Fury Gold Mines Ltd 6-K, filed Feb 8, 2021
Fury Gold Mines Ltd (FURY)
6-K
2021-02-08
For: 2021-02-08
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Added on
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About this 6-K
Fury Gold Mines Ltd filed this 6-K on February 8, 2021.
UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of February
2021
Commission
File No. 001-38145
Fury Gold Mines Limited
(Translation
of registrant’s name into English)
34 King Street East Suite 601, Toronto, M5C 2X8
Canada
(Address
of principal executive office)
Indicate
by check mark whether the registrant files or will file annual
reports under cover of Form 20-F or Form 40-F
Form
20-F [ ] Form
40-F [X]
Indicate
by check mark if the registrant is submitting the Form 6-K in paper
as permitted by Regulation S-T Rule 101(b)(1) [
]
Indicate
by check mark if the registrant is submitting the Form 6-K in paper
as permitted by Regulation S-T Rule 101(b)(7) [
]
SUBMITTED HEREWITH
Exhibits
99.1 Material Change Report
99.2 Business Acquisition Report
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
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Fury Gold Mines Limited
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Date: February 8, 2021
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By:
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/s/ Lynsey
Sherry
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Lynsey Sherry
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Chief Financial Officer
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Exhibit 99.1
FORM 51-102F3
MATERIAL CHANGE REPORT
1.
NAME
AND ADDRESS OF COMPANY
Auryn
Resources Inc. (“Auryn”)
1199
West Hastings Street, Suite 600
Vancouver, British
Columbia, Canada, V6E 3T5
2.
DATE
OF MATERIAL CHANGE
July
29, 2020
3.
NEWS
RELEASE
On July
29, 2020, a joint news release of Auryn and Eastmain Resources Inc.
(“Eastmain”)
with respect to the material change in relation to a business
combination with Eastmain described below was disseminated by
Auryn through Business Wire and was filed on SEDAR under
Auryn’s corporate profile at www.sedar.com.
4.
SUMMARY
OF MATERIAL CHANGES
On July
29, 2020, Auryn and Eastmain
jointly announced the signing of a definitive agreement (the
“Arrangement
Agreement”) among Auryn, Eastmain, 1258618 B.C. Ltd.
(“SpinCo
Sombrero”) and 1258620 B.C. Ltd (“SpinCo Curibaya” and, together
with SpinCo Sombrero, the “SpinCos”), pursuant to which Auryn
will acquire all of the issued and outstanding common shares of
Eastmain (the “Eastmain Shares”), immediately following a
spin out of its Peruvian projects to Auryn shareholders and subject
to completion of a concurrent subscription receipts financing of at
least $15 million (collectively, the “Transaction”). Upon completion of
the Transaction, Auryn will continue its Canadian operations under
the name Fury Gold Mines Limited (“Fury Gold”) and the two
independent SpinCos, each of which will be a reporting company, and
which will respectively hold Auryn’s two gold and copper
related Peruvian projects.
5.
FULL
DESCRIPTION OF MATERIAL CHANGES
5.1
Full
Description of Material Change:
On July
29, 2020, Auryn and Eastmain
jointly announced the signing of the Arrangement Agreement among
Auryn, Eastmain, 1258618 B.C. Ltd. and 1258620 B.C. Ltd. pursuant
to which Auryn will acquire all of the issued and outstanding
common shares of Eastmain, immediately following a spin out of its
Peruvian projects to Auryn shareholders and subject to completion
of a concurrent subscription receipts financing of at least $15
million. Upon completion of the Transaction, Auryn will continue
its Canadian operations under the name Fury Gold Mines Limited and
the two independent SpinCos, each of which will be a reporting
company, and which will respectively hold Auryn’s two gold
and copper related Peruvian projects.
Transaction Terms
The
Transaction will be effected by way of two court-approved plans of
arrangement (collectively, the “Arrangements”), one involving
Auryn under the Business
Corporations Act (British Columbia) and one by Eastmain
under the Business Corporations
Act (Ontario). It is anticipated that a special meeting of
the securityholders of Eastmain and an annual and special meeting
of the securityholders of Auryn will be held in October 2020. The
Transaction is expected to be completed in October 2020 and has an
outside date deadline of November 30, 2020.
Auryn
will spin out its Peruvian projects to Auryn shareholders via two
recently formed British Columbia companies. Auryn shareholders, as
of the effective date of the Transaction, will receive one full
share of each of the SpinCos for each Auryn share held as of the
closing date of the Transaction. The SpinCos will be reporting
issuers in Canada and will rely on an exemption from registration
in the United States under section 12g3-2(b) of the 1934 Exchange
Act for Canadian reporting issuers who make their Canadian filings
available in the U.S. Stock exchange listings will not be
immediately sought for either SpinCo, however, the SpinCos are
likely to seek stock exchange listings once they achieve certain
milestones.
Concurrent with the
spin-out of the Peruvian projects, Auryn will consolidate its
shares by approximately 10:7 (the “Consolidation Ratio”) such that
approximately 110 million Fury Gold shares will be outstanding
after the Transaction (pre-financing), of which 69% will be owned
by former Auryn shareholders and 31% will be owned by former
Eastmain shareholders. Any options or warrants exercised prior to
the closing of the Transaction will not alter the 69%-31% ownership
split of Fury Gold.
Eastmain
shareholders as of the closing date of the Transaction will be
entitled to receive approximately 0.117 of a Fury Gold share
(approximately 0.165 of an Auryn share pre-consolidation) for each
Eastmain Share (the “Exchange
Ratio”). After adjustment for the assumed value of the
SpinCos shares based on an independent valuation report received by
Auryn, the $121 million offer represents approximately $0.42 per
Eastmain Share, representing a premium of 137% to the closing
market price of the Eastmain Shares on July 29, 2020, and a premium
of 123% based on the 20 day volume weighted average price of the
Eastmain Shares.
Holders
of Eastmain options will receive replacement options of Fury Gold
and Eastmain’s outstanding warrants will be adjusted, each of
which will be adjusted so that on exercise, holders will receive
shares of Fury Gold adjusted to reflect the Exchange Ratio, at an
exercise price also adjusted to reflect the Exchange Ratio. Holders
of options of Auryn will receive replacement options which will be
adjusted based on the Consolidation Ratio as to the number of
shares and exercise price. The exercise price of these options may
be subject to further adjustment to take into account the effects
of the distribution of the SpinCo shares, after closing of the
Transaction in accordance with the policies of the TSX. The
warrantholders of Auryn will receive warrants of Fury Gold that
entitle the holder to acquire shares of Fury Gold and the two
SpinCos as if exercised prior to completion of the
Transaction.
The
Transaction is subject to a number of customary closing conditions,
including approval by a special majority (66 2/3%) of
securityholders of both companies and the completion of a private
placement of Auryn subscription receipts raising a minimum of $15
million (the “Financing”), as well as approval
of the Arrangements under British Columbia and Ontario law and
approval of the TSX and NYSE American. Securities issued under
Transaction and the securities issued upon conversion of the
subscription receipts issued under the Financing will not be
subject to hold periods in Canada as a consequence of being issued
in connection with the Arrangements. The securities issued in the
Financing will be offered and sold pursuant to prospectus and
registration exemption and will only be offered where, and to whom,
permitted by applicable law.
Pursuant to the
Arrangement Agreement, each company is subject to customary
non-solicitation covenants. In the event a superior proposal is
made to a company, the other has the right to match such proposal.
Under certain circumstances where the Transaction is not completed
because of a third-party superior proposal received by Eastmain or
Auryn, the party accepting the superior proposal has agreed to pay
a termination fee of 3.75% based on the defined value of the
superior proposal.
Officers and
directors of each of Auryn and Eastmain, collectively holding
17,097,116 Auryn securities and 16,962,821 Eastmain securities,
have entered into voting and support agreements with Eastmain and
Auryn, respectively, under which they have agreed to vote in favour
of the resolutions approving the Transaction. In addition,
shareholders of Eastmain collectively holding 20,635,398 Eastmain
securities have entered into agreements with Auryn agreeing to vote
the Eastmain securities they hold as of the record date in support
of the resolutions approving the Transaction.
None of
the securities to be issued pursuant to the Arrangements, including
the Financing, have been or will be registered under the United
States Securities Act of 1933, as amended (the “U.S. Securities Act”), or any
state securities laws, and any securities issued in the
Arrangements are anticipated to be issued in reliance upon
available exemptions from such registration requirements pursuant
to Section 3(a)(10) of the U.S. Securities Act and applicable
exemptions under state securities laws.
Board of Directors’ Recommendations
Each of
the boards of directors of Auryn and Eastmain, following
consultation with their financial and legal advisors and based upon
the recommendation of their respective special committees (each a
“Special
Committee”) formed to consider the Transaction, have
unanimously approved the Transaction. Both boards of directors
recommend that their respective securityholders vote in favour of
the resolutions to approve the Transaction.
Stifel
Nicolaus Canada Inc. has provided a verbal fairness opinion to the
board of directors and the Special Committee of Auryn stating that,
as of July 29, 2020 and, based upon and subject to the assumption,
limitations, and qualifications stated in such opinion, that the
transaction contemplated by the Arrangement is fair, from a
financial point of view, to Auryn shareholders. The Board of
Directors of Auryn also received a preliminary valuation in respect
of the value of Auryn’s Peruvian assets. Each of the
valuation and the fairness opinion will be included in the
information circular to be provided to Auryn securityholders in
connection with the approval of the Transaction.
Maxit
Capital LP has provided a fairness opinion to the board of
directors and the Special Committee of Eastmain that, as of July
29, 2020 and, based upon and subject to the assumptions,
limitations, and qualification stated in such opinion, that the
consideration offered under the Arrangement is fair, from a
financial point of view, to Eastmain shareholders.
Availability of Additional Particulars
Full
details of the Transaction and the Financing will be included in
the information circulars that are expected to be filed with the
applicable securities regulatory authorities and mailed to Auryn
and Eastmain securityholders in connection with their respective
shareholder meetings to approve the Transaction.
The
foregoing description of the Arrangement Agreement does not purport
to be complete and is qualified in its entirety by the full text of
the Arrangement Agreement, which has been separately filed by Auryn
and is available under Auryn’s profile on SEDAR at
www.sedar.com.
All
references to “$” in this material change report refer
to Canadian dollars.
5.2
Disclosure for Restructuring Transactions:
Not
applicable.
6.
RELIANCE
ON SUBSECTION 7.1(2) OF NATIONAL INSTRUMENT 51-102
Not
applicable.
7.
OMITTED
INFORMATION
Not
applicable.
8.
EXECUTIVE
OFFICER
Shawn
Wallace
President and Chief
Executive Officer
Auryn
Resources Inc.
(778)
729-0060
www.aurynresources.com
9.
DATE
OF REPORT
August 10, 2020
Forward Looking Information and Additional Cautionary
Language
This
material change report includes certain statements that may be
deemed “forward-looking statements”. Forward-looking
information is information that includes implied future performance
and/or forecast information including statements with respect to
the Transaction, including the benefits of the Transaction, the
creation of Fury Gold and its board of directors and advisory
board, the terms and completion of the Financing, Fury Gold’s
exploration and development plans, the application to list Fury
Gold on the TSX and NYSE American, the anticipated meeting dates
and mailing of the information circulars in respect of the
meetings, timing for completion of the Transaction and receiving
the required regulatory and court approvals, and title to mineral
concessions. These statements involve known and unknown risks,
uncertainties and other factors which may cause actual results,
performance or achievements of Auryn and Eastmain to be materially
different (either positively or negatively) from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Readers should refer to the risks
discussed in (i) Auryn’s Annual Information Form and MD&A
for the year ended December 31, 2019 and subsequent continuous
disclosure filings with the Canadian Securities Administrators
available at www.sedar.com and the Company’s registration
statement on Form 40-F filed with the United States Securities and
Exchange Commission and available at www.sec.gov. and (ii)
Eastmain’s Annual Information Form and MD&A for the year
ended October 31, 2019 and subsequent continuous disclosure filings
with the Canadian Securities Administrators available at
www.sedar.com.
Exhibit 99.2
Form 51-102F4
Business Acquisition Report
Item 1 Identity of Company
1.1
Name
and Address of the Company
Fury
Gold Mines Limited (“Fury
Gold” or the “Company”)
(formerly Auryn
Resources Inc.)
34 King
Street East, Suite 601
Toronto,
Ontario
M5C
2X8
1.2
Executive
Officer
The
following individual is knowledgeable about the particulars
described in this business acquisition report:
Mike
Timmins
President and Chief
Executive Officer
Fury
Gold Mines Limited
(778)
729-0600
www.furygoldmines.com
Item 2 Details of Acquisition
2.1
Nature
of the Business Acquired
On
October 9, 2020 (the “Closing”), Fury Gold, pursuant to
an arrangement agreement dated July 29, 2020, as amended by
addendum dated October 8, 2020 , among Sombrero Resources Inc. and
Tier One Metals Inc. (together, the “SpinCos” and each, a
“SpinCo”) and
Fury Gold (under its former name, Auryn Resources Inc.
(“Auryn”)) and
Eastmain Resources Inc. (“Eastmain”) (the
“Arrangement
Agreement”), completed, among other things, the
acquisition of Eastmain (the “Transaction”). The Transaction
resulted in the creation of one stock exchange listed issuer, Fury
Gold, and two unlisted reporting issuers (the SpinCos). As a result
of the Transaction, Eastmain is now a wholly-owned subsidiary of
Fury Gold.
Eastmain is a
Canadian based junior exploration company focused on gold
exploration within the James Bay Region of Northern Québec,
where it holds 100% interest in the Eau Claire and Eastmain Mine
gold projects as well as interests in 9 other properties covering
approximately 109,000 ha in total of this mineral district.
Eastmain also has a 36.7% joint venture interest in the Eleonore
South project.
Eastmain’s
principal business activities are the acquisition, exploration and
discovery of mineral resources, with the intent of advancing,
developing and ultimately operating its key assets.
Eastmain’s strategy is to pursue exploration activities on
its key properties, which are primarily located in under-explored
regions that are geologically comparable to the major mining camps
in Canada, and to make joint venture or option agreements on its
non-key assets.
Further
information pertaining to the Transaction and the nature of
Eastmain’s business are contained in Fury Gold’s
information circular dated September 3, 2020 (the
“Information
Circular”). Appendix F of the Information Circular,
which is titled “APPENDIX “F” INFORMATION
CONCERNING EASTMAIN”, including the documents incorporated
therein by reference, is attached to and included in this in this
business acquisition report as Schedule A. The Arrangement
Agreement, including the addendum thereto, and Information Circular
have been filed under Fury Gold’s profile on SEDAR at
www.sedar.com.
2.2
Acquisition
Date
October
9, 2020.
2.3
Consideration
In
connection with the Transaction, the 112,340,434 outstanding (as of
October 8, 2020) common shares of Auryn (the “Auryn Shares”) were reorganized
and consolidated into 75,900,000 Fury Gold common shares
(“Fury Gold
Shares”), an effective consolidation ratio of
0.675626780 Fury Gold Shares for each Auryn common share
outstanding. In connection with the Transaction, the Company issued
approximately 0.116685115 of a post-consolidation Fury Gold Share
for each Eastmain common share held by a former Eastmain
shareholder resulting in Fury Gold issuing an aggregate of
34,100,000 post-consolidation Fury Gold Shares to former
shareholders of Eastmain.
The
following table sets out the Fury Gold Shares issued and issuable
on conclusion of the Transaction, effective October 9,
2020.
|
Type of Security
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Eastmain Securities When Exchanged into Fury Gold (shares and
dilutives)
|
Auryn Securities Adjusted to Fury Gold (shares and
dilutives)
|
Total Fury Gold Securities
|
|
Common
Shares
|
34,100,000
|
75,900,000
|
110,000,000
|
|
Financing
|
|
|
7,750,000
|
|
Subtotal
Shares
|
|
|
117,750,000
|
|
Incentive
Options
|
1,679,710(1)
|
2,461,184(2)
|
4,140,894
|
|
Warrants
|
1,279,592(1)
|
337,815(2)(3)
|
1,617,407
|
|
Total
issued on a fully diluted basis
|
|
|
123,508,301
|
Notes:
(1)
The
number of Fury Gold Shares issuable pursuant to the Eastmain
options and warrants outstanding on Closing was determined based on
an exchange ratio of 0.116685115 of a Fury Gold Share for each
underlying Eastmain common share.
(2)
The
number of Fury Gold Shares issuable on exercise of options and
warrants of Fury Gold outstanding on Closing was determined based
on a consolidation ratio of 0.675626780 Fury Gold Shares for each
Auryn Share previously issuable. The exercise price of the Fury
Gold options will be subject to a downwards adjust to reflect the
distribution of the SpinCos based on the post completion volume
weighted average trading price of Fury Gold.
(3)
On
exercise of these Fury Gold warrants the holder will be entitled to
receive 0.6756 Fury Gold Share, one share of Sombrero Resources and
one share of Tier One Resources, for an exercise price of $2.96 per
warrant. The proceeds of the exercise will be split as to 80% for
Fury Gold, and 10% for each SpinCo.
Concurrently with
Closing, Fury Gold received approximately C$21.58 million pursuant
to its financing of 7,750,000 subscription receipts completed on
September 24, 2020, providing Fury Gold with approximately C$19.93
in available funds as of Closing as a result of cash payments to
the SpinCos.
2.4
Effect
on Financial Position
Fury
Gold is not aware of any plans or proposals for material changes in
Eastmain. Eastmain will continue to operate as a wholly-owned
subsidiary of Fury Gold.
The
Transaction also resulted in the spin-out of Fury Gold’s
Peruvian assets through the creation of two unlisted reporting
issuers, Sombrero Resources Inc. and Tier One Metals Inc. (the
SpinCos).
An
aggregate of 112,340,434 common shares of each of Sombrero and Tier
One were distributed to the shareholders of the Company. The
Company entered into a capitalization agreement with each SpinCo.
Pursuant to the capitalization agreements, Sombrero received
approximately C$8.2 million in cash, and Tier One received
approximately C$4.0 million in cash (being approximately double the
estimated amount disclosed in the Information Circular dated
September 3, 2020, largely due to the exercise of Auryn options
prior to the completion of the Transaction). The amount transferred
to each SpinCo is subject to final adjustment.
In
addition to the transfer of assets against issuance of shares of
SpinCos, the capitalization agreements provide that each SpinCo
jointly and severally indemnify Fury Gold for (i) any liability or
obligation that the Company was obligated to pay in respect of the
prior ownership or operation of the assets transferred to the
SpinCos; and (ii) any liability for taxes payable by Fury Gold
arising from (A) the distribution of the assets to the SpinCos or
(b) the distribution of the shares of the SpinCo’s to the
holders of Auryn Shares.
For
additional information on the effect of the Transaction on the Fury
Gold’s financial position, see the unaudited pro forma consolidated financial
statements of the Company as at and for the six month period ended
June 30, 2020 and for the financial year ended December 31, 2019
attached hereto as Schedule C.
