUENT EVENTS |
On
December 7, 2023. the Company entered into the Teck Alliance Agreement with Teck and received $
On
the completion of the Initial Exploration Period, Teck may exercise an option in the Teck Alliance Agreement by selecting up to four designated
properties up to 120 square kilometers each. Teck must have paid $
Teck will have three options to earn and maintain its option:
| ● | “First Option”:
Teck may elect to solely fund $ |
| ● | “Second Option”:
Teck may elect to solely fund $ |
| ● | “Third Option”:
Teck may elect to solely fund $ |
If Teck elects not to continue with the Teck Alliance
Agreement before December 31, 2025, the license will remain
Subsequent to year end, Ekidos was granted the following additional exploration licenses, all located in Kazakhstan:
| ● | Tay, 2241-EL |
| ● | Beskauga West, 2345-EL |
| ● | Beskauga East, EL-2346 |
| ● | Karatol-3, 2367-EL |
These
licenses have been granted for initial
As of January 26, 2024, the Company met the three-year cumulative expenditure requirements under the Beskauga Option Agreement.
F-30