NextSource Materials Inc 6-K, filed May 12, 2021
NextSource Materials Inc. (NSRCF)
6-K
2021-05-12
For: 2021-03-31
View Original
Added on
April 12, 2026
About this 6-K
NextSource Materials Inc filed this 6-K on May 12, 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 March 31,
2021
Commission
File Number 000-51151
|
NEXTSOURCE MATERIALS INC.
|
|
(Translation
of registrant’s name into English)
|
|
1940-130 King Street West
Toronto, Ontario, Canada
M5X 2A2
|
|
(Address
of principal executive office)
|
Indicate
by check mark whether the registrant files or will file annual
reports under cover of Form 20-F or Form 40-F
|
Form
20-F
|
☒
|
Form
40-F
|
☐
|
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):
|
Yes
|
☐
|
No
|
☒
|
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):
|
Yes
|
☐
|
No
|
☒
|
EXHIBITS
NextSource
Materials Inc. Unaudited Condensed Consolidated Interim Financial
Statements for the Nine and Three Months Ended March 31, 2021 as
filed on SEDAR on May 11, 2021.
NextSource
Materials Inc. Management’s Discussion and Analysis for the
Nine and Three Months Ended March 31, 2021 as filed on SEDAR on May
11, 2021.
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.
Dated:
May 11, 2021
|
|
NEXTSOURCE MATERIALS INC.
|
|
|
/s/ Marc Johnson
Marc
Johnson
Chief
Financial Officer
|
|
|
|
Exhibit 99.1
NextSource Materials Inc.
Unaudited Condensed Consolidated Interim Financial
Statements
For the
nine months ended March 31, 2021 and 2020
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
|
|
March
31,
|
June
30,
|
|
|
2021
|
2020
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
Cash and cash
equivalents (note 4)
|
$7,071,791
|
$222,305
|
|
Amounts receivable
(note 15)
|
82,348
|
7,539
|
|
Prepaid expenses
(note 15)
|
7,375
|
25,484
|
|
Total
Current Assets
|
7,161,514
|
255,328
|
|
|
|
|
|
Plant and Equipment
(note 7)
|
17,029
|
18,111
|
|
|
|
|
|
Total
Assets
|
$7,178,543
|
$273,439
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
Accounts payable
(note 15)
|
130,234
|
323,876
|
|
Accrued liabilities
(note 15)
|
379,081
|
370,449
|
|
Share
subscriptions
|
-
|
68,411
|
|
Short term debt
(note 13)
|
-
|
22,115
|
|
Provision (note
14)
|
174,556
|
174,418
|
|
Fair value of
warrant derivate liabilities (note 12)
|
10,424,664
|
208,768
|
|
Current portion of
lease obligations (note 8)
|
5,875
|
5,339
|
|
Total
Current Liabilities
|
11,114,410
|
1,173,376
|
|
|
|
|
|
Lease obligations
(note 8)
|
5,282
|
10,679
|
|
|
|
|
|
Total
Liabilities
|
11,119,692
|
1,184,055
|
|
|
|
|
|
Shareholders’
Equity (Deficit)
|
|
|
|
Share capital (note
9)
|
115,412,375
|
103,901,775
|
|
Accumulated
deficit
|
(119,473,992)
|
(104,933,066)
|
|
Accumulated other
comprehensive income
|
120,468
|
120,675
|
|
|
|
|
|
Total
Shareholders’ Equity (Deficit)
|
(3,941,149)
|
(910,616)
|
|
|
|
|
|
Total
Liabilities and Shareholders’ Equity (Deficit)
|
$7,178,543
|
$273,439
|
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)
2
NextSource Materials Inc.
Unaudited Condensed Consolidated Interim Statements of Operations
and Comprehensive Loss
Expressed in US Dollars
|
|
The nine
months
|
The nine
months
|
The three
months
|
The three
months
|
|
|
ended
on
|
ended
on
|
ended
on
|
ended
on
|
|
|
March
31,
|
March
31,
|
March
31,
|
March
31,
|
|
|
2021
|
2020
|
2021
|
2020
|
|
|
|
|
|
|
|
Revenues
|
$-
|
$-
|
$-
|
$-
|
|
|
|
|
|
|
|
Expenses
and other income
|
|
|
|
|
|
Exploration and
evaluation expenses (notes 3, 4, 5)
|
65,897
|
65,055
|
(4,728)
|
32,152
|
|
Payroll and
benefits (note 15)
|
297,203
|
348,666
|
108,255
|
122,815
|
|
Management fees
(note 15)
|
251,658
|
249,808
|
84,684
|
76,726
|
|
Consulting
fees
|
128,373
|
86,671
|
40,076
|
-
|
|
Professional and
legal fees (note 6)
|
185,967
|
84,296
|
81,887
|
33,905
|
|
Public filing
expenses
|
90,582
|
68,773
|
35,681
|
12,710
|
|
Share-based
compensation (note 10)
|
3,793,104
|
-
|
3,772,435
|
-
|
|
Travel
expenses
|
2,743
|
64,144
|
436
|
13,652
|
|
Investor relation
expenses
|
21,195
|
20,229
|
12,605
|
2,747
|
|
Insurance
expenses
|
21,262
|
12,876
|
6,610
|
2,877
|
|
Rent
expenses
|
14,880
|
14,897
|
5,105
|
4,516
|
|
Information
technology expenses
|
7,636
|
8,198
|
3,317
|
593
|
|
Telecommunications
|
1,793
|
2,178
|
796
|
715
|
|
General and
administrative expenses
|
9,287
|
5,873
|
4,288
|
(1,192)
|
|
Amortization of
property, plant and equipment (note 7)
|
4,847
|
-
|
1,804
|
-
|
|
Finance costs (note
8)
|
1,051
|
-
|
321
|
-
|
|
Bank
fees
|
2,589
|
3,117
|
805
|
1,092
|
|
Foreign currency
translation (gain) loss
|
(35,646)
|
(603)
|
(4,423)
|
(2,414)
|
|
Interest expense
(income)
|
145
|
477
|
-
|
276
|
|
Change in value of
warrant liability (note 12)
|
9,676,360
|
(487,263)
|
8,560,319
|
(266,431)
|
|
Foreign
taxes
|
-
|
686
|
-
|
(83)
|
|
|
|
|
|
|
|
Net
loss for the period
|
(14,540,926)
|
(548,078)
|
(12,710,273)
|
(34,656)
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
|
|
|
Items that will be reclassified subsequently to loss
|
|
|
|
|
|
Translation
adjustment for foreign operations
|
(207)
|
(118)
|
1,617
|
(343)
|
|
|
|
|
|
|
|
Net
loss and comprehensive loss for the period
|
$(14,541,133)
|
$(548,196)
|
$(12,708,656)
|
$(34,999)
|
|
|
|
|
|
|
|
Weighted-average
common shares (basic and diluted)
|
589,535,053
|
520,017,387
|
626,110,312
|
536,494,789
|
|
Net loss per common
shares (basic and diluted
|
$(0.02)
|
$(0.00)
|
$(0.02)
|
$(0.00)
|
The accompanying notes are an integral part of these unaudited
condensed consolidated interim financial statements.
3
NextSource Materials Inc.
Unaudited Condensed Consolidated Interim Statements of Cash
Flows
Expressed in US Dollars
|
|
The nine
months
|
The nine
months
|
|
|
ended
on
|
ended
on
|
|
|
March
31,
|
March
31,
|
|
|
2021
|
2020
|
|
|
|
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
|
Net loss for the
period
|
$(14,540,926)
|
$(548,078)
|
|
|
|
|
|
Add (deduct) items
not affecting cash:
|
|
|
|
Amortization of
property, plant and equipment
|
4,847
|
-
|
|
Change in value of
warrant derivative liability
|
9,676,360
|
(487,263)
|
|
Share-based
compensation (options)
|
3,793,104
|
-
|
|
Change in value of
lease liability
|
1,506
|
-
|
|
|
|
|
|
Change in non-cash
working capital balances:
|
|
|
|
(Increase) decrease
in amounts receivable and prepaid expenses
|
(56,700)
|
50,139
|
|
Increase (decrease)
in accounts payable and accrued liabilities
|
(185,010)
|
(249,262)
|
|
Increase (decrease)
in provision
|
138
|
-
|
|
Increase (decrease)
in share subscriptions received in advance
|
(68,411)
|
-
|
|
|
|
|
|
Net cash used in
operating activities
|
(1,375,092)
|
(1,234,464)
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
Equipment
purchases
|
(3,765)
|
-
|
|
|
|
|
|
Net cash provided
by investing activities
|
(3,765)
|
-
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
Short term
debt
|
(22,115)
|
-
|
|
Lease liability
principal payments
|
(6,367)
|
-
|
|
Proceeds from
issuance of common shares
|
7,560,571
|
998,619
|
|
Exercise of stock
options
|
560,406
|
-
|
|
Exercise of
warrants
|
167,471
|
-
|
|
Common share issue
costs
|
(31,416)
|
(7,821)
|
|
|
|
|
|
Net cash provided
by financing activities
|
8,228,550
|
990,798
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
(207)
|
(118)
|
|
Increase (decrease)
in cash and cash equivalents
|
6,849,486
|
(243,784)
|
|
|
|
|
|
Cash and cash
equivalents - beginning of period
|
222,305
|
529,331
|
|
Cash
and cash equivalents - end of period
|
$7,071,791
|
$285,547
|
The accompanying notes are an integral part of these unaudited
condensed consolidated interim financial statements.
4
NextSource Materials Inc.
Unaudited Condensed Consolidated Interim Statements of Changes in
Shareholders’ Equity
Expressed in US Dollars
|
|
Shares
|
Share
|
Accumulated
|
Accumulated
Other
|
Total
(Deficit)
|
|
|
Outstanding
|
Capital
|
Deficit
|
Comprehensive
Income
|
Equity
|
|
|
|
|
|
|
|
|
Balance –
June 30, 2019
|
507,417,021
|
$103,172,066
|
$(103,955,431)
|
$117,479
|
$(665,886)
|
|
|
|
|
|
|
|
|
Private
placement of common shares
|
29,077,768
|
998,620
|
-
|
-
|
998,620
|
|
Cost of issue
of private placement of common shares
|
-
|
(7,821)
|
-
|
-
|
(7,821)
|
|
Reclassification
as warrant liability
|
-
|
(261,090)
|
-
|
-
|
(261,090)
|
|
Net loss for
the period
|
-
|
-
|
(548,078)
|
-
|
(548,078)
|
|
Cumulative
translation adjustment
|
-
|
-
|
-
|
(118)
|
(118)
|
|
|
|
|
|
|
|
|
Balance –
March 31, 2020
|
536,494,789
|
103,901,775
|
(104,503,509)
|
117,361
|
(484,373)
|
|
|
|
|
|
|
|
|
Net loss for
the period
|
-
|
-
|
(429,557)
|
-
|
(429,557)
|
|
Cumulative
translation adjustment
|
-
|
-
|
-
|
3,314
|
3,314
|
|
|
|
|
|
|
|
|
Balance –
June 30, 2020
|
536,494,789
|
103,901,775
|
(104,933,066)
|
120,675
|
(910,616)
|
|
|
|
|
|
|
|
|
Private
placement of common shares
|
181,578,783
|
7,560,571
|
-
|
-
|
7,560,571
|
|
Cost of issue
of private placement of common shares
|
-
|
(31,416)
|
-
|
-
|
(31,416)
|
|
Reclassification
as warrant liability
|
-
|
(539,536)
|
-
|
-
|
(539,536)
|
|
Exercise of
stock options
|
8,021,741
|
560,406
|
-
|
-
|
560,406
|
|
Exercise of
warrants
|
2,537,181
|
167,471
|
-
|
-
|
167,471
|
|
Conversion of
RSUs
|
5,174,424
|
-
|
-
|
-
|
-
|
|
Share-based
compensation (Options)
|
-
|
3,324,260
|
-
|
-
|
3,324,260
|
|
Share-based
compensation (RSUs)
|
-
|
468,844
|
-
|
-
|
468,844
|
|
Net loss for
the period
|
-
|
-
|
(14,540,926)
|
-
|
(14,540,926)
|
|
Cumulative
translation adjustment
|
-
|
-
|
-
|
(207)
|
(207)
|
|
|
|
|
|
|
|
|
Balance –
March 31, 2021
|
733,806,918
|
$115,412,375
|
$(119,473,992)
|
$120,468
|
$(3,941,149)
|
The accompanying notes are an integral part of these unaudited
condensed consolidated interim financial statements.
5
NextSource Materials Inc.
Notes to Unaudited Condensed Consolidated Interim Financial
Statements
For the nine months ended March 31, 2021 and 2020
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 from the State of Minnesota to Canada on December
27, 2017 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 and is positioned to
become a key producer of critical raw materials used in batteries
and other technological applications. The Company, through its
wholly owned foreign subsidiaries, owns the Molo Graphite Project
and the Green Giant Vanadium Project in Madagascar. The Company
also owns the Sagar project in Quebec but is not a focus for the
Company.
The
Company obtained a mining permit for the Molo Graphite Mine on
February 15, 2019 and announced it had secured a financing package
for construction of Phase 1 of the mine on February 8, 2021. The
Company announced on March 29, 2021 it initiated the construction
process for the mine on March 29, 2021 with the awarding of the
engineering, procurement, and construction management contract.
Construction will take approximately 12 months and commissioning of
the mine is expected to begin in April 2022 followed by a ramp up
to a Phase 1 processing plant capacity of 240,000 tpa of ore,
producing approximately 17,000 tpa of high-quality SuperFlake®
graphite concentrate.
The
Company does not currently operate any mines and has not completed
construction of any mines. No commercial revenue has ever been
generated from any mineral resource properties. 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 May 11, 2021.
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 global
economic downturn. The impact of COVID-19 on the Company has been
limited since the Company does not have any active exploration
programs and our management team was already setup to operate and
communicate remotely through the internet, although certain of our
directors, officers, employees’ consultants, and contractors
have been indirectly impacted by intermittent COVID-19 lockdowns in
Canada, Madagascar, Mauritius and in South Africa.
The
Company has announced the initiation of construction of the Molo
Graphite Mine in Madagascar and is including the impact of
continued COVID-19 outbreaks and intermittent lockdowns into its
development plans. Notwithstanding, intermittent lockdowns have the
potential to cause unforeseen delays in the construction schedule.