2.5
Prior
Valuations
To the
knowledge of the Company, there has not been any valuation opinion
obtained within the last 12 months by either the Company or
Eastmain required by securities legislation or a Canadian exchange
or market to support the consideration paid by the Company in
connection with the acquisition of Eastmain.
2.6
Parties
to Transaction
The
parties to the transaction were Fury Gold, Sombrero Resources Inc.
and Tier One Metals (as wholly-owned subsidiaries of Fury Gold),
and Eastmain. Eastmain was not an informed person (as such term is
defined in Section 1.1 of National Instrument 51-102 Continuous Disclosure Obligations),
associate or affiliate of Fury Gold.
2.7
Date
of Report
November 20,
2020
Item 3 Financial Statements
As
required by Part 8 of National Instrument 51-102 –
Continuous Disclosure
Obligations, the following financial statements are included
in this business acquisition report:
(a)
Attached as
Schedule B hereto, the unaudited consolidated pro forma financial
statements of the Company as at and for the six month period ended
June 30, 2020 and for the financial year ended December 31, 2019;
and
(b)
Attached as
Schedule C hereto, the annual audited financial statements of
Eastmain including the auditor’s report from Stern &
Lovrics LLP, Chartered Professional Accountants, for the financial
year ended October 31, 2019, and for the financial year ended
October 31, 2018.
The
Company has not requested and Eastmain’s auditor has not
given their consent to include their auditor’s report in this
business acquisition report.
SCHEDULE A
APPENDIX “F” (INFORMATION CONCERNING EASTMAIN) TO THE
COMPANY’S INFORMATION CIRCULAR DATED SEPTEMBER 3,
2020
[See Attached]
Appendix “F”
INFORMATION CONCERNING EASTMAIN
Overview
Eastmain is a Canadian exploration company operating in the Eeyou
Istchee emerging James Bay gold camp in Québec.
Eastmain’s head office is located at 82 Richmond Street East,
Suite 201, Toronto, Ontario, M5C 1P1, and its head office is
located at 34 King Street East, Suite 601, Toronto, Ontario, M5C
2X8
Eastmain was incorporated under the OBCA on April 28, 1982.
Eastmain’s principal business activities are the acquisition,
exploration and discovery of mineral resources, with the intent of
advancing, developing and ultimately operating its key assets. In
circumstances where considered appropriate, Eastmain may also sell
or joint venture mineral resources to a production corporation
while retaining a royalty or other interest. Eastmain’s
strategy is to pursue exploration activities on its key properties,
which are primarily located in under-explored regions that are
geologically comparable to the major mining camps in Canada, and to
make joint venture or option agreements on its non-key
assets.
Summary of Operations
Eastmain maintains a focus on gold exploration within the James Bay
Region of Northern Québec, where it holds a 100% interest in
the Clearwater Property and Eastmain Mine gold deposits as well as
interests in 8 other properties covering approximately 111,850 ha
in total of this promising mineral district. Eastmain also has a
36.72% joint venture interest in the ESJV.
Clearwater Property
Eastmain owns a 100%-interest in the Clearwater Property, host to
the Eau Claire gold deposit and project, one of five known gold
deposits in the James Bay region of Québec. The largest of
these, the Éléonore Mine owned by Newmont Corporation is
located only 57 km NNW of the Eau Claire Project.
The Clearwater Property is located immediately north of the
Eastmain Reservoir, 10 km northeast of Hydro Québec’s
EM-1 hydroelectric power facility, 80 km north of the town of
Nemaska and approximately 320 km northeast of the town of Matagami
and 800 km north of Montreal in the James Bay Region of
Québec. This property consists of map-designated claims
totalling approximately 233 km2. These claims are held 100% by
Eastmain. All claims are currently in good standing with some
renewals due to be made in 2021. The Clearwater Property is not
subject to any historic environmental liabilities. Permits are
obtained annually for all surface exploration, particularly
trenching and drilling, undertaken on the property.
The most recent technical report on the Clearwater Property, filed
in accordance with NI 43-101 is the Technical Report, Updated
Mineral Resource Estimate and Preliminary Economic Assessment on
the Eau Claire Gold Deposit, Clearwater Property, Québec,
Canada, with an effective date of February 4, 2018 (the
“Clearwater
Report”) and available on
SEDAR at www.sedar.com.
Éléonore South Joint Venture
The Éléonore South joint venture
(“ESJV”) is held by Eastmain (36.72%), Azimut
Exploration Inc. (26.57%), and Les Mines Opinaca Ltee, a
wholly-owned subsidiary of Newmont Corporation (36.71%). The ESJV
was formed in 2008 and Eastmain currently acts as manager and
operator of the joint venture on behalf of the partners. The
Éléonore South property is an exploration-drilling-stage
project consisting of 282 mining claims covering 147 km2 of prospective lands.
F-1
Other Properties
Eastmain has the following non-material exploration properties: the
Eastmain Mine, Lac Clarkie, Lac Hudson, Lac Lessard, Lidge,
Radisson, Reservoir, and Ruby Hill (East and West). The Eastmain
Mine and Ruby Hill (East and West) are optioned to Benz Mining
Corp. Lac Lessard is optioned to a private company.
Mineral Resources
Based on the Clearwater Report, the Eau Claire deposit contains
mineral resources of 853,000 ounces of gold (4.29 M tonnes at an
average grade of 6.18 g/t Au) in the “Measured and
Indicated” classification, and 500,000 ounces of gold (2.38 M
tonnes at an average grade 6.53 g/t Au) in the “Inferred
Mineral Resource” classification. The open pit mineral
resource estimate includes, at a cut-off grade of 0.5 g/t Au,
228,000 ounces of gold (1.21 M tonnes at an average grade of 5.86
g/t Au) in the “Measured and Indicated classification”,
and 7,000 ounces of gold (43,000 tonnes at an average grade of 5.06
g/t Au) in the “Inferred Mineral Resource”
classification. The underground mineral resource estimate includes,
at a cut-off grade of 2.5 g/t Au, 625,000 ounces of gold (3.08 M
tonnes at an average grade of 6.30 g/t Au) in the “Measured
and Indicated” classification, and 493,000 ounces of gold
(2.34 M tonnes at an average grade of 6.56 g/t Au) in the
“Inferred Mineral Resource” classification. For
additional information, including in respect of the key
assumptions, parameters and methods used in respect of the mineral
resource estimate for the Eau Claire deposit, refer to the
Clearwater Report available on SEDAR at www.sedar.com.
TABLE
1.1
EAU
CLAIRE
GOLD
DEPOSIT
MINERAL
RESOURCE
ESTIMATE,
FEBRUARY
4, 2018
|
Classification
|
Tonnes
|
Au (g/t)
|
Contained Au (oz)
|
|
Measured
|
906,000
|
6.63
|
193,000
|
|
Indicated
|
3,388,000
|
6.06
|
660,000
|
|
Measured
& Indicated
|
4,294,000
|
6.18
|
853,000
|
|
Inferred
|
2,382,000
|
6.53
|
500,000
|
TABLE
1.2
EAU
CLAIRE
GOLD
DEPOSIT
OPEN
PIT
AND UNDERGROUND
MINERAL
RESOURCE
ESTIMATE,
FEBRUARY
4, 2018
|
|
Open Pit (surface to 150 m)
|
Underground ( 150 m – 860 m)
|
||||
|
Classification
|
Tonnes
|
Au (g/t)
|
Contained Au (oz)
|
Tonnes
|
Au (g/t))
|
Contained Au (oz)
|
|
Measured
|
574,000
|
6.66
|
123,000
|
332,000
|
6.56
|
70,000
|
|
Indicated
|
636,000
|
5.13
|
105,000
|
2,752,000
|
6.27
|
555,000
|
|
Meas.
& Ind.
|
1,210,000
|
5.86
|
228,000
|
3,084,000
|
6.30
|
625,000
|
|
Inferred
|
43,000
|
5.06
|
7,000
|
2,339,000
|
6.56
|
493,000
|
Notes:
(1)
Mineral resources which are not mineral reserves do not have
demonstrated economic viability. All figures are rounded to reflect
the relative accuracy of the estimate. Composites have been capped
where appropriate.
(2)
Open pit mineral resources are reported at a cut-off grade of 0.5
g/t Au within a conceptual pit shell and underground mineral
resources are reported at a cut-off grade of 2.5 g/t Au outside the
conceptual pit shell. Cut-off grades are based on a gold price of
US$1,250 per ounce, a foreign exchange rate of US$0.80, and a gold
recovery of 95%.
(3)
The results from the pit optimization are used solely for the
purpose of testing the “reasonable prospects for economic
extraction” by an open pit and do not represent an attempt to
estimate mineral reserves. There are no mineral reserves on the
Clearwater Property. The results are used as a guide to assist in
the preparation of a mineral resource estimate and to select an
appropriate mineral resource reporting cut-off grade.
F-2
(4)
The Inferred Mineral Resource in this estimate has a lower level of
confidence that that applied to an Indicated Mineral Resource and
must not be converted to a mineral reserve. It is reasonably
expected that the majority of the Inferred Mineral Resource could
be upgraded to an Indicated Mineral Resource with continued
exploration.
(5)
The mineral resources in the Clearwater Report were estimated using
the Canadian Institute of Mining, Metallurgy and Petroleum (CIM),
CIM Standards on Mineral Resources and Reserves, Definitions and
Guidelines prepared by the CIM Standing Committee on Reserve
Definitions and adopted by CIM.
Recent Developments
On December 6, 2019, Eastmain announced the appointment of Blair
Schultz as Interim President and Chief Executive Officer of
Eastmain, following the departure of Claude Lemasson as President,
Chief Executive Officer and a director of Eastmain.
On January 24, 2020, Eastmain announced the completion of its fall
2019 20-hole drill program (5,152 m in total) with results from 13
(thirteen) holes (3,654 m) at the Clearwater Property.
On March 4, 2020, Eastmain announced that David Stein joined the
Eastmain Board.
On March 6, 2020 and March 9, 2020, Eastmain announced that it
closed the first and second tranche, respectively, of a private
placement pursuant to which it raised aggregate gross proceeds of
approximately $3,000,000 (the “Private
Placement”). In
connection with the first tranche of the Private Placement,
Eastmain issued an aggregate of 4,700,000 units at a price of $0.10
per unit, 15,875,000 Québec flow-through common shares of
Eastmain at a price of $0.12 per share and 2,391,304 federal
flow-through common shares of Eastmain at a price of $0.115 per
share. Each unit consisted of one Eastmain Share and one-half of
one Eastmain Warrant. Each Eastmain Warrant will entitle the holder
to acquire one Eastmain Share for two years from the closing of the
private placement at a price of $0.13. In connection with the
second tranche of the Private Placement, Eastmain issued an
aggregate of 3,500,000 units of Eastmain at a price of $0.10 per
unit. In connection with the private placement, on March 9, 2020,
Eastmain issued 315,000 units of Eastmain as finder’s units,
also subject to the statutory hold period.
On March 18, 2020, Eastmain provided a corporate update in response
to COVID-19. As a precautionary measure, Eastmain closed its office
and instructed staff to work remotely. Eastmain also delayed its
spring and summer drilling campaign at the Clearwater Property and
its surrounding satellite properties, ESJV, Radisson, Lidge and
Reservoir.
On April 30, 2020, Eastmain announced it optioned the Ruby Hill
East and West properties to Benz Mining Corp. In conjunction with
the option, Eastmain amended the existing Eastmain Mine option
agreement in relation to work commitments on the property. The new
work schedule accommodates Québec’s exploration
restrictions imposed due to COVID-19 and delays 2020’s
$500,000 required spending to 2022.
On June 10, 2020, Eastmain announced it optioned its Lac Lessard
property to a private company. Eastmain received an initial option
payment of $85,000. In order to earn 100% in interest in the Lac
Lessard property, the company exercising the option must (i) incur
at least $100,000 of project expenditure within 12 months of the
date of the option agreement and (ii) pay to Eastmain $100,000
within 12 months of the date of the option agreement. Eastmain
retained a 2% net smelter return from any ore extracted and sold
from the permits. Half the royalty may be purchased for $500,000,
thereby reducing the royalty to a 1% net smelter
return.
On July 2, 2020, Eastmain resumed exploration activities under the
COVID-19 guidance of the Government of Québec and the Cree
Nation Government of Eeyou Istchee. Exploration activities will
focus on extending the Eau Claire mineral resource envelope at
depth and testing new regional exploration targets at Radisson,
Reservoir and Clearwater.
F-3
Eastmain Documents Incorporated by Reference
Information has been incorporated by reference in the Circular from
documents filed with the various securities commissions or similar
regulatory authorities in Ontario and Québec. Copies of the
documents incorporated herein by reference may be obtained on
request without charge from the Corporate Secretary of Eastmain at
82 Richmond Street East, Suite 201, Toronto, Ontario, M5C 1P1
(telephone: 1.416.642.1807) or by email at catherine@grovecorp.ca, and are also available electronically under
Eastmain’s profile on SEDAR at www.sedar.com. Eastmain’s filings on SEDAR are not
incorporated by reference in the Circular except as specifically
set out herein.
The following documents filed by Eastmain with the securities
commissions or similar authorities in Ontario and Québec are
specifically incorporated by reference in, and form an integral
part of, this Circular:
(i)
the
Eastmain AIF;
(i)
the
audited consolidated financial statements for the years ended
October 31, 2019 and 2018, together with the notes thereto and the
report of the independent registered public accounting firm
thereon;
(ii)
the
management’s discussion and analysis for the year ended
October 31, 2019 dated January 23, 2020;
(iii)
the
unaudited condensed interim consolidated financial statements for
the three and six month periods ended April 30, 2020 and 2019,
together with the notes thereto;
(iv)
the
management’s discussion and analysis for the three and nine
months ended April 30, 2020 dated June 4, 2020;
(v)
the
management information circular of Eastmain dated March 6, 2020
prepared in connection with the annual and special general meeting
of shareholders held on April 23, 2020;
(vi)
the
material change report dated December 10, 2019 regarding management
changes;
(vii)
the
material change report dated March 13, 2020 regarding the private
placement of Eastmain for aggregate gross proceeds of approximately
$3,000,000; and
(viii)
the
material change report dated August 10, 2020 regarding the
Arrangement Agreement.
Any document of the type referred to in Section 11.1 of Form
44-101F1 of National Instrument 44-101 – Short Form Prospectus
(excluding confidential material
change reports), if filed by Eastmain with a securities commission
or similar regulatory authority in Canada after the date of the
Circular disclosing additional or updated information including the
documents incorporated by reference herein, filed pursuant to the
requirements of the applicable securities legislation in Canada,
will be deemed to be incorporated by reference in this
Circular.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or
superseded for the purposes of this Eastmain Circular to the extent
that a statement contained in the Circular or in any subsequently
filed document that also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not constitute a part of
this Circular, except as so modified or superseded. The modifying
or superseding statement need not state that it has modified or
superseded a prior statement or include any other information set
forth in the document that it modifies or supersedes. Making such a
modifying or superseding statement shall not be deemed to be an
admission for any purpose that the modified or superseded
statement, when made, constituted a misrepresentation, untrue
statement of a material fact, nor an omission to state a material
fact that is required to be stated or necessary to make a statement
not misleading in light of the circumstances in which it is
made.
F-4
Principal Holders of Eastmain Shares
To the knowledge of the directors and officers of Eastmain, no
person or company beneficially owns, controls or directs, directly
or indirectly, Eastmain Shares carrying more than 10% of the voting
rights attached to all issued and outstanding Eastmain Shares as at
August 24, 2020.
Consolidated Capitalization
There have been no material changes in the share capital of
Eastmain, on a consolidated basis, since April 30, 2020, the date
of the most recently filed financial statements of
Eastmain.
Description of Share Capital
The authorized share capital of Eastmain consists of an unlimited
number of Eastmain Shares. As of the date of the Eastmain Circular,
there are 290,698,095 Eastmain Shares issued and outstanding. In
addition, as of the close of business on September 3, 2020, an
aggregate of 14,395,232 Eastmain Shares are issuable upon the
exercise of Eastmain Options 116,666 Eastmain Shares are issuable
upon the vesting of outstanding Eastmain RSUs and 12,545,456
Eastmain Shares are issuable upon the exercise of Eastmain
Warrants.
The Eastmain Shareholders are entitled to one vote per Eastmain
Share at meetings of the Eastmain Shareholders. Eastmain
Shareholders are entitled to dividends, if, as and when declared by
the Eastmain Board and, upon liquidation, to participate equally in
such assets of Eastmain as are distributed to the holders of
Eastmain Shares.
Price Range and Trading Volume
The Eastmain Shares are listed on the TSX under the symbol
“ER” and on the OTCQB under the symbol
“EANRF”. The following table shows the high and low
trading prices and monthly trading volume of the Eastmain Shares on
the TSX for the 12-month period preceding the date of the
Circular:
|
Month
|
High
($)
|
Low
($)
|
Volume
|
|
September
2019
|
$0.18
|
$0.115
|
6,097,172
|
|
October
2019
|
$0.13
|
$0.105
|
2,663,061
|
|
November
2019
|
$0.12
|
$0.09
|
3,877,305
|
|
December
2019
|
$0.115
|
$0.085
|
5,372,983
|
|
January
2020
|
$0.125
|
$0.095
|
6,577,609
|
|
February
2020
|
$0.11
|
$0.075
|
6,964,519
|
|
March
2020
|
$0.10
|
$0.06
|
7,647,465
|
|
April
2020
|
$0.11
|
$0.065
|
9,011,779
|
|
May
2020
|
$0.135
|
$0.105
|
8,887,553
|
|
June
2020
|
$0.16
|
$0.10
|
9,720,323
|
|
July
2020
|
$0.315
|
$0.155
|
26,116,439
|
|
August
2020
|
$0.30
|
$0.225
|
23,714,062
|
|
September
1-3, 2020
|
$0.235
|
$0.22
|
5,746,311
|
The closing price of the Eastmain Shares on the TSX on September 3,
2020 was $0.23. The closing price of the Eastmain Shares on the TSX
on July 29, 2020, the date of the announcement of the Eastmain
Arrangement, was $0.175.
F-5
The following table shows the high and low trading prices and
monthly trading volume of the Eastmain Shares on the OTCQB for the
12-month period preceding the date of this Circular:
|
Month
|
High
(US$)
|
Low
(US$)
|
Volume
|
|
September
2019
|
$0.134
|
$0.087
|
836,509
|
|
October
2019
|
$0.096
|
$0.081
|
590,204
|
|
November
2019
|
$0.10
|
$0.07
|
486,450
|
|
December
2019
|
$0.09
|
$0.061
|
1,715,180
|
|
January
2020
|
$0.095
|
$0.069
|
1,153,164
|
|
February
2020
|
$0.088
|
$0.058
|
1,245,777
|
|
March
2020
|
$0.075
|
$0.042
|
789,341
|
|
April
2020
|
$0.084
|
$0.046
|
900,132
|
|
May
2020
|
$0.095
|
$0.07
|
891,026
|
|
June
2020
|
$0.119
|
$0.073
|
1,763,165
|
|
July
2020
|
$0.24
|
$0.10
|
6,286,921
|
|
August
2020
|
$0.231
|
$0.17
|
9,096,268
|
|
September
1-3, 2020
|
$0.19
|
$0.17
|
717,999
|
The closing price of the Eastmain Shares on the OTCQB on September
3, 2020 was US$.0175. The closing price of the Eastmain Shares on
the OTCQB on July 29, 2020, the date of the announcement of the
Eastmain Arrangement, was US$0.13.
