NextSource Materials Inc 6-K, filed Mar 4, 2021
NextSource Materials Inc. (NSRCF)
6-K
2021-03-04
For: 2020-09-30
View Original
Added on
April 12, 2026
About this 6-K
NextSource Materials Inc filed this 6-K on March 4, 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
period ended September 30,
2020
Commission
File Number 000-51151
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NEXTSOURCE MATERIALS INC.
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(Translation
of registrant’s name into English)
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1940-130 King Street West Toronto, Ontario, Canada M5X
2A2
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(Address
of principal executive office)
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Indicate
by check mark whether the registrant files or will file annual
reports under cover of Form 20-F or Form 40-F
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Form
20-F
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☒
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Form
40-F
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☐
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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):
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Yes
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☐
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No
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☒
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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):
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Yes
|
☐
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No
|
☒
|
EXHIBITS
NextSource
Materials Inc. Unaudited Condensed Consolidated Interim Financial
Statements for the Three Months Ended September 30, 2020 as filed
on SEDAR on November 13, 2020.
NextSource
Materials Inc. Management’s Discussion and Analysis for the
Three Months Ended September 30, 2020 as filed on SEDAR on November
13, 2020.
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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NEXTSOURCE
MATERIALS INC.
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Dated: March 4,
2021
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By:
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/s/ Marc Johnson
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Marc Johnson |
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Chief Financial Officer |
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Exhibit
99.1
NextSource Materials Inc.
Unaudited Condensed Consolidated Interim Financial
Statements
For the
three months ended September 30, 2020 and 2019
Expressed
in US Dollars
In
accordance with National Instrument 51-102, the
Company
discloses that its auditors have not reviewed these
unaudited
condensed interim financial statements.
NextSource Materials Inc.
Unaudited Condensed Consolidated Interim Statements of Financial
Position
Expressed in US Dollars
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September
30,
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June
30,
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2020
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2020
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Assets
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Current
Assets:
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Cash and cash
equivalents (note 4)
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$1,040,892
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$222,305
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Amounts
receivable
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11,490
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7,539
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Prepaid
expenses
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18,859
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25,484
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Total
Current Assets
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1,071,241
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255,328
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Plant and Equipment
(note 7)
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16,589
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18,111
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Total
Assets
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$1,087,830
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$273,439
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Liabilities
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Current
Liabilities:
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Accounts payable
(note 16)
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$71,393
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$323,876
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Accrued liabilities
(note 16)
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343,269
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370,449
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Share
subscriptions
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-
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68,411
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Short term debt
(note 17)
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-
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22,115
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Provision (note
13)
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178,014
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174,418
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Fair value of
warrant liability (note 12)
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743,412
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208,768
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Current portion of
lease obligations (note 8)
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4,928
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5,339
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Total
Current Liabilities
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1,341,016
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1,173,376
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Lease obligations
(note 8)
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9,857
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10,679
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Total
Liabilities
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1,350,873
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1,184,055
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Shareholders’
Equity (Deficit)
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Share capital (note
9)
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104,829,518
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103,901,775
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Accumulated
deficit
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(105,213,781)
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(104,933,066)
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Accumulated other
comprehensive income
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121,220
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120,675
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Total
Shareholders’ Equity (Deficit)
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(263,043)
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(910,616)
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Total
Liabilities and Shareholders’ Equity (Deficit)
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$1,087,830
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$273,439
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The accompanying notes are an integral part of these unaudited
condensed consolidated interim financial statements.
Nature
of Operations and Going Concern (note 1)
Mineral
Exploration Properties (note 3)
NextSource Materials Inc.
Unaudited Condensed Consolidated Interim Statements of Operations
and Comprehensive Loss
Expressed in US Dollars
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For the three
months
ended
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For the three
months
ended
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September 30,
2020
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September 30,
2019
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Revenues
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$-
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$-
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Expenses
and other income
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Exploration and
evaluation expenses (notes 3, 4, 5)
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6,467
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8,321
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Payroll and
benefits (note 16)
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92,378
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111,412
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Management fees
(note 16)
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82,771
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83,249
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Professional and
legal fees (note 6)
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38,027
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80,680
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Consulting
fees
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21,704
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61,170
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Public filing
expenses
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30,455
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25,488
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Travel
expenses
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2,307
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12,916
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Investor relation
expenses
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5,830
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14,742
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Insurance
expenses
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7,177
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4,240
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Rent
expenses
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4,446
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4,917
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Information
technology expenses
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2,367
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1,874
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Telecommunications
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577
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746
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General and
administrative expenses
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4,242
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2,010
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Amortization of
property, plant and equipment (note 7)
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1,522
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-
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Bank
fees
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817
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951
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Foreign currency
translation (gain) loss
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(16,251)
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(2,309)
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Interest expense
(income)
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771
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45
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Change in value of
warrant liability (note 12)
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(4,892)
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(241,010)
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Net
loss for the period
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(280,715)
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(169,443)
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Other comprehensive income
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Items that will be reclassified subsequently to loss
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Translation
adjustment for foreign operations
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545
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(3,745)
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Net
loss and comprehensive loss for the period
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(280,170)
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(173,188)
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Weighted-average
common shares,
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596,705,155
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507,417,021
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-
basic and diluted
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Net loss per common
shares,
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(0.00)
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(0.00)
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-
basic and diluted
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The accompanying notes are an integral part of these unaudited
condensed consolidated interim financial statements.
NextSource Materials Inc.
Unaudited Condensed Consolidated Interim Statements of Cash
Flows
Expressed in US Dollars
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For the three
months
ended
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For the three
months
ended
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September 30,
2020
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September 30,
2019
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Cash
flows from operating activities
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Net
loss for the period
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$(280,715)
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$(169,443)
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Add (deduct) items
not affecting cash:
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Amortization of
property, plant and equipment
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1,522
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-
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Change in value of
warrant derivative liability
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(4,892)
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(241,010)
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Change in value of
lease liability
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22
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-
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Change in non-cash
working capital balances:
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(Increase) decrease
in amounts receivable and prepaid expenses
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2,674
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31,456
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Increase (decrease)
in accounts payable and accrued liabilities
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(279,663)
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56,857
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Increase (decrease)
in provision
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3,596
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-
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Increase (decrease)
in share subscriptions received in advance
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(68,411)
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-
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Net cash used in
operating activities
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(625,867)
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(322,140)
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Cash
flows from financing activities
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Short term
debt
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(22,115)
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-
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Lease liability
principal payments
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(1,255)
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-
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Proceeds from
issuance of common shares
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1,476,571
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-
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Common share issue
costs
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(9,292)
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-
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Net cash provided
by financing activities
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1,443,909
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-
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Effect of exchange
rate changes on cash
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545
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(3,745)
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Increase (decrease)
in cash and cash equivalents
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818,587
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(325,885)
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Cash and cash
equivalents - beginning of period
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222,305
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529,331
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Cash
and cash equivalents - end of period
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$1,040,892
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$203,446
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The accompanying notes are an integral part of these unaudited
condensed consolidated interim financial statements.
NextSource Materials Inc.
Unaudited Condensed Consolidated Interim Statements of Changes in
Shareholders’ Equity
Expressed in US Dollars
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Shares
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Share
Capital
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Accumulated
Deficit
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Accumulated Other
Comprehensive Income
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Total (Deficit)
Equity
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#
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$
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$
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$
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$
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Balance
– June 30, 2019
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507,417,021
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103,172,066
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(103,955,431)
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117,479
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(665,886)
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Net
loss for the period
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(169,443)
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(169,443)
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Cumulative
translation adjustment
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(3,745)
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(3,745)
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Balance
– September 30, 2019
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507,417,021
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103,172,066
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(104,124,874)
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113,734
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(839,074)
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Private
placement of common shares
|
29,077,768
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998,620
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998,620
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Cost
of issue of private placement of common shares
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(7,821)
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(7,821)
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Reclassification
as warrant liability
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(261,090)
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(261,090)
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Net
loss for the period
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(808,192)
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(808,192)
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Cumulative
translation adjustment
|
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6,941
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6,941
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|
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|
|
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Balance
– June 30, 2020
|
536,494,789
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103,901,775
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(104,933,066)
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120,675
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(910,616)
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|
|
|
|
|
|
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Private
placement of common shares
|
61,578,783
|
1,476,571
|
|
|
1,476,571
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Cost
of issue of private placement of common shares
|
|
(9,292)
|
|
|
(9,292)
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Reclassification
as warrant liability
|
|
(539,536)
|
|
|
(539,536)
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|
Net
loss for the period
|
|
|
(280,715)
|
|
(280,715)
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Cumulative
translation adjustment
|
|
|
|
545
|
545
|
|
|
|
|
|
|
|
|
Balance
– September 30, 2020
|
598,073,572
|
104,829,518
|
(105,213,781)
|
121,220
|
(263,043)
|
The accompanying notes are an integral part of these unaudited
condensed consolidated interim financial statements.
NextSource Materials Inc.
Notes to Unaudited Condensed Consolidated Interim Financial
Statements
For the three months ended September 30, 2020 and 2019
Expressed in US Dollars
1.
Nature
of Operations and Going Concern
NextSource Materials Inc. (the "Company" or
“NextSource”) was continued under the Canada Business
Corporations Act and has a fiscal year end of June 30. The
Company's registered head office and primary location of records is
130 King Street West, Exchange Tower, Suite 1940, Toronto, Ontario
Canada, M5X 2A2. The Company’s common shares trade on the
Toronto Stock Exchange (the “TSX”) under the symbol
“NEXT” and the OTCQB under the symbol
“NSRCF”.
The
Company's principal business is the acquisition, exploration,
development and mining of mineral resources in Madagascar and
Canada. The Canadian exploration project is not a focus for the
Company at this time. The Company does not operate any mines and
has not initiated construction on any mines. No commercial revenue
has ever been generated by any mineral resource
properties.
The
Company, through its wholly owned foreign subsidiaries, owns
mineral claims and has obtained a mining permit for the Molo
Graphite Project, which is located in Madagascar, but has not
secured all supporting permits and has not secured sufficient
financing to begin construction of the mine.
The
Company does not pay dividends and is unlikely to do so in the
immediate or foreseeable future.
These
unaudited condensed consolidated interim financial statements were
approved by the Board of Directors on November 13,
2020.
Covid-19
In
March 2020 the World Health Organization declared coronavirus
COVID-19 a global pandemic. This contagious disease outbreak, which
has continued to spread, and any related adverse public health
developments, has adversely affected workforces, economies, and
financial markets globally, potentially leading to further economic
downturn. It is not possible for the Company to predict the
duration or magnitude of the adverse results of the outbreak and
its effects on the Company’s business or results of
operations at this time. The impact of COVID-19 on the Company has
been limited since no exploration or development work was ongoing
at the start of the pandemic. The Company was already setup to
operate and communicate remotely through the internet although
certain of our overseas staff and contractors have been indirectly
impacted by intermittent COVID-19 lockdowns in Madagascar and in
South Africa.
Corporate Redomicile
The
Company completed a corporate redomicile from the State of
Minnesota to Canada on December 27, 2017.
Corporate Structure
NextSource
owns 100% of NextSource Materials (Mauritius) Ltd.
(“MATMAU”), a Mauritius subsidiary, and 2391938 Ontario
Inc., an Ontario Company.
MATMAU
owns 100% of NextSource Minerals (Mauritius) Ltd.
(“MINMAU”), a Mauritius subsidiary, NextSource Graphite
(Mauritius) Ltd (“GRAMAU”), a Mauritius subsidiary, and
NextSource Materials (Madagascar) SARLU (“MATMAD”), a
Madagascar subsidiary.
MINMAU
owns 100% of NextSource Minerals (Madagascar) SARLU
(“MINMAD”), a Madagascar subsidiary. MINMAD holds the
Green Giant Vanadium Project exploration permits.
GRAMAU
owns 100% of ERG Madagascar SARLU (“GRAMAD”), a
Madagascar subsidiary. GRAMAD holds the Molo Graphite Project
mining and exploration permits.
NextSource Materials Inc.
Notes to Unaudited Condensed Consolidated Interim Financial
Statements
For the three months ended September 30, 2020 and 2019
Expressed in US Dollars
1.
Nature
of Operations and Going Concern (continued)
Going Concern Assumption
The
accompanying consolidated financial statements have been prepared
on the basis of a going concern, which contemplates the realization
of assets and liquidation of liabilities in the normal course of
business.
As of
September 30, 2020, the Company had an accumulated deficit of
$105,213,781 (June 30, 2020:
$104,933,066) has experienced
recurring net losses and has negative operating cash flows. As
such, conditions exist that may raise substantial doubt regarding
the Company's ability to continue as a going concern. In assessing
whether the going concern assumption is appropriate, management
considers all available information about the future, which is at
least, but not limited to, twelve months from the end of the
reporting period. The Company's ability to continue operations and
fund its exploration and development expenditures is dependent on
management's ability to secure additional financing. Management is
actively pursuing such additional sources of financing, and while
it has been successful in doing so in the past, there can be no
assurance it will be able to do so in the future. These conditions
may raise substantial doubt about the Company’s ability to
continue as a going concern.
These
unaudited condensed consolidated interim financial statements do
not give effect to adjustments that would be necessary should the
Company be unable to continue as a going concern and therefore need
to realize its assets and liquidate its liabilities and commitments
in other than the normal course of business and at amounts
different from those in the accompanying consolidated financial
statements.
2.
Significant
Accounting Policies
Statement of compliance with IFRS
These
condensed consolidated interim financial statements have been
prepared in accordance and comply with International Accounting
Standard 34 Interim Financial Reporting (“IAS 34”)
using accounting principles consistent with International Financial
Reporting Standards (“IFRS”) as issued by the
International Accounting Standards Board (“IASB”) and
interpretations issued by the IFRS Interpretations Committee
(“IFRIC”). The accounting policies adopted are
consistent with those of the previous financial year and the
corresponding interim reporting period. Furthermore, the
information on accounting standards effective in future periods and
not yet adopted remains unchanged from that disclosed in the annual
financial statements.
These
condensed consolidated interim financial statements should be read
in conjunction with the Company’s 2020 annual audited
consolidated financial statements, including the accounting
policies and notes thereto, included in the Annual Information
Form/Form 40-F for the year ended June 30, 2020, which were
prepared in accordance with IFRS.
These
condensed consolidated interim financial statements follow the same
accounting policies and methods of their application as the June
30, 2020 annual audited consolidated financial
statements.
Basis of measurement
These
condensed consolidated interim financial statements have been
prepared under the historical cost basis except for certain
financial instruments that are measured at fair values, as
explained in the accounting policies below.
Basis of consolidation
These
condensed consolidated interim financial statements include the
financial position, results of operation and cash flows of the
Company and its wholly owned subsidiaries. Intercompany balances,
transactions, income and expenses, profits and losses, including
gains and losses relating to subsidiaries have been eliminated on
consolidation.
NextSource Materials Inc.
Notes to Unaudited Condensed Consolidated Interim Financial
Statements
For the three months ended September 30, 2020 and 2019
Expressed in US Dollars
Significant accounting estimates, judgments and
assumptions
To
prepare financial statements in conformity with IFRS, the Company
must make estimates, judgements and assumptions concerning the
future that affect the carrying values of assets and liabilities as
of the date of the financial statements and the reported values of
revenues and expenses during the reporting period. By their nature,
these are uncertain and actual outcomes could differ from the
estimates, judgments and assumptions.
The
impacts of such estimates are pervasive throughout the financial
statements and may require accounting adjustments based on future
occurrences. Revisions to accounting estimates are recognized in
the period in which the estimate is revised and also in future
periods when the revision affects both current and future periods.
Significant accounting judgments, estimates and assumptions are
reviewed on an ongoing basis.
The
areas involving significant judgments, estimates and assumptions
have been detailed in Note 2 to the Company’s audited
consolidated financial statements for the year ended June 30,
2020.
3.
Mineral
Exploration Properties
The
Company has not capitalized any acquisition and exploration costs
for its mineral properties.
Molo Graphite Property, Southern Madagascar Region,
Madagascar
On
December 14, 2011, the Company entered into a Definitive Joint
Venture Agreement ("JVA") with Malagasy Minerals Limited
("Malagasy"), a public company listed on the Australian Stock
Exchange, to acquire a 75% interest in a property package for the
exploration and development of industrial minerals, including
graphite, vanadium and 25 other minerals. The land position
consisted of 2,119 permits covering 827.7 square kilometers and is
mostly adjacent towards the south and east with the Company's 100%
owned Green Giant Vanadium Project. Pursuant to the JVA, the
Company paid $2,261,690 and issued 7,500,000 common shares that
were valued at $1,350,000.
On
April 16, 2014, the Company signed a Sale and Purchase Agreement
and a Mineral Rights Agreement (together “the
Agreements”) with Malagasy to acquire the remaining 25%
interest, subject to Malagasy retaining a 1.5% net smelter royalty
(“NSR”). Pursuant to the Agreements, the Company paid
$364,480 (CAD$400,000), issued 2,500,000 common shares subject to a
12-month voluntary vesting period that were valued at $325,000 and
issued 3,500,000 common share purchase warrants, which were valued
at $320,950 using Black-Scholes, with an exercise price of $0.14
and an expiry date of April 15, 2019. On May 20, 2015 and upon
completion of a bankable feasibility study (“BFS”) for
the Molo Graphite Property, the Company paid $546,000 (CAD$700,000)
and issued 1,000,000 common shares, which were valued at $100,000.
A further cash payment of approximately $771,510 (CAD$1,000,000)
will be due within five days of the commencement of commercial
production. The Company also acquired a 100% interest in the
industrial mineral rights on approximately 1 ½ additional
claim blocks covering 10,811 hectares adjoining the east side of
the Molo Graphite Property. Prior to becoming a Director of the
Company, Brett Whalen purchased an option to acquire the 1.5% NSR
from Malagasy, upon the mine achieving commercial production, in
return for a further payment to Malagasy.
The
Molo Graphite Project is located within Exploration Permit #3432
(“PR 3432”) as issued by the Bureau de Cadastre Minier
de Madagascar (“BCMM”) pursuant to the Mining Code 1999
(as amended) and its implementing decrees. The Molo Graphite
Project exploration permit PR 3432 is currently held under the name
of our Madagascar subsidiary, which has paid all taxes and
administrative fees to the Madagascar government and its mining
ministry with respect to all the mining permits held in country.