It is not possible for the Company to predict the duration or
magnitude of adverse impacts from further outbreak and predict its
effects on the Company’s business or results of
operations.
Corporate Structure
NextSource
owns 100% of NextSource Materials (Mauritius) Ltd.
(“MATMAU”), a Mauritius subsidiary, and 2391938 Ontario
Inc., an Ontario Company. MATMAU owns 100% of NextSource Minerals
(Mauritius) Ltd. (“MINMAU”), a Mauritius subsidiary,
NextSource Graphite (Mauritius) Ltd (“GRAMAU”), a
Mauritius subsidiary, and NextSource Materials (Madagascar) SARLU
(“MATMAD”), a Madagascar subsidiary. MINMAU owns 100%
of NextSource Minerals (Madagascar) SARLU (“MINMAD”), a
Madagascar subsidiary. MINMAD holds the Green Giant Vanadium
Project exploration permits. GRAMAU owns 100% of ERG Madagascar
SARLU (“GRAMAD”), a Madagascar subsidiary. GRAMAD holds
the Molo Graphite Project mining and exploration
permits.
Going Concern Assumption
The
accompanying consolidated financial statements have been prepared
on the basis of a going concern, which contemplates the realization
of assets and liquidation of liabilities in the normal course of
business.
As of
March 31, 2021, the Company had an accumulated deficit of
$119,473,992 (June 30, 2020:
$104,933,066) has experienced
recurring net losses and has negative operating cash flows from
operations. Although the Company ended the period with cash and
cash equivalents of $7,071,791 the Company initiated the
construction process for the Molo Graphite Mine on March 29, 2021,
which is expected to require capital costs and working capital of
at least $25 million during the next twelve months. As of the date
of these financial statements, the Company does not have sufficient
funds to complete construction of the mine.
6
NextSource Materials Inc.
Notes to Unaudited Condensed Consolidated Interim Financial
Statements
For the nine months ended March 31, 2021 and 2020
Expressed in US Dollars
1.
Nature
of Operations and Going Concern (continued)
Going Concern Assumption (continued)
Construction
of the mine is contingent upon obtaining the remainder of the
construction financing contemplated in the Financing Package (as
described in note 3). 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.
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.
7
NextSource Materials Inc.
Notes to Unaudited Condensed Consolidated Interim Financial
Statements
For the nine months ended March 31, 2021 and 2020
Expressed in US Dollars
3.
Mineral
Exploration Properties
The
Company has not capitalized any acquisition, exploration and
development 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 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”).
On February 8, 2021, the Company announced that it entered into a
binding agreement with Vision Blue Resources (“Vision
Blue”), a private investment company created and led by Sir
Mick Davis, former CEO of Xstrata Plc, to provide a financing
package (the “Financing Package”) for total gross
proceeds of USD$29.5M. The proceeds of the Financing Package will
be used to complete construction of Phase 1 of the Company’s
Molo Graphite Mine, with targeted completion in the first half of
2022. The Financing Package will consist of an initial private
placement, a second private placement that will be subject to
shareholder approval, and a royalty agreement:
●
An
initial private placement consisting of 120,000,000 common shares
at a price of CAD$0.065 per share for total gross proceeds of
$6,080,000 (CAD$7.8 million).
●
In
connection with the initial private placement, the Company granted
Vision Blue certain rights, subject to maintaining certain
shareholding thresholds, including the right to appoint two
directors to the Board of the Company.
●
Vision
Blue has been granted a right of first refusal to finance the
expansion of the Molo Project as well as a right to participate in
future equity financings on the same terms as such financing in
order to maintain its ownership percentage in the
Company.
●
A
second private placement consisting of 232,142,857 units at a price
of CAD$0.07 per unit, whereby each unit will consist of one common
share and a common share purchase unit exercisable at a price of
CAD$0.10 for a period of two years, for total gross proceeds of
USD$12.4 million (CAD$16.25 million). In accordance with the
policies of the Toronto Stock Exchange, the second private
placement is subject to the approval by a majority of the
shareholders at a special meeting of shareholders that will be held
on May 17, 2021. The Officers and Directors of the Company have
entered into voting undertaking agreements pursuant to which each
have agreed to vote in favour of the resolution at the Special
Meeting.
●
Vision
Blue will be subject to a 1-year lock-up from the closing of the
Initial Private Placement with a periodic release schedule, which
will terminate if the Second Private Placement does not occur for
any reason. In addition, each of the Directors and Officers of the
Company have agreed to similar lock-up periods for the securities
they hold.
8
NextSource Materials Inc.
Notes to Unaudited Condensed Consolidated Interim Financial
Statements
For the nine months ended March 31, 2021 and 2020
Expressed in US Dollars
3.
Mineral
Exploration Properties (continued)
Molo Graphite Property, Southern Madagascar Region, Madagascar
(continued)
●
The
royalty agreement will close concurrently with the second private
placement and will consist of gross proceeds of USD$11 million
(CAD$14.1 million) whereby the Company will pay to Vision Blue the
greater of: (i) US$1.65 million or (ii) 3% of the gross revenues
from SuperFlake® concentrate sales (the “GSR”).
Once Vision Blue has received a cumulative royalty payment of
US$16.5 million, the GSR will be calculated as 3% of the gross
revenues from the Company’s SuperFlake® sales.
NextSource will have the option at any time to reduce the GSR to
2.25% upon payment to Vision Blue of US$20 million.
●
Vision
Blue will receive a royalty of 1.0% of the gross revenues from
sales of vanadium pentoxide (“V2O5”) from the Green
Giant Vanadium Project for a period of 15 years following
commencement of production of V2O5.
●
Vision
Blue will receive a 5% (US$1.5 million) financing fee on the total
US$29.5 million Financing Package, equating to US$28 million in
total net proceeds to NextSource. The financing fee will be payable
only when the royalty financing is provided by Vision
Blue.
On March 29, 2021, the Company announced the initiation of the
construction process for the Molo Graphite Mine in Madagascar with
the awarding of the engineering, procurement, and construction
management contract.
On May
11, 2021, the Company announced it initiated the procurement of
processing plant equipment.
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.
Mine-site
construction activities are expected to begin in August 2021. The
processing plant equipment is expected to begin arriving in
Madagascar in Q4 2021 followed by site installation in Q1 2022.
Mine commissioning is expected to begin in April 2022, followed by
a ramp up to a Phase 1 processing plant capacity of 240,000 tpa of
ore producing approximately 17,000 tpa of high-quality
SuperFlake® graphite concentrate.
Construction
of Phase 1 is expected to take approximately 12 months and cost at
least $25 million including working capital and is contingent upon
obtaining the remainder of the construction financing contemplated
in the Financing Package. If the Financing Package is not
completed, and alternative construction financing cannot be
secured, the Company will not be able to continue with the
construction activities. The Company cannot provide assurances that
the construction milestones or production levels will be
achieved.
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.
As part
of Financing Package announced on February 8, 2021, Vision Blue
will receive a royalty of 1.0% of the gross revenues from sales of
vanadium pentoxide (“V2O5”) from the Green Giant
Vanadium Project for a period of 15 years following commencement of
production of V2O5.
9
NextSource Materials Inc.
Notes to Unaudited Condensed Consolidated Interim Financial
Statements
For the nine months ended March 31, 2021 and 2020
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
March 31, 2021, the Sagar property consisted of 184 claims covering
a total area of 8,539.58 ha.
10
NextSource Materials Inc.
Notes to Unaudited Condensed Consolidated Interim Financial
Statements
For the nine months ended March 31, 2021 and 2020
Expressed in US Dollars
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 and Mauritius.
Substantially all of the Company assets are held in Canada. The
Company's President and Chief Executive Officer and Chief Financial
Officer are the operating decision-makers and direct the allocation
of resources to its geographic segments.
The
following is the segmented information by geographic
region:
|
Exploration
and evaluation expenses
|
Madagascar
|
Mauritius
|
Canada
|
Total
|
|
|
$
|
$
|
$
|
$
|
|
Nine months ended
March 30, 2021
|
63,372
|
-
|
2,525
|
65,897
|
|
Three months ended
March 30, 2021
|
62,860
|
-
|
1,298
|
64,158
|
|
|
|
|
|
|
|
Nine months ended
March 31, 2020
|
59,353
|
-
|
5,702
|
65,055
|
|
Three months ended
March 31, 2020
|
30,789
|
-
|
1,363
|
32,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents
|
Madagascar
|
Mauritius
|
Canada
|
Total
|
|
|
$
|
$
|
$
|
$
|
|
As of March 31,
2021
|
3,674
|
2,142
|
7,065,975
|
7,071,791
|
|
As of June 30,
2020
|
14,054
|
-
|
208,251
|
222,305
|
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:
|
|
The nine
months
|
The nine
months
|
The three
months
|
The three
months
|
|
|
ended
on
|
ended
on
|
ended
on
|
ended
on
|
|
|
March
31,
|
March
31,
|
March
31,
|
March
31,
|
|
|
2021
|
2020
|
2021
|
2020
|
|
|
|
|
|
|
|
Exploration
activities
|
$-
|
$-
|
$-
|
$-
|
|
Metallurgical
evaluation
|
-
|
-
|
-
|
-
|
|
Mineral claims
(Canada)
|
2,525
|
5,702
|
844
|
1,363
|
|
Mineral claims
(Madagascar)
|
47,955
|
25,000
|
(9,890)
|
25,000
|
|
Camp
(Madagascar)
|
15,417
|
34,353
|
4,318
|
5,789
|
|
|
|
|
|
|
|
Total exploration
and evaluation
|
$65,897
|
$65,055
|
$(4,728)
|
$32,152
|
11
NextSource Materials Inc.
Notes to Unaudited Condensed Consolidated Interim Financial
Statements
For the nine months ended March 31, 2021 and 2020
Expressed in US Dollars
6.
Professional
and Legal Fees
Professional
and legal fees consist of accounting, auditor, tax advisory, legal
and offshore entity management fees. The following is the breakdown
by nature of the expenses:
|
|
The nine
months
|
The nine
months
|
The three
months
|
The three
months
|
|
|
ended
on
|
ended
on
|
ended
on
|
ended
on
|
|
|
March
31,
|
March
31,
|
March
31,
|
March
31,
|
|
|
2021
|
2020
|
2021
|
2020
|
|
|
|
|
|
|
|
Accounting
fees
|
$22,132
|
$19,793
|
$6,589
|
$6,155
|
|
Auditor
fees
|
26,060
|
27,033
|
(13,914)
|
8,000
|
|
Tax advisory
fees
|
11,559
|
9,781
|
3,935
|
2,504
|
|
Legal
fees
|
71,892
|
20,339
|
32,348
|
9,896
|
|
Offshore management
fees
|
54,324
|
7,350
|
52,929
|
7,350
|
|
|
|
|
|
|
|
Total professional
fees
|
$185,967
|
$84,296
|
$81,887
|
$33,905
|
7.
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. The Company maintains a permitted
landing strip near Fotadrevo, Madagascar that has 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 between the reporting periods:
|
|
Property
|
Plant
|
Equipment
|
Total
|
|
|
$
|
$
|
$
|
$
|
|
|
|
|
|
|
|
Balance
– June 30, 2019
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
Adoption
of IFRS 16
|
-
|
24,164
|
-
|
24,164
|
|
Amortization
|
-
|
(6,053)
|
-
|
(6,053)
|
|
|
|
|
|
|
|
Balance
– June 30, 2020
|
-
|
18,111
|
-
|
18,111
|
|
|
|
|
|
|
|
Additions
|
-
|
-
|
3,765
|
3,765
|
|
Amortization
|
-
|
(4,532)
|
(315)
|
(4,847)
|
|
|
|
|
|
|
|
Balance
- March 31, 2021
|
-
|
13,579
|
3,450
|
17,029
|
12
NextSource Materials Inc.
Notes to Unaudited Condensed Consolidated Interim Financial
Statements
For the nine months ended March 31, 2021 and 2020
Expressed in US Dollars
8.
Lease
obligations
The
Company is party to several 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. The Company recognized rent expense
relating to short-term leases of $9,775 in the consolidated
statements of operations and comprehensive loss.
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 between the reporting
periods:
|
|
Property
|
Plant
|
Equipment
|
Total
|
|
|
$
|
$
|
$
|
$
|
|
|
|
|
|
|
|
Balance
– July 1, 2019
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
Adoption
of IFRS 16
|
-
|
24,164
|
-
|
24,164
|
|
Amortization
of right of use assets
|
-
|
(4,810)
|
-
|
(4,810)
|
|
Foreign
exchange adjustments
|
-
|
(3,336)
|
-
|
(3,336)
|
|
|
|
|
|
|
|
Balance
– June 30, 2020
|
-
|
16,018
|
-
|
16,018
|
|
|
|
|
|
|
|
Additions
|
-
|
-
|
-
|
-
|
|
Lease
payments
|
|
(6,367)
|
|
(6,367)
|
|
Finance
costs
|
-
|
1,051
|
-
|
1,051
|
|
Foreign
exchange adjustments
|
-
|
455
|
-
|
455
|
|
|
|
|
|
|
|
Balance
- March 31, 2021
|
-
|
11,157
|
-
|
11,157
|
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
|
-
|
5,875
|
-
|
5,875
|
|
Long-term
lease obligations
|
-
|
5,282
|
-
|
5,282
|
|
|
|
|
|
|
|
Balance
- March 31, 2021
|
-
|
11,157
|
-
|
11,157
|
13
NextSource Materials Inc.
Notes to Unaudited Condensed Consolidated Interim Financial
Statements
For the nine months ended March 31, 2021 and 2020
Expressed in US Dollars
8.
Lease
obligations (continued)
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
12 months
|
-
|
6,307
|
-
|
6,307
|
|
Between
13 and 24 months
|
-
|
6,307
|
-
|
6,307
|
|
Between
25 and 36 months
|
-
|
-
|
-
|
-
|
|
Between
37 and 48 months
|
-
|
-
|
-
|
-
|
|
Between
49 and 60 months
|
-
|
-
|
-
|
-
|
|
Thereafter
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
Total
undiscounted lease obligations
|
-
|
12,614
|
-
|
12,614
|
14
NextSource Materials Inc.
Notes to Unaudited Condensed Consolidated Interim Financial
Statements
For the nine months ended March 31, 2021 and 2020
Expressed in US Dollars
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 March 31, 2021, the Company had 733,806,918
common shares issued and outstanding (June 30, 2020:
536,494,789).