If the Eastmain Arrangement is completed, all of the Eastmain
Shares will be owned by Fury Gold and will be delisted from the TSX
and OTCQB, subject to the rules and policies of the TSX and the
OTCQB, respectively.
Prior Sales
The following table sets forth information in respect of issuances
or purchases of Eastmain Shares and securities that are convertible
or exchangeable into Eastmain Shares within the 12 months prior to
the date of the Eastmain Circular, including the price at which
such securities have been issued, the number of securities issued,
and the date on which such securities were issued:
|
Date of Issuance
|
|
Reasons for Issuance
|
|
Number and Type of Securities
|
|
Issue/Exercise Price per Security
|
|
October 24, 2019
|
|
Private placement
|
|
5,765,772 units comprised
of
5,765,772 Eastmain
Shares and 2,882,886
Eastmain Warrants
12,632,257 Québec flow-
through common shares
689,654
federal flow-
through
common shares
|
|
$0.12 per unit
$0.16
exercise price for
Eastmain
Warrants
$0.155 per Québec flow-
through common share
$0.145
per federal flow-
through
common share
|
|
|
|
|
|
|
|
|
|
December 18, 2019
|
|
Grant of Eastmain RSUs
|
|
1,355,180 Eastmain RSUs
|
|
N/A
|
|
|
|
|
|
|
|
|
|
January 23, 3030
|
|
Grant of Eastmain Options
|
|
3,428,000 Eastmain
|
|
|
|
|
|
|
|
Options
|
|
$0.1000
|
|
|
|
|
|
|
|
|
|
February 7, 2020
|
|
Grant of Eastmain RSUs
|
|
260,420 Eastmain RSUs
|
|
n/a
|
|
|
|
|
|
|
|
|
|
March 4, 2020
|
|
Grant of Eastmain Options
|
|
300,000 Eastmain Options
|
|
$0.090
|
|
|
|
|
|
|
|
|
|
March 6, 2020
|
|
Private Placement
|
|
4,700,000 units comprised
|
|
$0.10 per unit
|
|
|
|
|
|
of 4,700,000 Eastmain
|
|
$0.13 exercise price for
Eastmain Warrants
|
F-6
|
Date of Issuance
|
|
Reasons for Issuance
|
|
Number and Type of Securities
|
|
Issue/Exercise Price per Security
|
|
|
|
|
|
Shares and 2,350,000
Eastmain Warrants
15,875,000 Québec flow-
through common shares
2,391,304 federal flow-
through common shares
|
|
$0.12 per Québec flow-
through common share
$0.115 per federal flow-
through common share
|
|
|
|
|
|
|
|
|
|
March 9, 2020
|
|
Private Placement
|
|
3,815,000 units comprised of
3,815,000 Eastmain Shares
and 1,907,500 Eastmain Warrants
|
|
$0.10 per unit
$0.13 exercise price for
Eastmain Warrants
|
|
|
|
|
|
|
|
|
|
April 1, 2020
|
|
Grant of Eastmain Options
|
|
500,000 Eastmain options
|
|
$0.065
|
|
|
|
|
|
|
|
|
|
April 14, 2020
|
|
Grant of Eastmain Options
|
|
500,000 Eastmain Options
|
|
$0.085
|
|
|
|
|
|
|
|
|
|
September 2, 2020
|
|
Exercise of Eastmain Options and Eastmain Warrants
|
|
75,000 Eastmain Shares
|
|
Exercise of 50,000 Eastmain
Options at $0.18 per Eastmain
Share; exercise of 25,000
Eastmain Warrants at $0.17
per Eastmain Share
|
Ownership of Securities
The table below outlines, as at the date of this Circular, the
number of Eastmain Shares, Eastmain Options, Eastmain RSUs and
Eastmain Warrants owned or controlled, directly or indirectly, by
each of the directors and senior officers of Eastmain, and each
associate or affiliate of an insider of Eastmain, each associate or
affiliate of Eastmain, each insider of Eastmain (other than the
directors or officers), and each person acting jointly or in
concert with Eastmain. To the knowledge of Eastmain, each of the
following persons is a party to an Eastmain Support Agreement and
intends to vote their Eastmain Shares in favour of the Arrangement
Resolution.
|
|
|
|
Eastmain
|
Eastmain
|
Eastmain
|
Eastmain
|
|
Name
|
|
Position
|
Shares
|
Options
|
RSUs
|
Warrants
|
|
Blair
Schultz
|
|
Interim
President and
|
|
|
|
|
|
|
|
Chief
Executive Officer,
|
|
|
|
|
|
|
|
and
Director
|
3,030,419
|
1,225,000
|
—
|
725,000
|
| Joe Fazzini |
|
Chief
Financial Officer and
|
|
|
|
|
|
|
Vice
President, Corporate
|
|
|
|
|
|
|
|
Development
|
2,400,326
|
1,847,200
|
75,000
|
375,000
|
|
|
William
McGuinty
|
|
Vice
President, Exploration
|
571,379
|
758,700
|
41,666
|
74,250
|
|
Manuel
Ng Lai
|
|
Project
Manager
|
88,880
|
710,500
|
—
|
—
|
|
Catherine
Beckett
|
|
Corporate
Secretary
|
32,300
|
100,000
|
—
|
—
|
|
Laurence
Curtis
|
|
Director
|
1,002,742
|
900,000
|
—
|
100,000
|
|
David
Stein
|
|
Director
|
—
|
300,000
|
—
|
—
|
|
Michael
Hoffman
|
|
Director
|
752,300
|
725,000
|
—
|
7,142
|
|
Maura
Lendon
|
|
Director
|
411,682
|
550,000
|
—
|
158,333
|
Risk Factors
The business and operations of Eastmain are subject to risks. In
addition to considering the other information contained in the
Eastmain Circular, readers should consider carefully the risk
factors described in the Eastmain AIF for the year ended October
31, 2019, dated January 28, 2020, as well as Eastmain’s
management discussion and analysis for the three and six months
ended April 30, 2020 and 2019.
F-7
Interest of Experts
The following persons and companies have prepared certain sections
of this Circular, documents incorporated by reference and/or
Appendices attached hereto as described below, or are named as
having prepared or certified a report, statement or opinion in or
incorporated by reference in this Circular.
|
Name of Expert
|
|
Nature of Relationship
|
|
Maxit Capital LP
|
|
Financial advisor to Eastmain
|
|
Stern & Lovrics LLP
|
|
Auditors of Eastmain
|
To the knowledge of Auryn, neither Maxit nor any of the designated
professionals thereof held securities representing more than 1% of
all issued and outstanding Eastmain Shares or Auryn Shares as at
the date of the opinion in question, and none of the persons above
is or is expected to be elected, appointed or employed as a
director, officer or employee of Eastmain or of any associate or
affiliate of Eastmain.
Stern & Lovrics LLP has confirmed that it is independent with
respect to Eastmain within the meaning of the Rules of Professional
Conduct of the Chartered Professional Accountants of
Ontario.
With respect to technical information relating to Eastmain
contained in this Circular or in a document incorporated by
reference herein, the following is a list of persons or companies
named as having prepared or certified a statement, report or
valuation and whose profession or business gives authority to the
statement, report or valuation made by the person or
company:
●
Eugene
Puritch, P.Eng., FEC, CET, of P&E Mining Consultants Inc.,
Antoine Yassa, P.Geo., of P&E Mining Consultants Inc., Andrew
Bradfield, P.Eng., of P&E Mining Consultants Inc., and Allan
Armitage, Ph.D., P.Geo., of SGS Canada Inc. prepared the Clearwater
Report; and
●
William
McGuinty, Vice President of Explorations of Eastmain, is the
Qualified Person who verified all of Eastmain’s scientific
and technical information in this Circular.
To Auryn’s knowledge, each of the foregoing firms or persons
beneficially owns, directly or indirectly, less than 1% of the
issued and outstanding.
F-8
SCHEDULE B
The Company’s unaudited consolidated pro forma financial
statements as at and for the six month period ended June 30, 2020
and for the financial year ended December 31, 2019
[See Attached]
SCHEDULE “J-9”
UNAUDITED PRO FORMA FINANCIAL STATEMENTS OF FURY GOLD
Unaudited Pro Forma Consolidated
Financial Statements of Fury Gold
Mines Limited
AS
AT AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2020
AND
FOR THE YEAR ENDED DECEMBER 31, 2019
Pro Forma Interim Consolidated Statement of Financial
Position
As at June 30, 2020
(unaudited, in thousands of Canadian
dollars)
|
|
Auryn
Resources
Inc.
|
Eastmain
Resources
Inc.
|
Pro Forma
Adjustments
|
Note
3
|
Sombrero
Spinco
Note
3(e)
|
Curibaya
Spinco
Note
3(e)
|
Fury
Gold
Pro Forma
Consolidated
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
11,302
|
4,328
|
22,500
|
(a)
|
(4,426)
|
(2,244)
|
31,460
|
|
Marketable
securities
|
412
|
139
|
—
|
|
—
|
—
|
551
|
|
Trade
and other receivables
|
254
|
58
|
—
|
|
(160)
|
—
|
152
|
|
Prepayments and
deposits
|
790
|
121
|
—
|
|
(78)
|
(66)
|
767
|
|
|
12,758
|
4,646
|
22,500
|
|
(4,664)
|
(2,310)
|
32,930
|
|
Non-current assets
|
|
|
|
|
|
|
|
|
Restricted
cash
|
115
|
—
|
—
|
|
—
|
—
|
115
|
|
Long-term
portion of other assets
|
135
|
304
|
—
|
|
—
|
(135)
|
304
|
|
Equipment
|
1,149
|
24
|
—
|
|
—
|
(16)
|
1,157
|
|
Mineral
property interests
|
40,092
|
68,335
|
66,724
|
(c)(d)(f)
|
(1,389)
|
(3,372)
|
170,390
|
|
Total
Assets
|
54,249
|
73,309
|
89,224
|
|
(6,053)
|
(5,833)
|
204,896
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
1,280
|
556
|
6,300
|
(d)
|
(74)
|
(28)
|
8,034
|
|
Advances received for exploration work
|
—
|
347
|
—
|
|
—
|
—
|
347
|
|
Current
portion of lease liabilities
|
—
|
54
|
—
|
|
—
|
—
|
54
|
|
Current
borrowings
|
3,111
|
—
|
—
|
|
—
|
—
|
3,111
|
|
Flow-through share
premium liability
|
—
|
942
|
7,500
|
(a)
|
—
|
—
|
8,442
|
|
|
4,391
|
1,899
|
13,800
|
|
(74)
|
(28)
|
19,988
|
|
Non-current liabilities
|
|
|
|
|
|
|
|
|
Asset
retirement obligations
|
2,337
|
—
|
—
|
|
—
|
—
|
2,337
|
|
Deferred
tax liability
|
—
|
2,013
|
35,926
|
(f)
|
—
|
—
|
37,939
|
|
Long-term
portion of lease liabilities
|
—
|
267
|
—
|
|
—
|
—
|
267
|
|
Total
Liabilities
|
6,728
|
4,179
|
49,726
|
|
(74)
|
(28)
|
60,531
|
|
Shareholders’ Deficiency
|
|
|
|
|
|
|
|
|
Share
capital
|
144,441
|
108,256
|
1,620
|
(f)(a)
|
—
|
—
|
254,317
|
|
Share
option and warrant reserve
|
10,589
|
538
|
3,015
|
(f)
|
—
|
—
|
14,142
|
|
Contributed
surplus
|
—
|
13,636
|
(13,636)
|
(f)
|
—
|
—
|
0
|
|
Deficit
|
(107,735)
|
(53,300)
|
48,500
|
(d)(e)(f)
|
(5,979)
|
(5,805)
|
(124,319)
|
|
Accumulated other
comprehensive loss
|
226
|
—
|
—
|
|
—
|
—
|
226
|
|
Total liabilities and shareholders’ deficiency
|
54,249
|
73,309
|
89,224
|
|
(6,053)
|
(5,833)
|
204,896
|
See
accompanying notes to the pro forma consolidated financial
statements
Pro Forma Interim Consolidated Statement of Loss
For the six months ended June 30, 2020
(unaudited, in thousands of Canadian
dollars)
|
|
Auryn
Resources
Inc.
|
Eastmain
Resources
Inc.
|
Pro
Forma Adjustments
|
Note
3
|
Sombrero
Spinco
Note
3(e)
|
Curibaya
Spinco
Note
3(e)
|
Fury
Gold
Pro
Forma Consolidated
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
Exploration
& evaluation costs
|
1,825
|
42
|
264
|
(c)
|
(622)
|
(456)
|
1,053
|
|
Fees,
salaries and other employee benefits
|
1,303
|
681
|
—
|
|
(40)
|
(111)
|
1,833
|
|
Insurance
|
163
|
—
|
—
|
|
—
|
—
|
163
|
|
Legal,
professional fees
|
187
|
225
|
—
|
|
(33)
|
(30)
|
349
|
|
Marketing
and investor relations
|
858
|
72
|
—
|
|
—
|
—
|
930
|
|
Office
and administration
|
266
|
255
|
—
|
|
(37)
|
(29)
|
455
|
|
Regulatory,
transfer agent, and shareholder information
|
117
|
—
|
—
|
|
—
|
—
|
117
|
|
|
4,719
|
1,275
|
264
|
|
(732)
|
(626)
|
4,900
|
|
Other expenses (income)
|
|
|
|
|
|
|
|
|
Project
investigation costs
|
156
|
—
|
—
|
|
(18)
|
—
|
138
|
|
Accretion
of provision for site reclamation and closure
|
17
|
—
|
—
|
|
—
|
—
|
17
|
|
Interest
and other income
|
(51)
|
(11)
|
—
|
|
—
|
—
|
(62)
|
|
Finance
expense related to loan
|
249
|
—
|
—
|
|
—
|
—
|
249
|
|
Amortization
of flow through share premium
|
(7)
|
(98)
|
—
|
|
—
|
—
|
(105)
|
|
(Gain)
loss on marketable securities
|
(66)
|
24
|
—
|
|
—
|
—
|
(42)
|
|
Loss
on derecognition of bridge loan
|
159
|
—
|
—
|
|
—
|
—
|
159
|
|
Foreign
exchange loss
|
12
|
—
|
—
|
|
(10)
|
(2)
|
—
|
|
Interest
expense on lease liability
|
—
|
36
|
—
|
|
—
|
—
|
36
|
|
Impairment
of mineral property
|
—
|
50
|
(50)
|
(c)
|
—
|
—
|
—
|
|
Net loss before income taxes
|
5,188
|
1,276
|
214
|
|
(760)
|
(628)
|
5,290
|
|
Deferred
income tax (recovery) expense
|
(57)
|
(309)
|
(57)
|
(f)
|
|
|
(423)
|
|
Loss for the period
|
5,131
|
967
|
157
|
|
(760)
|
(628)
|
4,867
|
|
Basic
loss per share
|
$0.05
|
$0.00
|
|
|
|
|
$0.04
|
|
Diluted
loss per share
|
$0.05
|
$0.00
|
|
|
|
|
$0.04
|
|
Weighted
average shares outstanding—Basic
|
102,418,794
|
271,386,064
|
|
|
|
|
117,500,000
|
|
Weighted
average shares outstanding—Diluted
|
102,418,794
|
271,386,064
|
|
|
|
|
117,500,000
|
See
accompanying notes to the pro forma consolidated financial
statements
Pro Forma Consolidated Statement of Loss
Year ended December 31, 2019
(unaudited, in thousands of Canadian
dollars)
|
|
Auryn
Resources
Inc.
|
Eastmain
Resources
Inc.
|
Pro
Forma Adjustments
|
Note
3
|
Sombrero
Spinco
Note
3(e)
|
Curibaya
Spinco
Note
3(e)
|
Fury
Gold
Pro
Forma Consolidated
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
Exploration
& evaluation expenditures
|
7,696
|
8
|
6,866
|
(c)
|
(2,457)
|
(1,016)
|
11,097
|
|
Fees,
salaries and other employment benefits
|
3,948
|
1,372
|
—
|
|
(74)
|
(166)
|
5,080
|
|
Insurance
|
309
|
—
|
—
|
|
—
|
—
|
309
|
|
Legal
and professional fees
|
351
|
327
|
—
|
|
(12)
|
(81)
|
585
|
|
Marketing
and investor relations
|
1,337
|
367
|
—
|
|
—
|
—
|
1,704
|
|
Office
and administration
|
451
|
643
|
—
|
|
(43)
|
(25)
|
1,026
|
|
Regulatory,
transfer agent and shareholder information
|
235
|
—
|
—
|
|
—
|
—
|
235
|
|
|
14,327
|
2,717
|
6,866
|
|
(2,586)
|
(1,288)
|
20,036
|
|
Other expenses (income)
|
|
|
|
|
|
|
|
|
Project
investigation costs
|
156
|
—
|
—
|
|
—
|
—
|
156
|
|
Accretion
of provision for site
reclamation
and closure
|
40
|
—
|
—
|
|
—
|
—
|
40
|
|
Interest
and other income
|
(43)
|
(68)
|
—
|
|
—
|
—
|
(111)
|
|
Finance
expense related to bridge loan
|
150
|
—
|
—
|
|
—
|
—
|
150
|
|
Amortization
of flow through share premium
|
(867)
|
(1,259)
|
—
|
|
—
|
—
|
(2,126)
|
|
(Gain)
loss on marketable securities
|
(160)
|
15
|
—
|
|
—
|
—
|
(145)
|
|
Impairment
of mineral property
|
337
|
20,499
|
(20,499)
|
(c)
|
—
|
(337)
|
—
|
|
Foreign
exchange loss
|
47
|
—
|
—
|
|
(10)
|
(6)
|
31
|
|
Transaction-related
costs
|
—
|
—
|
4,800
|
(d)
|
—
|
—
|
4,800
|
|
Net loss before income taxes
|
13,987
|
21,904
|
(8,833)
|
|
(2,596)
|
(1,631)
|
22,831
|
|
Deferred
income tax (recovery) expense
|
(54)
|
(5,309)
|
2,350
|
(f)
|
—
|
—
|
(3,013)
|
|
Loss for the period
|
13,933
|
16,595
|
(6,483)
|
|
(2,596)
|
(1,631)
|
19,818
|
|
Basic
loss per share
|
$0.15
|
$0.07
|
|
|
|
|
$0.17
|
|
Diluted
loss per share
|
$0.15
|
$0.07
|
|
|
|
|
$0.17
|
|
Weighted
average shares outstanding—Basic
|
93,968,172
|
232,442,206
|
|
|
|
|
117,500,000
|
|
Weighted
average shares outstanding—Diluted
|
93,968,172
|
232,442,206
|
|
|
|
|
117,500,000
|
See
accompanying notes to the pro forma consolidated financial
statements
Notes to the Pro forma Consolidated Financial
Statements
(Unaudited
tabular amounts are in thousands of Canadian dollars except number
of shares,
options,
warrants and per share amounts, unless otherwise
noted)
1.