These taxes and administrative fee payments have been acknowledged
and accepted by the Madagascar government.
During
fiscal 2017, the Company applied to the BCMM to have PR 3432
converted into a mining permit.
On
February 15, 2019, the Company has received a 40-year mining
license for the Molo Graphite Project from the Madagascar
Government which does not limit mining to any specific
volume.
NextSource Materials Inc.
Notes to Unaudited Condensed Consolidated Interim Financial
Statements
For the three months ended September 30, 2020 and 2019
Expressed in US Dollars
3.
Mineral
Exploration Properties – continued
Expressed in US Dollars
On
April 11, 2019, the Company also received the Global Environmental
Permit for the Molo Graphite Project from the Madagascar Ministry
of Environment’s Office National pour l'Environnement (the
National Office for the Environment; or
“ONE”).
The
application for other necessary permits to construct and operate
the mine, including water use, facilities construction, mineral
processing, transportation, export, and labour have been
initiated.
As at
the date hereof, the timing of the advancement into Phase 1 of the
Molo Graphite Project is entirely contingent upon obtaining
construction financing. Discussions in respect of negotiating and
structuring strategic partnerships, off take agreements and debt
financing for our Molo Graphite Project in Madagascar are ongoing
and are expected to continue during the coming months with no
assurances as to the conclusion or results of these
discussions.
The
Company cannot provide any assurance as to the timing of the
receipt of sufficient construction financing and of any of the
permits and licenses that are still necessary to complete the
construction of the mine and initiate operations. In the event that
construction financing is not available, the Company will not be
able to pursue any substantial work in connection with the
development of the Molo Graphite Project.
Green Giant Vanadium Project, Southern Madagascar Region,
Madagascar
In
2007, the Company entered into a joint venture agreement with
Madagascar Minerals and Resources SARL ("MMR") to acquire a 75%
interest in the Green Giant property. Pursuant to the agreement,
the Company paid $765,000 in cash, issued 2,500,000 common shares
and issued 1,000,000 common share purchase warrants, which have now
expired.
On July
9, 2009, the Company acquired the remaining 25% interest by paying
$100,000. MMR retains a 2% NSR. The first 1% NSR can be acquired at
the Company's option by paying $500,000 in cash or common shares
and the second 1% NSR can be acquired at the Company’s option
by paying $1,000,000 in cash or common shares.
The
Green Giant property is located within exploration permits issued
by the BCMM pursuant to the Mining Code 1999 (as amended) and its
implementing decrees. The Green Giant property exploration permits
are currently held under the name of our Madagascar subsidiary,
which has paid all taxes and administrative fees to the Madagascar
government and its mining ministry with respect to all the mining
permits held in country. These taxes and administrative fee
payments have been acknowledged and accepted by the Madagascar
government.
Since
early 2012, the Company has focused its efforts on the Molo
Graphite Project and as such only limited work has been completed
on the Green Giant Vanadium Project since that time.
NextSource Materials Inc.
Notes to Unaudited Condensed Consolidated Interim Financial
Statements
For the three months ended September 30, 2020 and 2019
Expressed in US Dollars
3.
Mineral
Exploration Properties – continued
Sagar Property, Labrador Trough Region, Quebec, Canada
In
2006, the Company purchased from Virginia Mines Inc. ("Virginia") a
100% interest in 369 claims located in northern Quebec, Canada.
Virginia retains a 2% net smelter return royalty ("NSR") on certain
claims within the property. Other unrelated parties also retain a
1% NSR and a 0.5% NSR on certain claims within the property, of
which half of the 1% NSR can be acquired by the Company by paying
$200,000 and half of the 0.5% NSR can be acquired by the Company by
paying $100,000.
On
February 28, 2014, the Company signed an agreement to sell a 35%
interest in the Sagar property to Honey Badger Exploration Inc.
(“Honey Badger”), a public company that is a related
party through common management. The terms of the agreement were
subsequently amended on July 31, 2014 and again on May 8, 2015. To
earn the 35% interest, Honey Badger was required to complete a
payment of $36,045 (CAD$50,000) by December 31, 2015, incur
exploration expenditures of $360,450 (CAD$500,000) by December 31,
2016 and issue 20,000,000 common shares to the Company by December
31, 2015. Honey Badger did not complete the earn-in requirements by
December 31, 2015 resulting in the termination of the option
agreement.
Since
early 2012, the Company has focused its efforts on the Molo
Graphite Project and as such only minimal work has been completed
on the Sagar Property since that time.
As of
September 30, 2020, the Sagar property consisted of 184 claims
covering a total area of 8,539.58 ha.
4.
Segmented
Reporting
The
Company has one operating segment, which involves the acquisition,
exploration and development of mineral resources in Madagascar and
Canada. The Canadian exploration project is not a focus for the
Company at this time. No commercial revenue has ever been generated
by any mineral resource properties. Limited amounts of cash and
equipment are currently held in Madagascar. Substantially all of
the Company assets are held in Canada. The Company's President and
Chief Executive Officer and Chief Financial Officer are the
operating decision-makers and direct the allocation of resources to
its geographic segments.
The
following is the segmented information by geographic
region:
|
Mineral
Exploration Expenses
|
Madagascar
|
Canada
|
Total
|
|
|
$
|
$
|
$
|
|
Three months ended
September 30, 2020
|
6,083
|
384
|
6,467
|
|
Three months ended
September 30, 2019
|
7,012
|
1,309
|
8,321
|
|
|
|
|
|
|
Cash
and Cash Equivalents
|
Madagascar
|
Canada
|
Total
|
|
|
$
|
$
|
$
|
|
As
of September 30, 2020
|
13,063
|
1,027,829
|
1,040,892
|
|
As
of September 30, 2019
|
54,026
|
149,420
|
203,446
|
NextSource Materials Inc.
Notes to Unaudited Condensed Consolidated Interim Financial
Statements
For the three months ended September 30, 2020 and 2019
Expressed in US Dollars
5.
Exploration
and Evaluation Expenses
Exploration
and evaluation expenses include all costs relating to exploration
activities (drilling, seismic, geological, geophysical, testing and
sampling), metallurgical evaluation activities, mineral claims and
camp operations.
The
following is the breakdown by nature of the expenses:
|
|
For the three
months ended
|
|
|
|
September 30,
2020
|
September 30,
2019
|
|
|
$
|
$
|
|
Exploration
activities
|
-
|
-
|
|
Metallurgical
evaluation
|
-
|
-
|
|
Mineral claims
(Canada)
|
384
|
1,309
|
|
Mineral claims
(Madagascar)
|
-
|
-
|
|
Camp
(Madagascar)
|
6,083
|
7,012
|
|
Total
exploration and evaluation expenses
|
6,467
|
8,321
|
6.
Professional
and Legal Fees
Professional
and legal fees include accounting, auditor and lawyer
fees.
The
following is the breakdown by nature of the expenses:
|
|
For the three
months ended
|
For the three
months ended
|
|
|
September 30,
2020
|
September 30,
2019
|
|
|
$
|
$
|
|
Accounting
fees
|
7,626
|
2,817
|
|
Auditor
fees
|
8,974
|
18,174
|
|
Tax
advisory fees
|
3,778
|
-
|
|
Legal
fees
|
17,649
|
59,689
|
|
Offshore
management fees
|
-
|
-
|
|
Total professional and legal fees
|
38,027
|
80,680
|
|
|
|
|
NextSource Materials Inc.
Notes to Unaudited Condensed Consolidated Interim Financial
Statements
For the three months ended September 30, 2020 and 2019
Expressed in US Dollars
8.
Plant
and Equipment
The
Company owns metallurgical testing equipment and several vehicles
in Madagascar that were previously used for exploration purposes
that have no carrying values. Upon the Company’s adoption of
IFRS 16 on July 1, 2019, the Company recognized $24,164 for leased
right-of-use assets in relation to the long-term lease for the
exploration camp in Fotadrevo, Madagascar.
The following table sets out the carrying amounts of plant and
equipment in the consolidated statement of financial position and
the movements during the year:
|
|
Plant
|
Equipment
|
Total
|
|
|
$
|
$
|
$
|
|
|
|
|
|
|
Balance as of June 30, 2018
|
-
|
-
|
-
|
|
|
|
|
|
|
Balance as of June 30, 2019
|
-
|
-
|
-
|
|
|
|
|
|
|
Adoption
of IFRS 16
|
24,164
|
|
24,164
|
|
Amortization
|
(6,053)
|
|
(6,053)
|
|
Balance as of June 30, 2020
|
18,111
|
-
|
18,111
|
|
|
|
|
|
|
Additions
|
-
|
|
-
|
|
Amortization
|
(1,522)
|
|
(1,522)
|
|
Balance as of June 30, 2020
|
16,589
|
-
|
16,589
|
|
|
|
|
|
NextSource Materials Inc.
Notes to Unaudited Condensed Consolidated Interim Financial
Statements
For the three months ended September 30, 2020 and 2019
Expressed in US Dollars
8.
Lease
obligations
The
Company is party to a number of contracts that contain a lease,
most of which include office facilities and exploration camp.
Leases of low value assets, short term leases and leases with
variable payments proportional to the rate of use of the underlying
asset do not give rise to a lease obligation. Upon the
Company’s adoption of IFRS 16 on July 1, 2019, the Company
recognized $24,164 of lease obligations for leased right-of-use
assets in relation to the long-term lease for the exploration camp
in Fotadrevo, Madagascar.
The following table sets out the carrying amounts of lease
obligations for right-of-use assets that are included in the
consolidated statement of financial position and the movements
during the year:
|
|
Property
|
Plant
|
Equipment
|
Total
|
|
|
$
|
$
|
$
|
$
|
|
|
|
|
|
|
|
As of July 1, 2019
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
Adoption
of IFRS 16
|
-
|
24,164
|
-
|
24,164
|
|
Amortization
of lease obligations
|
-
|
(4,810)
|
-
|
(4,810)
|
|
Foreign
exchange
|
-
|
(3,336)
|
-
|
(3,336)
|
|
Balance as of June 30, 2020
|
-
|
16,018
|
-
|
16,018
|
|
|
|
|
|
|
|
Additions
|
-
|
-
|
-
|
-
|
|
Amortization
of lease obligations
|
-
|
(1,255)
|
-
|
(1,255)
|
|
Foreign
exchange
|
-
|
22
|
-
|
22
|
|
Balance as of September 30, 2020
|
-
|
14,785
|
-
|
14,785
|
The following table sets out the lease obligations included in the
consolidated statements of financial position:
|
|
Property
|
Plant
|
Equipment
|
Total
|
|
|
$
|
$
|
$
|
$
|
|
|
|
|
|
|
|
Current
portion of lease obligations
|
-
|
4,912
|
-
|
4,912
|
|
Long-term
lease obligations
|
-
|
9,873
|
-
|
9,873
|
|
Total lease obligations
|
-
|
14,785
|
-
|
14,785
|
NextSource Materials Inc.
Notes to Unaudited Condensed Consolidated Interim Financial
Statements
For the three months ended September 30, 2020 and 2019
Expressed in US Dollars
8.
Lease
obligations- contined
Future minimum lease payments required to meet obligations that
have initial or remaining non-cancellable lease terms are set out
in the following table:
|
|
Property
|
Plant
|
Equipment
|
Total
|
|
|
$
|
$
|
$
|
$
|
|
|
|
|
|
|
|
Within
1 year
|
-
|
6,187
|
-
|
6,187
|
|
Between
2 - 3 years
|
-
|
10,827
|
-
|
10,827
|
|
Between
4 -5 years
|
-
|
-
|
-
|
-
|
|
Thereafter
|
-
|
-
|
-
|
-
|
|
Total undiscounted lease obligations
|
-
|
17,014
|
-
|
17,014
|
The
Company recognized rent expense relating to short-term leases of
$4,446 and interest expense on lease obligation of $428 in the
consolidated statements of operations and comprehensive loss with
respect to leases.
9.
Share
Capital
The Company’s common shares have no par value and the
authorized share capital is composed of an unlimited number of
common shares. As of September 30, 2020, the Company had
598,073,572 common shares issued and outstanding (June 30, 2020:
536,494,789).
The Company issued the following common shares during the three
months ended September 30, 2020:
(a)
On
July 2, 2020, the Company completed a non-brokered private
placement of 61,578,873 units at a price of $0.024 (CAD$0.0325) for
gross proceeds of $1,476,571 (CAD$2,001,310). Each Unit consists of
one common share of the Company and one-half of one common share
purchase warrant (a “Warrant”), with each full Warrant
entitling the holder to acquire one additional common share of the
Company at a price of $0.048 (CAD$0.065) per share for a period of
24 months. No finder fees or commissions were paid in association
with the private placement. In connection with the non-brokered
private placement, the Company incurred $9,292 (CAD$12,619) in
share issuance costs.
10.
Stock
Options
The
Company’s stock option plan is restricted to a maximum of 10%
of the issued and outstanding common shares. Under the stock option
plan, the Company may grant stock options to directors, officers,
employees and consultants. The Board of Directors administers the
plan and determines the vesting and terms of each
grant.
The
Black-Scholes option valuation model is used to determine the fair
value of stock option grants based on the market price, the
exercise price, compound risk free interest rate, annualized
volatility and number of periods until expiration. Each stock
option entitles the holder to purchase one common share of the
Company at the respective exercise price prior to or on the
respective expiration date.
NextSource Materials Inc.
Notes to Unaudited Condensed Consolidated Interim Financial
Statements
For the three months ended September 30, 2020 and 2019
Expressed in US Dollars
10.
Stock
Options- continued
As of September 30, 2020, the Company had 36,250,000 stock options
issued and outstanding (June 30, 2020: 36,250,000) with a weighted
average expiration of 2.02 years (June 30, 2020: 2.28 years), which
are exercisable into 36,250,000 common shares (June 30, 2020:
36,250,000) at a weighted average exercise price of $0.067 (June
30, 2020: $0.067). All stock options that are currently outstanding
vested on the grant date.
The
following is a schedule of the outstanding stock options for the
three months ended September 30, 2020:
|
Grant
Date
|
Expiration
Date
|
Exercise
Price
|
Balance
Outstanding
June
30,
2020
|
Options
Granted (Expired or
Cancelled)
|
Options
Exercised
|
Balance
Outstanding
September
30, 2020
|
|
December 22,
2015
|
December 22,
2020
|
USD
$0.06
|
6,300,000
|
-
|
-
|
6,300,000
|
|
June 9,
2017
|
June 9,
2022
|
USD
$0.07
|
18,100,000
|
-
|
-
|
18,100,000
|
|
March 26,
2019
|
March 26,
2024
|
CAD
$0.10
|
11,850,000
|
-
|
-
|
11,850,000
|
|
Total
Outstanding
|
|
|
36,250,000
|
-
|
-
|
36,250,000
|
The
following is a continuity schedule of the Company's outstanding
common stock purchase options:
|
|
Weighted-Average
Exercise
Price
$
|
Number
of
Stock
Options
#
|
|
Outstanding as of
June 30, 2019
|
USD
$0.08
|
40,670,000
|
|
|
|
|
|
Granted
|
-
|
-
|
|
Exercised
|
-
|
-
|
|
Expired/cancelled
|
USD
$0.174
|
(4,420,000)
|
|
Outstanding as of
June 30, 2020
|
USD
$0.067
|
36,250,000
|
|
|
|
|
|
Granted
|
-
|
-
|
|
Exercised
|
-
|
-
|
|
Expired/cancelled
|
-
|
-
|
|
Outstanding as of
September 30, 2020
|
USD
$0.067
|
36,250,000
|
The Company did not grant any stock options during the three months
ended September 30, 2020.
The
Company did not grant any stock options during the year ended June
30, 2020.
NextSource Materials Inc.
Notes to Unaudited Condensed Consolidated Interim Financial
Statements
For the three months ended September 30, 2020 and 2019
Expressed in US Dollars
11.
Warrants
The
Company has issued common share purchase warrants as part of equity
private placements.
The
Black-Scholes option valuation model is used to determine the fair
value of warrants issued based on the market price, the exercise
price, compound risk free interest rate, annualized volatility and
number of periods until expiration. Each warrant entitles the
holder to purchase one common share of the Company at the
respective exercise price prior to or on the respective expiration
date.
As of September 30, 2020, the Company had 45,328,278 common share
purchase warrants issued and outstanding (June 30, 2020:
25,191,522) with a weighted average expiration of 1.53 years (June
30, 2020: 0.82 years), which are exercisable into 45,328,278 (June
30, 2020: 25,191,522) common shares at a weighted average exercise
price of $0.05 (June 30, 2020: $0.07). All warrants that are
currently outstanding vested on the issue date.
The
following is a schedule of the outstanding common stock purchase
warrants for the year ended June 30, 2020:
|
Issue
Date
|
Expiration
Date
|
Exercise
Price
|
Balance
Outstanding
June
30,
2020
|
Warrants
Issued (Expired)
|
Warrants
Exercised
|
Balance
Outstanding
September
30,
2020
|
|
August 17,
2018
|
August 17,
2020
|
CAD
$0.10
|
10,652,636
|
(10,652,636)
|
-
|
-
|
|
October 25,
2019
|
October 25,
2021
|
CAD
$0.09
|
14,538,886
|
-
|
-
|
14,538,886
|
|
July 2,
2020
|
July 2,
2022
|
CAD
$0.065
|
-
|
30,789,392
|
-
|
30,789,392
|
|
Total
Outstanding
|
|
|
25,191,522
|
20,136,756
|
-
|
45,328,278
|
The
following is the continuity schedule of the Company's common share
purchase warrants:
|
|
Weighted-Average
Exercise
Price
$
|
Number
of
Warrants
#
|
|
Outstanding as of
June 30, 2019
|
USD
$0.08
|
10,652,636
|
|
Issued
|
CAD
$0.09
|
14,538,886
|
|
Expired
|
-
|
-
|
|
Exercised
|
-
|
-
|
|
Outstanding as of
June 30, 2020
|
USD
$0.07
|
25,191,522
|
|
Issued
|
CAD
$0.065
|
30,789,392
|
|
Expired
|
USD
$0.075
|
(10,652,636)
|
|
Exercised
|
-
|
-
|
|
Outstanding as of
September 30, 2020
|
USD
$0.05
|
45,328,278
|
The Company issued the following common share purchase warrants
during the three months ended September 30, 2020:
(a)
On July 2, 2020,
the Company completed a non-brokered private placement of
61,578,873 units at a price of $0.024 (CAD$0.0325) for gross
proceeds of $1,476,571 (CAD$2,001,310). Each Unit consists of one
common share of the Company and one-half of one common share
purchase warrant (a “Warrant”), with each full Warrant
entitling the holder to acquire one additional common share of the
Company at a price of $0.048 (CAD$0.065) per share for a period of
24 months. No finder fees or commissions were paid in association
with the private placement. In connection with the non-brokered
private placement, the Company incurred $9,292 (CAD$12,619) in
share issuance costs.