The following changes to the issued and outstanding common shares
occurred during the nine months ended March 31, 2021:
(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 in share issuance
costs.
(b)
On
December 22, 2020, a total of 721,741 stock options priced at
$0.056 were exercised into 721,741 common shares for gross proceeds
of $40,418.
(c)
On
February 9, 2021, a total of 1,470,000 stock options priced at
$0.066 were exercised into 1,470,000 common shares for gross
proceeds of $97,054.
(d)
On
February 12, 2021, a total of 550,000 warrants priced at CAD$0.09
and 153,847 warrants at a price of CAD$0.065 were exercised into
703,847 common shares for gross proceeds of $46,760.
(e)
On
February 19, 2021, a total of 222,223 stock options priced at
CAD$0.09 were exercised into 222,223 common shares for gross
proceeds of $15,857 and a total of 5,174,424 RSUs that vested on
February 7, 2021 were converted into common shares.
(f)
On
February 23, 2021, a total of 730,000 stock options priced at
$0.066 were exercised into 730,000 common shares for gross proceeds
of $48,439.
(g)
On
February 26, 2021, a total of 1,111,111 warrants priced at CAD$0.09
were exercised into 1,111,111 common shares for gross proceeds of
$79,172.
(h)
On
March 4, 2021, a total of 500,000 warrants priced at CAD$0.065 were
exercised into 500,000 common shares for gross proceeds of
$25,681.
(i)
On
March 8, 2021, a total of 2,900,000 stock options priced at
CAD$0.10 and 2,200,000 stock options priced at $0.066 were
exercised into 5,100,000 common shares for gross proceeds of
$374,494.
(j)
On
March 15, 2021, the Company completed a non-brokered private
placement of 120,000,000 common shares at a price of CAD$0.065 per
share for total gross proceeds of $6,084,000 (CAD$7,800,000). In
connection with the non-brokered private placement, the Company
incurred $16,367 in share issuance costs.
15
NextSource Materials Inc.
Notes to Unaudited Condensed Consolidated Interim Financial
Statements
For the nine months ended March 31, 2021 and 2020
Expressed in US Dollars
10.
Long
term incentive plan
The
Company’s long term incentive plan (the “LTIP
plan”) is restricted to a maximum of 10% of the issued and
outstanding common shares. Under the LTIP plan, the Company may
grant securities-based incentives including stock options and
restricted share units (“RSUs”) to directors, officers,
employees, and consultants. The Board of Directors administers the
plan and determines the vesting and terms of each
grant.
Stock Options
The
fair value of stock options is based on the Black-Scholes option
valuation model which several inputs including the market price,
the exercise price, compound risk free interest rate, annualized
volatility and the number of periods until expiration. The fair
value is expensed over the vesting period. Each stock option
entitles the holder to purchase one common share of the Company at
the respective exercise price prior to, or on, its expiration
date.
As of March 31, 2021, the Company had 27,800,000 stock options
outstanding (June 30, 2020: 36,250,000) with a weighted average
expiration of 2.4 years (June 30, 2020: 2.28 years), which are
exercisable into 27,800,000 common shares (June 30, 2020:
36,250,000) at a weighted average exercise price of $0.173 (June
30, 2020: $0.067). All the outstanding stock options vested on
their respective grant dates.
|
Grant
|
Vesting
|
Expiration
|
Exercise
|
Balance
on
|
Granted
|
Exercised
|
Balance
on
|
|
Date
|
Date
|
Date
|
Price
|
June
30,
|
(Expired
or
|
|
March
31,
|
|
|
|
|
|
2020
|
Cancelled)
|
|
2021
|
|
December
22, 2015
|
December
22, 2015
|
December
22, 2020
|
USD
$0.056
|
6,300,000
|
(5,578,259)
|
(721,741)
|
-
|
|
June 9,
2017
|
June 9,
2017
|
June 9,
2022
|
USD
$0.066
|
18,100,000
|
(4,700,000)
|
(4,400,000)
|
9,000,000
|
|
March
26, 2019
|
March
26, 2019
|
March
26, 2024
|
CAD
$0.10
|
11,850,000
|
(3,150,000)
|
(2,900,000)
|
5,800,000
|
|
March
19, 2021
|
March
19, 2021
|
March
19, 2024
|
CAD
$0.36
|
-
|
13,000,000
|
-
|
13,000,000
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
|
36,250,000
|
(428,259)
|
(8,021,741)
|
27,800,000
|
The following changes to the outstanding stock options occurred
during the nine months ended March 31, 2021:
(a)
On
December 22, 2020, a total of 721,741 stock options priced at
$0.056 were exercised into 721,741 common shares for gross proceeds
of $40,418.
(b)
On
February 9, 2021, a total of 1,470,000 stock options priced at
$0.066 were exercised into 1,470,000 common shares for gross
proceeds of $97,054.
(c)
On
February 19, 2021, a total of 222,223 stock options priced at
CAD$0.09 were exercised into 222,223 common shares for gross
proceeds of $15,857.
(d)
On
February 23, 2021, a total of 730,000 stock options priced at
$0.066 were exercised into 730,000 common shares gross proceeds of
$48,439.
(e)
On
March 8, 2021, a total of 2,900,000 stock options priced at
CAD$0.10 and 2,200,000 stock options priced at $0.066 were
exercised into 5,100,000 common shares for gross proceeds of
$374,494.
(f)
On March 19, 2021,
the Company granted 13,000,000 stock options exercisable at a price of CAD$0.36 for a period of
three years. The options were valued at $3,324,260 using the
Black-Scholes pricing model based on a risk-free rate of 0.53%, a
term of 3 years, volatility of 183% and a market price of $0.288
(CAD$0.36). These stock options vested on the grant
date.
16
NextSource Materials Inc.
Notes to Unaudited Condensed Consolidated Interim Financial
Statements
For the nine months ended March 31, 2021 and 2020
Expressed in US Dollars
10.
Long
term incentive plan (continued)
Stock Options (continued)
The
following is a continuity schedule of the outstanding stock
options:
|
|
Weighted-Average
|
Number
of
|
|
|
Exercise
Price
|
Stock
Options
|
|
Outstanding as of
June 30, 2019
|
$0.080
|
40,670,000
|
|
Granted
|
-
|
-
|
|
Exercised
|
-
|
-
|
|
Expired/cancelled
|
0.174
|
(4,420,000)
|
|
Outstanding as of
June 30, 2020
|
$0.067
|
36,250,000
|
|
Granted
|
$CAD
0.36
|
13,000,000
|
|
Exercised
|
0.070
|
(8,021,741)
|
|
Expired/cancelled
|
0.068
|
(13,428,259)
|
|
Outstanding as of
March 31, 2021
|
$0.173
|
27,800,000
|
Restricted share units (RSUs)
The
fair value of RSUs is based on the grant-day intrinsic value of the
shares that are expected to vest by the vesting date. Each RSU
entitles the holder to receive common share of the company prior
to, or on, its expiration date subject to achieving the performance
criterion (“milestone”) prior to, or on, its vesting
date. The fair value is expensed over the vesting period and is
subject to remeasurement at the end of each reporting period based
on the probability of achieving the milestone and adjustments for
potential forfeitures.
As of
March 31, 2021, the Company had 4,750,000 RSUs issued and
outstanding (June 30, 2020: Nil) with a weighted average expiration
of 1.65 years (June 30, 2020: nil years) which entitle the holders
to receive 4,750,000 common shares (June 30, 2020: nil) for no
additional consideration subject to satisfying the vesting
conditions.
The
following is a schedule of the outstanding RSUs:
|
Grant
|
Actual
(Estimated)
|
Vesting
|
Expiration
|
Balance
on
|
Granted
|
Converted
|
Balance
on
|
|
Date
|
Vesting
Date
|
Condition
|
Date
|
June
30,
|
(Expired
or
|
|
March
31,
|
|
|
|
|
|
2020
|
Cancelled)
|
|
2021
|
|
December
29, 2020
|
February
7, 2021
|
Financing
Milestone
|
February
19, 2021
|
-
|
1,724,808
|
(1,724,808)
|
-
|
|
December
29, 2020
|
February
7, 2021
|
Financing
Milestone
|
August
19, 2021
|
-
|
1,724,808
|
(1,724,808)
|
-
|
|
December
29, 2020
|
February
7, 2021
|
Financing
Milestone
|
February
19, 2022
|
-
|
1,724,808
|
(1,724,808)
|
-
|
|
March
19, 2021
|
December
31, 2022
|
Employment
|
June
30, 2023
|
-
|
2,000,000
|
|
2,000,000
|
|
March
19, 2021
|
(June
30, 2022)
|
Plant
Commissioning
|
December
31, 2022
|
-
|
1,000,000
|
|
1,000,000
|
|
March
19, 2021
|
(June
30, 2022)
|
Offtake
Agreement
|
December
31, 2022
|
-
|
250,000
|
|
250,000
|
|
March
19, 2021
|
(May
17, 2021)
|
Financing
Milestone
|
December
31, 2021
|
-
|
1,500,000
|
|
1,500,000
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
|
-
|
9,924,424
|
(5,174,424)
|
4,750,000
|
The following changes to the issued and outstanding RSUs occurred
during the nine months ended March 31, 2021:
(a)
On December 29,
2020, the shareholders approved a resolution approving the new LTIP
Plan and the granting of 5,174,424 RSUs. The RSUs have variable
vesting dates whereby the holders will receive 5,174,424 common
shares subject to the vesting condition of achieving project
financing milestones related to the Molo Graphite Project whereby
33.33% will expire on each of Feb 16, 2021, August 16, 2021, and
Feb 16, 2022. The grant date fair value was estimated at $364,852
based on the expected issuance of 5,174,424 common shares using a
grant-date market price of $0.071 (CAD$0.09).
17
NextSource Materials Inc.
Notes to Unaudited Condensed Consolidated Interim Financial
Statements
For the nine months ended March 31, 2021 and 2020
Expressed in US Dollars
10.
Long
term incentive plan (continued)
Restricted share units (continued)
(b)
On February 7,
2021, the 5,174,424 RSUs granted on December 29, 2020 vested and
were converted into common shares on February 19,
2021.
(c)
On March 19, 2021,
the Company:
a.
Granted 2,000,000
RSUs expiring on June 30, 2023 whereby the holders will receive
2,000,000 common shares subject to the vesting condition of being
employees or consultants of the Company on December 31, 2022. The
grant date fair value was estimated at $564,048 based on the
expected issuance of 2,000,000 common shares using a grant-date
market price of $0.288 (CAD$0.36).
b.
Granted 1,000,000
RSUs expiring on June 30, 2023 whereby the holders will receive
1,000,000 common shares subject to the vesting condition of
achieving plant commissioning milestones on or before June 30,
2022. The grant date fair value was estimated at $282,024 based on
the expected issuance of 1,000,000 common shares using a grant-date
market price of $0.288 (CAD$0.36).
c.
Granted 250,000
RSUs expiring on June 30, 2023 whereby the holders will receive
250,000 common shares subject to the vesting condition of achieving
offtake agreement milestones on or before June 30, 2022. The grant
date fair value was estimated at $70,506 based on the expected
issuance of 250,000 common shares using a grant-date market price
of $0.288 (CAD$0.36).
d.
Granted 1,500,000
RSUs expiring on December 31, 2021 whereby the holders will receive
1,500,000 common shares subject to the vesting condition of
achieving project financing milestones on or about May 17, 2022.
The grant date fair value was estimated at $423,036 based on the
expected issuance of 1,500,000 common shares using a grant-date
market price of $0.288 (CAD$0.36).
The
following is a continuity schedule of the outstanding
RSUs:
|
|
Weighted-Average
|
Number
of
|
|
|
Exercise
Price
|
RSUs
|
|
Outstanding as of
June 30, 2019
|
$-
|
-
|
|
Granted
|
-
|
-
|
|
Converted
|
-
|
-
|
|
Expired/cancelled
|
-
|
-
|
|
Outstanding as of
June 30, 2020
|
$-
|
-
|
|
Granted
|
-
|
9,924,424
|
|
Converted
|
-
|
(5,174,424)
|
|
Expired/cancelled
|
-
|
-
|
|
Outstanding as of
December 31, 2020
|
$-
|
4,750,000
|
18
NextSource Materials Inc.
Notes to Unaudited Condensed Consolidated Interim Financial
Statements
For the nine months ended March 31, 2021 and 2020
Expressed in US Dollars
11.
Warrants
The
Company has issued common share purchase warrants as part of equity
private placements. The fair value of warrants is determined using
the Black-Scholes option valuation model based on the market price,
the exercise price, compound risk free interest rate, annualized
volatility and number of periods until expiration. Depending on the
nature of the warrants, the fair value may be classified as equity
or as a derivative financial liability settled through profit and
loss. 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 March 31, 2021, the Company had 42,791,097 common share
purchase warrants outstanding (June 30, 2020: 25,191,522) with a
weighted average expiration of 1.05 years (June 30, 2020: 0.82
years), which are exercisable into 42,791,097 (June 30, 2020:
25,191,522) common shares at a weighted average exercise price of
$0.058 (June 30, 2020: $0.070). All outstanding warrants vested on
their respective issue dates.
The
following is a schedule of the outstanding common share purchase
warrants:
|
Issued
|
Expiration
|
Exercise
|
Balance
on
|
Issued
|
Exercised
|
Balance
on
|
|
Date
|
Date
|
Price
|
June
30,
|
(Expired)
|
|
March
31,
|
|
|
|
|
2020
|
|
|
2021
|
|
August
17, 2018
|
August
17, 2020
|
CAD
$0.100
|
10,652,636
|
(10,652,636)
|
-
|
-
|
|
October
25, 2019
|
October
25, 2021
|
CAD
$0.090
|
14,538,886
|
-
|
(1,883,334)
|
12,655,552
|
|
July 2,
2020
|
July 2,
2022
|
CAD
$0.065
|
-
|
30,789,392
|
(653,847)
|
30,135,545
|
|
Totals
|
|
|
25,191,522
|
20,136,756
|
(2,537,181)
|
42,791,097
|
The following changes to the outstanding warrants occurred during
the nine months ended March 31, 2021:
(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.
(b)
On
February 12, 2021, a total of 550,000 warrants priced at CAD$0.09
and 153,847 warrants at a price of CAD$0.065 were exercised into
703,847 common shares for gross proceeds of $46,760.