BASIS OF PRESENTATION
The
accompanying unaudited pro forma consolidated financial statements
of Fury Gold Mines Limited (“Fury Gold” or
“FURY”) have been prepared by management to give effect
to the arrangement agreement (“Arrangement Agreement”)
entered into by Auryn Resources Inc (“Auryn”) and
Eastmain Resources Inc. (“Eastmain”) dated July 29,
2020. Pursuant to the Arrangement Agreement, Auryn will acquire all
of the issued and outstanding common shares of Eastmain immediately
following a spin out of its Peruvian projects to Auryn shareholders
and subject to completion of a concurrent subscription receipts
financing of at least $22.5 million.
The
Transaction (“Transaction”) will be effected by way of
two court-approved plans of arrangement, one involving Auryn under
the Business Corporations Act (British Columbia) and one by
Eastmain under the Business Corporations Act (Ontario) and is
expected to complete by October 9, 2020. Upon completion of the
Transaction, Auryn will continue its Canadian operations under the
name Fury Gold Mines Limited and the two independent SpinCos
(“Spinco Curibuya” and “SpinCo Sombrero”),
each of which will be an unlisted reporting issuer, will
respectively hold Auryn’s Peruvian projects. The Transaction
is subject to shareholder approval and receipt of all regulatory
and all regulatory and other requires approvals including approval
of the Toronto Stock Exchange (“TSX”) and the New York
Stock Exchange (“NYSE”).
Concurrent
with the spin-out of the Peruvian projects, Auryn will consolidate
its shares by approximately 10:7 such that approximately 110
million Fury Gold shares will be outstanding after the Transaction
(pre-financing), of which 69% will be owned by former Auryn
shareholders and 31% will be owned by former Eastmain shareholders.
Any options or warrants exercised prior to the closing of the
Transaction will not alter the
69%-31%
ownership split of Fury Gold.
The
accounting of the acquisition of Eastmain is expected to be
recorded by the recognition of their net assets in the pro forma
balance sheet of Fury Gold, with the surplus value allocated to
mineral properties and deferred income tax.
The
unaudited pro forma consolidated financial statements have been
compiled from and include:
a)
An
unaudited consolidated statement of financial position as at June
30, 2020, giving effect to the various pro forma assumptions and
adjustments described in Note 3, combines the condensed unaudited
consolidated statement of financial position of Auryn at June 30,
2020 and the unaudited statement of financial position of Eastmain
as at April 30, 2020.
b)
an
unaudited pro forma consolidated statement of loss for the
six-month period ended June 30, 2020 giving effect to the various
pro forma assumptions and adjustments described in Note 3. The pro
forma consolidated statement of loss for the six-month period ended
June 30, 2020 reflects the condensed unaudited consolidated
statement of loss of Auryn for the six-month period ended June 30,
2020 and the condensed unaudited consolidated statement of loss of
Eastmain for the six-month period ended April 30,
2020.
c)
a
condensed unaudited consolidated pro forma statement of loss for
the year ended December 31, 2019, giving effect to the various pro
forma assumptions and adjustments described in Note 3, therefore
combining the audited consolidated statement of loss of Auryn for
the year ended December 31, 2019 and the audited consolidated
statement of loss of Eastmain for the year ended October 31,
2019.
The
unaudited pro forma consolidated financial statements should be
read in conjunction with the description of the Transaction
included elsewhere in the Information Circular.
Notes to the Pro forma Consolidated Financial
Statements
(Unaudited
tabular amounts are in thousands of Canadian dollars except number
of shares,
options,
warrants and per share amounts, unless otherwise
noted)
The
unaudited pro forma consolidated financial statements are for
illustrative purposes and are not intended to reflect the results
of operations or the financial position of Fury Gold which would
have actually resulted had the Transaction been effected on the
dates indicated. Further, the unaudited pro forma consolidated
financial statements are not necessarily indicative of the results
of operations that may be obtained in the future. Actual amounts
recorded once the Transaction is completed are likely to differ
from those recorded in the unaudited pro forma consolidated
financial statements. In addition, the impact of integration
activities, the timing of completion of the Transaction and other
changes in the net tangible and intangible assets prior to the
completion of the Transaction which have not been incorporated into
these unaudited pro forma financial statements could cause material
differences in the information presented.
2. SIGNIFICANT ACCOUNTING POLICIES
The
unaudited pro forma consolidated financial statements have been
compiled by management using the significant accounting policies as
set out in the audited consolidated financial statements of Auryn
for the years ended December 31, 2019. The unaudited pro forma
consolidated financial statements should also be read in
conjunction with the audited and condensed unaudited consolidated
financial statements of Auryn and Eastmain incorporated by
reference in the information circular.
In
preparing the unaudited pro forma consolidated financial
information, consideration was given to identifying accounting
policy differences between Auryn and Eastmain. A significant
difference was noted in Eastmain’s policy to capitalize all
exploration and evaluation expenditures for mineral properties. To
conform to the policies as reflected in the financial statements of
Auryn, an adjustment has been made to eliminate the exploration
& evaluation asset balances with a corresponding adjustment to
retained deficit and expensing of exploration and evaluation
expenditures – see Note 3(c).
3. PRO FORMA ASSUMPTIONS AND ADJUSTMENTS
a)
The
balance sheet adjustment reflects a concurrent $22.5 million
subsequent receipts financing into Fury Gold as contemplated in the
Arrangement Agreement. The financing is being conducted as a bought
deal private placement allocated into two tranches. The first
tranche of subsequent receipts will be issued at a price of $2.00
per subscription receipt for gross proceeds of $5 million. The
second tranche for designated flow-through shares will be issued at
the higher price of $3.50 per subscription receipt for gross
proceeds of $17.5 million.
b)
The
balance sheet adjustment reflects the distribution of Auryn’s
adjusted closing date cash balance of approximately $6.5 million as
calculated per the Arrangement Agreement. The adjusted closing date
cash balance is expected to be allocated to SpinCo Curibaya and
SpinCo Sombrero in the proportion of 32.5%
and 67.5%, respectively.
c)
Adjusting
Mineral Property interests and exploration and evaluation
expenditures to reflect the alignment of Eastmain accounting policy
on capitalization of mineral property costs with Auryn’s
accounting policy to expense these costs. This adjustment has been
offset by a corresponding adjustment to retained deficit,
exploration and evaluation expense, impairment of mineral property
and deferred income tax expense.
d)
Transaction
costs of $3.0 million and $3.3 million have been estimated by Auryn
and Eastmain respectively. Auryn’s costs are equally split
between the acquisition of Eastmain and the disposition of Spinco
Curibaya and Spinco Sombrero and therefore only $1.5 million has
been expensed. Eastmain’s costs have been expensed in
conjunction with the transaction.
Notes to the Pro forma Consolidated Financial
Statements
(Unaudited
tabular amounts are in thousands of Canadian dollars except number
of shares,
options,
warrants and per share amounts, unless otherwise
noted)
e)
As
part of the transaction, Auryn will transfer the ownership of the
assets and liabilities of the shares business in the Peru
subsidiaries to the Spinco Sombrero and Spinco Curibaya, in
addition to historical intercompany contributions to those
subsidiaries as a result of capital-like contributions to date. The
issuance and distribution of shares in Spinco Sombrero and Spinco
Curibaya are a repayment to Auryn shareholders with a combined
value of approximately $60 million, offset by the de-recognition of
the net assets of the Spinco businesses with the remainder recorded
as an equity adjustment.
f)
The
total consideration exchanged to acquire the Eastmain shares is
approximately $99.9 million of which approximately $94.9 million
was recorded to share capital to reflect the Auryn shares expected
to be issued to Eastmain shareholders (Note 4) based on
Auryn’s share price at August 31, 2020, and approximately
$3.5 million was recorded to Share option and warrant reserve based
on the estimated fair value of share purchase options and warrants
exchanged (Note 5 and 6). The consideration exchanged has been
allocated against the Eastmain net assets, with the remainder to
mineral property interests of $137 million and deferred tax
liability of $36.5 million. Any change in the value of the
consideration exchanged from the date of this document to the
Effective Date will affect the amount ascribed to mineral property
interests and corresponding deferred tax liability.
4. PRO FORMA SHARE CAPITAL CONTINUITY
|
|
Number of
shares
|
Amount
|
|
Common shares of Auryn Resources Inc. issued and outstanding, June
30, 2020
|
104,731,775
|
$144,441
|
|
Adjustment
to Auryn common shares for exchange ratio
|
(28,831,775)
|
|
|
Common
shares of Eastmain issued and outstanding, April 30,
2020
|
290,623,095
|
$94,876
|
|
Adjustment
to Eastmain common shares for exchange ratio
|
(256,523,095)
|
|
|
Bought
deal financing on date of transaction
|
7,500,000
|
$15,000
|
|
Pro forma common shares of Fury Gold issued and outstanding
immediately after completion of the Arrangement
|
117,500,000
|
$254,317
|
5. PRO FORMA SHARE PURCHASE OPTIONS
The
following is the continuity of common share purchase
options:
|
|
Number
of
Warrants
|
Weighted
Average
Exercise
Price
|
|
Common share purchase options of Auryn issued and outstanding, June
30, 2020
|
8,212,500
|
$2.01
|
|
Adjustment
to Auryn warrants for exchange ratio
|
(2,463,750)
|
$0.60
|
|
Common
share purchase options of Eastmain issued and outstanding, April
30, 2020
|
16,847,933
|
$0.42
|
|
Adjustment
to Eastmain options for exchange ratio
|
(14,876,725)
|
$0.37
|
|
Pro forma common share purchase options of Fury Gold issued and
outstanding immediately after completion of the
Arrangement
|
7,719,958
|
$2.15
|
Notes to the Pro forma Consolidated Financial
Statements
(Unaudited
tabular amounts are in thousands of Canadian dollars except number
of shares,
options, warrants
and per share amounts, unless otherwise
noted)
6. PRO FORMA SHARE PURCHASE WARRANTS
|
|
Number of
Warrants
|
Weighted Average
Exercise Price
|
|
Common share purchase warrants of Auryn issued and outstanding,
June 30, 2020
|
500,000
|
$2.00
|
|
Adjustment
to Auryn warrants for exchange ratio
|
(150,000)
|
$0.60
|
|
Common
shares Eastmain purchase warrants issued and outstanding, April 30,
2020
|
18,538,115
|
$0.22
|
|
Adjustment
to Eastmain warrants for exchange ratio
|
(16,369,156)
|
$0.19
|
|
Pro forma common share purchase warrants of Fury Gold issued and
outstanding immediately after completion of the
Arrangement
|
2,518,959
|
$0.72
|
7. PRO FORMA EARNINGS PER SHARE
The
weighted average shares outstanding have been adjusted to reflect
the additional shares resulting from the transactions described in
Note 3, effective as at the beginning of the period presented in
the pro forma consolidated statement of loss. Potential common
shares from outstanding common share purchase options and warrants
and other convertible securities have not been recognized in the
calculation of diluted earnings per share as their effect would be
anti-dilutive for the period presented in the pro forma
consolidated statement of loss.
8. INCOME TAXES
The pro forma effective income tax rate applicable to the
consolidated operations is approximately 27% for the relevant
period.
SCHEDULE C
Eastmain’s annual audited financial statements for the years
ended October 31, 2019 and 2018, with the report of the auditor
thereon
[See Attached]
CONSOLIDATED FINANCIAL STATEMENTS OF
EASTMAIN RESOURCES INC.
FOR THE YEARS ENDED
OCTOBER 31, 2019 AND 2018
(EXPRESSED IN CANADIAN DOLLARS)
|
Stern & Lovrics LLP
Chartered
Professional Accountants
|
|
Samuel
V. Stern, BA, CPA, CA
George
G. Lovrics, BComm, CPA, CA
____________________________________
Nazli
Dewji, BA, CPA, CMA
|
INDEPENDENT AUDITOR'S REPORT
To the Shareholders of Eastmain Resources Inc.
Opinion
We have
audited the consolidated financial statements of Eastmain Resources
Inc. (the “Company”), which comprise the consolidated
statements of financial position as at October 31, 2019 and October
31, 2018, and the consolidated statements of loss and comprehensive
loss, changes in shareholders equity and cash flows for the years
then ended, and notes to the financial statements, including a
summary of significant accounting policies.
In our
opinion, the accompanying financial statements present fairly, in
all material respects, the financial position of the Company as at
October 31, 2019 and October 31, 2018, and its financial
performance and its cash flows for the year then ended in
accordance with International Financial Reporting Standards
(IFRS).
Basis for Opinion
We
conducted our audit in accordance with Canadian generally accepted
auditing standards. Our responsibilities under those standards are
further described in the “Auditor’s Responsibilities
for the Audit of the Financial Statements” section of our
report.
We are
independent of the Company in accordance with the ethical
requirements that are relevant to our audit of the financial
statements in Canada, and we have fulfilled our other ethical
responsibilities in accordance with these
requirements.
We
believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Other Information
Management
is responsible for the other information. The other information
comprises the Management Discussion and Analysis.
Our
opinion on the financial statements does not cover the other
information and we do not express any form of assurance conclusion
thereon.
In
connection with our audit of the financial statements, our
responsibility is to read the other information identified above
and, in doing so, consider whether the other information is
materially inconsistent with the financial statements or our
knowledge obtained in the audit or otherwise appears to be
materially misstated.
1210 Sheppard
Avenue East, Suite 302, Toronto, Ontario M2K 1E3 Tel: (416)
499-8848 Fax: (416) 491-5301
We
obtained Management’s Discussion and Analysis prior to the
date of this auditor’s report. If, based on the work we have
performed on this other information, we conclude that there is a
material misstatement of this other information, we are required to
report that fact in this auditor’s report. We have nothing to
report in this regard.
Responsibilities of Management and Those Charged with Governance
for the Financial Statements
Management
is responsible for the preparation and fair presentation of the
financial statements in accordance with IFRS, and for such internal
control as management determines is necessary to enable the
preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
In
preparing the financial statements, management is responsible for
assessing the Company’s ability to continue as a going
concern, disclosing as applicable, matters related to going concern
and using the going concern basis of accounting unless management
either intends to liquidate the Company or to cease operations, or
has no realistic alternative but to do so.
Those
charged with governance are responsible for overseeing the
Company’s financial reporting process.
Auditor’s Responsibilities for the Audit of the Financial
Statements
Our
objectives are to obtain reasonable assurance about whether the
financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor’s report that includes our opinion. Reasonable
assurance is a high level of assurance, but is not a guarantee that
an audit conducted in accordance with Canadian generally accepted
auditing standards will always detect a material misstatement when
it exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they
could reasonably be expected to influence the economic decisions of
users taken on the basis of these financial
statements.
As part
of an audit in accordance with Canadian generally accepted auditing
standards, we exercise professional judgment and maintain
professional skepticism throughout the audit. We also:
●
Identify and assess
the risks of material misstatement of the financial statements,
whether due to fraud or error, design and perform audit procedures
responsive to those risks, and obtain audit evidence that is
sufficient and appropriate to provide a basis for our opinion. The
risk of not detecting a material misstatement resulting from fraud
is higher than for one resulting from error, as fraud may involve
collusion, forgery, intentional omissions, misrepresentations, or
the override of internal control.
●
Obtain an
understanding of internal control relevant to the audit in order to
design audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control.
●
Evaluate the
appropriateness of accounting policies used and the reasonableness
of accounting estimates and related disclosures made by
management.
●
Conclude on the
appropriateness of management’s use of the going concern
basis of accounting and, based on the audit evidence obtained,
whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Company’s
ability to continue as a going concern. If we conclude that a
material uncertainty exists, we are required to draw attention in
our auditor’s report to the related disclosures in the
financial statements or, if such disclosures are inadequate, to
modify our opinion. Our conclusions are based on the audit evidence
obtained up to the date of our auditor’s report. However,
future events or conditions may cause the Company to cease to
continue as a going concern.
●
Evaluate the
overall presentation, structure and content of the financial
statements, including the disclosures, and whether the financial
statements represent the underlying transactions and events in a
manner that achieves fair presentation.
1210 Sheppard
Avenue East, Suite 302, Toronto, Ontario M2K 1E3 Tel: (416)
499-8848 Fax: (416) 491-5301
We
communicate with those charged with governance regarding, among
other matters, the planned scope and timing of the audit and
significant audit findings, including any significant deficiencies
in internal control that we identify during our audit. We also
provide those charged with governance with a statement that we have
complied with relevant ethical requirements regarding independence,
and to communicate with them all relationships and other matters
that may reasonably be thought to bear on our independence, and
where applicable, related safeguards.
The
engagement partner on the audit resulting in this independent
auditor’s report is George G. Lovrics.
|
|
/s/ Stern & Lovrics
LLP
|
|
Toronto,
Ontario
January 23,
2020
|
Chartered
Professional Accountants
Licensed Public
Accountants
|
1210 Sheppard
Avenue East, Suite 302, Toronto, Ontario M2K 1E3 Tel: (416)
499-8848 Fax: (416) 491-5301
Eastmain Resources Inc.
Consolidated Statements of Financial Position
(Expressed in Canadian Dollars)
|
As at October 31,
|
2019
|
2018
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
Cash and cash
equivalents (note 5)
|
$3,086,173
|
$6,318,544
|
|
Prepaid and
sundry receivables (note 7)
|
339,035
|
739,708
|
|
Total current assets
|
3,425,208
|
7,058,252
|
|
|
|
|
|
Non-current assets
|
|
|
|
Marketable
securities (note 6)
|
457,043
|
202,226
|
|
Property and
equipment (note 8)
|
19,600
|
28,000
|
|
Exploration
and evaluation (note 9)
|
68,120,719
|
82,022,988
|
|
Total non-current assets
|
68,597,362
|
82,253,214
|
|
Total assets
|
$72,022,570
|
$89,311,466
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
Amounts
payable and accrued liabilities (notes 10 and
17)
|
$1,096,891
|
$1,882,394
|
|
Advances
received for exploration work
|
726,430
|
145,655
|
|
Flow-through
share premium liability (note 11)
|
503,495
|
443,999
|
|
Total current liabilities
|
2,326,816
|
2,472,048
|
|
|
|
|
|
Non-current liabilities
|
|
|
|
Deferred
income taxes (note 18)
|
2,321,696
|
7,631,160
|
|
Total liabilities
|
4,648,512
|
10,103,208
|
|
|
|
|
|
Equity
|
|
|
|
Share capital
(note 12(a))
|
105,742,941
|
101,361,658
|
|
Warrants (note
13)
|
442,000
|
1,611,000
|
|
Contributed
surplus
|
13,520,587
|
13,350,314
|
|
Deficit
|
(52,331,470)
|
(37,114,714)
|
|
Total equity
|
67,374,058
|
79,208,258
|
|
Total liabilities and equity
|
$72,022,570
|
$89,311,466
|
The accompanying notes are an integral part of these consolidated
financial statements.