NextSource Materials Inc.
Notes to Unaudited Condensed Consolidated Interim Financial
Statements
For the three months ended September 30, 2020 and 2019
Expressed in US Dollars
The Company issued the following common share purchase warrants
during the year ended June 30, 2020:
(a)
On
October 25, 2019, the Company closed a non-brokered private
placement offering of 29,077,768 units at a price of $0.034
(CAD$0.045) per unit for aggregate gross proceeds of $998,619
(CAD$1,308,500). Each unit consisted of one common share and
one-half common share purchase warrant, with each full warrant
exercisable into one common share at an exercise price of $0.07
(CAD$0.09) for a period of two years. The share issue costs
consisted of private placement listing fees paid to the
exchange.
12.
Warrant
Liability
The
warrants issued on August 17, 2018 were issued in a currency other
than the Company’s functional currency and therefore are
considered a derivative equity instrument as per IFRS 9
Financial Instruments. The
warrant liability was measured at fair value in the statement of
financial position using the Black-Scholes option valuation model
and will be revalued at each reporting period through profit and
loss until expiration or exercise of the underlying
warrants.
The
fair value of the warrant liability for warrants expiring on August
17, 2020 was estimated using the following model inputs on the
following valuation dates:
|
|
Warrant
Liability
$
|
|
As of August 17,
2018 (issue date)
|
408,150
|
|
Exercise
price
|
USD$0.076
|
|
Share price on
measurement date
|
CAD$0.09
|
|
Risk free
rate
|
1.50%
|
|
Expected
volatility
|
115%
|
|
Expected dividend
yield
|
Nil
|
|
Expected life (in
years)
|
2
|
|
Change in fair
value
|
(73,532)
|
|
|
|
|
As of June 30,
2019
|
334,618
|
|
Exercise
price
|
USD$0.076
|
|
Share price on
measurement date
|
CAD$0.10
|
|
Risk free
rate
|
1.67%
|
|
Expected
volatility
|
100%
|
|
Expected dividend
yield
|
Nil
|
|
Expected life (in
years)
|
1.13
|
|
Change in fair
value
|
(327,537)
|
|
As of June 30,
2020
|
7,081
|
|
Exercise
price
|
USD$0.073
|
|
Share price on
measurement date
|
CAD$0.04
|
|
Risk free
rate
|
0.20%
|
|
Expected
volatility
|
162%
|
|
Expected dividend
yield
|
Nil
|
|
Expected life (in
years)
|
0.13
|
|
Change in fair
value
|
(7,081)
|
|
As of September 30,
2020
|
-
|
|
Exercise
price
|
USD$0.075
|
|
Share price on
measurement date
|
CAD$0.04
|
|
Risk free
rate
|
0.20%
|
|
Expected
volatility
|
161.49%
|
|
Expected dividend
yield
|
Nil
|
|
Expected life (in
years)
|
-
|
NextSource Materials Inc.
Notes to Unaudited Condensed Consolidated Interim Financial
Statements
For the three months ended September 30, 2020 and 2019
Expressed in US Dollars
12.
Warrant
Liability (continued)
The
warrants issued on October 25, 2019 were issued in a currency other
than the Company’s functional currency and therefore are
considered a derivative equity instrument as per IFRS 9
Financial Instruments. The
warrant liability was measured at fair value in the statement of
financial position using the Black-Scholes option valuation model
and will be revalued at each reporting period through profit and
loss until expiration or exercise of the underlying
warrants.
The
fair value of the warrant liability for the warrants expiring on
October 25, 2021 was estimated using the following model inputs on
the following valuation dates:
|
|
Warrant
Liability
$
|
|
As of October 25,
2019 (issue date)
|
261,090
|
|
Exercise
price
|
USD$0.069
|
|
Share price on
measurement date
|
CAD$0.05
|
|
Risk free
rate
|
1.66%
|
|
Expected
volatility
|
115%
|
|
Expected dividend
yield
|
Nil
|
|
Expected life (in
years)
|
2
|
|
Change in fair
value
|
(59,403)
|
|
|
|
|
As of June 30,
2020
|
201,687
|
|
Exercise
price
|
USD$0.064
|
|
Share price on
measurement date
|
CAD$0.04
|
|
Risk free
rate
|
0.25%
|
|
Expected
volatility
|
156%
|
|
Expected dividend
yield
|
Nil
|
|
Expected life (in
years)
|
1.32
|
|
Change in fair
value
|
(15,248)
|
|
|
|
|
As of September 30,
2020
|
186,439
|
|
Exercise
price
|
USD$0.068
|
|
Share price on
measurement date
|
CAD$0.04
|
|
Risk free
rate
|
0.204%
|
|
Expected
volatility
|
161%
|
|
Expected dividend
yield
|
Nil
|
|
Expected life (in
years)
|
1.07
|
NextSource Materials Inc.
Notes to Unaudited Condensed Consolidated Interim Financial
Statements
For the three months ended September 30, 2020 and 2019
Expressed in US Dollars
12.
Warrant
Liability (continued)
The
warrants issued on July 2, 2020 were issued in a currency other
than the Company’s functional currency and therefore are
considered a derivative equity instrument as per IFRS 9
Financial Instruments. The
warrant liability was measured at fair value in the statement of
financial position using the Black-Scholes option valuation model
and will be revalued at each reporting period through profit and
loss until expiration or exercise of the underlying
warrants.
The
fair value of the warrant liability for the warrants expiring on
July 2, 2022 was estimated using the following model inputs on the
following valuation dates:
|
|
Warrant
Liability
$
|
|
As of July 2, 2020
(issue date)
|
539,536
|
|
Exercise
price
|
USD$0.048
|
|
Share price on
measurement date
|
CAD$0.04
|
|
Risk free
rate
|
0.253%
|
|
Expected
volatility
|
140%
|
|
Expected dividend
yield
|
Nil
|
|
Expected life (in
years)
|
2
|
|
Change in fair
value
|
17,437
|
|
|
|
|
As of September 30,
2020
|
556,973
|
|
Exercise
price
|
USD$0.049
|
|
Share price on
measurement date
|
CAD$0.04
|
|
Risk free
rate
|
0.204%
|
|
Expected
volatility
|
151%
|
|
Expected dividend
yield
|
Nil
|
|
Expected life (in
years)
|
1.76
|
|
|
|
NextSource Materials Inc.
Notes to Unaudited Condensed Consolidated Interim Financial
Statements
For the three months ended September 30, 2020 and 2019
Expressed in US Dollars
13.
Provision
and Contingent Liability
Provision
During fiscal 2014, the Company issued 17,889,215 flow-through
shares to eligible Canadian taxpayer subscribers which included a
contractual commitment for the Company to incur $3,812,642 in
eligible Canadian Exploration Expenditures (“CEEs”) by
December 31, 2014 as per the provision of the Income Tax Act of
Canada. The CEEs were renounced as a tax credit to the flow-through
share subscribers on December 31, 2013. As at December 31, 2014,
the Company had unfulfilled CEE obligations. During the year ended
June 30, 2015, the Company recorded a provision for the Part XII.6
taxes and related penalties payable to the Canada Revenue Agency
and for the indemnification liability to subscribers of the
flow-through shares for the additional taxes payable related to the
CEE renunciation shortfall. During the year ended June 30, 2017,
the Company paid $131,320 in Part XII.6 taxes, resulting in a
reduction in the provision, and following a reassessment of its
obligation to subscribers the Company increased the provision by
$131,320. During the year ended June 30, 2018, the provision was
adjusted due to foreign exchange fluctuations to $180,652. During
the year ended June 30, 2019, there were $Nil adjustments to the
provision balance. During the year ended June 30, 2020, the
provision was adjusted due to foreign exchange fluctuations to
$174,418. During the three months ended September 30, 2020, the
provision was adjusted due to foreign exchange fluctuations to
$178,104.
Contingent Liabilities
On April 16, 2014, the Company signed a Sale and Purchase Agreement
and a Mineral Rights Agreement (together “the
Agreements”) with Malagasy to acquire the remaining 25%
interest in the Molo Graphite Property. Pursuant to the Agreements,
a further cash payment of approximately $771,510 (CAD$1,000,000)
will be due within five days of the commencement of commercial
production. Since this cash payment represents a possible
obligation that depends on the occurrence of an uncertain future
event, no amount has been recognized as a provision.
NextSource Materials Inc.
Notes to Unaudited Condensed Consolidated Interim Financial
Statements
For the three months ended September 30, 2020 and 2019
Expressed in US Dollars
14.
Capital
Management
There
were no changes in the Company's approach to capital management
during the three months ended September 30, 2020.
In
managing liquidity, the Company’s primary objective is to
ensure the entity can continue as a going concern while raising
additional funding to meet its obligations as they come due. The
Company’s operations to date have been funded by issuing
equity. The Company expects to improve the working capital position
by securing additional financing.
The
Company’s investment policy is to invest excess cash in very
low risk financial instruments such as term deposits or by holding
funds in high yield savings accounts with major Canadian banks.
Financial instruments are exposed to certain financial risks, which
may include currency risk, credit risk, liquidity risk and interest
rate risk.
The
Company’s mineral property interests are all in the
exploration or development stage and the Company has yet to
generate any revenue from mining operations, as such the Company is
dependent on external financing to fund its exploration and
evaluation activities and its operating expenditures. Management
continues to assess the merits of mineral properties on an ongoing
basis and may seek to acquire new properties or to increase
ownership interests if it believes there is sufficient geologic and
economic potential.
Management
mitigates the risk and uncertainty associated with raising
additional capital in current economic conditions through cost
control measures that minimizes discretionary disbursements and
reduces exploration expenditures that are deemed of limited
strategic value.
The
Company manages the capital structure (consisting of
shareholders’ deficiency) on an ongoing basis and adjusts in
response to changes in economic conditions and risks
characteristics of its underlying assets. Adjustments to the
Company’s capital structure may involve the issuance of new
shares, assumption of new debt, acquisition or disposition of
assets, or adjustments to the amounts held in cash, cash
equivalents and short-term investments.
The
Company is not subject to any externally imposed capital
requirements.
As at
September 30, 2020, the Company had a working capital deficit of
$269,775 (June 30, 2020: deficit of $918,048).
NextSource Materials Inc.
Notes to Unaudited Condensed Consolidated Interim Financial
Statements
For the three months ended September 30, 2020 and 2019
Expressed in US Dollars
15.
Financial
Instruments and Risk Management
The
following disclosures are to enable users of the consolidated
financial statements to evaluate the nature and extent of risks
arising from financial instruments at the end of the reporting
period:
Credit risk
The
Company does not currently have commercial customers and therefore
does not have any credit risk related to accounts receivables. The
Company has credit risk arising from the potential from
counterparty default on cash and cash equivalents held on deposit
with financial institutions. The Company manages this risk by
ensuring that deposits are only held with large Canadian banks and
financial institutions.
Liquidity risk
Liquidity
risk is the risk that the Company will not be able to meet its
obligations associated with financial liabilities. Liquidity risk
arises from the Company’s financial obligations and in the
management of its assets, liabilities and capital structure. The
Company manages this risk by regularly evaluating its liquid
financial resources to fund current and long-term obligations and
to meet its capital commitments in a cost-effective
manner.
The
main factors that affect liquidity include working capital
requirements, capital-expenditure requirements and equity capital
market conditions. The Company’s liquidity requirements are
met through a variety of sources, including cash and cash
equivalents and equity capital markets.
As at
September 30, 2020, the Company expects to access public debt and
equity capital markets for financing over the next 12 months in
order to initiate construction of its Molo Graphite Project in
Madagascar and to satisfy working capital requirements. While the
Company has been successful in obtaining required funding in the
past, there is no assurance that future financings will be
available.
As at
September 30, 2020, the Company had cash and cash equivalents of
$1,040,892 (June 30, 2020: $222,305) to settle current liabilities
of $1,341,016 (June 30, 2020: $1,173,376). As a result, the Company
is currently exposed to liquidity risk.
Based
on management’s assessment of its past ability to obtain
required funding, the Company believes that it will be able to
satisfy its current and long-term obligations as they come due.
Other than accounts payable, which are due within 30 days, and the
warrant liabilities, which will be fully expensed by July 2022,
none of the Company’s obligations have contractual
maturities.
Market risks
Market
risk is the potential for financial loss from adverse changes in
underlying market factors, including foreign exchange rates,
commodity prices and interest rates.
●
Interest rate risk:
This is the sensitivity of the fair value or of the future cash
flows of a financial instrument to changes in interest rates. The
Company does not have any financial assets or liabilities that are
subject to variable interest rates.
●
Commodity price
risks: This is the sensitivity of the fair value of, or of the
future cash flows, from mineral assets. The Company manages this
risk by monitoring mineral prices and commodity price trends to
determine the appropriate timing for funding the exploration or
development of its mineral assets, or for the acquisition or
disposition of mineral assets. The Company does not have any
mineral assets at the development or production stage carried at
historical cost. The Company has expensed the acquisition and
exploration costs of its exploration stage mineral
assets.
●
Currency
risk: This is the sensitivity of the fair value or of the
future cash flows of financial instruments to changes in foreign
exchange rates. The Company transacts in currencies other
than the US dollar, including the Canadian dollar, the Madagascar
Ariary, the Euro and the South African Rand. The Company
purchases services and has certain salary commitments in those
currencies. The Company also has monetary and financial
instruments that may fluctuate due to changes in foreign exchange
rates. Derivative financial instruments are not used to
reduce exposure to fluctuations in foreign exchange rates. The
Company is not sensitive to foreign exchange exposure since it has
not made any commitments to deliver products quoted in foreign
currencies. The Company is not sensitive to foreign exchange risk
arising from the translation of the financial statements of
subsidiaries with a functional currency other than the US dollar
since it does not have any material assets and liabilities measured
through other comprehensive income.
NextSource Materials Inc.
Notes to Unaudited Condensed Consolidated Interim Financial
Statements
For the three months ended September 30, 2020 and 2019
Expressed in US Dollars
16.
Related
Party Transactions
Parties
are related if one party has the direct or indirect ability to
control or exercise significant influence over the other party in
making operating and financial decisions. Parties are also related
if they are subject to common control or common significant
influence. A transaction is considered to be a related party
transaction when there is a transfer of economic resources or
financial obligations between related parties. Related party
transactions that are in the normal course of business and have
commercial substance are measured at the fair value.
Balances
and transactions between the Company and its wholly owned
subsidiaries, which are related parties of the Company, have been
eliminated and are not disclosed in this note.
Related
parties include companies controlled by key management personnel.
Key management personnel are composed of the Board of Directors,
Chief Executive Officer, Chief Financial Officer and the Senior
Vice Presidents of the Company.
The
following key management personnel related party transactions
occurred during the three months ended September 30, 2020 and
2019:
|
|
For
the three months ended
September
30, 2020
|
For
the three months ended
September
30, 2019
|
|
|
$
|
$
|
|
Management
payroll
|
92,378
|
111,412
|
|
Management
consulting fees
|
82,771
|
83,249
|
|
Professional
and legal fees
|
3,856
|
-
|
|
Share
based compensation
|
-
|
-
|
|
Total
|
175,149
|
194,661
|
The
following key management related party balances existed as of
September 30, 2020 and June 30, 2020:
|
|
As
at
|
As
at
|
|
|
September
30, 2020
|
June
30, 2020
|
|
|
$
|
$
|
|
Accounts
payable due to companies controlled by key management
|
21,131
|
86,685
|
|
Accrued
liabilities due to key management
|
15,903
|
54,727
|
17.
Short-Term
Debt
The
Company has a Canada Emergency Business Account (CEBA), which is
not subject to an interest rate until after December 31, 2022 and
has loan forgiveness provisions whereby 25% of the loan principal
will be forgiven if 75% of the loan principal is repaid prior to
December 31, 2022.
As of
September 30, 2020, the Company had previously withdrawn CAD
$40,000 and repaid CAD $30,000 of loan principal. The Company has
therefore recognized the loan forgiveness of CAD$10,000 resulting
in a short-term debt carrying balance on September 30, 2020 of $nil
(June 30, 2020: $22,115).
Exhibit 99.2
NextSource
Materials Inc.
Interim Management’s Discussion and
Analysis (MD&A) For the three months ended September 30,
2020 and 2019 Expressed in US Dollars
|
NEXTSOURCE
MATERIALS INC. MANAGEMENT’S DISCUSSION AND
ANALYSIS
For
the three months ended September 30, 2020 and 2019
|
Introduction
This
interim Management’s Discussion and Analysis (MD&A) is
intended to help the reader understand NextSource Materials
Inc.’s operations, financial performance, financial condition
and business plans.
This
MD&A, which has been prepared as of November 13, 2020, should
be read in conjunction with NextSource’s consolidated
financial statements for the year ended June 30, 2020 and the
unaudited condensed consolidated interim financial statements for
the three months ended September 30, 2020 and 2019.
The
consolidated financial statements have been prepared in accordance
with International Financial Reporting Standards
(“IFRS”) issued by International Accounting Standards
Board (“IASB”). The presentation and functional
currency of the Company is the US dollar.