(c)
On
February 26, 2021, a total of 1,111,111 warrants priced at CAD$0.09
were exercised into 1,111,111 common shares for gross proceeds of
$79,172.
(d)
On
March 4, 2021, a total of 500,000 warrants priced at CAD$0.065 were
exercised into 500,000 common shares for gross proceeds of
$25,681.
The
following is the continuity schedule of the common share purchase
warrants:
|
|
Weighted-Average
|
Number
of
|
|
|
Exercise
Price
|
Warrants
|
|
Outstanding as of
June 30, 2019
|
$0.080
|
10,652,636
|
|
Issued
|
$ CAD
0.090
|
14,538,886
|
|
Exercised
|
-
|
-
|
|
Expired
|
-
|
-
|
|
Outstanding as of
June 30, 2020
|
$0.070
|
25,191,522
|
|
Issued
|
$ CAD
0.065
|
30,789,392
|
|
Exercised
|
$ CAD
0.084
|
(2,537,181)
|
|
Expired
|
$ CAD
0.100
|
(10,652,636)
|
|
Outstanding as of
March 31, 2021
|
$0.058
|
42,791,097
|
19
NextSource Materials Inc.
Notes to Unaudited Condensed Consolidated Interim Financial
Statements
For the nine months ended March 31, 2021 and 2020
Expressed in US Dollars
12.
Warrant
Derivative Liabilities
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 financial liability settled through profit
and loss as per IFRS 9 Financial
Instruments. The fair value of the warrants was measured as
a financial liability using the Black-Scholes option valuation
model on the issue date and will be remeasured at each reporting
period through profit and loss until expiration or exercise of the
warrants.
The
fair value of the warrant liability was estimated using the
following model inputs on the following valuation
dates:
|
Warrants
Expiring August 17, 2020
|
|
Warrant
Liability
|
|
|
|
$
|
|
Share price on measurement
date
|
(CAD $0.09) USD
$0.068
|
|
|
Exercise price
|
(CAD $0.10) USD
$0.076
|
|
|
Risk free rate
|
1.50%
|
|
|
Expected
volatility
|
115%
|
|
|
Expected dividend
yield
|
Nil
|
|
|
Expected life (in
years)
|
2.00
|
|
|
As of August 17,
2018 (issue date)
|
|
408,150
|
|
|
|
|
|
Change in fair value through profit
and loss
|
|
(73,532)
|
|
|
|
|
|
Share price on measurement
date
|
(CAD $0.10) USD
$0.076
|
|
|
Exercise price
|
(CAD $0.10) USD
$0.076
|
|
|
Risk free rate
|
1.67%
|
|
|
Expected
volatility
|
100%
|
|
|
Expected dividend
yield
|
Nil
|
|
|
Expected life (in
years)
|
1.13
|
|
|
As of June 30,
2019
|
|
334,618
|
|
|
|
|
|
Change in fair value through profit
and loss
|
|
(327,537)
|
|
|
|
|
|
Share price on measurement
date
|
(CAD $0.04) USD
$0.029
|
|
|
Exercise price
|
(CAD $0.10) USD
$0.073
|
|
|
Risk free rate
|
0.20%
|
|
|
Expected
volatility
|
162%
|
|
|
Expected dividend
yield
|
Nil
|
|
|
Expected life (in
years)
|
0.13
|
|
|
As of June 30,
2020
|
|
7,081
|
|
|
|
|
|
Change in fair value through profit
and loss
|
|
(7,081)
|
|
|
|
|
|
As of August 17,
2020 (expiration)
|
|
-
|
20
NextSource Materials Inc.
Notes to Unaudited Condensed Consolidated Interim Financial
Statements
For the nine months ended March 31, 2021 and 2020
Expressed in US Dollars
12.
Warrant
Derivative Liabilities (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 financial liability settled through profit
and loss as per IFRS 9 Financial
Instruments. The fair value of the warrants was measured as
a financial liability using the Black-Scholes option valuation
model on the issue date and will be remeasured at each reporting
period through profit and loss until expiration or exercise of the
warrants.
The
fair value of the warrant liability was estimated using the
following model inputs on the following valuation
dates:
|
Warrants
Expiring October 25, 2021
|
|
Warrant
Liability
|
|
|
|
$
|
|
Share price on measurement
date
|
(CAD $0.05) USD
$0.038
|
|
|
Exercise price
|
(CAD $0.09) USD
$0.069
|
|
|
Risk free rate
|
1.66%
|
|
|
Expected
volatility
|
115%
|
|
|
Expected dividend
yield
|
Nil
|
|
|
Expected life (in
years)
|
2.00
|
|
|
As of October
25, 2019 (issue date)
|
|
261,090
|
|
|
|
|
|
Change in fair value through profit
and loss
|
|
(59,403)
|
|
|
|
|
|
Share price on measurement
date
|
(CAD $0.04) USD
$0.029
|
|
|
Exercise price
|
(CAD $0.09) USD
$0.064
|
|
|
Risk free rate
|
0.25%
|
|
|
Expected
volatility
|
156%
|
|
|
Expected dividend
yield
|
Nil
|
|
|
Expected life (in
years)
|
1.32
|
|
|
As of June 30,
2020
|
|
201,687
|
|
|
|
|
|
Change in fair value through profit
and loss
|
|
2,637,921
|
|
|
|
|
|
Share price on measurement
date
|
(CAD $0.350) USD
$0.279
|
|
|
Exercise price
|
(CAD $0.09) USD
$0.072
|
|
|
Risk free rate
|
0.12%
|
|
|
Expected
volatility
|
197%
|
|
|
Expected dividend
yield
|
Nil
|
|
|
Expected life (in
years)
|
0.57
|
|
|
As of March 31,
2021
|
|
2,839,608
|
21
NextSource Materials Inc.
Notes to Unaudited Condensed Consolidated Interim Financial
Statements
For the nine months ended March 31, 2021 and 2020
Expressed in US Dollars
12.
Warrant
Derivative Liabilities (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 financial liability settled through profit
and loss as per IFRS 9 Financial
Instruments. The fair value of the warrants was measured as
a financial liability using the Black-Scholes option valuation
model on the issue date and will be remeasured at each reporting
period through profit and loss until expiration or exercise of the
warrants.
The
fair value of the warrant liability was estimated using the
following model inputs on the following valuation
dates:
|
Warrants
Expiring July 2, 2022
|
|
Warrant
Liability
|
|
|
|
$
|
|
Share price on measurement
date
|
(CAD $0.04) USD
$0.029
|
|
|
Exercise price
|
(CAD $0.065) USD
$0.048
|
|
|
Risk free rate
|
0.25%
|
|
|
Expected
volatility
|
140%
|
|
|
Expected dividend
yield
|
Nil
|
|
|
Expected life (in
years)
|
2.00
|
|
|
As of July 2,
2020 (issue date)
|
|
539,536
|
|
|
|
|
|
Change in fair value through profit
and loss
|
|
7,045,520
|
|
|
|
|
|
Share price on measurement
date
|
(CAD $0.350) USD
$0.279
|
|
|
Exercise price
|
(CAD $0.065) USD
$0.051
|
|
|
Risk free rate
|
0.20%
|
|
|
Expected
volatility
|
200%
|
|
|
Expected dividend
yield
|
Nil
|
|
|
Expected life (in
years)
|
1.26
|
|
|
As of March 31,
2021
|
|
7,585,056
|
22
NextSource Materials Inc.
Notes to Unaudited Condensed Consolidated Interim Financial
Statements
For the nine months ended March 31, 2021 and 2020
Expressed in US Dollars
13.
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
December 31, 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 December 31, 2020 of $Nil (June
30, 2020: $22,115).
14.
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 nine months ended March 31, 2021, the Company completed
settlements totaling $12,930 and adjusted the provision due to
foreign exchange fluctuations resulting in an ending balance of
$174,556.
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 $792,300 (CAD$1,000,000)
will be due within five days of the commencement of commercial
production. Although the Company has announced it has commenced the
construction process of its Molo graphite mine, construction of
Phase 1 of the Molo Graphite Project is contingent upon obtaining
the construction financing contemplated in the Financing Package as
described in note 3. If the Financing Package cannot be completed,
and alternative construction financing cannot be secured, the
Company will not be able to continue with the mine construction
activities related to the Molo Graphite Project. 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.
23
NextSource Materials Inc.
Notes to Unaudited Condensed Consolidated Interim Financial
Statements
For the nine months ended March 31, 2021 and 2020
Expressed in US Dollars
15.
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 key management, which consists of the Board of
Directors, Chief Executive Officer, Chief Financial Officer and the
Senior Vice Presidents of the Company. Related parties include
companies controlled by key management.
The
following key management related party transactions occurred during
the following reporting periods:
|
|
The nine
months
|
The nine
months
|
The three
months
|
The three
months
|
|
|
ended
on
|
ended
on
|
ended
on
|
ended
on
|
|
|
March
31,
|
March
31,
|
March
31,
|
March
31,
|
|
|
2021
|
2020
|
2021
|
2020
|
|
|
|
|
|
|
|
Management and director
payroll
|
$315,713
|
$296,645
|
$128,236
|
$101,914
|
|
Management consulting
fees
|
251,658
|
249,808
|
84,684
|
83,321
|
|
Professional and legal
fees
|
12,429
|
8,855
|
4,593
|
2,260
|
|
Share-based
compensation
|
3,793,104
|
-
|
3,772,435
|
-
|
|
|
|
|
|
|
|
Total
|
4,372,904
|
555,308
|
3,989,948
|
187,495
|
The
following key management related party balances existed as of the
end of the following reporting periods:
|
|
As
of
|
As
of
|
|
|
March
31,
|
June
30,
|
|
|
2021
|
2020
|
|
Amounts receivable
from key management
|
$51,086
|
$-
|
|
Prepaid expenses to
companies controlled by key management
|
$3,178
|
$3,178
|
|
Accounts payable
due to companies controlled by key management
|
$29,885
|
$86,685
|
|
Accrued liabilities
due to key management
|
$-
|
$54,727
|
24
NextSource Materials Inc.
Notes to Unaudited Condensed Consolidated Interim Financial
Statements
For the nine months ended March 31, 2021 and 2020
Expressed in US Dollars
16.
Capital
Management
There
were no changes in the Company's approach to capital management
during the nine months ended March 31, 2021.
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 continue 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 exploration and evaluation,
development, construction and 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.
Working Capital Balance
As of
March 31, 2021, the Company had a working capital deficit of
$3,952,896 (June 30, 2020: deficit of $918,048). Excluding the
$10,424,664 warrant derivative liabilities, which is expected to be
settled through the issuance of common shares upon the exercise or
expiration of the underlying warrants, the Company had a working
capital surplus of $6,471,768 (June 30, 2020: deficit of $709,280).
Although the Company has a working capital surplus, the surplus is
expected to be utilized in the construction of the Molo Graphite
Mine.
As of
March 31, 2021, the Molo Graphite Mine Phase 1 construction is
expected to cost at least $25 million including working capital and
is contingent upon obtaining the remainder of the construction
financing contemplated in the Financing Package described in note
3. If the Financing Package is not completed, and alternative
construction financing cannot be secured, the Company will not be
able to continue with the mine construction
activities.
25
NextSource Materials Inc.
Notes to Unaudited Condensed Consolidated Interim Financial
Statements
For the nine months ended March 31, 2021 and 2020
Expressed in US Dollars
17.
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.
Other
than accounts payable, which are due within 30 days, and the
warrant liabilities, which will be fully expensed by their
respective exercise or expirations, none of the Company’s
obligations have contractual maturities.
As of
March 31, 2021, the Company had cash and cash equivalents of
$7,071,791 (June 30, 2020: $222,305) to settle current liabilities
of $11,114,410 (June 30, 2020: $1,173,376). Excluding the
$10,424,664 warrant derivative liabilities, which are expected to
be settled through the issuance of common shares upon the exercise
or expiration of the underlying warrants, the Company had current
liabilities of $689,746 (June 30, 2020: $964,608). Although the
Company is not currently exposed to liquidity risk, the surplus
cash is expected to be utilised in the construction of the Molo
Graphite Mine.
As of
March 31, 2021, the Molo Graphite Mine construction is expected to
cost at least $25 million including working capital and is
contingent upon obtaining the remainder of the construction
financing contemplated in the Financing Package described in note
3. If the Financing Package is not completed, and alternative
construction financing cannot be secured, the Company will not be
able to continue with the mine construction
activities.
While
the Company has been successful in obtaining required funding in
the past, there is no assurance that future financings will be
available. 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.
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. As of March 31,
2021, the Company has estimated that its net foreign exchange
exposure is $685,923.
26
NextSource Materials Inc.
Notes to Unaudited Condensed Consolidated Interim Financial
Statements
For the nine months ended March 31, 2021 and 2020
Expressed in US Dollars
18.
Subsequent
Events
On April 12, 2021, a total of 555,550 warrants priced at CAD$0.09
and 3,615,000 warrants priced at CAD$0.065 were exercised into
4,170,550 common shares for gross proceeds of
$226,506.
On April 12, 2021, the Company announced a binding partnership
agreement to construct and operate its own turnkey spheronized and
purified graphite ("SPG") production facility. SPG is a key
component of lithium-ion batteries such as those used in electric
vehicle (“EV”) and hybrid vehicle applications. The
partnership involves Japanese and Chinese companies that currently
operate their own SPG facilities that provide SPG to leading
Japanese lithium-ion battery makers that are within the supply
chains of Tesla and other major EV automotive companies. Proposed
locations for the facility include South Africa, Europe, or North
America. The Company will determine the initial production capacity
and will then initiate a technical study to determine capital and
operating costs for the proposed locations. Construction of one or
more of these SPG production facilities will be subject to
obtaining a positive technical study and securing sufficient
funding for construction and initial working capital. Commissioning
of the first SPG production facility is being targeted for Q4 2022.
The Chinese partner will design and develop the process flowsheets,
source all necessary graphite processing equipment, and will
provide all the necessary training and operational know-how
necessary for the production SPG material. In return, the Chinese
partner will receive a 3% licensing fee based on the total annual
sales value of anode material sold. The Japanese partner will
leverage its sales relationships and will act as NextSource’s
exclusive agent for sales, marketing and trading of anode battery
materials sold to OEM anode suppliers and to OEMs directly. In
return, the Japanese partner will receive a 5% sales commission
based on the total annual sales value of anode battery material
sold.