Nature of operations and going concern (note 1)
Subsequent event (note 19)
Approved on behalf of the Board
"Laurence Curtis",
Director
"Michael Hoffman",
Director
- 2 -
Eastmain Resources Inc.
Consolidated Statements of Loss and Comprehensive Loss
(Expressed in Canadian Dollars)
|
|
Year
ended
October
31,
|
|
|
|
2019
|
2018
|
|
Operating
expenses
|
|
|
|
Depreciation (note
8)
|
$8,400
|
$12,000
|
|
Director
fees
|
199,563
|
169,729
|
|
General and
office
|
532,230
|
383,946
|
|
Government
reassessment (note 10(i))
|
-
|
280,000
|
|
Impairment of
exploration and evaluation assets (notes 4 and 9)
|
20,498,629
|
202,937
|
|
Marketing and
investor relations
|
366,761
|
258,399
|
|
Professional
fees
|
326,684
|
220,554
|
|
Rent
|
72,502
|
111,087
|
|
Salaries
|
795,700
|
1,025,648
|
|
Share-based
compensation
|
376,271
|
498,586
|
|
Travel
expenses
|
37,806
|
85,814
|
|
Operating
loss before the following
|
(23,214,546)
|
(3,248,700)
|
|
Interest and other
income
|
68,413
|
34,282
|
|
Realized gain on
marketable securities
|
-
|
144,110
|
|
Unrealized loss on
marketable securities
|
(15,183)
|
(147,477)
|
|
Premium on
flow-through shares (note 11)
|
1,259,095
|
1,606,335
|
|
Loss
before income taxes
|
(21,902,221)
|
(1,611,450)
|
|
Deferred income tax
recovery (expense) (note 18)
|
5,309,465
|
(896,045)
|
|
Loss
and comprehensive loss for the year
|
$(16,592,756)
|
$(2,507,495)
|
|
Basic and diluted loss per share (note
14)
|
$(0.07)
|
$(0.01)
|
|
Weighted average number of common shares
outstanding - basic and diluted
|
232,442,206
|
205,720,724
|
The accompanying notes are an integral part of these consolidated
financial statements.
- 3 -
Eastmain Resources Inc.
Consolidated Statements of Cash Flows
(Expressed in Canadian Dollars)
|
Year
ended October 31,
|
2019
|
2018
|
|
|
|
|
|
Operating
expenses
|
|
|
|
Comprehensive net
loss for the year
|
$(16,592,756)
|
$(2,507,495)
|
|
Adjustments
for:
|
|
|
|
Depreciation
|
8,400
|
12,000
|
|
Impairment of
exploration and evaluation assets
|
20,498,629
|
202,937
|
|
Loss on marketable
securities
|
15,183
|
3,367
|
|
Premium on
flow-through shares
|
(1,259,095)
|
(1,606,335)
|
|
Deferred income
taxes (recovery) expense
|
(5,309,465)
|
896,045
|
|
Share-based
compensation
|
376,271
|
498,586
|
|
Prepaid and sundry
receivables
|
400,673
|
162,204
|
|
Amounts payable and
accrued liabilities
|
(785,503)
|
(111,440)
|
|
Advances receivable
for exploration work
|
580,775
|
145,655
|
|
Net cash used in operating
activities
|
(2,066,888)
|
(2,304,476)
|
|
|
|
|
|
Financing
activities:
|
|
|
|
Proceeds on issue
of common shares
|
5,938,902
|
8,030,000
|
|
Share issue
expenses
|
(238,025)
|
(421,812)
|
|
Net
cash provided by financing activities
|
5,700,877
|
7,608,188
|
|
|
|
|
|
Investing
activities:
|
|
|
|
Exploration and
evaluation expenditures
|
(6,866,360)
|
(6,163,683)
|
|
Proceeds on sale of
marketable securities
|
-
|
173,195
|
|
Net
cash used in investing activities
|
(6,866,360)
|
(5,990,488)
|
|
|
|
|
|
Net
change in cash and cash equivalents
|
(3,232,371)
|
(686,776)
|
|
Cash
and cash equivalents, beginning of year
|
6,318,544
|
7,005,320
|
|
Cash and cash equivalents, end of year
(note 5)
|
$3,086,173
|
$6,318,544
|
The accompanying notes are an integral part of these consolidated
financial statements.
- 4 -
Eastmain Resources Inc.
Consolidated Statements of Changes in Shareholders'
Equity
(Expressed in Canadian Dollars)
Equity attributable to shareholders
|
|
Share
Capital
|
Warrants
|
Contributed
|
|
|
||
|
|
#
|
|
#
|
|
Surplus
|
Deficit
|
Total
|
|
Balance, October
31, 2017
|
193,125,146
|
$95,009,260
|
6,899,999
|
$1,495,300
|
$12,966,895
|
$(34,726,519)
|
$74,744,936
|
|
Private
placements
|
28,303,891
|
8,030,000
|
–
|
–
|
–
|
–
|
8,030,000
|
|
Warrants issued
|
–
|
(235,000)
|
5,967,660
|
235,000
|
–
|
–
|
–
|
|
Share issue
expenses
|
–
|
(421,812)
|
–
|
–
|
–
|
–
|
(421,812)
|
|
Premium on issue of flow-though
shares
|
–
|
(1,135,957)
|
–
|
–
|
–
|
–
|
(1,135,957)
|
|
Restricted shares vested and
converted to common shares
|
455,000
|
115,167
|
–
|
–
|
(115,167)
|
–
|
–
|
|
Share-based compensation
issued
|
–
|
–
|
–
|
–
|
498,586
|
–
|
498,586
|
|
Warrants
expired
|
–
|
–
|
(499,999)
|
(119,300)
|
–
|
119,300
|
–
|
|
Comprehensive
loss for the year
|
–
|
–
|
–
|
–
|
–
|
(2,507,495)
|
(2,507,495)
|
|
Balance, October
31, 2018
|
221,884,037
|
$101,361,658
|
12,367,660
|
$1,611,000
|
$13,350,314
|
$(37,114,714)
|
$79,208,258
|
|
Private
placements
|
39,056,612
|
5,966,026
|
–
|
–
|
–
|
–
|
5,966,026
|
|
Warrants issued
|
–
|
(207,000)
|
8,312,955
|
207,000
|
–
|
–
|
–
|
|
Share issue
expenses
|
–
|
(265,150)
|
–
|
–
|
–
|
–
|
(265,150)
|
|
Premium on issue of flow-though
shares
|
–
|
(1,318,591)
|
–
|
–
|
–
|
–
|
(1,318,591)
|
|
Restricted shares vested and
converted to common shares
|
1,177,208
|
205,998
|
–
|
–
|
(205,998)
|
–
|
–
|
|
Share-based compensation
issued
|
–
|
–
|
–
|
–
|
376,271
|
–
|
376,271
|
|
Warrants
expired
|
–
|
–
|
(6,400,000)
|
(1,376,000)
|
–
|
1,376,000
|
–
|
|
Comprehensive
loss for the year
|
–
|
–
|
–
|
–
|
–
|
(16,592,756)
|
(16,592,756)
|
|
Balance, October
31, 2019
|
262,117,857
|
$105,742,941
|
14,280,615
|
$442,000
|
$13,520,587
|
$(52,331,470)
|
$67,374,058
|
The accompanying notes are an integral part of these consolidated
financial statements.
- 5 -
Eastmain Resources Inc.
Notes to Consolidated Financial Statements
October 31, 2019 and 2018
(Expressed in Canadian Dollars)
1.
Nature of operations and going concern
Eastmain Resources Inc. (the "Company" or “Eastmain”)
and its wholly-owned subsidiary, Eastmain Mines Inc., are engaged
in the acquisition and exploration of resource properties within
Canada. The Company is a publicly-held company incorporated under
the Business Corporations Act (Ontario) and its common shares are
listed on the Toronto Stock Exchange under the symbol
“ER” and on the OTCQX under the symbol "EANRF". The
Company’s registered office address is The Canadian Venture
Building, 82 Richmond Street East, Suite 201, Toronto, Ontario,
Canada, M5C 1P1.
The Company is in the exploration stage and has not yet determined
whether its exploration and evaluation assets contain resources
that are economically recoverable. The continued operations of the
Company and the recoverability of amounts shown for its exploration
and evaluation assets are dependent upon the ability of the Company
to obtain financing to complete the exploration and development of
its exploration and evaluation assets, the existence of
economically recoverable reserves and future profitable production,
or alternatively, upon the Company’s ability to recover its
costs through a disposition of its exploration and evaluation
assets. The carrying cost for exploration and evaluation assets
does not necessarily represent the present or future value of the
projects. Changes in future conditions could require a material
change in the amount recorded for the exploration and evaluation of
its assets.
These consolidated financial statements are prepared on the basis
that the Company will continue as a going concern, which assumes
that the Company will be able to continue operating for the
foreseeable future and will be able to realize its assets and
discharge its liabilities and commitments in the normal course of
operations. As an exploration-stage company, Eastmain does not have
any sources of revenue and historically has incurred recurring
operating losses. As at October 31, 2019, the Company had working
capital of $1,098,392 (October 31, 2018 - $4,586,204) and
shareholders’ equity of $67,374,058 (October 31, 2018 -
$79,208,258). Management has assessed that this working capital and
the proceeds from recently completed financing are sufficient for
the Company to continue as a going concern beyond one year. If the
going concern assumption was not appropriate for these consolidated
financial statements it would be necessary to restate the
Company’s assets and liabilities on a liquidation
basis.
2.
Basis of presentation
Statement of compliance
The consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards
("IFRS") as issued by the International Accounting Standards Board
(“IASB”) and interpretations of the International
Financial Reporting Interpretations Committee
(“IFRIC”).
The consolidated financial statements for the years ended October
31, 2019 and 2018 were reviewed and authorized for issue by the
Board of Directors on January 23, 2020.
Basis of measurement
These consolidated financial statements have been prepared on the
historical-cost basis except for financial instruments classified
as fair value through profit or loss ("FVTPL"), which are stated at
their fair value.
The consolidated financial statements are presented in Canadian
dollars, which is also the Company’s functional
currency.
The preparation of consolidated financial statements in compliance
with IFRS requires management to make certain critical accounting
estimates. It also requires management to exercise judgement in
applying the Company’s accounting policies. The areas
involving a higher degree of judgement or complexity, or areas
where estimates and assumptions are significant to the consolidated
financial statements, are disclosed in Note 4.
- 6 -
Eastmain Resources Inc.
Notes to Consolidated Financial Statements
October 31, 2019 and 2018
(Expressed in Canadian Dollars)
3.
Significant accounting policies and future accounting
changes
Principles of consolidation
These consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary Eastmain Mines Inc. All
significant inter-company transactions and balances have been
eliminated.
Financial instruments
On July 24, 2014, the IASB issued the completed IFRS 9 - Financial
Instruments ("IFRS 9") to come into effect on January 1, 2018 with
early adoption permitted.
IFRS 9 includes finalized guidance on the classification and
measurement of financial assets. Under IFRS 9, financial assets are
classified and measured either at amortized cost, fair value
through other comprehensive income (“FVOCI”) or FVTPL
based on the business model in which they are held and the
characteristics of their contractual cash flows. IFRS 9 largely
retains the existing requirements in IAS 39 - Financial
Instruments: Recognition and Measurement ("IAS 39"), for the
classification and measurement of financial
liabilities.
The Company adopted IFRS 9 in its consolidated financial statements
on November 1, 2018. Due to the nature of its financial
instruments, the adoption of IFRS 9 had no impact on the opening
accumulated deficit balance on November 1, 2018. The impact on the
classification and measurement of its financial instruments is set
out below.
All financial assets not classified at amortized cost or FVOCI are
measured at FVTPL. On initial recognition, the Company can
irrevocably designate a financial asset at FVTPL if doing so
eliminates or significantly reduces an accounting
mismatch.
A financial asset is measured at amortized cost if it meets both of
the following conditions and is not designated at
FVTPL:
●
It
is held within a business model whose objective is to hold the
financial asset to collect the contractual cash flows associated
with the financial asset instead of selling the financial asset for
a profit or loss;
●
Its
contractual terms give rise to cash flows that are solely payments
of principal and interest.
All financial instruments are initially recognized at fair value on
the consolidated statement of financial position. Subsequent
measurement of financial instruments is based on their
classification. Financial assets and liabilities classified at
FVTPL are measured at fair value with changes in those fair values
recognized in the consolidated statement of loss and comprehensive
loss for the year. Financial assets classified at amortized cost
and financial liabilities are measured at amortized cost using the
effective interest method.
The following table summarizes the classification and measurement
changes under IFRS 9 for each financial instrument:
|
Classification
|
IAS 39
|
IFRS 9
|
|
Cash and cash equivalents
|
FVTPL
|
FVTPL
|
|
Marketable securities
|
FVTPL
|
FVTPL
|
|
Amounts payable and accrued liabilities
|
Other financial liabilities
|
Amortized cost
|
|
Advances received for exploration work
|
Other financial liabilities
|
Amortized cost
|
|
Flow-through share premium liability
|
Other financial liabilities
|
Amortized cost
|
The original carrying value of the Company's financial instruments
under IAS 39 has not changed under IFRS 9.
- 7 -
Eastmain Resources Inc.
Notes to Consolidated Financial Statements
October 31, 2019 and 2018
(Expressed in Canadian Dollars)
3.
Significant accounting policies and future accounting changes
(continued)
Exploration and evaluation
Recognition and measurement
Exploration and evaluation assets, including the costs of acquiring
licenses and directly attributable general and administrative
costs, are initially capitalized as exploration and evaluation.
These costs are accumulated by property, pending the determination
of technical feasibility and commercial viability. Pre-license
costs are expensed as incurred. Pre-exploration costs are expensed
unless it is considered probable that they will generate future
economic benefits.
The recoverability of amounts shown for exploration and evaluation
is dependent upon the ability of the Company to obtain financing to
complete the exploration and development of its mineral resource
properties, the existence of economically recoverable reserves and
future profitable production, or alternatively, upon the
Company’s ability to recover its costs through a disposition
of its mineral resource properties. The amounts shown for
exploration and evaluation do not necessarily represent present or
future value. Changes in future conditions could require a material
change in the amount recorded for exploration and
evaluation.
The technical feasibility and commercial viability of extracting a
mineral resource from a property is considered to be determinable
when proven and/or probable reserves are concluded to exist and all
necessary permits have been received to commence production. A
review of each property is carried out at least annually. Upon
determination of technical feasibility and commercial viability,
exploration and evaluation is first tested for impairment and then
reclassified to property and equipment or expensed to the
consolidated statement of loss and comprehensive loss to the extent
of any impairment.
Title
Ownership in a mineral property involves certain risks due to the
difficulties in determining the validity of certain claims as well
as the potential for problems arising from the frequently ambiguous
conveyance history, characteristic of many mineral interests. The
Company has investigated the ownership of its mineral properties
and, to the best of its knowledge, ownership of its interests are
in good standing.
Impairment
Exploration and evaluation assets are assessed for impairment if:
(i) sufficient data exists to determine technical feasibility and
commercial viability; and (ii) facts and circumstances suggest that
the carrying amount exceeds the recoverable amount. An impairment
loss is recognized in the consolidated statement of loss and
comprehensive loss if the carrying amount of a property exceeds its
estimated recoverable amount. The recoverable amount of property
used in the assessment of impairment of exploration and evaluation
assets is the greater of its value in use (“VIU”) and
its fair value less costs to sell (“FVLCTS”). VIU is
determined by estimating the present value of the future net cash
flows at a pre-tax discount rate that reflects current market
assessment of the time value of money and the risks specific to the
property. FVLCTS refers to the amount obtainable from the sale of a
property in an arm’s-length transaction between
knowledgeable, willing parties, less costs of disposal. For a
property that does not generate largely independent cash flows, the
recoverable amount is determined for the cash generating unit to
which the property belongs. Impairment losses previously recognized
are assessed at each reporting date for any indications that the
loss has decreased or no longer exists. An impairment loss is
reversed if there has been a change in the estimates used to
determine the recoverable amount, only to the extent that the
property's carrying amount does not exceed the carrying amount that
would have been determined if no impairment loss had been
recognized.
Impairment analyses are performed continually. Ongoing expenditures
on impaired properties are written off as incurred, until such time
as an estimated recovery in excess of the carrying value can be
demonstrated.
- 8 -
Eastmain Resources Inc.
Notes to Consolidated Financial Statements
October 31, 2019 and 2018
(Expressed in Canadian Dollars)
3.
Significant accounting policies and future accounting changes
(continued)
Exploration and evaluation (continued)
Decommissioning liabilities
The Company’s activities give rise to dismantling,
decommissioning and site disturbance remediation activities.
Provision is made for the estimated cost of site restoration.
Decommissioning obligations are measured at the present value of
management’s best estimate of expenditures required to settle
the present obligation at the financial position date. The fair
value of the estimated obligation is recorded as a liability with a
corresponding increase in the carrying amount of the related asset.
The obligation is subsequently adjusted at the end of each period
to reflect the passage of time and changes in the estimated future
cash flows underlying the obligation. The increase in the provision
due to the passage of time is recognized as accretion costs,
whereas increases or decreases due to changes in the estimated
future cash flows or changes in the discount rate are capitalized.
Actual costs incurred upon settlement of the decommissioning
obligations are charged against the provision to the extent the
provision was established. As at October 31, 2019 and October 31,
2018, the Company had no decommissioning liabilities.
Cash and cash equivalents
Cash equivalents consist of cash deposits in banks and include cash
and short-term money-market instruments that are readily
convertible to cash with an original term of less than 90
days.
Property and equipment
Upon initial acquisition, property and equipment are valued at
cost, being the purchase price and the directly attributable costs
of acquisition or construction required to bring the assets to the
location and in the condition necessary for these assets to be
capable of operating in the manner intended by
management.
In subsequent periods, property and equipment are stated at cost
less accumulated depreciation and any impairment in value, while
land is stated at cost less any impairment in value and is not
depreciated.
Each component or part of property and equipment with a cost that
is significant in relation to the total cost of the item will be
depreciated separately, unless there is no difference in
depreciation on the respective components.
Depreciation is recorded on a declining-balance basis over the
estimated useful life of the asset using the following rates:
Computer equipment – 30%; and Field equipment –
30%.
Proportionate cost-sharing ventures
Certain of the Company’s exploration and evaluation
activities are conducted jointly with others. These consolidated
financial statements reflect only the Company’s interest in
such activities. The Company holds certain interests in mineral
properties through joint operating agreements.
- 9 -
Eastmain Resources Inc.
Notes to Consolidated Financial Statements
October 31, 2019 and 2018
(Expressed in Canadian Dollars)
3.
Significant accounting policies and future accounting changes
(continued)
Share-based payment transactions
The fair value of share options granted to employees and
non-employees is recognized as an expense over the vesting period
with a corresponding increase in equity. An individual is
classified as a direct employee when the individual is an employee
for legal or tax purposes. Directors and officers are deemed to be
employees for share-based compensation tax purposes.