References to
“NextSource”, “Company”, “we”,
“us”, “our”, refer to NextSource Materials
Inc. and its consolidated subsidiaries unless the context indicates
otherwise. All amounts are in US dollars, unless otherwise
indicated. The term “NSR” stands for net smelter
royalty. The term “tpa” stands for tonnes per
annum.
Qualified
Person
Craig
Scherba, P.Geo., the Company’s President and Chief Executive
Officer is the Qualified Person, as defined by NI 43-101, who has
reviewed and approved the technical information disclosed in this
MD&A.
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING INFORMATION
Certain
statements contained in this MD&A constitute forward-looking
information within the meaning of applicable Canadian securities
legislation. Generally, forward-looking information can be
identified by the use of forward-looking terminology such as
“plans,” “expects,” or “does not
expect,” “is expected,” “budget,”
“scheduled,” “goal,”
“estimates,” “forecasts,”
“intends,” “anticipates,” or “does
not anticipate,” or “believes” or variations of
such words and phrases or statements that certain actions, events
or results “may,” “could,”
“would,” “might,” or “will be
taken,” “occur,” or “be
achieved”.
Forward-looking
information includes, but is not limited to, information with
respect to certain expectations regarding obtaining necessary
permits; construction timelines and costs; anticipated production
volumes; anticipated operating costs and capital spending; supply,
demand and pricing outlook in the graphite market; sources of
funding for the Molo Graphite Project and the Green Giant Vanadium
Project; exploration drill results; metallurgical drill results;
environmental assessment and rehabilitation costs and amounts of
certain other commitments; and the Company’s business
objectives and targeted milestones (and timing
thereof).
Forward-looking
information is subject to known and unknown risks, uncertainties
and other factors that may cause the actual results, level of
activity, performance or achievements of the Company to be
materially different from those expressed or implied by such
forward-looking information. Such factors include, among others;
negative operating cash flow; the Company’s ability to
continue as a going concern; development projects are uncertain,
and it is possible that actual capital and operating costs and
economic returns will differ significantly from those estimated for
a project prior to production; the Company’s development and
exploration projects are in the African country of Madagascar and
are subject to country political and regulatory risks; dependence
on the Molo Graphite Project; additional permits and licenses are
necessary to complete the development of the Molo Graphite Project;
mining companies are increasingly required to consider and provide
benefits to the communities and countries in which they operate,
and are subject to extensive environmental, health and safety laws
and regulations; fluctuations in the market price of graphite and
other metals may adversely affect the value of the Company’s
securities and the ability of the Company to develop the Molo
Graphite Project; the Company may not have access to sufficient
capital to develop the Molo Graphite Project; the Company has a
limited operating history and expects to incur operating losses for
the foreseeable future; due to the speculative nature of mineral
property exploration, there is substantial risk that the
Company’s assets will not go into commercial production and
the business will fail; estimates of mineral resources and mineral
reserves may not be realized; because of the inherent dangers
involved in mineral exploration, there is a risk that the Company
may incur liability or damages as the Company conducts business;
the impact of COVID-19 may impact the Company’s business and
its development plans; the Company has no insurance for
environmental problems; should the Company lose the services of key
executives, the Company’s financial condition and proposed
expansion may be negatively impacted; because access to the
Company’s properties may be restricted by inclement weather
or proper infrastructure, its exploration programs are likely to
experience delays; climate change and related regulatory responses
may impact the Company’s business; compliance with changing
regulation of corporate governance and public disclosure will
result in additional expenses and pose challenges for management;
tax risks; the Company’s business is subject to
anti-corruption and anti-bribery laws, a breach or violation of
which could lead to civil and criminal fines and penalties, loss of
licenses or permits and reputational harm; the Company does not
intend to pay dividends in the foreseeable future; because from
time to time the Company holds a significant portion of cash
reserves in Canadian dollars, the Company may experience losses due
to foreign exchange translations; the Company is exposed to general
economic conditions, which could have a material adverse impact on
its business, operating results and financial condition; the
current financial environment may impact the Company’s
business and financial condition that cannot be predicted; the
market price for the Common Shares is particularly volatile given
the Company’s status as a relatively unknown company with a
small and thinly traded public float, limited operating history
and
|
NEXTSOURCE
MATERIALS INC. MANAGEMENT’S DISCUSSION AND
ANALYSIS
For
the three months ended September 30, 2020 and 2019
|
lack of
profits which could lead to wide fluctuations in the market price
for the Common Shares; and the Company’s ability to meet
other factors listed from time to time in the Company’s
continuous disclosure documents, including but not limited to, the
AIF.
Forward-looking
information is based on the reasonable assumptions, estimates,
analysis and opinions of management and/or “qualified
persons” (as such term is defined under National Instrument
43-101 – Standards of Disclosure for Mineral Projects
(“”NI 43-101”)) made in light of their experience
and their perception of trends, current conditions and expected
developments, as well as other factors that management and/or
qualified persons believe to be relevant and reasonable in the
circumstances at the date that such statements are made, but which
may prove to be incorrect. Although the Company believes that the
assumptions and expectations reflected in such forward-looking
information are reasonable, undue reliance should not be placed on
forward-looking information because the Company can give no
assurance that such expectations will prove to be correct. In
addition to the assumptions discussed herein the material
assumptions upon which such forward-looking statements are based
include, among others, that: the Company will be successful in its
financing activities; the demand for graphite will develop as
anticipated; graphite prices will remain at or attain levels that
would render the Molo Graphite Project potentially economic; that
any proposed operating and capital plans will not be disrupted by
operational issues, title issues, loss of permits, environmental
concerns, power supply, labour disturbances, financing requirements
or adverse weather conditions; the Company will continue to have
the ability to attract and retain skilled staff; and there are no
material unanticipated variations in the cost of energy or
supplies. Readers are cautioned that the foregoing list is not
exhaustive of all factors and assumptions which may have been used.
Although the Company has attempted to identify important factors
that could cause actual results to differ materially from those
contained in forward-looking information, there may be other
factors that cause results not to be as anticipated, estimated or
intended. There can be no assurance that such information will
prove to be accurate, as actual results and future events could
differ materially from those anticipated in such information.
Accordingly, readers should not place undue reliance on
forward-looking information. The forward-looking information
contained herein is presented for the purposes of assisting
investors in understanding the Company’s expected financial
and operating performance and the Company’s plans and
objectives and may not be appropriate for other
purposes.
The
Company does not undertake to update any forward-looking
information, except in accordance with applicable securities
laws.
Nature
of Operations
NextSource
Materials Inc. (the "Company" or “NextSource”) was
continued under the Canada Business Corporations Act and has a
fiscal year end of June 30. The Company's registered head office
and primary location of records is 130 King Street West, Exchange
Tower, Suite 1940, Toronto, Ontario Canada, M5X 2A2. The
Company’s common shares trade on the Toronto Stock Exchange
(the “TSX”) under the symbol “NEXT” and the
OTCQB under the symbol “NSRCF”.
The
Company's principal business is the acquisition, exploration,
development and mining of mineral resources in Madagascar and
Canada. The Canadian exploration project is not a focus for the
Company at this time. The Company does not operate any mines and
has not initiated construction on any mines. No commercial revenue
has ever been generated by any mineral resource
properties.
The
Company, through its wholly owned foreign subsidiaries, owns
mineral claims and has obtained a mining permit for the Molo
Graphite Project, which is located in Madagascar, but has not
secured all supporting permits and has not secured sufficient
financing to begin construction of the mine.
The
Company does not pay dividends and is unlikely to do so in the
immediate or foreseeable future.
COVID-19
In
March 2020 the World Health Organization declared coronavirus
COVID-19 a global pandemic. This contagious disease outbreak, which
has continued to spread, and any related adverse public health
developments, has adversely affected workforces, economies, and
financial markets globally, potentially leading to further economic
downturn. It is not possible for the Company to predict the
duration or magnitude of the adverse results of the outbreak and
its effects on the Company’s business or results of
operations at this time. The impact of COVID-19 on the Company has
been limited since no exploration or development work was ongoing
at the start of the pandemic. The Company was already setup to
operate and communicate remotely through the internet although
certain of our overseas staff and contractors have been indirectly
impacted by intermittent COVID-19 lockdowns in Madagascar and in
South Africa.
Corporate Redomicile
The
Company completed a corporate redomicile from the State of
Minnesota to Canada on December 27, 2017.
Corporate Structure
NextSource owns
100% of NextSource Materials (Mauritius) Ltd.
(“MATMAU”), a Mauritius subsidiary, and 2391938 Ontario
Inc., an Ontario Company.
|
NEXTSOURCE
MATERIALS INC. MANAGEMENT’S DISCUSSION AND
ANALYSIS
For
the three months ended September 30, 2020 and 2019
|
MATMAU
owns 100% of NextSource Minerals (Mauritius) Ltd.
(“MINMAU”), a Mauritius subsidiary, NextSource Graphite
(Mauritius) Ltd (“GRAMAU”), a Mauritius subsidiary, and
NextSource Materials (Madagascar) SARLU (“MATMAD”), a
Madagascar subsidiary.
MINMAU
owns 100% of NextSource Minerals (Madagascar) SARLU
(“MINMAD”), a Madagascar subsidiary. MINMAD holds the
Green Giant Vanadium Project exploration permits.
GRAMAU
owns 100% of ERG Madagascar SARLU (“GRAMAD”), a
Madagascar subsidiary. GRAMAD holds the Molo Graphite Project
mining and exploration permits.
Cautionary Note Regarding Operating Losses
Due to
the present inability to generate revenues, accumulated losses,
recurring losses and negative operating cash flows, the Company has
stated its opinion in Note 1 of our audited consolidated financial
statements for the year ended June 30, 2020 that there currently
exists substantial doubt regarding the Company’s ability to
continue as a going concern.
As of
September 30, 2020, the Company had an accumulated deficit of
$105,196,344 (June 30, 2020: $104,933,066) has experienced
recurring net losses and has negative operating cash flows. As
such, conditions exist that may raise substantial doubt regarding
the Company's ability to continue as a going concern.
In
assessing whether the going concern assumption is appropriate,
management considers all available information about the future,
which is at least, but not limited to, twelve months from the end
of the reporting period. The Company's ability to continue
operations and fund its exploration and development expenditures is
dependent on management's ability to secure additional financing.
Management is actively pursuing such additional sources of
financing, and while it has been successful in doing so in the
past, there can be no assurance it will be able to do so in the
future. These conditions may raise substantial doubt about the
Company’s ability to continue as a going
concern.
The
Company accepts the risks which are inherent to mineral exploration
programs and the exposure to the cyclical nature of mineral prices.
These risks are discussed in the Risk Factors section of this
report.
Based
on the nature of our business, we anticipate incurring operating
losses for the foreseeable future. We base this expectation, in
part, on the fact that very few mineral properties in the
exploration stage are ultimately developed into producing and
profitable mines. Our future financial results are uncertain due to
a number of factors, some of which are outside our Company’s
control. These factors include, but are not limited to: (a) our
ability to raise additional funding; (b) the market price for
graphite and vanadium; (c) the results of the exploration programs
and metallurgical analysis of our mineral properties; (d) the
political instability and/or environmental regulations that may
adversely impact costs and ability to operate in Madagascar; and
(e) our ability to find joint venture and/or off- take partners in
order to advance the development of our mineral
properties.
Any
future equity financing will cause existing shareholders to
experience dilution of their ownership interest in our Company. In
the event we are not successful in raising additional financing, we
anticipate our Company will not be able to proceed with its
business plan. In such a case, we may decide to discontinue or
modify our current business plan and seek other business
opportunities. During this period, we will need to maintain
periodic filings with the appropriate regulatory authorities and
will incur legal, accounting, administrative and listing costs. In
the event no other such opportunities are available, and we cannot
raise additional capital to sustain operations, we may be forced to
discontinue the business. We do not have any specific alternative
business opportunities under consideration and have not planned for
any such contingency.
Corporate
Highlights
On July
2, 2020, the Company completed a non-brokered private placement of
61,578,783 units at a price of $0.024 (CAD$0.0325) for gross
proceeds of $1,476,572 (CAD$2,001,310). Each Unit consists of one
common share of the Company and one-half of one common share
purchase warrant (a “Warrant”), with each full Warrant
entitling the holder to acquire one additional common share of the
Company at a price of $0.048 (CAD$0.065) per share for a period of
24 months. No finder fees or commissions were paid in association
with the private placement. In connection with the non-brokered
private placement, the Company incurred $9,292 (CAD$12,619) in
share issuance costs.
On July
20, 2020, Brett Whalen became a director of the
Company.
On
August 24, 2020, the Company announced the appointment of Brett
Whalen as Chair of the Board of Directors. In an effort to reduce
operating costs, the Company announced that management agreed to a
plan to defer their monthly compensation payments by up to 30
percent and until total project financing has been secured and
announced its intention to implement a Performance Share Units
(“PSU”) plan for management.
|
NEXTSOURCE
MATERIALS INC. MANAGEMENT’S DISCUSSION AND
ANALYSIS
For
the three months ended September 30, 2020 and 2019
|
Overall
Performance and Outlook
During
the three months ended September 30, 2020, the Company had a net
loss for the period of $280,715 (2019: net loss of $169,443) as it
continued to work towards obtaining project financing for the
construction of the Molo Graphite Project, which may include debt,
equity and derivative instruments. The Company also improved its
financial condition by completing a non-brokered private placement
for gross proceeds of $1,476,572 and reduced its cash costs through
an agreement with management to defer of up to 30% of their monthly
compensation until project financing has been secured.
The
Company will continue to work towards obtaining construction
financing prior to initiating construction of Phase 1 of the Molo
Graphite Project, but there can be no assurance that sufficient
financing will be available on terms favorable to the Company or at
all.
The
Molo Graphite Project, Green Giant Vanadium Project and the Sagar
Property are discussed in greater detail below. The Company will
also continue to assess the addition of back-end value-added
processing for lithium-ion battery and graphite foil applications
in the classification portion of the plant. The costs for any
value-added processing are unknown at this time but will be
assessed in parallel with the development of the Molo
Mine.
Molo Graphite Project, Southern Madagascar Region,
Madagascar
Overview and Project Plan
The
Company is currently working to obtain construction financing for
Phase 1 of the Molo Graphite Project. The Phase 1 production plan
of 17,000 tpa of finished SuperFlake® concentrate for the
first two years of production followed by a ramp-up to Phase 2
production of 45,000 tpa yields the following financial
metrics.
On
February 15, 2019, the Company has received a 40-year mining
license for the Molo Graphite Project from the Madagascar
Government which does not limit mining to any specific
volume.
On
April 11, 2019, the Company also received the Global Environmental
Permit for the Molo Graphite Project from the Madagascar Ministry
of Environment’s Office National pour l'Environnement (the
National Office for the Environment; or
“ONE”).
The
application for other necessary permits to construct and operate
the mine, including water use, facilities construction, mineral
processing, transportation, export, and labour have been
initiated.
As at
the date hereof, the timing of the advancement into Phase 1 of the
Molo Graphite Project is entirely contingent upon obtaining
construction financing. Discussions in respect of negotiating and
structuring strategic partnerships, off take agreements and debt
financing for our Molo Graphite Project in Madagascar are ongoing
and are expected to continue during the coming months with no
assurances as to the conclusion or results of these
discussions.
The
Company cannot provide any assurance as to the timing of the
receipt of sufficient construction financing and of any of the
permits and licenses that are still necessary to complete the
construction of the mine and initiate operations. In the event that
construction financing is not available, the Company will not be
able to pursue any substantial work in connection with the
development of the Molo Graphite Project.
If the
Company is successful at raising construction financing, the
Company plans to incur the projected capital and operating costs as
well as incur additional costs relating to permitting, engineering,
professional fees, G&A and working capital. The Company is
assessing a staged contingent approach and is in the process of
establishing specific milestones that it hopes to achieve with
various amounts of construction financing. The production level,
development costs and the specific milestones which could be
achieved using this approach are directly related to the amount of
construction financing the Company can raise. Once construction is
initiated, no assurances can be provided that we will be able to
achieve our construction milestones or achieve the desired
production level.
Exploration
The
Molo Graphite Project is one of seven surficial graphite trends
discovered and drill tested by NextSource in late 2011 and
announced to the market in early January 2012. The Molo deposit
itself occurs in a flat, sparsely populated and dry savannah
grassland region that has easy access via a network of seasonal
secondary roads.
The
Molo Graphite Project graphitic zone consists of multi-folded
graphitic strata at surface with an exposed strike length of over
two kilometres. Outcrop mapping and trenching on the Molo Graphite
Project has shown the surface geology to be dominated by resistant
ridges of graphitic schist and graphitic gneiss, as well as
abundant graphitic schist float. Geological modeling has shown that
the Molo Graphite Project deposit consists of various zones of
mineralized graphitic gneiss, with a barren footwall composed of
garnetiferous gneiss. The host rock of the mineralized zones on the
Molo Graphite Project is graphitic gneiss.
|
NEXTSOURCE
MATERIALS INC. MANAGEMENT’S DISCUSSION AND
ANALYSIS
For
the three months ended September 30, 2020 and 2019
|
Resource
delineation, drilling and trenching on the Molo Graphite Project
took place between May and November of 2012, which resulted in a
maiden mineral resource estimate to be released in early December
of the same year. This maiden mineral resource estimate formed the
basis for the Company’s Preliminary Economic Assessment (the
“PEA”), which was undertaken by DRA Mineral Projects
and released in 2013.
The
positive outcome of the PEA led NextSource to undertake another
phase of exploratory drilling and sampling in 2014 to upgrade the
deposit and its contained mineral resources to mineral reserves.
The process included an additional 32 diamond drill holes (totaling
2,063 metres) and 9 trenches (totaling 1,876 metres). The entire
database upon which the upgraded resource estimate was based
contained 80 drill holes (totaling 11,660 metres) and 35 trenches
(totaling 8,492 metres). This new mineral resource formed the basis
of the first Molo Feasibility Study, which was released in February
2015.