On May
11, 2021, the Company announced it initiated the procurement of
processing plant equipment for the Molo Graphite Mine.
27
Exhibit 99.2
NextSource Materials Inc.
Interim Management’s Discussion and Analysis
(MD&A)
For the
nine months ended March 31, 2021 and 2020
Expressed
in US Dollars
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the nine months ended March 31, 2021 and 2020
Introduction
This
interim Management’s Discussion and Analysis (MD&A) has
been approved by the Board of Directors of NextSource Materials
Inc. and is intended to help the reader understand the
Company’s operations, financial performance, financial
condition, and business plans.
This
MD&A has been prepared as of May 11, 2021 and should be read in
conjunction with Company’s audited consolidated financial
statements for the years ended June 30, 2020 and 2019 and the
unaudited condensed consolidated interim financial statements for
the nine months ended March 31, 2021 and 2020.
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. All amounts are in US
dollars, unless otherwise indicated.
References
to “NextSource”, “Company”,
“we”, “us”, “our”, refer to
NextSource Materials Inc. and its consolidated subsidiaries unless
the context indicates otherwise. The term “NSR” stands
for net smelter royalty. The term “tpa” stands for
tonnes per annum.
Qualified Person
Craig
Scherba, P.Geo., the Company’s President and Chief Executive
Officer is the Qualified Person, as defined by NI 43-101, who has
reviewed and approved the technical information disclosed in this
MD&A.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
INFORMATION
Certain
statements contained in this MD&A constitute forward-looking
information within the meaning of applicable Canadian securities
legislation. Generally, forward-looking information can be
identified by the use of forward-looking terminology such as
“plans,” “expects,” or “does not
expect,” “is expected,” “budget,”
“scheduled,” “goal,”
“estimates,” “forecasts,”
“intends,” “anticipates,” or “does
not anticipate,” or “believes” or variations of
such words and phrases or statements that certain actions, events
or results “may,” “could,”
“would,” “might,” or “will be
taken,” “occur,” or “be
achieved”.
Forward-looking
information includes, but is not limited to, information with
respect to certain expectations regarding obtaining necessary
permits; construction timelines and costs; anticipated production
volumes; anticipated operating costs and capital spending; supply,
demand and pricing outlook in the graphite market; sources of
funding for the Molo Graphite Project and the Green Giant Vanadium
Project; exploration drill results; metallurgical drill results;
environmental assessment and rehabilitation costs and amounts of
certain other commitments; and the Company’s business
objectives and targeted milestones (and timing
thereof).
Forward-looking
information is subject to known and unknown risks, uncertainties
and other factors that may cause the actual results, level of
activity, performance or achievements of the Company to be
materially different from those expressed or implied by such
forward-looking information. Such factors include, among others;
negative operating cash flow; the Company’s ability to
continue as a going concern; development projects are uncertain,
and it is possible that actual capital and operating costs and
economic returns will differ significantly from those estimated for
a project prior to production; the Company’s development and
exploration projects are in the African country of Madagascar and
are subject to country political and regulatory risks; dependence
on the Molo Graphite Project; additional permits and licenses are
necessary to complete the development of the Molo Graphite Project;
mining companies are increasingly required to consider and provide
benefits to the communities and countries in which they operate,
and are subject to extensive environmental, health and safety laws
and regulations; fluctuations in the market price of graphite and
other metals may adversely affect the value of the Company’s
securities and the ability of the Company to develop the Molo
Graphite Project; the Company may not have access to sufficient
capital to develop the Molo Graphite Project; the Company has a
limited operating history and expects to incur operating losses for
the foreseeable future; due to the speculative nature of mineral
property exploration, there is substantial risk that the
Company’s assets will not go into commercial production and
the business will fail; estimates of mineral resources and mineral
reserves may not be realized; because of the inherent dangers
involved in mineral exploration, there is a risk that the Company
may incur liability or damages as the Company conducts business;
the impact of COVID-19 may impact the Company’s business and
its development plans; the Company has no insurance for
environmental problems; should the Company lose the services of key
executives, the Company’s financial condition and proposed
expansion may be negatively impacted; because access to the
Company’s properties may be restricted by inclement weather
or proper infrastructure, its exploration programs are likely to
experience delays; climate change and related regulatory responses
may impact the Company’s business; compliance with changing
regulation of corporate governance and public disclosure will
result in additional expenses and pose challenges for management;
tax risks; the Company’s business is subject to
anti-corruption and anti-bribery laws, a breach or violation of
which could lead to civil and criminal fines and penalties, loss of
licenses or permits and reputational harm; the Company does not
intend to pay dividends in the foreseeable future; because from
time to time the Company holds a significant portion of cash
reserves in Canadian dollars, the Company may experience losses due
to foreign exchange translations; the Company is exposed to general
economic conditions, which could have a material adverse impact on
its business, operating results and financial condition; the
current financial environment may impact the Company’s
business and financial condition that cannot be predicted; the
market price for the Common Shares is particularly volatile given
the Company’s status as a relatively unknown company with a
small and thinly traded public float, limited operating history and
lack of profits which could lead to wide fluctuations in the market
price for the Common Shares; and the Company’s ability to
meet other factors listed from time to time in the Company’s
continuous disclosure documents, including but not limited to, the
AIF.
2
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the nine months ended March 31, 2021 and 2020
Forward-looking
information is based on the reasonable assumptions, estimates,
analysis and opinions of management and/or “qualified
persons” (as such term is defined under National Instrument
43-101 – Standards of Disclosure for Mineral Projects
(“”NI 43-101”)) made in light of their experience
and their perception of trends, current conditions and expected
developments, as well as other factors that management and/or
qualified persons believe to be relevant and reasonable in the
circumstances at the date that such statements are made, but which
may prove to be incorrect. Although the 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 from the State of Minnesota to Canada on December
27, 2017 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 and is positioned to
become a key producer of critical raw materials used in batteries
and other technological applications. The Company, through its
wholly owned foreign subsidiaries, owns the Molo Graphite Project
and the Green Giant Vanadium Project in Madagascar. The Company
also owns the Sagar project in Quebec but is not a focus for the
Company.
The
Company obtained a mining permit for the Molo Graphite Mine on
February 15, 2019 and announced it had secured a financing package
for construction of Phase 1 of the mine on February 8, 2021. The
Company announced on March 29, 2021 it initiated the construction
process for the mine on March 29, 2021 with the awarding of the
engineering, procurement, and construction management contract.
Construction will take approximately 12 months and commissioning of
the mine is expected to begin in April 2022 followed by a ramp up
to a Phase 1 processing plant capacity of 240,000 tpa of ore,
producing approximately 17,000 tpa of high-quality SuperFlake®
graphite concentrate.
The
Company does not currently operate any mines and has not completed
construction of any mines. No commercial revenue has ever been
generated from any mineral resource properties. 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 global
economic downturn. The impact of COVID-19 on the Company has been
limited since the Company does not have any active exploration
programs and our management team was already setup to operate and
communicate remotely through the internet, although certain of our
directors, officers, employees’ consultants, and contractors
have been indirectly impacted by intermittent COVID-19 lockdowns in
Canada, Madagascar, Mauritius and in South Africa. The Company has
announced the commencement of construction of the Molo Graphite
Mine in Madagascar and is including the impact of continued
COVID-19 outbreaks and intermittent lockdowns into its development
plans. Notwithstanding, intermittent lockdowns have the potential
to cause unforeseen delays in the construction schedule. It is not
possible for the Company to predict the duration or magnitude of
adverse impacts from further outbreak and predict its effects on
the Company’s business or results of operations at this
time.
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.
3
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the nine months ended March 31, 2021 and 2020
Cautionary Note Regarding Operating Losses
As of
March 31, 2021, the Company had an accumulated deficit of
$119,473,992 (June 30, 2020:
$104,933,066) has experienced
recurring net losses and has negative operating cash flows from
operations. Although the Company ended the period with cash and
cash equivalents of $7,071,791 the Company initiated the
construction process for the Molo Graphite Mine on March 29, 2021,
which is expected to require capital costs and working capital of
at least $25 million during the next twelve months. As of the date
of these financial statements, the Company does not have sufficient
funds to complete construction of the mine. Construction of the
mine is contingent upon obtaining the remainder of the construction
financing contemplated in the Financing Package as described in the
Corporate Highlights section. 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.
On February 8, 2021, the Company announced that it entered into a
binding agreement with Vision Blue Resources (“Vision
Blue”), a private investment company created and led by Sir
Mick Davis, former CEO of Xstrata Plc, to provide a financing
package (the “Financing Package”) for total gross
proceeds of USD$29.5M. The proceeds of the Financing Package will
be used to complete construction of Phase 1 of the Company’s
Molo Graphite Mine, with targeted completion in the first half of
2022.. The Financing Package will consist of an initial private
placement, a second private placement that will be subject to
shareholder approval, and a royalty agreement:
●
An
initial private placement consisting of 120,000,000 common shares
at a price of CAD$0.065 per share for total gross proceeds of
$6,080,000 (CAD$7.8 million).
●
In
connection with the initial private placement, the Company granted
Vision Blue certain rights, subject to maintaining certain
shareholding thresholds, including the right to appoint two
directors to the Board of the Company.
4
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the nine months ended March 31, 2021 and 2020
●
Vision
Blue has been granted a right of first refusal to finance the
expansion of the Molo Project as well as a right to participate in
future equity financings on the same terms as such financing in
order to maintain its ownership percentage in the
Company.
●
A
second private placement consisting of 232,142,857 units at a price
of CAD$0.07 per unit, whereby each unit will consist of one common
share and a common share purchase unit exercisable at a price of
CAD$0.10 for a period of two years, for total gross proceeds of
USD$12.4 million (CAD$16.25 million). In accordance with the
policies of the Toronto Stock Exchange, the second private
placement is subject to the approval by a majority of the
shareholders at a special meeting of shareholders that will be held
on May 17, 2021. The Officers and Directors of the Company have
entered into voting undertaking agreements pursuant to which each
have agreed to vote in favour of the resolution at the Special
Meeting.
●
Vision
Blue will be subject to a 1-year lock-up from the closing of the
Initial Private Placement with a periodic release schedule, which
will terminate if the Second Private Placement does not occur for
any reason. In addition, each of the Directors and Officers of the
Company have agreed to similar lock-up periods for the securities
they hold.
●
The
royalty agreement will close concurrently with the second private
placement and will consist of gross proceeds of USD$11 million
(CAD$14.1 million) whereby the Company will pay to Vision Blue the
greater of: (i) US$1.65 million or (ii) 3% of the gross revenues
from SuperFlake® concentrate sales (the “GSR”).
Once Vision Blue has received a cumulative royalty payment of
US$16.5 million, the GSR will be calculated as 3% of the gross
revenues from the Company’s SuperFlake® sales.
NextSource will have the option at any time to reduce the GSR to
2.25% upon payment to Vision Blue of US$20 million. I
●
NextSource
will also pay to Vision Blue 1.0% of the gross revenues from sales
of vanadium pentoxide (“V2O5”) from the Green Giant
Vanadium Project for a period of 15 years following commencement of
production of V2O5.
●
Vision
Blue will receive a 5% (US$1.5 million) financing fee on the total
US$29.5 million Financing Package, equating to US$28 million in
total net proceeds to NextSource. The financing fee will be payable
only when the royalty financing is provided by Vision
Blue.
On March 15, 2021, the Company completed the initial private
placement consisted of 120,000,000 common shares at a price of
CAD$0.065 per share for total gross proceeds of $6,080,000 (CAD$7.8
million). The Company also announced the appointment of Mick Davis
as Chair of the Board of Directors.
On March 29, 2021, the Company announced the initiation of the
construction process for the Molo Graphite Mine in Madagascar with
the awarding of the engineering, procurement, and construction
management contract.
Subsequent Events
On April 12, 2021, the Company announced a binding partnership
agreement to construct and operate its own turnkey spheronized and
purified graphite ("SPG") production facility. SPG is a key
component of lithium-ion batteries such as those used in electric
vehicle (“EV”) and hybrid vehicle applications. The
partnership involves Japanese and Chinese companies that currently
operate their own SPG facilities that provide SPG to leading
Japanese lithium-ion battery makers that are within the supply
chains of Tesla and other major EV automotive companies. Proposed
locations for the facility include South Africa, Europe, or North
America. The Company will determine the initial production capacity
and will then initiate a technical study to determine capital and
operating costs for the proposed locations. Construction of one or
more of these SPG production facilities will be subject to
obtaining a positive technical study and securing sufficient
funding for construction and initial working capital. Commissioning
of the first SPG production facility is being targeted for Q4 2022.
The Chinese partner will design and develop the process flowsheets,
source all necessary graphite processing equipment, and will
provide all the necessary training and operational know-how
necessary for the production SPG material. In return, the Chinese
partner will receive a 3% licensing fee based on the total annual
sales value of anode material sold. The Japanese partner will
leverage its sales relationships and will act as NextSource’s
exclusive agent for sales, marketing and trading of anode battery
materials sold to OEM anode suppliers and to OEMs directly. In
return, the Japanese partner will receive a 5% sales commission
based on the total annual sales value of anode battery material
sold.
On May
11, 2021, the Company announced it initiated the procurement of
processing plant equipment for the Molo Graphite Mine.
Molo Graphite Project, Southern Madagascar Region,
Madagascar
Overview and Project Plan
The
results of a Feasibility Study (“FS”) announced on
September 27, 2019 consists of two phases:
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
estimated capital costs for Phase 1 (including contingencies) are
US$21.0M and is expected to take approximately 12 months to
complete. Phase 1 costs including working capital are estimated at
US$25.0M.
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
estimated capital costs for Phase 2 (including contingency) are
US$39.1M. Phase 2 costs including working capital are estimated at
US$43.5M.
5
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the nine months ended March 31, 2021 and 2020
On
February 8, 2021, the Company announced a Financing Package with
total gross proceeds of USD$29.5M (see the full description in the
Corporate Highlights section). The proceeds of the Financing
Package will be used to complete construction of Phase 1 of the
Company’s Molo Graphite Mine, with targeted completion in the
first half of 2022.
On
March 29, 2021, the Company announced it has commenced the
construction process of its Molo graphite mine in Madagascar with
the awarding of the engineering, procurement, and construction
management contract.
On May
11, 2021, the Company announced it initiated the procurement of
processing plant equipment.
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.
Mine-site
construction activities are expected to begin in August 2021. The
processing plant equipment is expected to begin arriving in
Madagascar in Q4 2021 followed by site installation in Q1 2022.