The fair value of all stock options granted is measured at the
grant date and recognized over the period during which the options
vest. The fair value of the options granted is measured using the
Black-Scholes option pricing model, taking into consideration
amounts believed to approximate the volatility of the trading price
of the Company’s stock, the expected life of the award of the
share-based compensation, the share price at the close of trading
on the day immediately preceding the grant, and the risk-free
interest rate. The amount recognized as an expense is recognized as
either a charge to profit and loss or as an addition to mineral
properties’ exploration and evaluation costs. Stock option
expense is added to the properties in a consistent manner in which
exploration wages have been added to the properties. Consideration
received on the exercise of stock options is credited directly to
share capital.
The fair value of share-based payment transactions to non-employees
and other share-based payments, including shares issued to acquire
exploration and evaluation properties, are based on the fair value
of the goods and services received. If the fair value cannot be
estimated reliably, the share-based payment transaction is measured
at the fair value of the equity instruments granted at the date the
Company receives the goods or services. The fair value related to
the issuance of broker warrants is also measured at the date that
the Company receives the services.
Flow-through share financing
Under Canadian tax legislation, a company is permitted to issue
flow-through shares, whereby the Company agrees to incur qualifying
exploration and evaluation expenditures and renounce the related
income tax deductions to the investors. Proceeds from the issuance
of these shares are allocated between share capital and the sale of
the related tax benefit. The allocation is made based on the
difference between the quoted price of the existing shares and the
price that the investor pays for the shares. A liability is
recognized for the difference. The liability is reduced and the
reduction of the premium liability is recorded as premium on
flow-through shares on a pro-rata basis to the corresponding
eligible expenditures that have been incurred.
Provisions
A provision is recognized if, as a result of a past event, the
Company has a present legal or constructive obligation that can be
estimated reliably, and it is probable that an outflow of economic
benefits will be required to settle the obligation. Provisions are
determined by discounting the expected future cash flows at a
pre-tax rate that reflects current market assessments of the time
value of money and the risks specific to the liability. The
unwinding of the discount is recognized as a finance cost. As at
October 31, 2019 and October 31, 2018, the Company had no material
provisions.
Credit on duties refundable for loss and refundable tax credits for
resource investment
The Company is entitled to a refundable credit on duties of 16% for
eligible losses under the Québec Mining Duties Act and a
refundable resource investment tax credit of 31% under the
Québec Income Tax Act. These credits are applicable to
qualified exploration expenditures on properties located within the
Province of Québec. Such credits are recognized using the cost
reduction method. Accordingly, they are recorded as a reduction of
the related exploration expenses incurred. Application for these
credits are subject to verification and as such, they are
recognized only when they are actually received or when a notice of
assessment confirming the amount to be paid is issued.
- 10 -
Eastmain Resources Inc.
Notes to Consolidated Financial Statements
October 31, 2019 and 2018
(Expressed in Canadian Dollars)
3.
Significant accounting policies and future accounting changes
(continued)
Common shares
Common shares are classified as equity. Incremental costs directly
attributable to the issue of common shares are recognized as a
deduction from equity, net of any tax effects.
Restricted Stock Unit ("RSU")
Under the RSU Plan, selected employees are granted RSU where each
RSU has a value equal to one Eastmain common share. RSU are
measured at fair value on the grant date. The fair value of RSU are
recognized as a charge to share-based compensation as a general and
administrative expense over the vesting period with a corresponding
increase in equity. RSU expected to settle in cash are reclassified
as a liability and valued at market.
Basic and diluted loss per share
The Company presents basic and diluted loss-per-share data for its
common shares, calculated by dividing the loss attributable to
common shareholders of the Company by the weighted average number
of shares outstanding during the period. Diluted loss per share is
determined by adjusting the loss attributable to shareholders and
the weighted average number of common shares outstanding, during
the period for the effect of RSU, warrants and options outstanding,
that may add to the total number of common shares.
Diluted loss per share is calculated using the treasury stock
method. Under the treasury stock method, the weighted average
number of common shares outstanding, used for the calculation of
diluted loss per share, assumes that the proceeds to be received on
the exercise of dilutive RSU, stock options and warrants are used
to repurchase common shares at the average market price during the
year.
Restoration, rehabilitation and environmental
obligations
A legal or constructive obligation to incur restoration,
rehabilitation and environmental costs may arise when environmental
disturbance is caused by exploration, development or ongoing
production activities on a mineral property.
The costs of complying with these requirements at the start of a
project are capitalized as incurred. The carrying value is
amortized over the expected life of the related asset.
A provision for restoration, rehabilitation and environmental costs
and legal claims, where applicable, is recognized when: (i) the
Company has a present legal or constructive obligation as a result
of past events; (ii) it is likely that an outflow of resources will
be required to settle the obligation; and (iii) the amount can be
reliably estimated.
Provisions are measured, at management’s best estimate of the
expenditure to settle the obligation at the end of the reporting
period, and discounted to present value where the effect is
material. Increases to provisions which may be necessary from
time-to-time are recognized as an interest expense. The present
value of the reclamation liabilities may be subject to change,
based on management’s re-evaluation of estimates, changes in
remediation technology, or changes to the applicable laws and
regulations prescribed by regulatory authorities, which may affect
the ultimate cost of remediation and reclamation. Changes to the
provisions are reflected in the period in which they
occur.
Provision for environmental restoration represents the legal and
constructive obligations associated with the eventual closure of
the Company’s property and equipment. These obligations
consist of costs of removal of tangible assets and the cost of
reclamation and monitoring activities. The discount rate is based
on pre-tax rates that reflect current market conditions for the
time value of money and the risks specific to the liability,
excluding risks for which future cash-flow estimates have already
been adjusted.
As at October 31, 2019 and October 31, 2018, the Company did not
have any asset restoration, rehabilitation or environmental
obligations.
- 11 -
Eastmain Resources Inc.
Notes to Consolidated Financial Statements
October 31, 2019 and 2018
(Expressed in Canadian Dollars)
3.
Significant accounting policies and future accounting changes
(continued)
Income taxes
The Company uses the asset and liability method of accounting for
income taxes. Under this method, deferred income tax assets and
liabilities are recognized for the estimated deferred income tax
consequences attributable to differences between the financial
statement carrying value of assets and liabilities, and their
respective income tax bases. Deferred income tax assets and
liabilities are measured using income tax rates in effect for the
period in which those temporary differences are expected to be
recovered or settled.
The effect on deferred income tax assets and liabilities due to a
change in income tax rates or laws is recognized as a part of the
provision for income taxes in the period in which the changes are
substantially enacted. Deferred income tax benefits attributable to
these differences, if any, are recognized to the extent that
realization of the benefit is more likely than not.
Standard issued but not yet effective
On January 13, 2016, the IASB issued IFRS 16 - Leases ("IFRS 16").
The new standard is effective for annual periods beginning on or
after January 1, 2019. IFRS 16 will replace IAS 17 - Leases ("IAS
17"). This standard introduces a single lessee accounting model and
requires a lessee to recognize assets and liabilities for all
leases with a term of more than 12 months, unless the underlying
asset is of low value. A lessee is required to recognize a
right-of-use asset representing its right to use the underlying
asset and a lease liability representing its obligation to make
lease payments. IFRS 16 substantially carries forward the lessor
accounting requirements of IAS 17, while requiring enhanced
disclosures to be provided by lessors. Other areas of the lease
accounting model have been impacted, including the definition of a
lease. Transitional provisions have been provided. The Company
intends to adopt IFRS 16 in its consolidated financial statements
for the period beginning on November 1, 2019. The Company is
currently evaluating the impact this adoption and expects to report
more detailed information in its consolidated financial
statements.
4.
Use of estimates and judgements
The preparation of these consolidated financial statements under
IFRS requires management to make certain estimates, judgements and
assumptions about future events that affect the amounts reported in
the consolidated financial statements and related notes to the
consolidated financial statements. Although these estimates are
based on management’s best knowledge of the amounts, events
or actions, actual results may differ from those estimates and
these differences could be material.
a) Significant judgements in applying accounting
policies
The areas which require management to make significant judgements
in determining carrying values include, but are not limited
to:
Exploration and evaluation assets
In estimating the recoverability of capitalized exploration and
evaluation assets, management is required to apply judgement in
determining whether technical feasibility and commercial viability
can be demonstrated for its mineral properties. Once technical
feasibility and commercial viability of a property can be
demonstrated, it is reclassified from exploration and evaluation
assets to mineral properties, and subject to different accounting
treatment. As at October 31, 2019 and 2018 management deemed that
no reclassification of exploration and evaluation assets was
required.
- 12 -
Eastmain Resources Inc.
Notes to Consolidated Financial Statements
October 31, 2019 and 2018
(Expressed in Canadian Dollars)
4.
Use of estimates and judgements (continued)
a) Significant judgements in applying accounting policies
(continued)
Income taxes and recoverability of potential deferred tax
assets
In assessing the probability of realizing income tax assets
recognized, management makes estimates related to expectations of
future taxable income, applicable tax planning opportunities,
expected timing of reversals of existing temporary differences, and
the likelihood that tax positions taken will be sustained upon
examination by applicable tax authorities. In making its
assessments, management gives additional weight to both positive
and negative evidence that can be objectively verified. Estimates
of future taxable income are based on forecasted cash flows from
operations and the application of existing tax laws in each
jurisdiction. The Company considers whether relevant tax planning
opportunities are within the Company's control, are feasible, and
are within management's ability to implement.
Examination by applicable tax authorities is based on individual
facts and circumstances of the relevant tax position examined in
light of all available evidence. Where applicable tax laws and
regulations are either unclear or subject to ongoing varying
interpretations, it is reasonably possible that changes in these
estimates can occur that materially affect the amounts of income
tax assets recognized. Also, future changes in tax laws could limit
the Company from realizing the tax benefits from deferred tax
assets. The Company reassesses unrecognized income tax assets at
each reporting period.
b) Significant accounting estimates and assumptions
The areas which require management to make significant estimates
and assumptions in determining carrying values include, but are not
limited to:
Impairment of exploration and evaluation assets
When there are indications that an asset may be impaired, the
Company is required to estimate the asset’s recoverable
amount. The recoverable amount is the greater of value-in-use and
fair value less costs to sell. Determining the value requires the
Company to estimate future cash flows associated with the assets
and a suitable discount rate in order to calculate the present
value. During 2019, the Company’s exploration and evaluation
assets were written down by $20,498,629 (2018 –
$202,937).
Where an impairment loss subsequently reverses, the carrying value
of the asset (or cash generating unit) is increased to the revised
estimate of its recoverable amount, unless that amount exceeds the
carrying value recorded prior to the recognition of the impairment
loss, in which case the carrying value would be re-instated to its
pre-impairment-loss carrying value. A reversal of an impairment
loss is recognized immediately in the consolidated statement of
loss and comprehensive loss.
Management estimates of mineral prices, recoverable reserves,
operating capital and restoration costs are subject to certain
risks and uncertainties that may affect the recoverability of
exploration and evaluation assets. Although management has made its
best estimate of these factors, it is possible that changes could
occur in the near term that could adversely affect
management’s estimate of net cash flow to be generated from
its projects.
Share-based payments
The amount expensed for share-based payments is derived from the
application of the Black-Scholes option pricing model, which is
highly dependent on the expected volatility of the Company’s
shares and the expected life of the options. The Company uses an
historical volatility rate for its shares based on past trading
data. Actual volatility may be significantly different. While the
estimate of share-based payments can have a material impact on the
operating results reported by the Company, it is a non-cash charge
and as such has no impact on the Company’s cash position or
future cash flows.
Estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to estimates are recognized in the period in which
the estimates are revised and in any future periods
affected.
- 13 -
Eastmain Resources Inc.
Notes to Consolidated Financial Statements
October 31, 2019 and 2018
(Expressed in Canadian Dollars)
4.
Use of estimates and judgements (continued)
b) Significant accounting estimates and assumptions
(continued)
Depreciation and impairment of property and equipment
The determination of the useful life of property and equipment is
based on management estimates. Indicators of impairment are also
subject to management’s estimates.
Estimation of restoration, rehabilitation and environmental
obligations
Restoration, rehabilitation and environmental liabilities are
estimated based on the Company’s interpretation of current
regulatory requirements and constructive obligations. These
estimates are measured at fair value, which is determined by the
net present value of estimated future cash expenditures for the
settlement of restoration, rehabilitation and environmental
liabilities that may occur upon ceasing exploration and evaluation
activities. Such estimates are subject to change, based on changes
in laws and regulations and negotiations with regulatory
authorities. Management’s determination that there are
currently no provisions required for site restoration is based on
facts and circumstances that existed during the year.
5.
Cash and cash equivalents
|
|
As at October
31,
2019
|
As at October
31,
2018
|
|
|
|
|
|
Cash
|
$3,086,173
|
$1,186,544
|
|
Cash
equivalents
|
-
|
5,132,000
|
|
|
$3,086,173
|
$6,318,544
|
6.
Marketable securities
(a)
Marketable securities held
Bonds and other securities are recorded at fair value. As at
October 31, 2019, the Company did not hold any bonds. Investments
in public companies consist of shares in Benz Mining Corp.
("Benz"), which were received as option payment for the Eastmain
Mine Project, Dianor Resources Inc., which were acquired in
exchange for geological data; shares of Threegold Resources Inc.,
received as a dividend from Dianor Resources Inc.; shares in Kaizen
Discovery Inc. and Meryllion Resource Corp. were received as a
result of a sale of prospecting permits and mineral claims to
Western Lithium Corp.; and shares of Osisko Metals Inc. (formerly
Pine Point Mining Ltd.) ("Pine Point") were acquired in conjunction
with an option enabling Pine Point to acquire a 50% interest in the
Lac Lessard project.
|
|
Number of
shares/warrants
|
As at
October 31,
2019
|
Number of
shares
|
As at
October 31,
2018
|
|
Benz
common shares (note 9)
|
3,000,000
|
$255,000
|
-
|
$-
|
|
Dianor
Resources Inc. common shares
|
500,000
|
-
|
500,000
|
-
|
|
Generation Mining Ltd. common shares
(i)
|
160,000
|
37,600
|
160,000
|
24,000
|
|
Kaizen
Discovery Inc. common shares
|
107,867
|
3,236
|
107,867
|
6,472
|
|
Meryllion Resource Corp. common
shares
|
107,867
|
1,079
|
107,867
|
1,618
|
|
Osisko
Metals Inc. ("Osisko Metals") common shares (i)
|
333,600
|
160,128
|
333,600
|
170,136
|
|
Osisko
Metals warrants (i)(ii)
|
-
|
-
|
108,320
|
-
|
|
Threegold Resources Inc. common
shares
|
12,380
|
-
|
12,380
|
-
|
|
Total
investments
|
|
$457,043
|
|
$202,226
|
- 14 -
Eastmain Resources Inc.
Notes to Consolidated Financial Statements
October 31, 2019 and 2018
(Expressed in Canadian Dollars)
6.
Marketable securities (continued)
(a)
Marketable securities held (continued)
(i) During the year ended October 31, 2018, the Company’s
investment in Pine Point was subject to a friendly acquisition by
Osisko Metals. Under the terms of the agreement, holders of Pine
Point common shares received, for each share held immediately prior
to the arrangement: (a) 0.271 of a common share of Osisko Metals;
(b) 0.0677 of a common share purchase warrant of Osisko Metals,
with each Osisko Metals consideration warrant entitling the holder
thereof to acquire one Osisko Metals share at an exercise price of
$1.50 per Osisko Metals share for a period of 12 months from the
closing of the arrangement; and (c) one common share of Generation
Mining, which was consolidated on a 10:1 basis under the
arrangement.
(ii) In the absence of a quoted market price, Eastmain has elected
to designate the market value of the Osisko Metals warrants as $nil
at October 31, 2018. During year ended October 31, 2019, Osisko
Metals warrants expired unexercised.
(b)
Hedging activities
The Company does not engage in hedging activities nor does it hold
or issue any derivative financial instruments.
7.
Prepaid and sundry receivables
|
|
As at
October 31,
2019
|
As at
October 31,
2018
|
|
Sales
tax input credits recoverable
|
$223,181
|
$256,645
|
|
Sundry
accounts receivable
|
51,043
|
-
|
|
Advances and prepaid expenses
|
64,811
|
114,116
|
|
Receivable for exploration
work
|
-
|
368,947
|
|
|
$339,035
|
$739,708
|
8.
Property and equipment
The equipment is recorded at cost and is comprised as
follows:
|
Cost
|
Computer
equipment
|
Field
equipment
|
Total
|
|
Balance, October 31, 2017, 2018 and
2019
|
$74,112
|
$403,396
|
$477,508
|
|
Accumulated
depreciation
|
|
|
|
|
Balance, October 31,
2017
|
$ 59,384
|
$378,124
|
$437,508
|
|
Depreciation during the
year
|
4,420
|
7,580
|
12,000
|
|
Balance,
October 31, 2018
|
63,804
|
385,704
|
449,508
|
|
Depreciation during the
year
|
3,092
|
5,308
|
8,400
|
|
Balance,
October 31, 2019
|
$ 66,896
|
$391,012
|
$457,908
|
|
Net book value
|
|
|
|
|
Balance, October 31,
2018
|
$ 10,308
|
$17,692
|
$28,000
|
|
Balance, October 31,
2019
|
$ 7,216
|
$12,384
|
$19,600
|
- 15 -
Eastmain Resources Inc.
Notes to Consolidated Financial Statements
October 31, 2019 and 2018
(Expressed in Canadian Dollars)
9.