History
On
December 14, 2011, the Company entered into a Definitive Joint
Venture Agreement ("JVA") with Malagasy Minerals Limited
("Malagasy"), a public company listed on the Australian Stock
Exchange, to acquire a 75% interest in a property package for the
exploration and development of industrial minerals, including
graphite, vanadium and 25 other minerals. The land position
consisted of 2,119 permits covering 827.7 square kilometers and is
mostly adjacent towards the south and east with the Company's 100%
owned Green Giant Vanadium Project. Pursuant to the JVA, the
Company paid $2,261,690 and issued 7,500,000 common shares that
were valued at $1,350,000.
On
April 16, 2014, the Company signed a Sale and Purchase Agreement
and a Mineral Rights Agreement (together “the
Agreements”) with Malagasy to acquire the remaining 25%
interest, subject to Malagasy retaining a 1.5% net smelter royalty
(“NSR”). Pursuant to the Agreements, the Company paid
$364,480 (CAD$400,000), issued 2,500,000 common shares subject to a
12-month voluntary vesting period that were valued at $325,000 and
issued 3,500,000 common share purchase warrants, which were valued
at $320,950 using Black-Scholes, with an exercise price of $0.14
and an expiry date of April 15, 2019. On May 20, 2015 and upon
completion of a bankable feasibility study (“BFS”) for
the Molo Graphite Property, the Company paid $546,000 (CAD$700,000)
and issued 1,000,000 common shares, which were valued at $100,000.
A further cash payment of approximately $771,510 (CAD$1,000,000)
will be due within five days of the commencement of commercial
production. The Company also acquired a 100% interest in the
industrial mineral rights on approximately 1 ½ additional
claim blocks covering 10,811 hectares adjoining the east side of
the Molo Graphite Property. Prior to becoming a Director of the
Company, Brett Whalen purchased an option to acquire the 1.5% NSR
from Malagasy, upon the mine achieving commercial production, in
return for a further payment to Malagasy.
The
Molo Graphite Project is located within Exploration Permit #3432
(“PR 3432”) as issued by the Bureau de Cadastre Minier
de Madagascar (“BCMM”) pursuant to the Mining Code 1999
(as amended) and its implementing decrees. The Molo Graphite
Project exploration permit PR 3432 is currently held under the name
of our Madagascar subsidiary, which has paid all taxes and
administrative fees to the Madagascar government and its mining
ministry with respect to all the mining permits held in country.
These taxes and administrative fee payments have been acknowledged
and accepted by the Madagascar government.
On June
1, 2017, we released the results of a positive updated Molo
Feasibility Study for Phase 1 of the mine development plan
utilizing a fully modular build-out approach which was based on the
FEED Study and subsequent detailed engineering studies. Phase 1
would consist of a fully operational and sustainable graphite mine
with a permanent processing plant capable of producing, in our
estimation, approximately 17,000 tpa of high-quality
SuperFlake™ graphite concentrate per year with a mine life of
30 years.
During
fiscal 2017, the Company applied to the BCMM to have the
exploration permit for the Molo Graphite Project converted into a
mining permit.
Following an
Environmental Legal Review and an Environmental and Social
Screening Assessment, which provided crucial information to align
the project’s development and design with international best
practice on sustainable project development, the Company completed
a comprehensive Environmental and Social Impact Assessment
("ESIA"), which was developed to local Madagascar
(“Malagasy”), Equator Principles, World Bank and
International Finance Corporation (“IFC”) standards.
The ESIA was submitted to the Office National d’Environment
(“ONE”) (the Madagascar Environment Ministry) during
fiscal 2018.
On
February 15, 2019, the Company announced the Madagascar Government
granted a 40-year mining license for the Molo Graphite Project and
that the mining license does not limit mining to any specific
volume.
On
April 11, 2019, the Company announced it had received the Global
Environmental Permit (“GEP”) for the Molo Graphite
Project from the Madagascar Ministry of Environment’s Office
National pour l'Environnement (the National Office for the
Environment; or “ONE”). The GEP was based on ESIA and a
Relocation Action Plan (“RAP”) that involved the
completion of local and regional stakeholder and community
engagement, and the completion of negotiations and signed
agreements with all potentially affected land occupants to accept
compensation for any affected crops and grazing land and relocation
if needed.
On
September 27, 2019, the Company reported the results of an updated
Feasibility Study (“FS”) consisting of two phases. The
FS took into account updated mine capital equipment and mining
costs, as well as current 12-month rolling flake graphite pricing
on a Freight-
|
NEXTSOURCE
MATERIALS INC. MANAGEMENT’S DISCUSSION AND
ANALYSIS
For
the three months ended September 30, 2020 and 2019
|
on-Board
(“FOB”) China basis, supplied by UK-based battery
mineral commodities research firm, Benchmark Minerals Intelligence.
The FS incorporates the procurement of all mining equipment,
off-site modular fabrication and assembly, factory acceptance
testing, module disassembly, shipping, plant infrastructure
construction, onsite module re-assembly, commissioning, project
contingencies and working capital. All capital and operating costs
expressed for Phase 1 are considered to be accurate to +/- 10%, and
accurate to +/- 12.5% for Phase 2. The project phases are outlined
below:
PHASE 1: Production of 17,000 tpa
The
first phase of production will consist of a fully operational and
sustainable graphite mine with a permanent processing plant capable
of processing 240,000 tpa of ore and producing approximately 17,000
tpa of high-quality SuperFlake™ graphite concentrate. The
updated build cost of the fully modular process plant marginally
increased from the US$18.4 million reported in the 2017 FS to
US$21.0M due to equipment cost inflation.
PHASE 2: Production Expansion to 45,000 tpa in Year 3
Phase 2
incorporates the processing of 240,000 tpa of ore (producing 17,000
tpa of SuperFlake® concentrate) for the first two years of
operation and then ramping up to 720,000 tpa of processed ore in
the third year to accommodate additional sales, resulting in a
total of 45,000 tpa of SuperFlake® concentrate being produced
for a mine life of 30 years. The costing for Phase 2 is based on
the addition of two modules of the beneficiation plant with a
proportional increase in mining and infrastructure costs. The
capital mine cost for Phase 2 (with contingency) will be US$39.1M,
for a total project cost (Phase 1 and Phase 2 with contingency) of
US$60.1M.
Feasibility Study Summary
The
Phase 1 production plan of 17,000 tpa of finished SuperFlake®
concentrate for the first two years of production followed by a
ramp-up to Phase 2 production of 45,000 tpa yields the following
financial metrics.
|
Description
|
Phase
1 and 2
|
|
|
|
Pre-Tax
|
Post-Tax
|
|
NPV
(8% Discount Cash Flow)(1)(2)
|
$237.1m
|
$184.3m
|
|
IRR (1)(2)
|
43.1%
|
36.2%
|
|
Payback
(2)
|
3.4
years
|
3.8
years
|
|
Capital cost
("CAPEX")
|
$60,082,340
|
|
|
Owners
Contingency
|
$6,670,430
|
|
|
On-site Mining
Costs ("OPEX") per tonne of concentrate, (year 3
onward)
|
$82.69
|
|
|
On-site Processing
Costs ("OPEX") per tonne of concentrate, (year 3
onward)
|
$270.27
|
|
|
Transportation per
tonne of concentrate (mine site to Madagascar Port year 3
onward)
|
$133.01
|
|
|
Average annual
production of concentrate
|
45,136
tonne
|
|
|
Life of Mine
("LOM")
|
30
years
|
|
|
Graphite
concentrate sale price (US$/tonne at Start Up - 2017)
|
$1,208
|
|
|
Average Head
Grade
|
7.1%
|
|
|
Average ore mined
per annum over Life of Mine
|
720,000
tonne
|
|
|
Average stripping
ratio
|
0.53:1
|
|
|
Average carbon
recovery
|
88.30%
|
|
Notes:
(1) Assumes Project is
financed with 100% equity. Unless otherwise noted, all monetary
figures presented throughout this press release are expressed in US
dollars (USD).
(2) CAPEX includes
process equipment, civil & infrastructure, mining, buildings,
electrical infrastructure, project & construction services.
Values shown are based on real graphite sales pricing
CAPEX and Working Capital Summary
|
NEXTSOURCE
MATERIALS INC. MANAGEMENT’S DISCUSSION AND
ANALYSIS
For
the three months ended September 30, 2020 and 2019
|
|
Capital
Cost Breakdown
|
Phase
1 (240ktpa)
|
Phase 2 (720ktpa)
|
|
Process
Equipment
|
$8,438,609
|
$25,315,827
|
|
Civil &
Infrastructure
|
$2,103,672
|
$6,661,016
|
|
Tailings
|
$0.00
|
$0.00
|
|
Mining
|
$2,574,143
|
$4,913,341
|
|
Buildings
|
$1,154,609
|
$2,886,523
|
|
Electrical
Infrastructure
|
$128,804
|
$386,412
|
|
Project
Services/EPCM
|
$931,481
|
$2,794,445
|
|
Construction
Services
|
$1,474,775
|
$3,686,937
|
|
Indirect
Costs
|
$372,750
|
$1,118,250
|
|
Environmental &
Permitting costs
|
$729,827
|
$1,459,655
|
|
Owner's
Costs
|
$1,197,000
|
$4,189,500
|
|
Sub-total
|
$19,105,673
|
$53,411,909
|
|
Contingency (10%/12.5%)
|
$1,910,567
|
$6,676,488
|
|
3 Months Working
Capital
|
$3,100,000
|
$7,300,000
|
|
CAPEX
AND WORKING CAPITAL TOTAL
|
$24,116,241
|
$67,388,398
|
|
Sustaining
CAPEX over Life of Mine
|
|
$3,300,000
|
OPEX Summary
Discussions with
off takers have indicated their preference is to purchase Molo
graphite concentrate at the local Madagascar port at freight on
board (FOB) China prices. As such, FS Operating costs
(“OPEX”) include the all-in FOB cost to ship Molo
SuperFlake® concentrate to the local port of Fort
Dauphin.
|
Category
|
Phase
1
|
Phase
2
|
|
|
Operating
cost
|
|
|
Mining
(US$/T)
|
102.81
|
65.34
|
|
Processing
(US$/T)
|
265.82
|
265.82
|
|
Trucking to local
port / Ft. Dauphin (US$/T)
|
133.01
|
133.01
|
|
General and
Administration (US$/T)
|
64.29
|
50.00
|
|
TOTAL
|
$565.93
|
$514.17
|
The 2019 Feasibility Study technical report has been filed under
the Company’s profile and on SEDAR at www.sedar.com, and is
posted on NextSource’s website at www.nextsourcematerials.com.
Please see “Molo Feasibility Study, National Instrument
43-101 Technical Report on the Molo Graphite Project located near
the village of Fotadrevo in the Province of Toliara, Madagascar
Prepared by Erudite Strategies (Pty) Ltd” dated May 31, 2019
for certain other details and assumptions relating to the above
mineral resource and reserve estimates and data verification
procedures.
The 2019 Feasibility Study was prepared in accordance with National
Instrument 43-101 standards by Mr. Johann de Bruin, Pr. Eng. Mr. de
Bruin is the Qualified Person who verified the technical data using
industry acceptable standards and signed off on the relevant
sections in the 43-101 report filed on SEDAR.
Green Giant Vanadium Project, Southern Madagascar Region,
Madagascar
Overview and Project Plan
In
2007, the Company entered into a joint venture agreement with
Madagascar Minerals and Resources SARL ("MMR") to acquire a 75%
interest in the Green Giant property. Pursuant to the agreement,
the Company paid $765,000 in cash, issued 2,500,000 common shares
and issued 1,000,000 common share purchase warrants, which have now
expired.
|
NEXTSOURCE
MATERIALS INC. MANAGEMENT’S DISCUSSION AND
ANALYSIS
For
the three months ended September 30, 2020 and 2019
|
On July
9, 2009, the Company acquired the remaining 25% interest by paying
$100,000. MMR retains a 2% NSR. The first 1% NSR can be acquired at
the Company's option by paying $500,000 in cash or common shares
and the second 1% NSR can be acquired at the Company’s option
by paying $1,000,000 in cash or common shares.
The
Green Giant property is located within exploration permits issued
by the Bureau de Cadastre Minier de Madagascar (“BCMM”)
pursuant to the Mining Code 1999 (as amended) and its implementing
decrees. The Green Giant property exploration permits are currently
held under the name of our Madagascar subsidiary.
Since
early 2012, the Company has focused its efforts on the Molo
Graphite Project and as such only limited work has been completed
on the Green Giant Vanadium Project since that time.
Sagar Property, Labrador Trough Region, Quebec, Canada
Overview and Project Plan
In
2006, the Company purchased from Virginia Mines Inc. ("Virginia") a
100% interest in 369 claims located in northern Quebec, Canada.
Virginia retains a 2% net smelter return royalty ("NSR") on certain
claims within the property. Other unrelated parties also retain a
1% NSR and a 0.5% NSR on certain claims within the property, of
which half of the 1% NSR can be acquired by the Company by paying
$200,000 and half of the 0.5% NSR can be acquired by the Company by
paying $100,000.
On
February 28, 2014, the Company signed an agreement to sell a 35%
interest in the Sagar property to Honey Badger Exploration Inc.
(“Honey Badger”), a public company that is a related
party through common management. The terms of the agreement were
subsequently amended on July 31, 2014 and again on May 8, 2015. To
earn the 35% interest, Honey Badger was required to complete a
payment of $36,045 (CAD$50,000) by December 31, 2015, incur
exploration expenditures of $360,450 (CAD$500,000) by December 31,
2016 and issue 20,000,000 common shares to the Company by December
31, 2015. Honey Badger did not complete the earn-in requirements by
December 31, 2015 resulting in the termination of the option
agreement.
Since
early 2012, the Company has focused its efforts on the Molo
Graphite Project and as such only minimal work has been completed
on the Sagar Property since that time.
As of
September 30, 2020, the Sagar property consisted of 184 claims
covering a total area of 8,539.58 ha.
Discussion
of Operations
Financial Results for the three months ended September 30, 2020 and
2019
Expressed in US Dollars
|
|
For
the three months ended For the three months ended September
30, 2020
September
30, 2019
|
|
|
Revenues
$
|
$-
|
-
|
|
Expenses
and other income
|
|
|
|
Exploration and
evaluation expenses
|
6,467
|
8,321
|
|
Payroll and
benefits
|
92,378
|
111,412
|
|
Management
fees
|
82,771
|
83,249
|
|
Professional and
legal fees
|
38,027
|
80,680
|
|
Consulting
fees
|
21,704
|
61,170
|
|
Public filing
expenses
|
30,455
|
25,488
|
|
Travel
expenses
|
2,307
|
12,916
|
|
Investor relation
expenses
|
5,830
|
14,742
|
|
Insurance
expenses
|
7,177
|
4,240
|
|
Rent
expenses
|
4,446
|
4,917
|
|
Information
technology expenses
|
2,367
|
1,874
|
|
Telecommunications
|
577
|
746
|
|
NEXTSOURCE
MATERIALS INC. MANAGEMENT’S DISCUSSION AND
ANALYSIS
For
the three months ended September 30, 2020 and 2019
|
|
General and
administrative expenses
|
4,242
|
2,010
|
|
Amortization of
property, plant and equipment
|
1,522
|
-
|
|
Bank
fees
|
817
|
951
|
|
Foreign currency
translation (gain) loss
|
(16,251)
|
(2,309)
|
|
Interest expense
(income)
|
771
|
45
|
|
Change in value of
warrant liability
|
(4,892)
|
(241,010)
|
|
Net
loss for the period
|
(280,715)
|
(169,443)
|
|
Other comprehensive income
Items that will be reclassified subsequently to loss
Translation
adjustment for foreign operations
|
545
|
(3,745)
|
|
Net
loss and comprehensive loss for the period
|
(280,170)
|
(173,188)
|
|
Weighted-average
common shares,
|
596,705,155
|
507,417,021
|
|
- basic
and diluted
|
|
|
|
Net loss per common
shares,
|
(0.00)
|
(0.00)
|
|
- basic
and diluted
|
|
|
Exploration and Evaluation Expenses
Exploration and
evaluation expenses include all costs relating to exploration
activities (drilling, seismic, geological, geophysical, testing and
sampling), metallurgical evaluation activities, mineral claims and
camp operations.
The
following is the breakdown by nature of the expenses:
|
|
For
the three months ended
|
|
|
|
September
30, 2020
$
|
September
30, 2019
$
|
|
Exploration
activities
|
-
|
-
|
|
Metallurgical
evaluation
|
-
|
-
|
|
Mineral claims
(Canada)
|
384
|
1,309
|
|
Mineral claims
(Madagascar)
|
-
|
-
|
|
Camp
(Madagascar)
|
6,083
|
7,012
|
|
Total
exploration and evaluation expenses
|
6,467
|
8,321
|
Exploration and
evaluation expenses for the three months ended September 30, 2020
decreased to $6,467 (2019: $8,321) due to a slight decrease in camp
expenditures as compared to prior year. No exploration or
metallurgical work was completed in 2020 and 2019 since all
exploration work necessary was completed prior to
2017.
Consulting Fees Expenses
Consulting fees for
the three months ended September 30, 2020 decreased to $21,704
(2019: $61,170) due to decreased project development expenditures
as compared to the prior year periods.
Professional Fees Expenses
|
NEXTSOURCE
MATERIALS INC. MANAGEMENT’S DISCUSSION AND
ANALYSIS
For
the three months ended September 30, 2020 and 2019
|
Professional and
legal fees include accounting, auditor and lawyer fees. The
following is the breakdown by nature of the expenses:
|
For
the three months ended
|
For
the three months ended
|
|
|
September
30, 2020
|
September
30, 2019
|
|
|
$
|
$
|
|
|
Accounting
fees
|
7,626
|
2,817
|
|
Auditor
fees
|
8,974
|
18,174
|
|
Tax advisory
fees
|
3,778
|
-
|
|
Legal
fees
|
17,649
|
59,689
|
|
Offshore management
fees
|
-
|
-
|
|
Total
professional and legal fees
|
38,027
|
80,680
|
Professional fees
for the three months ended September 30, 2020 decreased to $38,027
(2020: $80,680) due to decreased audit and legal fees as compared
to the prior year periods whereas the accounting and tax advisory
fees increased as compared to the prior year periods.
Share Based Compensation
The
Company did not grant any stock options during the three months
ended September 30, 2020.