Mine commissioning is expected to begin in April 2022, followed by
a ramp up to a Phase 1 processing plant capacity of 240,000 tpa of
ore producing approximately 17,000 tpa of high-quality
SuperFlake® graphite concentrate.
Construction
of Phase 1 is expected to take approximately 12 months and cost at
least $25 million including working capital and is contingent upon
obtaining the remainder of the construction financing contemplated
in the Financing Package. If the Financing Package is not
completed, and alternative construction financing cannot be
secured, the Company will not be able to continue with the
construction activities. The Company cannot provide assurances that
the construction milestones or production levels will be
achieved.
Marketing of SuperFlake® Graphite
Independent
testing by various third-party end users of flake graphite was
announced by the Company in 2015 that confirmed that flake graphite
concentrate from the Molo Graphite Project meets or exceeds quality
requirements for all major end-markets of natural flake graphite.
These major end-markets included flake graphite used in
refractories, anode materials used in lithium-ion batteries,
specialty graphite foils used as essential components in the
chemical, aeronautical and fire-retardant industries, and graphene
used in high-end ink and substrate applications.
The
Feasibility Study also confirmed that Molo flake graphite
concentrate has an excellent flake size distribution that is well
above the global average, with 46.4% classified as +80 mesh
(large), +65 mesh (extra-large) and +48 mesh (jumbo) mesh in flake
size, which includes 23.6% as +48 mesh and greater in flake size.
The concentrate also has excellent thermal expansion, can be
upgraded to 99.97% purity (which is battery grade), contains no
deleterious substances and has high crystallinity.
In
response, NextSource registered SuperFlake® as a trademark for
the Molo flake graphite concentrate in the United States, Canada,
Japan, South Korea, U.K. and the European Union. These are the top
demand markets for flake graphite and the countries where
NextSource intends to sell its SuperFlake® graphite
material.
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.
Resource
delineation, drilling and trenching on the Molo Graphite Project
took place between May and November of 2012. This resulted in a
maiden mineral resource estimate that formed the basis for the
Company’s Preliminary Economic Assessment (the
“PEA”), which was undertaken by DRA Mineral Projects
and released in 2013.
6
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the nine months ended March 31, 2021 and 2020
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 mineral resource formed the basis of
the first feasibility study, which was released in February 2015,
and for the September 2019 Feasibility Study.
The
resource remains open along strike and to depth.
Resource and Reserve
The
current mineral resource estimate for the Molo Graphite Project is
summarised below consisting of the resource categories, the
tonnage, the carbon grade (“C%”) and the contained
graphite (“C”) tonnage. A cut-off grade of 4% C was
used for the “higher grade” zones and 2% C for the
“lower grade” zones. The mineral resources are
classified in the Measured, Indicated and Inferred categories as
defined by the Canadian Institute of Mining, Metallurgy and
Petroleum definition standards.
|
Classification
|
Tonnage
(Mt)
|
Grade
(C%)
|
Graphite
(C Mt)
|
|
Measured
|
23.62
|
6.32%
|
1.49
|
|
Indicated
|
76.75
|
6.25%
|
4.80
|
|
Measured & Indicated
|
100.37
|
6.30%
|
6.29
|
|
Inferred
|
40.91
|
5.78%
|
2.36
|
The
Mineral Resources above are inclusive of the Mineral Reserves
below.
|
Classification
|
Tonnage
(Mt)
|
Grade
(C%)
|
|
Proven
|
14.17
|
7.00%
|
|
Probable
|
8.37
|
7.04%
|
|
Proven & Probable
|
22.44
|
7.02%
|
Readers
are cautioned to refer to the feasibility study for certain other
details and assumptions relating to the above mineral resource and
reserve estimates and data verification procedures.
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.
7
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the nine months ended March 31, 2021 and 2020
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.
Feasibility Study Summary
On
September 27, 2019, the Company reported the results of an updated
Feasibility Study (“FS”) consisting of two phases.
Phase 1 consists of production of 17,000 tpa of finished
SuperFlake® concentrate for the first two years of production,
followed by an expansion to Phase 2 production of 45,000
tpa.
The FS
took into account updated mine capital equipment and mining costs,
as well as current 12-month rolling flake graphite pricing on a
Freight-on-Board (“FOB”) China basis, supplied by
UK-based battery mineral commodities research firm, Benchmark
Minerals Intelligence. The FS incorporates the procurement of all
mining equipment, off-site modular fabrication and assembly,
factory acceptance testing, module disassembly, shipping, plant
infrastructure construction, onsite module re-assembly,
commissioning, project contingencies and working capital. All
capital and operating costs expressed for Phase 1 are accurate to
+/- 10%, and Phase 2 are accurate to +/- 12.5%.
|
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 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
8
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the nine months ended March 31, 2021 and 2020
CAPEX and Working Capital Summary
|
Capital
Cost Breakdown
|
Phase
1 (240ktpa)
|
Phase 1 and 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.
9
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the nine months ended March 31, 2021 and 2020
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.
As part
of Financing Package announced on February 8, 2021, Vision Blue
will receive a royalty of 1.0% of the gross revenues from sales of
vanadium pentoxide (“V2O5”) from the Green Giant
Vanadium Project for a period of 15 years following commencement of
production of V2O5.
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
March 31, 2021, the Sagar property consisted of 184 claims covering
a total area of 8,539.58 ha.
Overall Performance and Outlook
During
the nine months ended March 31, 2021, the Company incurred a net
loss for the period of $14,540,926 (2019: net loss of $548,078) as
it continued to work towards obtaining project financing for the
construction of Phase 1 of the Molo Graphite Project. Expenditures
included a non-cash change in the value of warrant liabilities of
$9,676,360 (2020: gain of $487,263) due to the significant increase
in the market price of the common shares following the February 8,
2021 announcement of the Financing Package, which is described in
the Corporate Highlights section. Expenditures also include
non-cash share-based compensation of $3,793,104 (2020: $Nil), which
includes the first award of stock options since March 2019.
Excluding the change in the value of warrant liabilities and
share-based compensation, the Company incurred a net loss for the
period of $1,071,462 (2020: $1,035,341).
On
March 29, 2021, the Company announced it initiated the construction
process of its Molo Graphite Mine in Madagascar with the awarding
of the engineering, procurement, and construction management
contract.
The
Molo graphite mine construction is expected to take approximately
12 months and is targeted to become operational in the first half
of 2022 with a Phase 1 processing plant capacity of 240,000 tpa of
ore producing approximately 17,000 tpa of high-quality graphite
concentrate. Construction of Phase 1 of the Molo Graphite Project
is expected to cost at least $25 million including working capital
and is contingent upon obtaining the remainder of the construction
financing contemplated in the Financing Package. If the Financing
Package is not completed, and alternative construction financing
cannot be secured, the Company will not be able to continue with
the mine construction activities. The Company cannot provide
assurances that our construction milestones or commercial
production levels will be achieved.
10
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the nine months ended March 31, 2021 and 2020
Discussion of Operations
Financial Results for the nine months ended March 31, 2021 and
2020
Expressed in US Dollars
|
|
The nine
months
|
The nine
months
|
The three
months
|
The three
months
|
|
|
ended
on
|
ended
on
|
ended
on
|
ended
on
|
|
|
March
31,
|
March
31,
|
March
31,
|
March
31,
|
|
|
2021
|
2020
|
2021
|
2020
|
|
|
|
|
|
|
|
Revenues
|
$-
|
$-
|
$-
|
$-
|
|
|
|
|
|
|
|
Expenses
and other income
|
|
|
|
|
|
Exploration and
evaluation expenses
|
65,897
|
65,055
|
(4,728)
|
32,152
|
|
Payroll and
benefits
|
297,203
|
348,666
|
108,255
|
122,815
|
|
Management
fees
|
251,658
|
249,808
|
84,684
|
76,726
|
|
Consulting
fees
|
128,373
|
86,671
|
40,076
|
-
|
|
Professional and
legal fees
|
185,967
|
84,296
|
81,887
|
33,905
|
|
Public filing
expenses
|
90,582
|
68,773
|
35,681
|
12,710
|
|
Share-based
compensation
|
3,793,104
|
-
|
3,772,435
|
-
|
|
Travel
expenses
|
2,743
|
64,144
|
436
|
13,652
|
|
Investor relation
expenses
|
21,195
|
20,229
|
12,605
|
2,747
|
|
Insurance
expenses
|
21,262
|
12,876
|
6,610
|
2,877
|
|
Rent
expenses
|
14,880
|
14,897
|
5,105
|
4,516
|
|
Information
technology expenses
|
7,636
|
8,198
|
3,317
|
593
|
|
Telecommunications
|
1,793
|
2,178
|
796
|
715
|
|
General and
administrative expenses
|
9,287
|
5,873
|
4,288
|
(1,192)
|
|
Amortization of
property, plant and equipment
|
4,847
|
-
|
1,804
|
-
|
|
Finance
costs
|
1,051
|
-
|
321
|
-
|
|
Bank
fees
|
2,589
|
3,117
|
805
|
1,092
|
|
Foreign currency
translation (gain) loss
|
(35,646)
|
(603)
|
(4,423)
|
(2,414)
|
|
Interest expense
(income)
|
145
|
477
|
-
|
276
|
|
Change in value of
warrant liability
|
9,676,360
|
(487,263)
|
8,560,319
|
(266,431)
|
|
Foreign
taxes
|
-
|
686
|
-
|
(83)
|
|
|
|
|
|
|
|
Net
loss for the period
|
(14,540,926)
|
(548,078)
|
(12,710,273)
|
(34,656)
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
|
|
|
Items that will be reclassified subsequently to loss
|
|
|
|
|
|
Translation
adjustment for foreign operations
|
(207)
|
(118)
|
1,617
|
(343)
|
|
|
|
|
|
|
|
Net
loss and comprehensive loss for the period
|
$(14,541,133)
|
$(548,196)
|
$(12,708,656)
|
$(34,999)
|
|
|
|
|
|
|
|
Weighted-average
common shares (basic and diluted)
|
589,535,053
|
520,017,387
|
626,110,312
|
536,494,789
|
|
Net loss per common
shares (basic and diluted
|
$(0.02)
|
$(0.00)
|
$(0.02)
|
$(0.00)
|
11
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the nine months ended March 31, 2021 and 2020
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:
|
|
The nine
months
|
The nine
months
|
The three
months
|
The three
months
|
|
|
ended
on
|
ended
on
|
ended
on
|
ended
on
|
|
|
March
31,
|
March
31,
|
March
31,
|
March
31,
|
|
|
2021
|
2020
|
2021
|
2020
|
|
|
|
|
|
|
|
Exploration
activities
|
$-
|
$-
|
$-
|
$-
|
|
Metallurgical
evaluation
|
-
|
-
|
-
|
-
|
|
Mineral claims
(Canada)
|
2,525
|
5,702
|
844
|
1,363
|
|
Mineral claims
(Madagascar)
|
47,955
|
25,000
|
(9,890)
|
25,000
|
|
Camp
(Madagascar)
|
15,417
|
34,353
|
4,318
|
5,789
|
|
|
|
|
|
|
|
Total exploration
and evaluation
|
$65,897
|
$65,055
|
$(4,728)
|
$32,152
|
12
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the nine months ended March 31, 2021 and 2020
Exploration
and evaluation expenses for the nine months ended March 31, 2021
increased to $65,897 (2020: $65,055) due to an increase in mineral
claim expenditures in Madagascar to $47,955 (2020: $25,000) which
was offset by a decrease in exploration camp expenditures to
$15,417 (2020: $34,353).
Professional and Legal Fees Expenses
Professional
and legal fees consist of accounting, auditor, tax advisory, legal
and offshore entity management fees.
The
following is the breakdown by nature of the expenses:
|
|
The nine
months
|
The nine
months
|
The three
months
|
The three
months
|
|
|
ended
on
|
ended
on
|
ended
on
|
ended
on
|
|
|
March
31,
|
March
31,
|
March
31,
|
March
31,
|
|
|
2021
|
2020
|
2021
|
2020
|
|
|
|
|
|
|
|
Accounting
fees
|
$22,132
|
$19,793
|
$6,589
|
$6,155
|
|
Auditor
fees
|
26,060
|
27,033
|
(13,914)
|
8,000
|
|
Tax advisory
fees
|
11,559
|
9,781
|
3,935
|
2,504
|
|
Legal
fees
|
71,892
|
20,339
|
32,348
|
9,896
|
|
Offshore management
fees
|
54,324
|
7,350
|
52,929
|
7,350
|
|
|
|
|
|
|
|
Total professional
fees
|
$185,967
|
$84,296
|
$81,887
|
$33,905
|
Professional
fees for the nine months ended March 31, 2021 increased to $185,967
(2020: $84,296) due to an increase in legal fees to $71,892 (2020:
$20,339) and offshore management fees to $54,324 (2020:
$7,350).
Share Based Compensation
Share-based
compensation expenditures for the nine months ended March 31, 2021
increased to $3,793,104 (2019: $Nil) due to the award of stock
options and the recognition of the fair value of the restricted
share units (RSUs) granted on December 29, 2020 and March 19, 2021
over their respective vesting periods.
The
fair value of stock options is based on the Black-Scholes option
valuation model which several inputs including the market price,
the exercise price, compound risk free interest rate, annualized
volatility and the number of periods until expiration. The fair
value is expensed over the vesting period.
Change in value of Warrant Liability
The
changes in the warrant liability for the nine months ended March
31, 2021 resulted in a loss of $9,676,360 (2020: gain of $487,263)
due to the significant increase in the market price of the common
shares following the February 8, 2021 announcement of the Financing
Package, which is described in the Corporate Highlights
section.
The
underlying warrants were issued in a currency other than the
Company’s functional currency and therefore are considered a
derivative financial liability settled through profit and loss as
per IFRS 9 Financial
Instruments. The fair value of the warrants was measured as
a financial liability using the Black-Scholes option valuation
model on the issue date and will be remeasured at each reporting
period through profit and loss until expiration or exercise of the
warrants.
Liquidity and Capital Management
There
were no changes in the Company's approach to capital management
during the nine months ended March 31, 2021.
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 continue 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.
13
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the nine months ended March 31, 2021 and 2020
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 exploration and evaluation,
development, construction and 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.