Exploration and evaluation
Mineral property acquisition, exploration and evaluation
expenditures are recorded at cost and are comprised as
follows:
Project expenditures for the year ended October 31,
2019
|
Project
|
Drilling
&
assays
|
Technical
surveys
|
Project
acquisition &
maintenance
|
Income
tax
credits
|
2019
net
expenditures
|
|
Clearwater
|
$2,808,118
|
$2,657,868
|
$77,396
|
$(229,092)
|
$5,314,290
|
|
Eastmain Mine
|
17,205
|
10,517
|
(322,281)
|
-
|
(294,559)
|
|
Éléonore
South JV
|
852,173
|
600,471
|
15,022
|
-
|
1,467,666
|
|
Ruby
Hill
|
-
|
-
|
23,263
|
-
|
23,263
|
|
Lac
Hudson
|
-
|
-
|
1,890
|
-
|
1,890
|
|
Radisson
|
-
|
1,342
|
18,054
|
-
|
19,396
|
|
Lac
Clarkie
|
-
|
3,118
|
-
|
-
|
3,118
|
|
Other
|
-
|
-
|
61,296
|
-
|
61,296
|
|
Total
|
$3,677,496
|
$3,273,316
|
$(125,360)
|
$(229,092)
|
$6,596,360
|
Cumulative acquisition, exploration and evaluation expenditures as
at October 31, 2019
|
Project
|
Balance
October 31,
2018
|
2019 net
expenditures
|
Write-
down
|
Balance
October 31,
2019
|
|
Clearwater
|
$61,163,788
|
$5,314,290
|
$(8,976,605)
|
$57,501,473
|
|
Eastmain
Mine
|
17,212,711
|
(294,559)
|
(10,673,152)
|
6,245,000
|
|
Éléonore
South JV
|
2,906,580
|
1,467,666
|
-
|
4,374,246
|
|
Ruby
Hill
|
-
|
23,263
|
(23,263)
|
-
|
|
Lac
Hudson
|
-
|
1,890
|
(1,890)
|
-
|
|
Radisson
|
-
|
19,396
|
(19,396)
|
-
|
|
Lac
Lessard
|
230,602
|
-
|
(230,602)
|
-
|
|
Lac
Clarkie
|
509,307
|
3,118
|
(512,425)
|
-
|
|
Other
|
-
|
61,296
|
(61,296)
|
-
|
|
Total
|
$82,022,988
|
$6,596,360
|
$(20,498,629)
|
$68,120,719
|
Project expenditures for the year ended October 31,
2018
|
Project
|
Drilling &
assays
|
Technical
surveys
|
Project
acquisition
&
maintenance
|
Gross
expenditures
|
Income
tax
credits
|
2018 net
expenditures
|
|
Clearwater
|
$1,822,078
|
$1,707,670
|
$132,567
|
$3,662,315
|
$-
|
$3,662,315
|
|
Eastmain
Mine
|
480,000
|
537,474
|
15,299
|
1,032,773
|
-
|
1,032,773
|
|
Éléonore
South JV
|
242,226
|
882,073
|
26,932
|
1,151,231
|
-
|
1,151,231
|
|
Ruby
Hill
|
-
|
8,048
|
33,002
|
41,050
|
-
|
41,050
|
|
Reservoir
|
-
|
16,302
|
480
|
16,782
|
-
|
16,782
|
|
Lac
Elmer
|
-
|
1,595
|
465
|
2,060
|
-
|
2,060
|
|
Radisson
|
-
|
14,398
|
47,187
|
61,585
|
-
|
61,585
|
|
Lac
Lessard
|
-
|
-
|
120
|
120
|
-
|
120
|
|
Lac
Clarkie
|
520
|
23,024
|
90,763
|
114,307
|
-
|
114,307
|
|
Other
|
-
|
-
|
81,460
|
81,460
|
-
|
81,460
|
|
Total
|
$2,544,824
|
$3,190,584
|
$428,275
|
$6,163,683
|
$-
|
$6,163,683
|
- 16 -
Eastmain Resources Inc.
Notes to Consolidated Financial Statements
October 31, 2019 and 2018
(Expressed in Canadian Dollars)
9.
Exploration and evaluation (continued)
Cumulative acquisition, exploration and evaluation expenditures as
at October 31, 2018
|
Project
|
Balance
October 31,
2017
|
2018 net
expenditures
|
Write-
down
|
Balance
October 31,
2018
|
|
Clearwater
|
$57,501,473
|
$3,662,315
|
$-
|
$61,163,788
|
|
Eastmain
Mine
|
16,179,938
|
1,032,773
|
-
|
17,212,711
|
|
Éléonore
South JV
|
1,755,349
|
1,151,231
|
-
|
2,906,580
|
|
Ruby
Hill
|
-
|
41,050
|
(41,050)
|
-
|
|
Reservoir
|
-
|
16,782
|
(16,782)
|
-
|
|
Lac
Elmer
|
-
|
2,060
|
(2,060)
|
-
|
|
Radisson
|
-
|
61,585
|
(61,585)
|
-
|
|
Lac
Lessard
|
230,482
|
120
|
-
|
230,602
|
|
Lac
Clarkie
|
395,000
|
114,307
|
-
|
509,307
|
|
Other
|
-
|
81,460
|
(81,460)
|
-
|
|
Total
|
$76,062,242
|
$6,163,683
|
$(202,937)
|
$82,022,988
|
As at October 31, 2019, all properties are in good standing and the
Company has not abandoned exploration on the
properties.
a) Clearwater Project
Eastmain holds a 100% interest in the Clearwater Project, located
in the central portion of the Eastmain River Greenstone Belt within
the James Bay Mining District of Québec. The project, which
hosts the Eau Claire Gold Deposit, consists of map designated
claims (CDC’s) covering an area of 201 km2.
Clearwater is in the advanced exploration
stage.
b) Eastmain Mine Project
The Eastmain Mine Project hosts the Eastmain Mine Gold Deposit. The
past-producing Eastmain Mine Project comprises 152 mineral claims
and an industrial lease. Located in the eastern most part of the
Upper Eastmain River Greenstone Belt of the James Bay District of
Northern Québec, the property covers approximately 80
km2
of highly prospective terrain. In
September 2012, the Company exercised its right of first refusal to
purchase the remaining 2% net smelter return ("NSR") on all
production exceeding 250,000 ounces of gold at a net cost $400,000.
Concurrently, Franco Nevada Corporation and Virginia Mines Inc.
(now Osisko Gold Royalties Ltd.) jointly acquired the Initial
Production Royalty, a 2.3% NSR applicable only to the next 250,000
ounces of gold produced, and subject to a reduction should the
price of gold fall below USD $750. Eastmain Mine is in the advanced
exploration stage.
On August 8, 2019, the Company announced that it had reached an
agreement with Benz to option the Eastmain Mine Project. The option
agreement highlights are as follow:
●
Eastmain
grants an exclusive option to Benz to acquire an initial 75%
interest in the Eastmain Mine Project (the "Option")
following:
o
Payments
to Eastmain of $2,500,000, of which up to $875,000 may be paid in
common shares of Benz ("Payment Shares"), during a 4-year earn-in
period (3,000,000 Benz shares received on October 23, 2019 valued
at $270,000 and cash payment of $75,000); and
o
Benz
incurring expenditures of $3,500,000 on the Project over 4
years;
●
A
milestone payment of $1,000,000 related to Benz obtaining project
financing following the exercise of the Option, to complete the
100% earn-in;
●
A
milestone payment of $1,500,000 related to commercial production
following the exercise of the Option; and
●
NSR
Royalty of 2% after the first 250,000 oz of production, with a
buyback of 1% for $1,500,000, to be granted to Eastmain following
exercise of the Option.
- 17 -
Eastmain Resources Inc.
Notes to Consolidated Financial Statements
October 31, 2019 and 2018
(Expressed in Canadian Dollars)
9.
Exploration and evaluation (continued)
c) Éléonore South Project
The Éléonore South project consists of two separate
blocks of CDC’s, comprising a total of 282 claims covering
approximately 147 km2
of the Opinaca area of James Bay,
Québec. The Éléonore West block consists of 34
mineral claims covering approximately 18 km2,
while the Éléonore South block contains 248 claims
extending over an area of approximately 130 km2.
The project is a 3-way joint venture agreement between Eastmain,
Azimut Exploration Inc. (“Azimut”) and Les Mines
Opinaca Ltée. (“Les Mines Opinaca”), a
wholly-owned subsidiary of Goldcorp Inc. Project ownership is based
on participation in the funding of annual exploration programs. As
such, the project is currently held by the joint operation partners
approximately as follows: Eastmain 36.7%; Les Mines Opinaca 36.7%
and Azimut 26.6%. Azimut was designated as operator for fiscal
2017. During fiscal 2018, Eastmain was designated as
operator.
d) Ruby Hill Project
The Company holds a 100% interest in Ruby Hill, an
early-exploration-stage project, which consists of 204 claim units
covering 106 km2
in two claim blocks, known as the Ruby
Hill East and Ruby Hill West properties. These properties overlie
prospective rock formations of the eastern portion of the Eastmain
River Greenstone Belt, located in the James Bay Mining District of
Québec.
e) Reservoir Project
The Company holds a 100% interest in the Reservoir project. Located
in the James Bay Region of Québec, Reservoir, a
discovery-stage project comprises 157 mineral cells (CDC’s)
covering approximately 81 km2
of highly prospective Eastmain River /
Opinaca Formation rock assemblages.
f) Lac Hudson Project
The Company holds a 100% interest in this early-exploration-stage
project, which covers approximately 97 km2
of the Eastmain / Opinaca district
gold belt.
g) Radisson Project
The Company holds a 100% interest in 207 CDC’s comprising
approximately 107 km2
of the La Grande Greenstone Belt in an
early-exploration-stage project known as Radisson. A 2% NSR payable
to Franco-Nevada Corporation is assigned to eight of the 207
CDC’s.
h) Lidge Project
The Company holds a 100% interest in this very-early to early-stage
exploration project, which is located in a prospective geological
regime within the James Bay Mining District of
Québec.
i) Lac Clarkie Project
On August 11, 2016, the Company announced staking of the 600 claim
(316 km2)
Lac Clarkie Project located immediately east of the Company’s
flagship Clearwater project. The Clearwater project and Lac Clarkie
claims cover a combined total of 516 km2
of prospective greenstone belt in the
Eastmain/Opinaca district of James Bay, Quebec.
- 18 -
Eastmain Resources Inc.
Notes to Consolidated Financial Statements
October 31, 2019 and 2018
(Expressed in Canadian Dollars)
9.
Exploration and evaluation (continued)
Impairment of exploration and evaluation assets:
The Company reviews its projects on a quarterly basis for
indications of impairment. In conducting its analysis at year-end,
the Company identified certain projects and balances which were
indicative of potential impairment due to challenging market
conditions. As a result, the Company has elected to reduce the
carrying value of certain project balances. The analysis performed
considered a variety of factors including market valuations for
similar assets, previous exploration results and the
Company’s future exploration intentions at each of its
assets. As a result the Company recognized impairments on Eastmain
Mine, Clearwater, Lac Clarkie and Lac Lessard properties. At
Eastmain Mine, the project was revalued to an amount consistent
with the future cash flows expected to be received under the
previously announced option agreement. At Clearwater, the project
was revalued to remove previously capitalized expenditures on
various targets which the Company does not intend to explore in the
near term. At Lac Clarkie and Lac Lessard, the projects have been
reduced to reflect the lower priority nature of these
claims.
10.
Amounts payable and accrued liabilities
|
|
As
at
October
31,
2019
|
As
at
October
31,
2018
|
|
Amounts payable and
accrued liabilities
|
$758,085
|
$1,515,908
|
|
Government
remittances payable
|
-
|
120
|
|
Accrual for
flow-through financings reassessment (i)
|
280,000
|
280,000
|
|
Due to related
parties (notes 17)
|
58,806
|
86,366
|
|
|
$1,096,891
|
$1,882,394
|
(i) In late 2017, the Company was advised by the Canada Revenue
Agency ("CRA") that certain Canadian Exploration Expenses
(“CEE”) expenditures which had been renounced to
investors in 2013 and 2014 via flow-through financings were
reassessed by the CRA. The Company is currently awaiting final
documentation regarding the specific reassessment amounts and
intends to file an objection and vigorously contest the
reassessment. The Company and its tax advisors maintain its stance
that the associated expenditures are CEE-eligible. Assuming the
Company is unsuccessful in its appeal and/or fails to reach a
settlement with the CRA, the Company anticipates potential
repayments of up to $280,000. While not considered material to the
operations of Eastmain, the Company has accrued for this amount and
will adjust the accrual on completion of the appeal
process.
11.
Flow-through share premium liability and expenditure
commitment
In December 2017, the Company raised $2,280,000 by issuing
flow-through shares. The premium paid by investors in excess of the
market price of the shares was $420,000. In accordance with
flow-through regulations, the Company is committed to incur
eligible exploration expenditures before December 31, 2018 in the
amount of $2,280,000 which was renounced to investors in December
2017. The flow-through spending commitment has been
fulfilled.
In July 2018, the Company raised $2,945,200 by issuing flow-through
shares. The premium paid by investors in excess of the market price
of the shares was $715,957. In accordance with flow-through
regulations, the Company is committed to incur eligible exploration
expenditures before December 31, 2019 in the amount of $2,945,200
which was renounced to investors in December 2018. The flow-through
spending commitment has been fulfilled.
In May 2019, the Company raised $1,975,737 by issuing flow-through
shares. The premium paid by investors in excess of the market price
of the shares was $792,611. In accordance with flow-through
regulations, the Company is committed to incur eligible exploration
expenditures before December 31, 2020 in the amount of $1,975,737
which will be renounced to investors in December 2019. The
flow-through spending commitment has been fulfilled.
- 19 -
Eastmain Resources Inc.
Notes to Consolidated Financial Statements
October 31, 2019 and 2018
(Expressed in Canadian Dollars)
11.
Flow-through share premium liability and expenditure commitment
(continued)
In October 2019, the Company raised $2,058,000 by issuing
flow-through shares. The premium paid by investors in excess of the
market price of the shares was $525,980. In accordance with
flow-through regulations, the Company is committed to incur
eligible exploration expenditures before December 31, 2020 in the
amount of $2,058,000 which will be renounced to investors in
December 2019.
|
|
Flow-through
premium
liability
|
Flow-through
spending
commitment
|
|
Balance, October 31, 2017
|
$914,377
|
$2,107,716
|
|
December 2017 flow-through
issue
|
420,000
|
2,280,000
|
|
July 2018 flow-through
issue
|
715,957
|
2,945,200
|
|
Reduction for expenses incurred
|
(1,606,335)
|
(5,420,303)
|
|
Balance October
31, 2018
|
$443,999
|
$1,912,613
|
|
May
2019 flow-through issue
|
792,611
|
1,975,737
|
|
October
2019 flow-through issue
|
525,980
|
2,058,000
|
|
Reduction for expenses
incurred
|
(1,259,095)
|
(3,975,480)
|
|
Balance, October
31, 2019
|
$503,495
|
$ 1,970,870
|
12.
Share capital
a)
Authorized
and issued share capital
The authorized share capital consists of an unlimited number of
common shares. The common shares do not have a par value. All
issued shares are fully paid.
(i) On December 14, 2017, the Company closed a non-brokered
offering of 6,000,000 flow-through common shares at a price of
$0.38 per flow-through common share, to raise aggregate gross
proceeds of $2,280,000. Issue costs in connection with the offer
were $5,235.
The net proceeds of the offering are expected to be used to fund
exploration and development of the Company’s mineral
concessions in Quebec.
(ii) On July 5, 2018, the Company completed a private placement
consisting of the issue of 8,268,570 Federal flow-through shares at
$0.28 per Federal flow-through share, 2,100,000 Quebec flow-through
shares at $0.30 and 11,935,321 units at $0.235 per unit for
aggregate gross proceeds of $5,750,000. Issue costs in connection
with the offer were $112,819 and underwriting's fees were
$303,758.
Each unit consists of one common share of the Company and one-half
of one common share purchase warrant (each whole common share
purchase warrant). Each warrant entitles the holder to acquire one
common share of the Company for 2 years from the closing at a price
of $0.35.
The net proceeds of the offering are expected to be used to fund
exploration and development of the Company’s mineral
concessions in Quebec and for general corporate and working capital
purposes.
- 20 -
Eastmain Resources Inc.
Notes to Consolidated Financial Statements
October 31, 2019 and 2018
(Expressed in Canadian Dollars)
12.
Share capital (continued)
a)
Authorized
and issued share capital (continued)
(iii) On May 8, 2019, the Company completed a private placement for
aggregate gross proceeds of $3,189,009. Pursuant to the offering,
the Company issued an aggregate of 8,987,203 units at a price of
$0.135 per unit, 8,044,285 Quebec flow-through common shares of the
Company at a price of $0.175 per Quebec flow-through common share,
1,064,500 Federal flow-through common shares of the Company at a
price of $0.17 per Federal flow-through common share, and 1,646,900
charity flow-through units of the Company at a price of $0.235 per
charity flow-through unit.
Each unit and each charity flow-through unit consisted of one
common share of the Company and one-half of one common share
purchase warrant (each whole common share purchase warrant). Each
warrant will entitle the holder to acquire one common share of the
Company for two years from the closing of the offering at a price
of $0.17. Issue costs in connection with the offer were $96,956 and
underwriting's fees were $98,949.
The net proceeds from the offering will be used to fund the
exploration and development of the Company’s Québec
mineral concessions and for general corporate and working capital
purposes.
(iv) On October 24, 2019, the Company completed a private placement
for aggregate gross proceeds of $2,749,892. Pursuant to the
offering, the Company issued an aggregate of 5,765,772 units at a
price of $0.12 per unit, 12,632,257 Quebec flow-through common
shares of the Company at a price of $0.155 per Quebec flow-through
share and 689,654 Federal flow-through common shares of the Company
at a price of $0.145 per Federal flow-through share.
Each unit consisted of one common share of the Company and one-half
of one common share purchase warrant (each whole common share
purchase warrant). Each warrant will entitle the holder to acquire
one common share of the Company for two years from the closing of
the offering at a price of $0.16. Issue costs in connection with
the offer were $42,120 and underwriting's fees were $27,125 which
were paid with the issuance of 226,041 common shares of the
Company.
The net proceeds from the sale of the units will be used to fund
the exploration and development of the Company’s Québec
mineral concessions and for general corporate and working capital
purposes.
All Securities issued pursuant to the offering are subject to a
statutory hold period expiring February 25, 2020.
b)
Share
purchase option plan
(i) In January 2018, 250,000 share purchase options with an
exercise price of $0.30 and expiry date of January 25, 2023 were
issued to a director of the Company. One-third of the options
vested immediately, one-third vested on the first anniversary and
one-third on the second anniversary. The estimated fair value of
the grant was $45,000 using the Black-Scholes option pricing model
with the following assumptions: dividend of $0.00; expected
volatility of 72.69%; a risk-free interest rate of 2.04% and an
expected average term of 5 years. During the year ended October 31,
2019, $nil (year ended October 31, 2018 - $15,000) was recognized
as share-based compensation.
Due to the resignation of this director in July 2018, the unvested
portion of the grant (166,667 options) were subsequently canceled
as required by the Company share option plan.
- 21 -
Eastmain Resources Inc.
Notes to Consolidated Financial Statements
October 31, 2019 and 2018
(Expressed in Canadian Dollars)
12.
Share capital (continued)
b)
Share
purchase option plan (continued)
(ii) In September 2018, 2,050,000 share purchase options with an
exercise price of $0.18 and expiry date of September 18, 2023 were
issued to directors, management and certain employees of the
Company. One-third of the options vest immediately, one-third vest
on the first anniversary and one-third on the second anniversary.
The estimated fair value of the grant was $217,000 using the
Black-Scholes option pricing model with the following assumptions:
dividend of $0.00; expected volatility of 69.37%; a risk-free
interest rate of 2.28% and an expected average term of five years.
During the year ended October 31, 2019, $99,979 (year ended October
31, 2018 - $85,116) was recognized as share-based
compensation.