Liquidity
and Capital Resources
The
following disclosures are to enable users of the consolidated
financial statements to evaluate the nature and extent of risks
arising from financial instruments at the end of the reporting
period:
Credit risk
The
Company does not currently have commercial customers and therefore
does not have any credit risk related to accounts receivables. The
Company has credit risk arising from the potential from
counterparty default on cash and cash equivalents held on deposit
with financial institutions. The Company manages this risk by
ensuring that deposits are only held with large Canadian banks and
financial institutions.
Liquidity risk
Liquidity risk is
the risk that the Company will not be able to meet its obligations
associated with financial liabilities. Liquidity risk arises from
the Company’s financial obligations and in the management of
its assets, liabilities and capital structure. The Company manages
this risk by regularly evaluating its liquid financial resources to
fund current and long-term obligations and to meet its capital
commitments in a cost-effective manner.
The
main factors that affect liquidity include working capital
requirements, capital-expenditure requirements and equity capital
market conditions. The Company’s liquidity requirements are
met through a variety of sources, including cash and cash
equivalents and equity capital markets.
As at
September 30, 2020, the Company expects to access public debt and
equity capital markets for financing over the next 12 months in
order to initiate construction of its Molo Graphite Project in
Madagascar and to satisfy working capital requirements. While the
Company has been successful in obtaining required funding in the
past, there is no assurance that future financings will be
available.
As at
September 30, 2020, the Company had cash and cash equivalents of
$1,040,892 (June 30, 2020: $222,305) to settle current liabilities
of $1,341,016 (June 30, 2020: $1,173,376). As a result, the Company
is currently exposed to liquidity risk.
Based
on management’s assessment of its past ability to obtain
required funding, the Company believes that it will be able to
satisfy its current and long-term obligations as they come due.
Other than accounts payable, which are due within 30 days, and the
warrant liabilities, which will be fully expensed by July 2022,
none of the Company’s obligations have contractual
maturities.
Market risks
|
NEXTSOURCE
MATERIALS INC. MANAGEMENT’S DISCUSSION AND
ANALYSIS
For
the three months ended September 30, 2020 and 2019
|
Market
risk is the potential for financial loss from adverse changes in
underlying market factors, including foreign exchange rates,
commodity prices and interest rates.
●
Interest rate risk:
This is the sensitivity of the fair value or of the future cash
flows of a financial instrument to changes in interest rates. The
Company does not have any financial assets or liabilities that are
subject to variable interest rates.
●
Commodity price
risks: This is the sensitivity of the fair value of, or of the
future cash flows, from mineral assets. The Company manages this
risk by monitoring mineral prices and commodity price trends to
determine the appropriate timing for funding the exploration or
development of its mineral assets, or for the acquisition or
disposition of mineral assets. The Company does not have any
mineral assets at the development or production stage carried at
historical cost. The Company has expensed the acquisition and
exploration costs of its exploration stage mineral
assets.
●
Currency risk: This
is the sensitivity of the fair value or of the future cash flows of
financial instruments to changes in foreign exchange rates. The
Company transacts in currencies other than the US dollar, including
the Canadian dollar, the Madagascar Ariary, the Euro and the South
African Rand. The Company purchases services and has certain salary
commitments in those currencies. The Company also has monetary and
financial instruments that may fluctuate due to changes in foreign
exchange rates. Derivative financial instruments are not used to
reduce exposure to fluctuations in foreign exchange rates. The
Company is not sensitive to foreign exchange exposure since it has
not made any commitments to deliver products quoted in foreign
currencies. The Company is not sensitive to foreign exchange risk
arising from the translation of the financial statements of
subsidiaries with a functional currency other than the US dollar
since it does not have any material assets and liabilities measured
through other comprehensive income.
Capital
Management
There
were no changes in the Company's approach to capital management
during the three months ended September 30, 2020.
In
managing liquidity, the Company’s primary objective is to
ensure the entity can continue as a going concern while raising
additional funding to meet its obligations as they come due. The
Company’s operations to date have been funded by issuing
equity. The Company expects to improve the working capital position
by securing additional financing.
The
Company’s investment policy is to invest excess cash in very
low risk financial instruments such as term deposits or by holding
funds in high yield savings accounts with major Canadian banks.
Financial instruments are exposed to certain financial risks, which
may include currency risk, credit risk, liquidity risk and interest
rate risk.
The
Company’s mineral property interests are all in the
exploration stage, as such the Company is dependent on external
financing to fund its exploration activities and administrative
costs. Management continues to assess the merits of mineral
properties on an ongoing basis and may seek to acquire new
properties or to increase ownership interests if it believes there
is sufficient geologic and economic potential.
Management
mitigates the risk and uncertainty associated with raising
additional capital in current economic conditions through cost
control measures that minimizes discretionary disbursements and
reduces exploration expenditures that are deemed of limited
strategic value.
The
Company manages the capital structure (consisting of
shareholders’ equity (deficiency)) on an ongoing basis and
adjusts in response to changes in economic conditions and risks
characteristics of its underlying assets. Adjustments to the
Company’s capital structure may involve the issuance of new
shares, assumption of new debt, acquisition or disposition of
assets, or adjustments to the amounts held in cash, cash
equivalents and short-term investments.
The
Company is not subject to any externally imposed capital
requirements.
Working Capital Balance
As at
September 30, 2020, the Company had a working capital deficit of
$269,775 (June 30, 2020: deficit of $918,048).
|
|
September
30,2020
|
June
30,2020
|
|
Assets
|
|
|
|
Current
Assets:
|
|
|
|
Cash and cash
equivalents
|
$1,040,892
|
$222,305
|
|
Amounts
receivable
|
11,490
|
7,539
|
|
Prepaid
expenses
|
18,859
|
25,484
|
|
Total
Current Assets
|
1,071,241
|
255,328
|
|
NEXTSOURCE
MATERIALS INC. MANAGEMENT’S DISCUSSION AND
ANALYSIS
For
the three months ended September 30, 2020 and 2019
|
Liabilities
|
Current
Liabilities:
|
|
|
|
Accounts
payable
|
$71,393
|
$323,876
|
|
Accrued
liabilities
|
343,269
|
370,449
|
|
Share
subscriptions
|
-
|
68,411
|
|
Short term
debt
|
-
|
22,115
|
|
Provision
|
178,014
|
174,418
|
|
Fair value of
warrant liability
|
743,412
|
208,768
|
|
Current portion of
lease obligations
|
4,928
|
5,339
|
|
Total
Current Liabilities
|
1,341,016
|
1,173,376
|
|
Working
capital (deficit) surplus
|
$(269,775)
|
$(918,048)
|
The
working capital deficit decreased by $648,273 as compared to the
end of the prior fiscal year. The changes in the working capital
are discussed in further detail in the next sections.
Cash and Cash Equivalents
The
Company’s cash balances are deposited with major financial
institutions in Canada except for institutions in Madagascar.
Limited amounts of cash are currently held in
Madagascar.
|
Cash
and Cash Equivalents
|
Madagascar
$
|
Canada
$
|
Total
$
|
|
As of September 30,
2020
|
13,063
|
1,027,829
|
1,040,892
|
|
As of September 30,
2019
|
54,026
|
149,420
|
203,446
|
Current Assets and Current Liabilities
Amounts
receivables and prepaid expenses decreased by $2,674 which consist
mainly of sales tax receivables and of prepaid insurance premiums.
Accounts payable and accrued liabilities decreased by $279,878
which consist mainly of trade payables and of accrued legal,
payroll and benefits and consulting expenditures. The provision
increased by $3,596 from prior year and is discussed in detail in
the Provision section. The
warrant liability is a reclassification from share capital and is
discussed in detail in the Warrant
Liability section.
Contractual Obligations and Commitments Excluding Provisions and
Lease Obligations
The
Company does not have any contractual obligations or commitments
other than accounts payable due within one-year totaling
$71,178
(June 30, 2020: $323,876) and accrued liabilities totaling $343,269
(June 30, 2020: $370,449).
Provision
During
fiscal 2014, the Company issued 17,889,215 flow-through shares to
eligible Canadian taxpayer subscribers which included a contractual
commitment for the Company to incur $3,812,642 in eligible Canadian
Exploration Expenditures (“CEEs”) by December 31, 2014
as per the provision of the Income Tax Act of Canada. The CEEs were
renounced as a tax credit to the flow-through share subscribers on
December 31, 2013. As at December 31, 2014, the Company had
unfulfilled CEE obligations. During the year ended June 30, 2015,
the Company recorded a provision for the Part XII.6 taxes and
related penalties payable to the Canada Revenue Agency and for the
indemnification liability to subscribers of the flow-through shares
for the additional taxes payable related to the CEE renunciation
shortfall. During the year ended June 30, 2017, the Company paid
$131,320 (2016: $nil) in Part XII.6 taxes, resulting in a
reduction
in the provision, and following a reassessment of its obligation to
subscribers the Company increased the provision by
$131,320. During
the year ended June 30, 2018, the provision was adjusted due to
foreign exchange fluctuations to $180,652. During the year ended
June 30, 2019, there were $Nil adjustments to the provision
balance. During the year ended June 30, 2020, the provision was
adjusted due to foreign exchange fluctuations to $174,418. During
the three months ended September 30, 2020, the provision was
adjusted due to foreign exchange fluctuations to
$178,104.
|
NEXTSOURCE
MATERIALS INC. MANAGEMENT’S DISCUSSION AND
ANALYSIS
For
the three months ended September 30, 2020 and 2019
|
Fair Value of Warrant Liability
The
warrants issued on August 17, 2018 were issued in a currency other
than the Company’s functional currency and therefore are
considered a derivative equity instrument as per IFRS 9
Financial Instruments. The
warrant liability was measured at fair value in the statement of
financial position using the Black-Scholes option valuation model
and will be revalued at each reporting period through profit and
loss until expiration or exercise of the underlying
warrants.
The
fair value of the warrant liability for warrants expiring on August
17, 2020 was estimated using the following model inputs on the
following valuation dates:
|
|
|
Warrant
Liability
$
|
|
As of August 17,
2018 (issue date)
|
|
408,150
|
|
Exercise
price
|
$USD0.076
|
|
|
Share price on
measurement date
|
$CAD0.09
|
|
|
Risk free
rate
|
1.50%
|
|
|
Expected
volatility
|
115%
|
|
|
Expected dividend
yield
|
Nil
|
|
|
Expected life (in
years)
|
2
|
|
|
Change in fair
value
|
|
(73,532)
|
|
As of June 30,
2019
|
|
334,618
|
|
Exercise
price
|
$USD0.076
|
|
|
Share price on
measurement date
|
$CAD0.10
|
|
|
Risk free
rate
|
1.67%
|
|
|
Expected
volatility
|
100%
|
|
|
Expected dividend
yield
|
Nil
|
|
|
Expected life (in
years)
|
1.13
|
|
|
Change in fair
value
|
|
(327,537)
|
|
As of June 30,
2020
|
|
7,081
|
|
Exercise
price
|
$USD0.073
|
|
|
Share price on
measurement date
|
$CAD0.04
|
|
|
Risk free
rate
|
0.20%
|
|
|
Expected
volatility
|
162%
|
|
|
Expected dividend
yield
|
Nil
|
|
|
Expected life (in
years)
|
0.13
|
|
|
Change in fair
value
|
|
(7,081)
|
|
As of September 30,
2020
|
|
-
|
|
Exercise
price
|
$USD0.075
|
|
|
Share price on
measurement date
|
$CAD0.04
|
|
|
Risk free
rate
|
0.20%
|
|
|
Expected
volatility
|
161.49%
|
|
|
Expected dividend
yield
|
Nil
|
|
|
Expected life (in
years)
|
0
|
|
The
warrants issued on October 25, 2019 were issued in a currency other
than the Company’s functional currency and therefore are
considered a derivative equity instrument as per IFRS 9
Financial Instruments. The
warrant liability was measured at fair value in the statement of
financial position using the Black-Scholes option valuation model
and will be revalued at each reporting period through profit and
loss until expiration or exercise of the underlying
warrants.
The
fair value of the warrant liability for warrants expiring on
October 25, 2021 was estimated using the following model inputs on
the following valuation dates:
|
NEXTSOURCE
MATERIALS INC. MANAGEMENT’S DISCUSSION AND
ANALYSIS
For
the three months ended September 30, 2020 and 2019
|
|
|
|
Warrant
Liability
$
|
|
As of October 25,
2019 (issue date)
|
|
261,090
|
|
Exercise
price
|
$USD0.069
|
|
|
Share price on
measurement date
|
$CAD0.05
|
|
|
Risk free
rate
|
1.66%
|
|
|
Expected
volatility
|
115%
|
|
|
Expected dividend
yield
|
Nil
|
|
|
Expected life (in
years)
|
2
|
|
|
Change in fair
value
|
|
(59,403)
|
|
As of June 30,
2020
|
|
201,687
|
|
Exercise
price
|
$USD0.064
|
|
|
Share price on
measurement date
|
$CAD0.04
|
|
|
Risk free
rate
|
0.25%
|
|
|
Expected
volatility
|
156%
|
|
|
Expected dividend
yield
|
Nil
|
|
|
Expected life (in
years)
|
1.32
|
|
|
Change in fair
value
|
|
(15,248)
|
|
As of September 30,
2020
|
|
186,439
|
|
Exercise
price
|
$USD0.068
|
|
|
Share
price on measurement date
|
$CAD0.04
|
|
|
Risk
free rate
|
0.204%
|
|
|
Expected
volatility
|
161.49%
|
|
|
Expected dividend
yield
|
Nil
|
|
|
Expected life (in
years)
|
1.07
|
|
The
warrants issued on July 2, 2020 were issued in a currency other
than the Company’s functional currency and therefore are
considered a derivative equity instrument as per IFRS 9
Financial Instruments. The
warrant liability was measured at fair value in the statement of
financial position using the Black-Scholes option valuation model
and will be revalued at each reporting period through profit and
loss until expiration or exercise of the underlying
warrants.
The fair
value of the warrant liability for the warrants expiring on July 2,
2022 was estimated using the following model inputs on the
following valuation dates:
|
|
Warrant
Liability
$
|
|
|
As of July 2, 2020
(issue date)
|
|
539,536
|
|
Exercise
price
|
$USD0.048
|
|
|
Share price on
measurement date
|
$CAD0.04
|
|
|
Risk free
rate
|
0.253%
|
|
|
Expected
volatility
|
140%
|
|
|
Expected dividend
yield
|
Nil
|
|
|
Expected life (in
years)
|
2
|
|
|
Change in fair
value
|
|
17,437
|
|
As of September 30,
2020
|
556,973
|
|
|
Exercise
price
|
$USD0.049
|
|
|
Share price on
measurement date
|
$CAD0.04
|
|
|
Risk free
rate
|
0.204%
|
|
|
Expected
volatility
|
151%
|
|
|
Expected dividend
yield
|
Nil
|
|
|
Expected life (in
years)
|
1.76
|
|
Lease Obligations
The
Company is party to a number of contracts that contain a lease,
most of which include office facilities and exploration camp.
Leases of low value assets, short term leases and leases with
variable payments proportional to the rate of use of the underlying
asset do not give rise to a lease obligation. Upon the
Company’s adoption of IFRS 16 on July 1, 2019, the Company
recognized $24,164 of lease obligations for leased right-of-use
assets in relation to the long-term lease for the exploration camp
in Fotadrevo, Madagascar.
|
NEXTSOURCE
MATERIALS INC. MANAGEMENT’S DISCUSSION AND
ANALYSIS
For
the three months ended September 30, 2020 and 2019
|
The
following table sets out the carrying amounts of lease obligations
for right-of-use assets that are included in the consolidated
statement of financial position and the movements during the
year:
|
|
Property
$
|
Plant
$
|
Equipment
$
|
Total
$
|
|
|
|
|
|
|
|
As
of July 1, 2019
|
-
|
-
|
-
|
-
|
|
Adoption of IFRS
16
|
-
|
24,164
|
-
|
24,164
|
|
Amortization of
right of use assets
|
-
|
(4,810)
|
-
|
(4,810)
|
|
Foreign
exchange
|
-
|
(3,336)
|
-
|
(3,336)
|
|
Balance
as of June 30, 2020
|
-
|
16,018
|
-
|
16,018
|
|
Additions
|
-
|
-
|
-
|
-
|
|
Amortization of
right of use assets
|
-
|
(1,255)
|
-
|
(1,255)
|
|
Foreign
exchange
|
-
|
22
|
-
|
22
|
|
Balance
as of September 30, 2020
|
-
|
14,785
|
-
|
14,785
|
The
following table sets out the lease obligations included in the
consolidated statements of financial position:
|
|
Property
|
Plant
|
Equipment
|
Total
|
|
|
$
|
$
|
$
|
$
|
|
Current portion of
lease obligations
|
-
|
4,912
|
-
|
4,912
|
|
Long-term lease
obligations
|
-
|
9,873
|
-
|
9,873
|
|
Total
lease obligations
|
-
|
14,785
|
-
|
14,785
|
Future minimum lease
payments required to meet obligations that have initial or
remaining non-cancellable lease terms are set out in the table
below.
|
|
Property
|
Plant
|
Equipment
|
Total
|
|
|
$
|
$
|
$
|
$
|
|
Within 1
year
|
-
|
6,187
|
-
|
6,187
|
|
Between 2 - 3
years
|
-
|
10,827
|
-
|
10,827
|
|
Between 4 -5
years
|
-
|
-
|
-
|
-
|
|
Thereafter
|
-
|
-
|
-
|
-
|
|
Total
undiscounted lease obligations
|
-
|
17,014
|
-
|
17,014
|
The
Company recognized rent expense relating to short-term leases of
$4,446 and interest expense on lease obligation of $428 in the
consolidated statements of operations and comprehensive (loss) with
respect to leases.
Indebtedness
The
Company has a Canada Emergency Business Account (CEBA), which is
not subject to an interest rate until after December 31, 2022 and
has loan forgiveness provisions whereby 25% of the loan principal
will be forgiven if 75% of the loan principal is repaid prior to
December 31, 2022.
|
NEXTSOURCE
MATERIALS INC. MANAGEMENT’S DISCUSSION AND
ANALYSIS
For
the three months ended September 30, 2020 and 2019
|
As of
September 30, 2020, the Company had previously withdrawn CAD
$40,000 and repaid CAD $30,000 of loan principal. The Company has
therefore recognized the loan forgiveness of CAD$10,000 resulting
in a short-term debt carrying balance on September 30, 2020 of $nil
(June 30, 2020: $22,115).