Working Capital Balance
As of
March 31, 2021, the Company had a working capital deficit of
$3,952,896 (June 30, 2020: deficit of $918,048). Excluding the
$10,424,664 warrant derivative liabilities, which is expected to be
settled through the issuance of common shares upon the exercise or
expiration of the underlying warrants, the Company had a working
capital surplus of $6,471,768 (June 30, 2020: deficit of $709,280).
Although the Company has a working capital surplus, the surplus is
expected to be utilized in the construction of the Molo Graphite
Mine.
As of
March 31, 2021, the Molo Graphite Mine Phase 1 construction is
expected to cost at least $25 million including working capital and
is contingent upon obtaining the remainder of the construction
financing contemplated in the Financing Package. If the Financing
Package is not completed, and alternative construction financing
cannot be secured, the Company will not be able to continue with
the mine construction activities.
|
|
March
31,
|
June
30,
|
|
|
2021
|
2020
|
|
|
|
|
|
Current
Assets:
|
|
|
|
Cash and cash
equivalents
|
$7,071,791
|
$222,305
|
|
Amounts
receivable
|
82,348
|
7,539
|
|
Prepaid
expenses
|
7,375
|
25,484
|
|
Total
Current Assets
|
7,161,514
|
255,328
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
Accounts
payable
|
130,234
|
323,876
|
|
Accrued
liabilities
|
379,081
|
370,449
|
|
Share
subscriptions
|
-
|
68,411
|
|
Short term
debt
|
-
|
22,115
|
|
Provision
|
174,556
|
174,418
|
|
Fair value of
warrant derivative liabilities
|
10,424,664
|
208,768
|
|
Current portion of
lease obligations
|
5,875
|
5,339
|
|
Total
Current Liabilities
|
11,114,410
|
1,173,376
|
|
|
|
|
|
Working
Capital (Deficit) surplus
|
(3,952,896)
|
(918,048)
|
14
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the nine months ended March 31, 2021 and 2020
Cash and Cash Equivalents
The
Company’s cash balances are deposited with major financial
institutions in Canada and with reputable financial institutions in
Madagascar and Mauritius. Limited amounts of cash are currently
held in Madagascar and Mauritius.
|
Cash and Cash
Equivalents
|
Madagascar
|
Mauritius
|
Canada
|
Total
|
|
|
$
|
$
|
$
|
$
|
|
As of March 31,
2021
|
3,674
|
2,142
|
7,065,975
|
7,071,791
|
|
As of June 30,
2020
|
14,054
|
-
|
208,251
|
222,305
|
Amounts Receivable and Prepaid Expenses
Amounts
receivables increased to $82,348 (June 30, 2020: $7,539) due to an
increase in sales tax receivables and prepaid expenses decreased to
$7,375 (June 30, 2020: $25,484) due to a decrease in prepaid
insurance premiums.
Accounts Payable and Accrued Liabilities
Accounts
payable decreased to $130,234 (June 30, 2020: $323,876) due to a
decrease in trade payables and accrued liabilities increased to
$379,081 (June 30, 2020: $370,449) due to an increase in accrued
legal expenses that was offset by a decrease in accrued payroll and
consulting liabilities.
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
March 31, 2021, the Company had previously withdrawn CAD $40,000
and repaid CAD $30,000 of loan principal. The Company recognized
the loan forgiveness of CAD$10,000 resulting in a short-term debt
carrying balance on March 31, 2021 of $nil (June 30, 2020:
$22,115).
Provision
The
provision relating to a shortfall in flow-through expenditures
decreased to $174,556 (June 30, 2020: $174,419) due to the
completion of settlements totaling $12,930 and adjusted the
provision due to foreign exchange fluctuations.
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 $792,300 (CAD$1,000,000)
will be due within five days of the commencement of commercial
production. Although the Company has announced it has commenced the
construction process of its Molo graphite mine, construction of
Phase 1 of the Molo Graphite Project is contingent upon obtaining
the construction financing contemplated in the Financing Package as
described in note 3. If the Financing Package cannot be completed,
and alternative construction financing cannot be secured, the
Company will not be able to continue with the mine construction
activities related to the Molo Graphite Project. 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.
15
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the nine months ended March 31, 2021 and 2020
Fair Value of Warrant Derivative Liabilities
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 financial liability settled through profit
and loss as per IFRS 9 Financial
Instruments. The fair value of the warrants was measured as
a financial liability using the Black-Scholes option valuation
model on the issue date and will be remeasured at each reporting
period through profit and loss until expiration or exercise of the
warrants.
The
fair value of the warrant liability was estimated using the
following model inputs on the following valuation
dates:
|
Warrants
Expiring August 17, 2020
|
|
Warrant
Liability
|
|
|
$
|
|
|
Share price on
measurement date
|
(CAD 0.09) USD
$0.068
|
|
|
Exercise
price
|
(CAD 0.10) USD
$0.076
|
|
|
Risk free
rate
|
1.50%
|
|
|
Expected
volatility
|
115%
|
|
|
Expected dividend
yield
|
Nil
|
|
|
Expected life (in
years)
|
2.00
|
|
|
As
of August 17, 2018 (issue date)
|
|
408,150
|
|
|
|
|
|
Change in fair
value through profit and loss
|
|
(73,532)
|
|
|
|
|
|
Share price on
measurement date
|
(CAD 0.10) USD
$0.076
|
|
|
Exercise
price
|
(CAD 0.10) USD
$0.076
|
|
|
Risk free
rate
|
1.67%
|
|
|
Expected
volatility
|
100%
|
|
|
Expected dividend
yield
|
Nil
|
|
|
Expected life (in
years)
|
1.13
|
|
|
As
of June 30, 2019
|
|
334,618
|
|
|
|
|
|
Change in fair
value through profit and loss
|
|
(327,537)
|
|
|
|
|
|
Share price on
measurement date
|
(CAD 0.04) USD
$0.029
|
|
|
Exercise
price
|
(CAD 0.10) USD
$0.073
|
|
|
Risk free
rate
|
0.20%
|
|
|
Expected
volatility
|
162%
|
|
|
Expected dividend
yield
|
Nil
|
|
|
Expected life (in
years)
|
0.13
|
|
|
As
of June 30, 2020
|
|
7,081
|
|
|
|
|
|
Change in fair
value through profit and loss
|
|
(7,081)
|
|
|
|
|
|
As
of August 17, 2020 (expiration)
|
|
-
|
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 financial liability settled through profit
and loss as per IFRS 9 Financial
Instruments. The fair value of the warrants was measured as
a financial liability using the Black-Scholes option valuation
model on the issue date and will be remeasured at each reporting
period through profit and loss until expiration or exercise of the
warrants.
16
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the nine months ended March 31, 2021 and 2020
The
fair value of the warrant liability was estimated using the
following model inputs on the following valuation
dates:
|
Warrants
Expiring October 25, 2021
|
|
Warrant
Liability
|
|
|
$
|
|
|
Share price on
measurement date
|
(CAD 0.05) USD
$0.038
|
|
|
Exercise
price
|
(CAD 0.09)
USD$0.069
|
|
|
Risk free
rate
|
1.66%
|
|
|
Expected
volatility
|
115%
|
|
|
Expected dividend
yield
|
Nil
|
|
|
Expected life (in
years)
|
2.00
|
|
|
As
of October 25, 2019 (issue date)
|
|
261,090
|
|
|
|
|
|
Change in fair
value through profit and loss
|
|
(59,403)
|
|
|
|
|
|
Share price on
measurement date
|
(CAD 0.04) USD
$0.029
|
|
|
Exercise
price
|
(CAD 0.09) USD
$0.064
|
|
|
Risk free
rate
|
0.25%
|
|
|
Expected
volatility
|
156%
|
|
|
Expected dividend
yield
|
Nil
|
|
|
Expected life (in
years)
|
1.32
|
|
|
As
of June 30, 2020
|
|
201,687
|
|
|
|
|
|
Change in fair
value through profit and loss
|
|
2,637,921
|
|
|
|
|
|
Share price on
measurement date
|
(CAD 0.350) USD
$0.279
|
|
|
Exercise
price
|
(CAD 0.09) USD
$0.072
|
|
|
Risk free
rate
|
0.12%
|
|
|
Expected
volatility
|
197%
|
|
|
Expected dividend
yield
|
Nil
|
|
|
Expected life (in
years)
|
0.57
|
|
|
As
of March 31, 2021
|
|
2,839,608
|
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 financial liability settled through profit
and loss as per IFRS 9 Financial
Instruments. The fair value of the warrants was measured as
a financial liability using the Black-Scholes option valuation
model on the issue date and will be remeasured at each reporting
period through profit and loss until expiration or exercise of the
warrants.
The
fair value of the warrant liability was estimated using the
following model inputs on the following valuation
dates:
|
Warrants
Expiring July 2, 2022
|
|
Warrant
Liability
|
|
|
$
|
|
|
Share price on
measurement date
|
(CAD 0.04) USD
$0.029
|
|
|
Exercise
price
|
(CAD 0.065)
USD$0.048
|
|
|
Risk free
rate
|
0.25%
|
|
|
Expected
volatility
|
140%
|
|
|
Expected dividend
yield
|
Nil
|
|
|
Expected life (in
years)
|
2.00
|
|
|
As
of July 2, 2020 (issue date)
|
|
539,536
|
|
|
|
|
|
Change in fair
value through profit and loss
|
|
7,045,520
|
|
|
|
|
|
Share price on
measurement date
|
(CAD 0.350) USD
$0.279
|
|
|
Exercise
price
|
(CAD 0.065) USD
$0.051
|
|
|
Risk free
rate
|
0.20%
|
|
|
Expected
volatility
|
200%
|
|
|
Expected dividend
yield
|
Nil
|
|
|
Expected life (in
years)
|
1.26
|
|
|
As
of March 31, 2021
|
|
7,585,056
|
17
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the nine months ended March 31, 2021 and 2020
Lease Obligations
The
Company is party to several 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. The Company recognized rent expense
relating to short-term leases of $9,775 in the consolidated
statements of operations and comprehensive loss.
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 between the reporting
periods:
|
|
Property
|
Plant
|
Equipment
|
Total
|
|
|
$
|
$
|
$
|
$
|
|
|
|
|
|
|
|
Balance
– July 1, 2019
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
Adoption
of IFRS 16
|
-
|
24,164
|
-
|
24,164
|
|
Amortization
of right of use assets
|
-
|
(4,810)
|
-
|
(4,810)
|
|
Foreign
exchange adjustments
|
-
|
(3,336)
|
-
|
(3,336)
|
|
|
|
|
|
|
|
Balance
– June 30, 2020
|
-
|
16,018
|
-
|
16,018
|
|
|
|
|
|
|
|
Additions
|
-
|
-
|
-
|
-
|
|
Lease
payments
|
|
(6,367)
|
|
(6,367)
|
|
Finance
costs
|
-
|
1,051
|
-
|
1,051
|
|
Foreign
exchange adjustments
|
-
|
455
|
-
|
455
|
|
|
|
|
|
|
|
Balance
- March 31, 2021
|
-
|
11,157
|
-
|
11,157
|
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
|
-
|
5,875
|
-
|
5,875
|
|
Long-term
lease obligations
|
-
|
5,282
|
-
|
5,282
|
|
|
|
|
|
|
|
Balance
- March 31, 2021
|
-
|
11,157
|
-
|
11,157
|
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
12 months
|
-
|
6,307
|
-
|
6,307
|
|
Between
13 and 24 months
|
-
|
6,307
|
-
|
6,307
|
|
Between
25 and 36 months
|
-
|
-
|
-
|
-
|
|
Between
37 and 48 months
|
-
|
-
|
-
|
-
|
|
Between
49 and 60 months
|
-
|
-
|
-
|
-
|
|
Thereafter
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
Total
undiscounted lease obligations
|
-
|
12,614
|
-
|
12,614
|
Other Contractual Obligations and Commitments
The
Company does not have any contractual obligations and commitments
other than accounts payable, accrued liabilities, provisions, lease
obligations and contingent liabilities.
Off-balance sheet arrangements
The
Company does not have any off-balance sheet arrangements including
any arrangements that would affect the liquidity, capital
resources, market risk support and credit risk support or other
benefits.
18
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the nine months ended March 31, 2021 and 2020
Cash Flows - Sources and Uses of Cash
The
following are the Company’s cash flows from operating,
investing and financing activities for the nine months ended March
31, 2021 and 2020:
|
|
The nine
months
|
The nine
months
|
|
|
ended
on
|
ended
on
|
|
|
March
31,
|
March
31,
|
|
|
2021
|
2020
|
|
|
|
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
|
Net loss for the
period
|
$(14,540,926)
|
$(548,078)
|
|
|
|
|
|
Add (deduct) items
not affecting cash:
|
|
|
|
Amortization of
property, plant and equipment
|
4,847
|
-
|
|
Change in value of
warrant derivative liability
|
9,676,360
|
(487,263)
|
|
Share-based
compensation (options)
|
3,793,104
|
-
|
|
Change in value of
lease liability
|
1,506
|
-
|
|
|
|
|
|
Change in non-cash
working capital balances:
|
|
|
|
(Increase) decrease
in amounts receivable and prepaid expenses
|
(56,700)
|
50,139
|
|
Increase (decrease)
in accounts payable and accrued liabilities
|
(185,010)
|
(249,262)
|
|
Increase (decrease)
in provision
|
138
|
-
|
|
Increase (decrease)
in share subscriptions received in advance
|
(68,411)
|
-
|
|
|
|
|
|
Net cash used in
operating activities
|
(1,375,092)
|
(1,234,464)
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
Equipment
purchases
|
(3,765)
|
-
|
|
|
|
|
|
Net cash provided
by investing activities
|
(3,765)
|
-
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
Short term
debt
|
(22,115)
|
-
|
|
Lease liability
principal payments
|
(6,367)
|
-
|
|
Proceeds from
issuance of common shares
|
7,560,571
|
998,619
|
|
Exercise of stock
options
|
560,406
|
-
|
|
Exercise of
warrants
|
167,471
|
-
|
|
Common share issue
costs
|
(31,416)
|
(7,821)
|
|
|
|
|
|
Net cash provided
by financing activities
|
8,228,550
|
990,798
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
(207)
|
(118)
|
|
Increase (decrease)
in cash and cash equivalents
|
6,849,486
|
(243,784)
|
|
|
|
|
|
Cash and cash
equivalents - beginning of period
|
222,305
|
529,331
|
|
Cash
and cash equivalents - end of period
|
$7,071,791
|
$285,547
|
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 purchased
computer equipment during the nine months ended March 31,
2021.