(iii) In January 2019, 476,600 share purchase options with an
exercise price of $0.15 and expiry date of January 28, 2024 were
issued to management and employees of the Company. One-third of the
options vested immediately, one-third vest on the first anniversary
and one-third on the second anniversary. The estimated fair value
of the grant was $42,000 using the Black-Scholes option pricing
model with the following assumptions: dividend of $0.00; expected
volatility of 69.12%; a risk-free interest rate of 1.88% and an
expected average term of 5 years. During the year ended October 31,
2019, $29,923 (year ended October 31, 2018 - $nil) was recognized
as share-based compensation.
|
|
Number of
stock options
|
Weighted
average
exercise
price
|
|
Balance, October 31, 2017
|
10,760,000
|
$0.63
|
|
Granted
(i)(ii)
|
2,300,000
|
0.19
|
|
Expired/cancelled
|
(666,667)
|
0.53
|
|
Balance October 31,
2018
|
12,393,333
|
0.56
|
|
Granted
(iii)
|
476,600
|
0.15
|
|
Balance, October 31,
2019
|
12,869,933
|
$0.54
|
Options outstanding and exercisable as of October 31,
2019:
|
Exercise price
range
|
Number
outstanding
|
Weighted
average
remaining
contractual
life
|
Weighted
average
exercise
price
|
Number
exercisable
|
|
$ 0.01 -
$0.50
|
7,784,933
|
3.62
years
|
$0.28
|
6,728,311
|
|
$ 0.51 -
$1.00
|
2,910,000
|
2.07
years
|
$0.67
|
2,910,000
|
|
$ 1.01 -
$1.50
|
1,925,000
|
1.18
years
|
$1.21
|
1,925,000
|
|
$ 1.51 -
$2.00
|
250,000
|
1.49
years
|
$1.51
|
250,000
|
- 22 -
Eastmain Resources Inc.
Notes to Consolidated Financial Statements
October 31, 2019 and 2018
(Expressed in Canadian Dollars)
12.
Share capital (continued)
b)
Share
purchase option plan (continued)
The following table reflects the actual stock options issued and
outstanding as of October 31, 2019:
|
Expiry
date
|
Black-Scholes
value ($)
|
Number of
options
|
Exercise
price ($)
|
|
April, 2020
|
192,750
|
250,000
|
1.35
|
|
June, 2020
|
536,250
|
750,000
|
1.27
|
|
September, 2020
|
66,885
|
350,000
|
0.32
|
|
September, 2020
|
20,800
|
25,000
|
1.46
|
|
March, 2021
|
56,125
|
250,000
|
0.36
|
|
April, 2021
|
111,376
|
375,000
|
0.48
|
|
April, 2021
|
224,250
|
250,000
|
1.51
|
|
June, 2021
|
394,916
|
1,135,000
|
0.60
|
|
June, 2021
|
395,850
|
650,000
|
1.15
|
|
July, 2021
|
35,000
|
100,000
|
0.62
|
|
August, 2021
|
29,000
|
60,000
|
0.81
|
|
January, 2022
|
228,000
|
740,000
|
0.51
|
|
April, 2022
|
158,250
|
250,000
|
1.05
|
|
May, 2022
|
63,000
|
250,000
|
0.42
|
|
June, 2022
|
384,200
|
850,000
|
0.88
|
|
September, 2022
|
11,975
|
25,000
|
0.96
|
|
September, 2022
|
242,000
|
1,125,000
|
0.36
|
|
January, 2023
|
15,000
|
83,333
|
0.30
|
|
June, 2023
|
102,000
|
600,000
|
0.33
|
|
September, 2023
|
27,900
|
150,000
|
0.36
|
|
September, 2023
|
217,000
|
2,050,000
|
0.18
|
|
June, 2024
|
155,160
|
900,000
|
0.30
|
|
January, 2024
|
42,000
|
476,600
|
0.15
|
|
June, 2025
|
269,075
|
1,175,000
|
0.38
|
|
|
3,978,762
|
12,869,933
|
0.54
|
c)
Restricted
Share Unit ("RSU") plan
During the year ended October 31, 2017, the Company adopted an RSU
Plan. The maximum aggregate number of shares reserved for issuance
under the RSU Plan shall not exceed a combined total of 5% of the
Company’s issued and outstanding shares.
The grant date fair value of the RSU equals the fair market value
of the corresponding shares at the grant date. The fair value of
these equity-settled awards is recognized as compensation expense
with a corresponding increase in equity. The total amount expensed
is recognized over the vesting period, which is the period over
which all the specified vesting conditions should be satisfied. RSU
are converted in common shares when vested.
During the year ended October 31, 2017, the Company granted 340,000
RSU to certain employees under its RSU Plan. These RSU vest as
follows: one-third of the options vest immediately, one-third vest
on the first anniversary and one-third on the second anniversary.
In relation to this grant, RSU vesting for the year ended October
31, 2019 was $17,278 (year ended October 31, 2018 -
$54,392).
- 23 -
Eastmain Resources Inc.
Notes to Consolidated Financial Statements
October 31, 2019 and 2018
(Expressed in Canadian Dollars)
12.
Share capital (continued)
c)
RSU
plan (continued)
During the year ended October 31, 2018, the Company granted 116,667
RSU to an employee under its RSU Plan. These RSU vested immediately
as the RSU were taken in lieu of cash compensation. In relation to
this grant, RSU vesting for the year ended October 31, 2019 was
$nil (year ended October 31, 2018 - $35,000).
During the year ended October 31, 2018, the Company granted 675,000
RSU to certain employees under its RSU Plan. These RSU vest as
follows: one-third of the options vest immediately, one-third vest
on the first anniversary and one-third on the second anniversary.
In relation to this grant, RSU vesting for the year ended October
31, 2019 was $55,980 (year ended October 31, 2018 -
$47,657).
During the year ended October 31, 2019, the Company granted 838,873
RSU to certain employees as part of certain member's short and
long-term compensation under its RSU Plan. These RSU vested
immediately as the RSU were taken in lieu of cash compensation. In
relation to this grant, RSU vesting for the year ended October 31,
2019 was $125,831 (year ended October 31, 2018 -
$nil).
During the year ended October 31, 2019, 1,515,541 RSU vested (year
ended October 31, 2018 - 455,000) and converted to common shares
with a value $286,165 (year ended October 31, 2018 -
$115,167).
As at October 31, 2019, there were 225,000 RSU issued and
outstanding (October 31, 2018 - 563,335). The weighted average fair
value of RSU granted during the year ended October 31, 2019 was
$0.17 (year ended October 31, 2018 - $0.25) per share.
13.
Warrants
In July 2018, 5,967,660 share purchase warrants with an exercise
price of $0.35, expiring in July 2020, were issued as part of a
private placement share issue. The estimated fair value of the
warrants was $235,000 using the Black-Scholes option pricing model
with the following assumptions: dividend of $0.00; expected
volatility of 58.6%; a risk-free interest rate of 1.91% and an
expected term of two years.
In May 2019, 5,317,052 share purchase warrants with an exercise
price of $0.17, expiring in May 2021, were issued as part of a
private placement share issue. The estimated fair value of the
warrants was $117,000 using the Black-Scholes option pricing model
with the following assumptions: dividend of $0.00; expected
volatility of 59.4%; a risk-free interest rate of 1.59% and an
expected term of two years.
In October 2019, 2,995,904 share purchase warrants with an exercise
price of $0.16, expiring in October 2021, were issued as part of a
private placement share issue. The estimated fair value of the
warrants was $90,000 using the Black-Scholes option pricing model
with the following assumptions: dividend of $0.00; expected
volatility of 64.8%; a risk-free interest rate of 1.63% and an
expected term of two years.
|
|
Number of
warrants
|
Weighted
average
exercise
price
|
|
Outstanding, October 31,
2017
|
6,899,999
|
$0.50
|
|
Issued
|
5,967,660
|
0.35
|
|
Expired
|
(499,999)
|
0.50
|
|
Balance October 31,
2018
|
12,367,660
|
0.43
|
|
Issued
|
8,312,955
|
0.17
|
|
Expired
|
(6,400,000)
|
0.50
|
|
Balance, October 31,
2019
|
14,280,615
|
$0.24
|
- 24 -
Eastmain Resources Inc.
Notes to Consolidated Financial Statements
October 31, 2019 and 2018
(Expressed in Canadian Dollars)
13.
Warrants (continued)
The following table reflects the warrants issued and outstanding as
of October 31, 2019:
|
Expiry
date
|
Exercise
price ($)
|
Warrants
outstanding
|
Valuation
($)
|
|
July 4,
2020
|
0.35
|
5,967,660
|
235,000
|
|
May 8,
2021
|
0.17
|
5,317,052
|
117,000
|
|
October 24,
2021
|
0.16
|
2,995,904
|
90,000
|
|
|
|
14,280,616
|
442,000
|
14.
Net loss per share
The calculation of basic and diluted loss per share for the year
ended October 31, 2019, was based on the loss attributable to
common shareholders of $16,592,756 (year ended October 31, 2018 -
$2,507,495) and the weighted average number of common shares
outstanding of 232,442,206 (year ended October 31, 2018 -
205,720,724). Diluted loss per share did not include the effect of
stock options, warrants and RSU as they are
anti-dilutive.
15.
Capital management
The Company’s objectives in managing capital are to ensure
that there are adequate resources to sustain operations and to
continue as a going concern, to maintain adequate levels of funding
to support acquisition and exploration of mineral properties, to
maintain investor and market confidence, and to provide returns to
shareholders. The Company may manage its capital structure by
issuing new shares, adjusting capital spending or disposing of
assets. The Board of Directors does not establish quantitative
return on capital criteria for management, but relies on
management’s expertise to sustain future development of the
business.
Exploration involves a high degree of risk and there are
substantial uncertainties about the ultimate ability of the Company
to achieve positive cash flow from operations. Consequently,
management reviews its capital management approach on an ongoing
basis, taking into consideration operating expenditures and other
investing and financing activities. As a part of this review,
management considers the cost of capital and the risks associated
with each class of capital. Based on recommendations from
management, the directors balance overall capital structure through
new share issues.
Management intends to continue to use various strategies to
minimize its dependence on equity capital, including the securing
of joint arrangements where appropriate.
Management considers its capital structure to consist of equity
attributable to equity holders of the Company, comprising issued
share capital, warrants, contributed surplus and accumulated
deficit, which at October 31, 2019 totalled $67,374,058.
There were no changes in management’s approach to capital
management during the year ended October 31, 2019. The Company is
not subject to externally imposed capital
requirements.
- 25 -
Eastmain Resources Inc.
Notes to Consolidated Financial Statements
October 31, 2019 and 2018
(Expressed in Canadian Dollars)
16.
Financial risk factors
The Company has not entered into any specialized financial
agreements to minimize its investment risk, currency risk or
commodity risk and the Company does not hold any asset-backed
commercial paper. The Company’s financial instruments are
exposed to certain financial risks, including currency risk, credit
risk, liquidity risk, interest-rate risk and commodity-price risk.
The Company’s exposure to risk factors and their impact on
the Company’s financial instruments are summarized
below:
a) Fair value
Fair value represents the amount of which a financial instrument
could be exchanged between willing parties, based on current
markets for instruments with the same risk, principal and remaining
maturity. Fair-value estimates are based on quoted market values
and other valuation methods.
b) Credit risk
Credit risk is the risk of an unexpected loss if a customer or
third party to a financial instrument fails to meet its contractual
obligations. The Company’s credit risk is primarily
attributable to cash and cash equivalents, marketable securities,
and receivables included in prepaid and sundry receivables. The
Company has no significant concentration of credit risk arising
from operations. Cash and cash equivalents are held with tier 1,
insured and regulated Canadian Banks, from which management
believes the risk of loss to be minimal. Financial instruments
included in prepaid and sundry receivables consist of other
receivables. Management believes that its concentration of credit
risk, with respect to financial instruments included in prepaid and
sundry receivables, is minimal.
c) Liquidity risk
Liquidity risk is the risk that the Company will not be able to
meet its financial obligations as they fall due. The
Company’s approach to managing liquidity risk is to ensure
that it will have sufficient liquidity to meet liabilities when
due. As at October 31, 2019, the Company had current assets of
$3,425,208 to settle current liabilities of $2,326,816. The
Company notes that the Flow-through share premium liability which
represents $503,495 of current liabilities balance is not settled
through cash payment. Instead, this balance is amortized against
qualifying flow-through expenditures which are required to be
incurred before December 31, 2019 and December 31, 2020. All of the
Company’s financial liabilities have contractual maturities
of 30 days or less except flow-through liabilities which continue
until December 31, 2020.
During the year ended October 31, 2019, the Company raised net
proceeds of $5,938,902 from the private placements completed in May
2019 and October 2019. In management’s opinion, there are
sufficient funds to support the ongoing operating costs and
discharge the Company’s financial commitments for the
foreseeable future.
d) Market risk
Market risk is the risk of loss that may arise from changes in
market factors such as interest rates, foreign exchange rates, and
commodity and equity prices.
Interest rate risk
The Company has cash balances, interest-bearing bank accounts and
no interest-bearing debt. The Company’s current policy is to
invest excess cash in investment-grade bonds, treasury bills,
bankers’ acceptances and money market funds. Due to the
short-term nature of these financial instruments, fluctuations in
market rates do not have a significant impact on the estimated fair
value as at October 31, 2019.
Foreign currency risk
The Company’s functional currency is the Canadian dollar and
major purchases are transacted in Canadian dollars. The Company
funds certain administrative expenses in the United States on a
cash-call basis using US dollar currency converted from its
Canadian dollar bank account held in Canada. Management believes
the foreign currency risk derived from currency conversions is
manageable and therefore, does not hedge its foreign currency
risk.
- 26 -
Eastmain Resources Inc.
Notes to Consolidated Financial Statements
October 31, 2019 and 2018
(Expressed in Canadian Dollars)
16.
Financial risk factors (continued)
Sensitivity analysis
Based on management’s knowledge and experience of the
financial markets, the Company believes the following movements are
reasonably possible over a twelve month period:
i.
Cash
and cash equivalents are subject to floating interest rates. The
Company has no variable debt and receives low interest rates on its
cash and cash equivalent balances. As such, the Company does not
have significant interest rate risk.
ii.
As
at October 31, 2019, all of the
Company's $457,043 investment in marketable securities is subject
to market fluctuations. If the fair value of the Company's
investment in marketable securities had increased or decreased by
25%, with all other variables held constant, the comprehensive loss
and equity for the year ended October 31, 2019 would have been
approximately $114,000 higher or lower.
17.
Related party balances and transactions
Related parties include the Board of Directors, key management,
close family members and enterprises that are controlled by these
individuals. Related party transactions conducted in the normal
course of operations are measured at the amount established and
accepted by the parties.
(a) Transactions with related parties
|
|
Year
ended
October 31,
|
|
|
|
2019
|
2018
|
|
OTD Exploration Services
Inc. ("OTD") (i)
|
$217,580
|
$199,000
|
|
OTD -
rental agreement (ii)
|
$-
|
$ 5,379
|
(i) The Vice President Exploration of Eastmain is the President of
OTD. Fees paid to OTD are related to professional geological
exploration and management services. At October 31, 2019, the
amount due to OTD was $50,643 (October 31, 2018 - $35,356) related
to a) his function as the Vice President Exploration of Eastmain
and to b) reimburse operating and exploration expenses incurred by
OTD on behalf of the Company.
(ii) In addition, Eastmain signed a mobile equipment rental
agreement with OTD in April 2017 for a period of 12 months at a
monthly rate of $1,076 per month.
Amounts due to related parties are included in amounts payable and
accrued liabilities.
(b) Remuneration of directors and key management personnel other
than consulting fees
|
|
Year
ended
October 31,
|
|
|
|
2019
|
2018
|
|
Salaries and
benefits
|
$894,216
|
$864,617
|
|
Share-based
compensation
|
$299,099
|
$411,097
|
The Company considers its key management personnel to be the Chief
Executive Officer and Chief Financial Officer.
Independent directors do not have any employment or service
contracts. Officers and directors are entitled to share-based
compensation and cash remuneration for their services.
At October 31, 2019, the amount due to officers was $5,020 (October
31, 2018 - $18,943) and the amount due to directors was $3,143
(October 31, 2018 - $32,067).
- 27 -
Eastmain Resources Inc.
Notes to Consolidated Financial Statements
October 31, 2019 and 2018
(Expressed in Canadian Dollars)
17.
Related party balances and transactions (continued)
(c) Officer and directors of the Company purchased, on a net basis,
628,570 shares in the July 2018 financing. Officers and directors
of the Company purchased 1,951,500 shares in the May 2019
financing. Officers and directors of the Company purchased
1,330,834 shares in the October 2019 financing.
(d) The Company has a diversified base of investors. To the
Company’s knowledge, no shareholder holds more than 10% of
the Company’s common shares as at October 31,
2019.
18.
Provision for income taxes
The income tax recovery varies from the amounts that would be
computed applying the basic federal and provincial income tax rate
aggregating 26.5% (2018 - 26.5%) to loss before income taxes as
shown in the following table:
|
|
2019
|
2018
|
|
Expected income tax
recovery
|
$5,804,088
|
$427,034
|
|
Share-based
compensation
|
(99,712)
|
(132,125)
|
|
Share issue
cost
|
140,742
|
147,748
|
|
Change in
unrecorded deferred tax asset
|
4,892,631
|
(1,279,527)
|
|
Loss on marketable
securities, net
|
(4,023)
|
(892)
|
|
Other
|
7,875
|
(4,505)
|
|
Impairment of
exploration and evaluation assets
|
(5,432,136)
|
(53,778)
|
|
Deferred income tax
recovery (expense)
|
5,309,465
|
(896,045)
|
Significant components of the Company's deferred income tax assets
and liabilities are as follows:
|
|
2019
|
2018
|
|
Non-capital losses
carried forward
|
$6,231,374
|
$5,497,948
|
|
Capital
assets
|
189,125
|
186,899
|
|
Exploration and
evaluation assets
|
(9,199,609)
|
(13,849,677)
|
|
Share issue
costs
|
236,746
|
314,411
|
|
Other
|
220,668
|
219,259
|
|
Deferred income
taxes
|
(2,321,696)
|
(7,631,160)
|
Non-capital loss carry forwards
The Company has reported non-capital losses available for deduction
which expire as follows:
|
|
2026
|
$731,676
|
|
|
2027
|
682,717
|
|
|
2028
|
926,936
|
|
|
2029
|
879,515
|
|
|
2030
|
1,062,504
|
|
|
2031
|
940,879
|
|
|
2032
|
1,131,672
|
|
|
2033
|
1,074,604
|
|
|
2034
|
1,155,965
|
|
|
2035
|
1,118,408
|
|
|
2036
|
5,302,793
|
|
|
2037
|
2,965,873
|
|
|
2038
|
2,709,030
|
|
|
2039
|
2,832,046
|
|
|
|
$23,514,618
|
- 28 -
Eastmain Resources Inc.
Notes to Consolidated Financial Statements
October 31, 2019 and 2018
(Expressed in Canadian Dollars)
18.
Provision for income taxes (continued)
Other
a) Canadian exploration expenditures and Canadian development
expenditures
The Company has Canadian exploration expenditures and Canadian
development expenditures available to reduce future years' taxable
income of approximately $33,400,000. The tax benefit of these
amounts may be carried forward indefinitely.
b) Capital losses
The Company has unused capital losses of $379,582 which have no
expiry date. These capital losses can only be used to reduce future
income from capital gains.
19.
Subsequent event
On December 6, 2019, the Company appointed Blair Schultz, a
director of the Company, as Interim President and Chief Executive
Officer. This appointment followed the departure of Claude Lemasson
as President and Chief Executive Officer and a director of the
Company. The Board of Directors has formed an executive search
committee to identify and hire a new Chief Executive Officer, and
anticipates the position will be filled in the first half of the
calendar year.
- 29 -