Contingent Liabilities
On
April 16, 2014, the Company signed a Sale and Purchase Agreement
and a Mineral Rights Agreement (together “the
Agreements”) with Malagasy to acquire the remaining 25%
interest in the Molo Graphite Property. Pursuant to the Agreements,
a further cash payment of approximately $771,510 (CAD$1,000,000)
will be due within five days of the commencement of commercial
production. Since this cash payment represents a possible
obligation that depends on the occurrence of an uncertain future
event, it has been recognized as a contingent liability and no
amount has been recognized as a provision.
Off-balance sheet arrangements
The
Company does not have off-balance sheet arrangements including any
arrangements that would affect the liquidity, capital resources,
market risk support and credit risk support or other
benefits.
Cash Flows - Sources and Uses of Cash
The
following are the Company’s cash flows from operating,
investing and financing activities for the three months ended
September 30, 2020 and 2019:
|
Expressed in US Dollars
|
|
|
|
|
For
the three months
ended
|
For
the three months
ended
|
|
|
September
30, 2020
|
September
30, 2019
|
|
Cash
flows from operating activities
|
|
|
|
Net
loss for the period
|
$(280,715)
|
$(169,443)
|
|
Add (deduct) items
not affecting cash:
|
|
|
|
Amortization of
property, plant and equipment
|
1,522
|
-
|
|
Change in value of
warrant derivative liability
|
(4,892)
|
(241,010)
|
|
Change in value of
lease liability
|
22
|
-
|
|
Change in non-cash
working capital balances:
|
|
|
|
(Increase) decrease
in amounts receivable and prepaid expenses
|
2,674
|
31,456
|
|
Increase (decrease)
in accounts payable and accrued liabilities
|
(279,663)
|
56,857
|
|
Increase (decrease)
in provision
|
3,596
|
-
|
|
Increase (decrease)
in share subscriptions received in advance
|
(68,411)
|
-
|
|
Net cash used in
operating activities
|
(625,867)
|
(322,140)
|
|
Cash
flows from financing activities
|
|
|
|
Short term
debt
|
(22,115)
|
-
|
|
Lease liability
principal payments
|
(1,255)
|
-
|
|
Proceeds from
issuance of common shares
|
1,476,571
|
-
|
|
Common share issue
costs
|
(9,292)
|
-
|
|
Net cash provided
by financing activities
|
1,443,909
|
-
|
|
|
|
|
|
Effect of exchange
rate changes on cash
|
545
|
(3,745)
|
|
Increase (decrease)
in cash and cash equivalents
|
818,587
|
(325,885)
|
|
Cash and cash
equivalents - beginning of period
|
222,305
|
529,331
|
|
Cash
and cash equivalents - end of period
|
$1,040,892
|
$203,446
|
NEXTSOURCE
MATERIALS INC. MANAGEMENT’S DISCUSSION AND
ANALYSIS
For
the three months ended September 30, 2020 and 2019
Investing Activities
The
Company owns metallurgical testing equipment and several vehicles
used for exploration purposes in Madagascar that were deemed
impaired and have no carrying values. The Company did not make any
equipment purchases during the three months ended September 30,
2020 and 2019.
Financing Activities
The
Company issued the following common shares during the three months
ended September 30, 2020:
(a)
On July 2, 2020,
the Company completed a non-brokered private placement of
61,578,873 units at a price of $0.024 (CAD$0.0325) for gross
proceeds of $1,476,571 (CAD$2,001,310). Each Unit consists of one
common share of the Company and one-half of one common share
purchase warrant (a “Warrant”), with each full Warrant
entitling the holder to acquire one additional common share of the
Company at a price of $0.048 (CAD$0.065) per share for a period of
24 months. No finder fees or commissions were paid in association
with the private placement. In connection with the non-brokered
private placement, the Company incurred $9,292 (CAD$12,619) in
share issuance costs.
Transactions
with related parties
Parties
are related if one party has the direct or indirect ability to
control or exercise significant influence over the other party in
making operating and financial decisions. Parties are also related
if they are subject to common control or common significant
influence. A transaction is considered to be a related party
transaction when there is a transfer of economic resources or
financial obligations between related parties. Related party
transactions that are in the normal course of business and have
commercial substance are measured at the fair value.
Balances and
transactions between the Company and its wholly owned subsidiaries,
which are related parties of the Company, have been eliminated and
are not disclosed in this note.
Related
parties include companies controlled by key management personnel.
Key management personnel are composed of the Board of Directors,
Chief Executive Officer, Chief Financial Officer and the Senior
Vice Presidents of the Company.
The
following key management personnel related party transactions
occurred during the three months ended September 30, 2020 and
2019:
|
For
the three months ended
|
For
the three months ended
|
|
|
|
September
30, 2020
$
|
September
30, 2019
$
|
|
Management
payroll
|
92,378
|
111,412
|
|
Management
consulting fees
|
82,771
|
83,249
|
|
Professional and
legal fees
|
3,856
|
-
|
|
Share based
compensation
|
-
|
-
|
|
Total
|
175,149
|
194,661
|
The
following key management related party balances existed as of
September 30, 2020 and June 30, 2020:
|
|
As
at September 30, 2020
$
|
As
at June 30, 2020
$
|
|
Accounts payable
due to companies controlled by key management
|
21,131
|
86,685
|
|
Accrued
liabilities due to key management
|
15,903
|
54,727
|
|
NEXTSOURCE
MATERIALS INC. MANAGEMENT’S DISCUSSION AND
ANALYSIS
For
the three months ended September 30, 2020 and 2019
|
Legal
Proceedings
We are
not currently involved in any litigation that we believe could have
a material adverse effect on our financial condition or results of
operations. There is no action, suit, proceeding, inquiry or
investigation before or by any court, public board, government
agency, self-regulatory organization or body pending or, to the
knowledge of the executive officers of our Company or any of our
subsidiaries, threatened against or affecting our company, our
common stock, any of our subsidiaries or of our companies or our
subsidiaries' officers or directors in their capacities as such, in
which an adverse decision could have a material adverse
effect.
Selected
Quarterly Results
The
following is selected quarterly information for the eight most
recently completed quarters:
Quarter
Ended
|
|
September
30,
2020
$
|
June
30,
2020
$
|
March
31,
2020
$
|
December
31,
2019
$
|
|
Revenues
|
-
|
-
|
-
|
-
|
|
Exploration and
evaluation expenses
|
6,467
|
95,009
|
57,180
|
6,179
|
|
Net loss and
comprehensive loss for the quarter
|
(280,170
|
(425,550)
|
(34,999)
|
(340,010)
|
|
Basic and diluted
loss per share for the quarter
|
(0.00)
|
(0.00)
|
(0.00)
|
(0.00)
|
|
Working capital
(deficit) surplus
|
(269,775)
|
(918,048)
|
(484,374)
|
(449,374)
|
Quarter
Ended
|
|
September
30,
2019
$
|
June
30,
2019
$
|
March
31,
2019
$
|
December
31,
2018
$
|
|
Revenues
|
-
|
-
|
-
|
-
|
|
Exploration and
evaluation expenses
|
69,491
|
65,880
|
123,691
|
29,515
|
|
Net loss and
comprehensive loss for the quarter
|
(173,880)
|
(1,749,161)
|
(542,996)
|
(461,060)
|
|
Basic and diluted
loss per share for the quarter
|
(0.00)
|
(0.00)
|
(0.00)
|
(0.00)
|
|
Working capital
(deficit) surplus
|
(839,074)
|
(665,886)
|
432,230
|
93,029
|
Managing
Risk Factors
The
Company manages risks inherent to its business and has procedures
to identify and manage significant operational and financial risks.
The reader is cautioned to carefully review the risk factors
identified below in addition to the risk factors disclosed in our
financial statements for the three months ended September 30, 2020
and our most recent AIF.
Any
such risk factors could materially affect the Corporation’s
business, financial condition and/or future operating results and
prospects and could cause actual events to differ materially from
those described in forward-looking statements and information
relating to the Corporation. Additional risks and uncertainties not
currently identified by the Corporation or that the Corporation
currently believes not to be material also may materially and
adversely affect the Corporation’s business, financial
condition, operations or prospects.
The Corporation’s ability to continue as a going
concern.
The
independent auditor’s report on the financial statements of
the Corporation contains explanatory language that substantial
doubt exists about the Corporation’s ability to continue as a
going concern. Due to the Corporation’s lack of operating
history and present inability to generate revenues, the Corporation
has sustained operating losses since its inception.
If the
Corporation is unable to obtain sufficient financing in the near
term as required or achieve profitability, then the Corporation
would, in all likelihood, experience severe liquidity problems and
may have to curtail business activities. If the
|
NEXTSOURCE
MATERIALS INC. MANAGEMENT’S DISCUSSION AND
ANALYSIS
For
the three months ended September 30, 2020 and 2019
|
Corporation
curtails business activities, the Corporation may be placed into
bankruptcy or undergo liquidation, the result of which will
adversely affect the value of the securities of the
Corporation.
Development projects are uncertain, and it is possible that actual
capital and operating costs and economic returns will differ
significantly from those estimated for a project prior to
production.
Mine
development projects, including the Molo Graphite Project, require
significant expenditures during the development phase before
production is possible.
Development
projects are subject to the completion of successful feasibility
studies and environmental assessments, issuance of necessary
governmental permits and availability of adequate financing. The
economic feasibility of development projects is based on many
factors such as: estimation of mineral reserves, anticipated
recoveries, environmental considerations and permitting, future
commodity prices, and anticipated capital and operating costs of
these projects. It is not unusual in new mining operations to
experience unexpected problems during the start-up phase, and
delays can often occur at the start of production.
Particularly for
development projects, mineral reserve estimates and cash operating
costs are, to a large extent, based upon the interpretation of
geologic data obtained from drill holes and other sampling
techniques, and feasibility studies that derive estimates of cash
operating costs based upon anticipated tonnage and grades of ore to
be mined and processed, the configuration of the ore body, expected
recovery rates of metals from the ore, estimated operating costs,
anticipated climatic conditions and other factors. As a result, it
is possible that actual capital and operating costs and economic
returns will differ significantly from those currently estimated
for a project prior to production.
Any of
the following events, among others, could affect the profitability
or economic feasibility of the Molo Graphite Project: unanticipated
changes in grade and tonnes of material to be mined and processed,
unanticipated adverse geological conditions, unanticipated recovery
problems, incorrect data on which engineering assumptions are made,
availability and costs of labor, costs of processing, availability
of economic sources of power, adequacy of water supply,
availability of surface on which to locate processing facilities,
adequate access to the site, unanticipated transportation costs,
government regulations (including regulations with respect to
prices, royalties, duties, taxes, permitting, restrictions on
production, quotas on exportation of minerals, environmental),
fluctuations in commodity prices, accidents, labor actions, the
availability and delivery of critical equipment, successful
commissioning and start-up of operations, including the achievement
of designed plant recovery rates and force-majeure
events.
The
Molo Graphite Project has not yet been built and accordingly has no
operating history upon which to base estimates of future production
and cash operating costs. The price of graphite can fluctuate
significantly on a month-to-month and year- to-year basis.
Declining graphite prices can impact operations by forcing a
reassessment of the feasibility of the Molo Graphite
Project.
It is
likely that actual results for the Molo Graphite Project will
differ from current estimates and assumptions, and these
differences may be material. In addition, experience from actual
mining or processing operations may identify new or unexpected
conditions that could reduce production below, or increase capital
or operating costs above, current estimates. If actual results are
less favorable than currently estimated, the Corporation’s
business, results of operations, financial condition and liquidity
could be materially adversely affected.
The Corporation’s development and exploration projects are in
the African country of Madagascar and are subject to country
political and regulatory risks.
A new
president of Madagascar was inaugurated in January 2019 following
democratic elections. The Corporation is actively monitoring the
political climate in Madagascar and continues to hold meetings with
new representatives of the government and the Ministries in charge
of mining. Depending on future actions taken by the newly elected
government, or any future government, the Corporation’s
business operations could be impacted.
Companies in the
mining and metals sector continue to be targeted to raise
government revenue, particularly as governments struggle with
deficits and concerns over the effects of depressed economies. Many
governments are continually assessing the fiscal terms of the
economic rent for mining companies to exploit resources in their
countries.
The
government of Madagascar has granted mining claims, permits, and
licenses that will enable us to conduct anticipated operations or
exploration and development activities. Notwithstanding, these
arrangements, the Corporation’s ability to conduct
operations, exploration and/or development activities at any of its
properties is subject to obtaining and/or renewing permits or
concessions, changes in laws or government regulations or shifts in
political attitudes beyond its control.
Any
adverse developments to the political and regulatory situation in
Madagascar could have a material effect on the Corporation’s
business, results of operations and financial condition. The
Corporation’s operations may also be affected in
|
NEXTSOURCE
MATERIALS INC. MANAGEMENT’S DISCUSSION AND
ANALYSIS
For
the three months ended September 30, 2020 and 2019
|
varying
degrees by terrorism; military conflict or repression; crime;
populism; activism; labour unrest; attempts to renegotiate or
nullify existing concessions, licenses, permits and contracts;
unstable or unreliable legal systems; changes in fiscal regimes
including taxation, and other risks arising out of sovereignty
issues.
The
Corporation does not currently carry political risk insurance
covering its investments in Madagascar. It may not be possible for
investors to enforce judgments in Canada against a loss suffered on
the Corporation’s assets and operations in
Madagascar.
Dependence on the Molo Graphite Project.
The
Corporation’s principal mineral property is the Molo Graphite
Project. As a result, unless the Corporation acquires or develops
any additional material properties or projects, any adverse
developments affecting this project or our rights to develop the
Molo Graphite Project could materially adversely affect the
Corporation’s business, financial condition and results of
operations.
Additional permits and licenses are necessary to complete the
development of the Molo Graphite Project.
The
Corporation successfully converted its exploration permit for the
Molo Graphite Project into a mining permit. However, the
Corporation requires additional permits necessary to construct and
operate the mine, including water use, construction, mineral
processing, transportation, export, and labour. Applications for
these additional permits and licenses will be undertaken in due
course at the appropriate time.
The
Corporation cannot provide any assurance as to the timing of the
receipt of any of the additional permits and licenses necessary to
initiate construction of the mine.
Mining companies are increasingly required to consider and provide
benefits to the communities and countries in which they operate,
and are subject to extensive environmental, health and safety laws
and regulations.
As a
result of public concern about the real or perceived detrimental
effects of economic globalization and global climate impacts,
businesses generally and large multinational corporations in
natural resources industries face increasing public scrutiny of
their activities. These businesses are under pressure to
demonstrate that, as they seek to generate satisfactory returns on
investment to shareholders, other stakeholders, including
employees, governments, communities surrounding operations and the
countries in which they operate, benefit and will continue to
benefit from their commercial activities. Such pressures tend to be
particularly focused on companies whose activities are perceived to
have a high impact on their social and physical environment. The
potential consequences of these pressures include reputational
damage, legal suits, increasing social investment obligations and
pressure to increase taxes and royalties payable to governments and
communities.
In
addition, the Corporation’s ability to successfully obtain
key permits and approvals to explore for, develop and operate mines
and to successfully operate in communities around the world will
likely depend on the Corporation’s ability to develop,
operate and close mines in a manner that is consistent with the
creation of social and economic benefits in the surrounding
communities, which may or may not be required by law. The
Corporation’s ability to obtain permits and approvals and to
successfully operate in particular communities may be adversely
impacted by real or perceived detrimental events associated with
the Corporation’s activities or those of other mining
companies affecting the environment, human health and safety of
communities in which the Corporation operates. Delays in obtaining
or failure to obtain government permits and approvals may adversely
affect the Corporation’s operations, including its ability to
explore or develop properties, commence production or continue
operations. Key permits and approvals may be revoked or suspended
or may be varied in a manner that adversely affects the
Corporation’s operations, including its ability to explore or
develop properties, commence production or continue
operations.
The
Corporation’s business operations are subject to extensive
laws and regulations governing worker health and safety and land
use and the protection of the environment, which generally apply to
air and water quality, protection of endangered, protected or other
specified species, hazardous waste management and reclamation. The
Corporation has made, and expect to make in the future, significant
expenditures to comply with such laws and regulations. Compliance
with these laws and regulations imposes substantial costs and
burdens, and can cause delays in obtaining, or failure to obtain,
government permits and approvals which may adversely impact the
Corporation’s closure processes and operations.
Fluctuations in the market price of graphite and other metals may
adversely affect the value of the Corporation’s securities
and the ability of the Corporation to develop the Molo Graphite
Project.
The
value of the Corporation’s securities may be significantly
affected by the market price of graphite and other metals, which
are cyclical and subject to substantial price fluctuations. Market
prices can be affected by numerous factors beyond the
Corporation’s control, including levels of supply and demand
for a broad range of industrial products, economic growth rates of
various international economies, expectations with respect to the
rate of inflation, the relative strength of various currencies,
interest rates,
speculative activities, global or regional political or economic
circumstances. The Chinese market is a significant source of global
demand for commodities, including graphite. Chinese demand has been
a major driver in global commodities markets for a number of years
and recent reductions in Chinese demand have adversely affected
prices for graphite. A further slowing in China’s economic
growth could result in even lower prices and could negatively
impact the value of the Corporation’s securities. Prolonged
decreases in the price of graphite or other metals could adversely
impact the ability of the Corporation to proceed with the
development of the Molo Graphite Project.
|
NEXTSOURCE
MATERIALS INC. MANAGEMENT’S DISCUSSION AND
ANALYSIS
For
the three months ended September 30, 2020 and 2019
|
The Corporation may not have access to sufficient capital to
develop the Molo Graphite Project.
The
Corporation has limited capital, which is insufficient to
development the Molo Graphite Project. The Corporation’s
ability to develop the project will depend primarily on its ability
to obtain additional capital in the form of private or public
equity or debt financing. Access to mine financing has been
negatively impacted by the prolonged decline in commodities prices.