19
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the nine months ended March 31, 2021 and 2020
Financing Activities
The following changes to the issued and outstanding common shares
occurred during the nine months ended March 31, 2021:
(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 in share issuance
costs.
(b)
On
December 22, 2020, a total of 721,741 stock options priced at
$0.056 were exercised into 721,741 common shares for gross proceeds
of $40,418.
(c)
On
February 9, 2021, a total of 1,470,000 stock options priced at
$0.066 were exercised into 1,470,000 common shares for gross
proceeds of $97,054.
(d)
On
February 12, 2021, a total of 550,000 warrants priced at CAD$0.09
and 153,847 warrants at a price of CAD$0.065 were exercised into
703,847 common shares for gross proceeds of $46,760.
(e)
On
February 19, 2021, a total of 222,223 stock options priced at
CAD$0.09 were exercised into 222,223 common shares for gross
proceeds of $15,857 and a total of 5,174,424 RSUs that vested on
February 7, 2021 were converted into common shares.
(f)
On
February 23, 2021, a total of 730,000 stock options priced at
$0.066 were exercised into 730,000 common shares for gross proceeds
of $48,439.
(g)
On
February 26, 2021, a total of 1,111,111 warrants priced at CAD$0.09
were exercised into 1,111,111 common shares for gross proceeds of
$79,172.
(h)
On
March 4, 2021, a total of 500,000 warrants priced at CAD$0.065 were
exercised into 500,000 common shares for gross proceeds of
$25,681.
(i)
On
March 8, 2021, a total of 2,900,000 stock options priced at
CAD$0.10 and 2,200,000 stock options priced at $0.066 were
exercised into 5,100,000 common shares for gross proceeds of
$374,494.
(j)
On
March 15, 2021, the Company completed a non-brokered private
placement of 120,000,000 common shares at a price of CAD$0.065 per
share for total gross proceeds of $6,084,000 (CAD$7,800,000). In
connection with the non-brokered private placement, the Company
incurred $16,367 in share issuance costs.
The following changes to the issued and outstanding common shares
occurred subsequent to March 31, 2021:
(a)
On
April 12, 2021, a total of 555,550 warrants priced at CAD$0.09 and
3,615,000 warrants priced at CAD$0.065 were exercised into
4,170,550 common shares for gross proceeds of
$226,506.
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.
Other
than accounts payable, which are due within 30 days, and the
warrant liabilities, which will be fully expensed by their
respective exercise or expirations, none of the Company’s
obligations have contractual maturities.
As of
March 31, 2021, the Company had cash and cash equivalents of
$7,071,791 (June 30, 2020: $222,305) to settle current liabilities
of $11,114,410 (June 30, 2020: $1,173,376). Excluding the
$10,424,664 warrant derivative liabilities, which are expected to
be settled through the issuance of common shares upon the exercise
or expiration of the underlying warrants, the Company had current
liabilities of $689,746 (June 30, 2020: $964,608). Although the
Company is not currently exposed to liquidity risk, the surplus
cash is expected to be utilised in the construction of the Molo
Graphite Mine.
20
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the nine months ended March 31, 2021 and 2020
As of
March 31, 2021, the Molo Graphite Mine construction is expected to
cost at least $25 million including working capital and is
contingent upon obtaining the remainder of the construction
financing contemplated in the Financing Package described in note
3. If the Financing Package is not completed, and alternative
construction financing cannot be secured, the Company will not be
able to continue with the mine construction
activities.
While
the Company has been successful in obtaining required funding in
the past, there is no assurance that future financings will be
available. 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.
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. As of March 31,
2021, the Company has estimated that its net foreign exchange
exposure is $685,923.
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 key management, which consists of the Board of
Directors, Chief Executive Officer, Chief Financial Officer and the
Senior Vice Presidents of the Company. Related parties include
companies controlled by key management.
The
following key management related party transactions occurred during
the following reporting periods:
|
|
The nine
months
|
The nine
months
|
The three
months
|
The three
months
|
|
|
ended
on
|
ended
on
|
ended
on
|
ended
on
|
|
|
March
31,
|
March
31,
|
March
31,
|
March
31,
|
|
|
2021
|
2020
|
2021
|
2020
|
|
|
|
|
|
|
|
Management and
director payroll
|
$315,713
|
$296,645
|
$128,236
|
$101,914
|
|
Management
consulting fees
|
251,658
|
249,808
|
84,684
|
83,321
|
|
Professional and
legal fees
|
12,429
|
8,855
|
4,593
|
2,260
|
|
Share-based
compensation
|
3,793,104
|
-
|
3,772,435
|
-
|
|
|
|
|
|
|
|
Total
|
4,372,904
|
555,308
|
3,989,948
|
187,495
|
21
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the nine months ended March 31, 2021 and 2020
The
following key management related party balances existed as of the
end of the following reporting periods:
|
|
As
of
|
As
of
|
|
|
March
31,
|
June
30,
|
|
|
2021
|
2020
|
|
Amounts receivable
from key management
|
$51,086
|
$-
|
|
Prepaid expenses to
companies controlled by key management
|
$3,178
|
$3,178
|
|
Accounts payable
due to companies controlled by key management
|
$29,885
|
$86,685
|
|
Accrued liabilities
due to key management
|
$-
|
$54,727
|
Legal Proceedings
The
Company is 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
|
|||
|
|
March
31,
|
December
31,
|
September
30,
|
June
30,
|
|
|
2021
|
2020
|
2020
|
2020
|
|
|
$
|
$
|
$
|
$
|
|
Revenues
|
-
|
-
|
-
|
-
|
|
Exploration and
evaluation expenses
|
(4,728)
|
64,158
|
6,467
|
95,009
|
|
Net loss and
comprehensive loss for the quarter
|
(12,708,655)
|
(1,552,307)
|
(280,170)
|
(425,550)
|
|
Basic and diluted
loss per share for the quarter
|
(0.02)
|
-
|
-
|
-
|
|
Working capital
(deficit) surplus
|
(3,952,895)
|
(1,761,218)
|
(269,775)
|
(918,048)
|
|
|
|
|
|
|
|
|
Quarter
Ended
|
|||
|
|
March
31,
|
December
31,
|
September
30,
|
June
30,
|
|
|
2020
|
2019
|
2019
|
2019
|
|
|
$
|
$
|
$
|
$
|
|
Revenues
|
-
|
-
|
-
|
-
|
|
Exploration and
evaluation expenses
|
57,180
|
6,179
|
69,491
|
65,880
|
|
Net loss and
comprehensive loss for the quarter
|
(34,999)
|
(340,010)
|
(173,880)
|
(1,749,161)
|
|
Basic and diluted
loss per share for the quarter
|
-
|
-
|
-
|
-
|
|
Working capital
(deficit) surplus
|
(484,374)
|
(449,374)
|
(839,074)
|
(665,886)
|
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 nine months ended March 31, 2021 and
our most recent AIF.
Any
such risk factors could materially affect the Corporation’s
business, financial condition and/or future operating results and
prospects and could cause actual events to differ materially from
those described in forward-looking statements and information
relating to the Corporation. Additional risks and uncertainties not
currently identified by the Corporation or that the Corporation
currently believes not to be material also may materially and
adversely affect the Corporation’s business, financial
condition, operations or prospects.
The Corporation’s ability to continue as a going
concern.
The
independent auditor’s report on the financial statements of
the Corporation contains explanatory language that substantial
doubt exists about the Corporation’s ability to continue as a
going concern. Due to the Corporation’s lack of operating
history and present inability to generate revenues, the Corporation
has sustained operating losses since its inception.
If the
Corporation is unable to obtain sufficient financing in the near
term as required or achieve profitability, then the Corporation
would, in all likelihood, experience severe liquidity problems and
may have to curtail business activities. If the Corporation
curtails business activities, the Corporation may be placed into
bankruptcy or undergo liquidation, the result of which will
adversely affect the value of the securities of the
Corporation.
22
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the nine months ended March 31, 2021 and 2020
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 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.
23
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the nine months ended March 31, 2021 and 2020
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.
24
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the nine months ended March 31, 2021 and 2020
Fluctuations in the market price of graphite and other metals may
adversely affect the value of the Corporation’s securities
and the ability of the Corporation to develop the Molo Graphite
Project.
The
value of the Corporation’s securities may be significantly
affected by the market price of graphite and other metals, which
are cyclical and subject to substantial price fluctuations. Market
prices can be affected by numerous factors beyond the
Corporation’s control, including levels of supply and demand
for a broad range of industrial products, economic growth rates of
various international economies, expectations with respect to the
rate of inflation, the relative strength of various currencies,
interest rates, speculative activities, global or regional
political or economic circumstances. The Chinese market is a
significant source of global demand for commodities, including
graphite. Chinese demand has been a major driver in global
commodities markets for a number of years and recent reductions in
Chinese demand have adversely affected prices for graphite. A
further slowing in China’s economic growth could result in
even lower prices and could negatively impact the value of the
Corporation’s securities. Prolonged decreases in the price of
graphite or other metals could adversely impact the ability of the
Corporation to proceed with the development of the Molo Graphite
Project.
The Corporation may not have access to sufficient capital to
develop the Molo Graphite Project.
The
Corporation has limited capital, which is currently insufficient to
complete construction of 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
25
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the nine months ended March 31, 2021 and 2020
Because of the inherent dangers involved in mineral exploration,
there is a risk that the Corporation may incur liability or damages
as the Corporation conducts business.
The
search for valuable minerals involves numerous hazards. As a
result, the Corporation may become subject to liability for such
hazards, including pollution, cave-ins and other hazards against
which the Corporation cannot, or may elect not, to insure against.
The Corporation currently has no such insurance, but management
intends to periodically review the availability of commercially
reasonable insurance coverage. If a hazard were to occur, the costs
of rectifying the hazard may exceed the Corporation’s asset
value and cause us to liquidate all of its assets.
The
Corporation’s operations are subject to environmental
regulations, which could result in additional costs and operational
delays. Environmental legislation is evolving in a manner that may
require stricter standards, and enforcement, increased fines and
penalties for non-compliance, more stringent environmental
assessments of proposed projects, and a heightened degree of
responsibility for companies and their officers, directors, and
employees. There is no assurance that any future changes in
environmental regulation will not negatively affect the
Corporation’s projects.
The Corporation has no insurance for environmental
problems.
Insurance against
environmental risks, including potential liability for pollution or
other hazards as a result of the disposal of waste products
occurring from exploration and production, has not been available
generally in the mining industry. The Corporation has no insurance
coverage for most environmental risks. In the event of a problem,
the payment of environmental liabilities and costs would reduce the
funds available to us for future operations. If the Corporation is
unable to full pay for the cost of remedying an environmental
problem, the Corporation might be required to enter into an interim
compliance measure pending completion of the required
remedy.
Should the Corporation lose the services of key executives, the
Corporation’s financial condition and proposed expansion may
be negatively impacted.
The
Corporation depends on the continued contributions of the
Corporation’s executive officers to work effectively as a
team, to execute its business strategy and to manage its business.
The loss of key personnel, or their failure to work effectively,
could have a material adverse effect on its business, financial
condition, and results of operations. Specifically, the Corporation
relies on Craig Scherba, the President and Chief Executive Officer
and Marc Johnson, the Chief Financial Officer.
The
Corporation does not maintain key man life insurance. Should the
Corporation lose any or all of their services and the Corporation
is unable to replace their services with equally competent and
experienced personnel, the Corporation’s operational goals
and strategies may be adversely affected, which will negatively
affect potential revenues.
Because access to the Corporation’s properties may be
restricted by inclement weather or proper infrastructure, its
exploration programs are likely to experience delays.
Access
to most of the properties underlying the Corporation’s claims
and interests is restricted due to their remote locations and
because of weather conditions. Some of the Corporation’s
properties are only accessible by air. As a result, any attempts to
visit, test, or explore the property are generally limited to those
periods when weather permits such activities. These limitations can
result in significant delays in exploration efforts, as well as
mining and production efforts in the event that commercial amounts
of minerals are found. This could cause the Corporation’s
business to fail.
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 further global
economic downturn. The impact of COVID-19 on the Company has been
limited since the Company does not have any active exploration
programs and our management team was already setup to operate and
communicate remotely through the internet, although certain of our
directors, officers, employees’ consultants, and contractors
have been indirectly impacted by intermittent COVID-19 lockdowns in
Canada, Madagascar, Mauritius and in South Africa. The Company has
announced the commencement of construction of the Molo Graphite
Mine in Madagascar and is including the impact of continued
COVID-19 outbreaks and intermittent lockdowns into its development
plans. Notwithstanding, intermittent lockdowns have the potential
to cause unforeseen delays in the construction schedule. It is not
possible for the Company to predict the duration or magnitude of
adverse impacts from further outbreak and predict its effects on
the Company’s business or results of operations at this
time.
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.
26
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the nine months ended March 31, 2021 and 2020
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.
27
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the nine months ended March 31, 2021 and 2020
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 company with a small
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.
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 Chief Executive Officer and Chief
Financial Officer, on a timely basis so that appropriate decisions
can be made regarding public disclosure.
As of
March 31, 2021, the end of the period covered by this MD&A, our
management, including our Chief Executive Officer and Chief
Financial Officer, evaluated the effectiveness of our disclosure
controls and procedures. Based upon that evaluation, our Chief
Executive
28
NEXTSOURCE MATERIALS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the nine months ended March 31, 2021 and 2020
Officer
and Chief Financial Officer concluded that as of March 31, 2021,
the end of the period covered by this MD&A, we maintained
effective disclosure controls and procedures
Management’s Report on Internal Control Over Financial
Reporting
Our
management is responsible for establishing and maintaining adequate
internal control over financial reporting. Because of its inherent
limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or
procedures may deteriorate. Internal control over financial
reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with IFRS.
Our
management, including our Chief Executive Officer and Chief
Financial Officer, conducted an evaluation of the effectiveness of
internal control over financial reporting using the criteria set
forth in the COSO
Internal Control –
Integrated Framework (2013). Based on the results of this
evaluation, our management concluded that our internal control over
financial reporting was effective as of March 31,
2021.
Changes in Internal Control Over Financial Reporting
There
were no changes in our internal control over financial reporting
that occurred during the nine months ended March 31, 2021 that have
materially affected, or are reasonably likely to materially affect,
our 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.
29