Therefore, there is no assurance that the Corporation will secure
sufficient financing, or the Corporation may be unable to locate
and secure capital on terms and conditions that are acceptable to
the Corporation. Any equity financing may have a dilutive effect on
the value of the Corporation’s securities. Any debt
financing, if available, may involve financial covenants which
limit operations and could be secured against all of the
Corporation’s assets. If the Corporation cannot obtain
additional capital, the Corporation may not be able to complete the
development of the Molo Graphite Project, which would have a
material adverse effect on the business, operating results and
financial condition of the Corporation.
The Corporation has a limited operating history and expects to
incur operating losses for the foreseeable future.
The
Corporation has principally operated as a mineral exploration
company since incorporation and has just received its first mining
permit. There are numerous difficulties normally encountered by
mineral exploration and development companies, and these companies
experience a high rate of failure.
The
Corporation has not earned any revenues and the Corporation has not
been profitable. It is anticipated that the Corporation will
continue to report negative operating cash flow in future periods,
likely until after the Molo Graphite Project generates recurring
revenues from being placed into production of which there is no
assurance. The Corporation has no history upon which to base any
assumption as to the likelihood that the business will prove
successful, and the Corporation can provide no assurance to
investors that it will generate any operating revenues or ever
achieve profitable operations.
Due to the speculative nature of mineral property exploration,
there is substantial risk that the Corporation’s assets will
not go into commercial production and the business will
fail.
Exploration for
minerals is a speculative venture involving substantial risk. The
Corporation cannot provide investors with any assurance that the
Corporation’s claims and properties will ever enter into
commercial production. The exploration work that the Corporation
has completed on the Molo Graphite Project claims may not result in
the commercial production of graphite. The exploration work that
the Corporation has completed on the Green Giant Vanadium Project
may not result in the commercial production of vanadium or other
minerals.
Estimates of mineral resources and mineral reserves may not be
realized.
Mineral
resource and mineral reserve estimates are only estimates and no
assurance can be given that any particular level of recovery of
minerals will be realized or that an identified mineral resource
will ever qualify as a commercially mineable (or viable) deposit
which can be legally and economically exploited. The Corporation
relies on laboratory-based recovery models to project estimated
ultimate recoveries by mineral type. There can be no assurance that
mineral recovery in small scale laboratory tests will be duplicated
in large scale tests under on-site conditions or in production
scale operations. Actual recoveries may exceed or fall short of
projected laboratory test results. In addition, the grade of
mineralization ultimately mined may differ from the one indicated
by the drilling results and the difference may be material.
Production can be affected by such factors as permitting
regulations and requirements, weather, environmental factors,
unforeseen technical difficulties, unusual or unexpected geological
formations, inaccurate or incorrect geologic, metallurgical or
engineering work, and work interruptions, among other things. Short
term factors, such as the need for an orderly development of
deposits or the processing of new or different grades, may have an
adverse effect on mining operations or the results of those
operations. Material changes in mineral reserves or mineral
resources, grades, waste-to-ore ratios or recovery rates may affect
the economic viability of projects. The estimated mineral reserves
and mineral resources should not be interpreted as assurances of
mine life or of the profitability of future operations
Because of the inherent dangers involved in mineral exploration,
there is a risk that the Corporation may incur liability or damages
as the Corporation conducts business.
The
search for valuable minerals involves numerous hazards. As a
result, the Corporation may become subject to liability for such
hazards, including pollution, cave-ins and other hazards against
which the Corporation cannot, or may elect not, to insure
against. The
Corporation currently has no such insurance, but management intends
to periodically review the availability of commercially reasonable
insurance coverage. If a hazard were to occur, the costs of
rectifying the hazard may exceed the Corporation’s asset
value and cause us to liquidate all of its
assets.
|
NEXTSOURCE
MATERIALS INC. MANAGEMENT’S DISCUSSION AND
ANALYSIS
For
the three months ended September 30, 2020 and 2019
|
The
Corporation’s operations are subject to environmental
regulations, which could result in additional costs and operational
delays. Environmental legislation is evolving in a manner that may
require stricter standards, and enforcement, increased fines and
penalties for non-compliance, more stringent environmental
assessments of proposed projects, and a heightened degree of
responsibility for companies and their officers, directors, and
employees. There is no assurance that any future changes in
environmental regulation will not negatively affect the
Corporation’s projects.
The Corporation has no insurance for environmental
problems.
Insurance against
environmental risks, including potential liability for pollution or
other hazards as a result of the disposal of waste products
occurring from exploration and production, has not been available
generally in the mining industry. The Corporation has no insurance
coverage for most environmental risks. In the event of a problem,
the payment of environmental liabilities and costs would reduce the
funds available to us for future operations. If the Corporation is
unable to full pay for the cost of remedying an environmental
problem, the Corporation might be required to enter into an interim
compliance measure pending completion of the required
remedy.
Should the Corporation lose the services of key executives, the
Corporation’s financial condition and proposed expansion may
be negatively impacted.
The
Corporation depends on the continued contributions of the
Corporation’s executive officers to work effectively as a
team, to execute its business strategy and to manage its business.
The loss of key personnel, or their failure to work effectively,
could have a material adverse effect on its business, financial
condition, and results of operations. Specifically, the Corporation
relies on Craig Scherba, the President and Chief Executive Officer
and Marc Johnson, the Chief Financial Officer.
The
Corporation does not maintain key man life insurance. Should the
Corporation lose any or all of their services and the Corporation
is unable to replace their services with equally competent and
experienced personnel, the Corporation’s operational goals
and strategies may be adversely affected, which will negatively
affect potential revenues.
Because access to the Corporation’s properties may be
restricted by inclement weather or proper infrastructure, its
exploration programs are likely to experience delays.
Access
to most of the properties underlying the Corporation’s claims
and interests is restricted due to their remote locations and
because of weather conditions. Some of the Corporation’s
properties are only accessible by air. As a result, any attempts to
visit, test, or explore the property are generally limited to those
periods when weather permits such activities. These limitations can
result in significant delays in exploration efforts, as well as
mining and production efforts in the event that commercial amounts
of minerals are found. This could cause the Corporation’s
business to fail.
COVID-19 may impact the Corporation’s business and
development plans.
In
March 2020 the World Health Organization declared coronavirus
COVID-19 a global pandemic. This contagious disease outbreak, which
has continued to spread, and any related adverse public health
developments, has adversely affected workforces, economies, and
financial markets globally, potentially leading to an economic
downturn. It is not possible for the Company to predict the
duration or magnitude of the adverse results of the outbreak and
its effects on the Company’s business or results of
operations at this time. The impact of COVID-19 on the Company has
been limited since no exploration or development work was ongoing
at the start of the pandemic. The Company was already setup to
operate and communicate remotely through the internet although
certain of our overseas staff and contractors have been indirectly
impacted by intermittent COVID-19 lockdowns in Madagascar and in
South Africa. Further lockdowns and unforeseen impacts could result
in delays to obtaining Molo Graphite Project construction
financing, the necessary construction and operating permits,
completing construction within the expected timeline, and
initiating and maintaining mining and plant
operations.
Climate change and related regulatory responses may impact the
Corporation’s business.
Climate
change as a result of emissions of greenhouse gases is a current
topic of discussion and may generate government regulatory
responses in the near future. It is impracticable to predict with
any certainty the impact of climate change on the
Corporation’s business or the regulatory responses to it,
although the Corporation recognizes that they could be significant.
However, it is too soon for us to predict with any certainty the
ultimate impact, either directionally or quantitatively, of climate
change and related regulatory responses.
To the
extent that climate change increases the risk of natural disasters
or other disruptive events in the areas in which the Corporation
operates, the Corporation could be harmed. While the Corporation
maintains rudimentary business recovery plans that are intended
to allow us to recover from natural disasters or other events that
can be disruptive to the Corporation’s business, its plans
may not fully protect us from all such disasters or
events.
|
NEXTSOURCE
MATERIALS INC. MANAGEMENT’S DISCUSSION AND
ANALYSIS
For
the three months ended September 30, 2020 and 2019
|
Compliance with changing regulation of corporate governance and
public disclosure will result in additional expenses and pose
challenges for management.
The
Corporation’s management team needs to devote significant
time and financial resources to comply with both existing and
evolving standards for public companies, which will lead to
increased general and administrative expenses and a diversion of
management time and attention from revenue generating activities to
compliance activities.
Tax risks.
Changes
in tax laws or tax rulings could materially affect the
Corporation’s financial position and results of operations.
Changes to, or differing interpretations of, taxation laws or
regulations in Canada, Madagascar, the United States of America, or
any of the countries in which the Corporation’s assets or
relevant contracting parties are located could result in some or
all of the Corporation’s profits being subject to additional
taxation or other tax liabilities being applicable to the
Corporation or its subsidiaries. Taxation laws are complex, subject
to differing interpretations and applications by the relevant tax
authorities. In particular, the tax treatment relating to the
Corporation’s corporate redomicile from the US to Canada is
complex. There is no assurance that new taxation rules or
accounting policies will not be enacted or that existing rules will
not be applied in a manner which could result in the
Corporation’s profits being subject to additional taxation or
which could otherwise have a material adverse effect on
profitability, results of operations, financial condition and the
trading price of the Corporation’s securities. Additionally,
the introduction of new tax rules or accounting policies, or
changes to, or differing interpretations of, or application of,
existing tax rules or accounting policies could make investments in
or by the Corporation less attractive to counterparties. Such
changes could adversely affect the Corporation’s ability to
raise additional funding or make future investments.
The Corporation’s business is subject to anti-corruption and
anti-bribery laws, a breach or violation of which could lead to
civil and criminal fines and penalties, loss of licenses or permits
and reputational harm.
The
Corporation operates in certain jurisdictions that have experienced
governmental and private sector corruption to some degree, and, in
certain circumstances, strict compliance with anti-bribery laws may
conflict with certain local customs and practices. Anti-corruption
and anti-bribery laws in certain jurisdictions generally prohibit
companies and their intermediaries from making improper payments
for the purpose of obtaining or retaining business or other
commercial advantage. The Corporation’s corporate policies
mandate compliance with these anti-bribery laws, which often carry
substantial penalties. There can be no assurance that the
Corporation’s internal control policies and procedures always
will protect it from recklessness, fraudulent behavior, dishonesty
or other inappropriate acts committed by the Corporation’s
affiliates, employees or agents. As such, the Corporation’s
corporate policies and processes may not prevent all potential
breaches of law or other governance practices. Violations of these
laws, or allegations of such violations, could lead to civil and
criminal fines and penalties, litigation, and loss of operating
licenses or permits, and may damage the Corporation’s
reputation, which could have a material adverse effect on its
business, financial position and results of operations or cause the
market value of the Common Shares to decline.
The Corporation does not intend to pay dividends in the foreseeable
future.
The
Corporation does not anticipate paying cash dividends in the
foreseeable future. The Corporation may not have sufficient funds
to legally pay dividends. Even if funds are legally available to
pay dividends, the Corporation may nevertheless decide, in its sole
discretion, not to pay dividends. The declaration, payment and
amount of any future dividends will be made at the discretion of
the board of directors, and will depend upon, among other things,
the results of the Corporation’s operations, cash flows and
financial condition, operating and capital requirements, and other
factors the board of directors may consider relevant. There is no
assurance that the Corporation will pay any dividends in the
future, and, if dividends are paid, there is no assurance with
respect to the amount of any such dividend.
Because from time to time the Corporation holds a significant
portion of cash reserves in Canadian dollars, the Corporation may
experience losses due to foreign exchange
translations.
From
time to time the Corporation holds a significant portion of cash
reserves in Canadian dollars. Due to foreign exchange rate
fluctuations, the value of these Canadian dollar reserves can
result in translation gains or losses in U.S. dollar terms. If
there was a significant decline in the Canadian dollar versus the
U.S. dollar, the Corporation’s converted Canadian dollar cash
balances presented in U.S. dollars on its balance sheet would
significantly decline. If the US dollar significantly declines
relative to the Canadian dollar the Corporation’s quoted US
dollar cash position would significantly decline as it would be
more
expensive in US dollar terms to pay Canadian dollar expenses. The
Corporation has not entered into derivative instruments to offset
the impact of foreign exchange fluctuations. In addition, certain
of the Corporation’s ongoing expenditures are in South
African Rand, Madagascar Ariary and Euros requiring us to
occasionally hold reserves of these foreign currencies with a
similar risk of foreign exchange currency translation
losses.
|
NEXTSOURCE
MATERIALS INC. MANAGEMENT’S DISCUSSION AND
ANALYSIS
For
the three months ended September 30, 2020 and 2019
|
The Corporation is exposed to general economic conditions, which
could have a material adverse impact on its business, operating
results and financial condition.
Recently there have
been adverse conditions and uncertainty in the global economy as
the result of unstable global financial and credit markets,
inflation, and recession. These unfavorable economic conditions and
the weakness of the credit market may continue to have, an impact
on the Corporation’s business and the Corporation’s
financial condition. The current global macroeconomic environment
may affect the Corporation’s ability to access the capital
markets may be severely restricted at a time when the Corporation
wishes or needs to access such markets, which could have a
materially adverse impact on the Corporation’s flexibility to
react to changing economic and business conditions or carry on
operations.
The current financial environment may impact the
Corporation’s business and financial condition that cannot
predict.
The
continued instability in the global financial system and related
limitation on availability of credit may continue to have an impact
on the Corporation’s business and financial condition, and
the Corporation may continue to face challenges if conditions in
the financial markets do not improve. The Corporation’s
ability to access the capital markets has been restricted as a
result of the economic downturn and related financial market
conditions and may be restricted in the future when the Corporation
would like, or need, to raise capital. The difficult financial
environment may also limit the number of prospects for potential
joint venture, asset monetization or other capital raising
transactions that the Corporation may pursue in the future or
reduce the values the Corporation is able to realize in those
transactions, making these transactions uneconomic or difficult to
consummate.
The market price for the Common Shares is particularly volatile
given the Corporation’s status as a relatively unknown
company with a small and thinly traded public float, limited
operating history and lack of profits which could lead to wide
fluctuations in the market price for the Common
Shares.
The
market price for the Common Shares is characterized by significant
price volatility when compared to seasoned issuers, and the
Corporation expects that its share price will continue to be more
volatile than a seasoned issuer. Such volatility is attributable to
a number of factors. First, the Common Shares, at times, are thinly
traded. As a consequence of this lack of liquidity, the trading of
relatively small quantities of Common Shares by shareholders may
disproportionately influence the price of those Common Shares in
either direction. The price for the Common Shares could, for
example, decline precipitously in the event that a large number of
Common Shares are sold on the market without commensurate demand,
as compared to a seasoned issuer which could better absorb those
sales without adverse impact on its share price. Second, the
Corporation are a speculative or “risky” investment due
to the Corporation’s limited operating history, lack of
profits to date and uncertainty of future market acceptance for the
Corporation’s potential products. As a consequence, more
risk-adverse investors may, under the fear of losing all or most of
their investment in the event of negative news or lack of progress,
be more inclined to sell their shares on the market more quickly
and at greater discounts than would be the case with the stock of a
seasoned issuer. Many of these factors are beyond the
Corporation’s control and may decrease the market price of
the Common Shares, regardless of the Corporation’s
performance. The Corporation cannot make any predictions as to what
the prevailing market price for the Common Shares will be at any
time or as to what effect that the sale of Common Shares or the
availability of Common Shares for sale at any time will have on the
prevailing market price.
Securities of
small-cap and mid-cap companies have experienced substantial
volatility in the recent past, often based on factors unrelated to
the financial performance or prospects of the companies involved.
These factors include macroeconomic developments in North America
and globally and market perceptions of the attractiveness of
particular industries. The price of the Common Shares is also
likely to be significantly affected by short-term changes in
graphite prices and demand, the
U.S.
dollar, the Malagasy ariary, the Canadian dollar, and the
Corporation’s financial condition or results of operations as
reflected in its financial statements. Other factors unrelated to
the performance of the Corporation that may have an effect on the
price of the Common Shares include the following: the extent of
analytical coverage available to investors concerning the
Corporation’s business may be limited if investment banks
with research capabilities do not follow the Corporation’s
securities; lessening in trading volume and general market interest
in the Corporation’s securities may affect an
investor’s ability to trade significant numbers of Common
Shares; the size of the Corporation’s public float may limit
the ability of some institutions to invest in its securities; and a
substantial decline in the price of the Common Shares that persists
for a significant period of time could cause its securities, if
listed on an exchange, to be delisted from such exchange, further
reducing market liquidity.
As a
result of any of these factors, the market price of the Common
Shares at any given point in time may not accurately reflect the
long-term value of the Corporation. Class action litigation often
has been brought against companies following periods of
volatility in the market price of their securities. The Corporation
may in the future be the target of similar litigation. Securities
litigation could result in substantial costs and damages and divert
management’s attention and resources.
|
NEXTSOURCE
MATERIALS INC. MANAGEMENT’S DISCUSSION AND
ANALYSIS
For
the three months ended September 30, 2020 and 2019
|
Evaluation
of Disclosure Controls and Procedures
Disclosure controls and procedures
Disclosure controls
and procedures are designed to provide reasonable assurance that
all relevant information is gathered and reported to management,
including the CEO and CFO, on a timely basis so that appropriate
decisions can be made regarding public disclosure.
Internal controls over financial reporting
Internal control
over financial reporting means a process designed by or under the
supervision of the CEO and CFO, management and other personnel to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with IFRS.
The
internal controls are not expected to prevent and detect all
misstatements due to error or fraud.
As at
September 30, 2020, the Corporation’s CEO and CFO have
certified that the disclosure controls and procedures were
effective and that during the three months ended September 30,
2020, the Corporation did not make any material changes in the
internal controls over financial reporting that materially affected
or are reasonably likely to materially affect the
Corporation’s internal control over financial
reporting.
Other
Information
Additional
information related to the Company, including the Company’s
Annual Information Form (“AIF”), is available on SEDAR
at www.sedar.com or on the Company website at www.nextsourcematerials.com.