NextSource Materials Inc 40-F for FY2022
NextSource Materials Inc. (NSRCF)
About this 40-F
NextSource Materials Inc filed this 40-F on July 24, 2023, covering the fiscal year ended June 30, 2022 (FY2022).
Headline figures
Fiscal year ended June 30, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $0
- compared with $0 a year earlier
- Net income
- $16.12M
- compared with a net loss of $41.96M a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
Registration statement pursuant to Section 12 of the Securities Exchange Act of 1934 |
or
Annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 |
For the fiscal year ended: | Commission File Number: |
(Exact name of registrant as specified in its charter) |
Ontario, Canada |
| 1040 |
| Not Applicable |
(Province or Other Jurisdiction of Incorporation or Organization) |
| (Primary Standard Industrial Classification Code) |
| (I.R.S. Employer Identification No.) |
(
(Address and telephone number of registrant's principal executive offices)
Registered Agent Solutions, Inc.
[99 Washington Avenue, Suite 1008
Albany, New York 12260
(888) 705-7274]
(Name, address (including zip code) and telephone number (including area code) of agent for service in the United States)
Securities registered or to be registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
For annual reports, indicate by check mark the information filed with this form:
☒ Annual Information Form | ☒ Audited Annual Financial Statements |
Indicate the number of outstanding shares of each of the registrant's classes of capital or common stock as of the close of the period covered by the annual report:
As of June 30, 2022, there were
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. ☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). ☒
Indicate by check mark whether the Registrant is an emerging growth company as defined in Rule 12b-2 of the Exchange Act.
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
EXPLANATORY NOTE
Our Annual Report on Form 20-F for the fiscal year ended June 30, 2022, initially filed with the Securities and Exchange Commission on October 31, 2022 (the “Original 2022 Form 20-F”), is being filed to amend and restate the Original 2022 Form 20-F in its entirety as an annual report on Form 40-F (“Form 40-F”). NextSource Materials Inc. ("we", "us", "our", "NextSource" or the "Company") is a Canadian corporation that is permitted, under a multijurisdictional disclosure system adopted by the United States, to prepare this Annual Report on Form 40-F ("Annual Report") pursuant to Section 13 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), in accordance with disclosure requirements in effect in Canada, which are different from those of the United States.
In addition, as required by Rule 12b-15 under the Securities Exchange Act of 1934, as amended, new certifications of our principal executive officer and principal financial officer under Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are being filed as Exhibits 99.4 - 99.7 to this Form 40-F.
This Form 40-F does not reflect events occurring after the Original 2022 Form 20-F, except that the Company has included subsequent events and some additional information regarding its mining properties in response to comments received from the staff of the Securities and Exchange Commission’s Division of Corporation Finance, and to note that the Company inadvertently misidentified itself as a “non-accelerated filer” when it is an “accelerated filer” and the related consequence of the misidentification.
The Audited Annual Consolidated Financial Statements for the years ended June 30, 2022 and 2021 (the “Refiled Financial Statements”) are attached as Exhibit 99.2. At the time of the filing of the original 2022 Form 20-F, the Company believed it was a “non-accelerated filer”, and was not required to obtain or file an attestation report. Upon later review it was determined that the Company was an “accelerated filer” for the year ended June 30, 2022 and was required to obtain an attestation report. However, the Company has not obtained an attestation report. No changes were made to any of the amounts contained in the previously filed financial statements. The non-financial changes consisted of an update to the present day of Note 21 - Subsequent Events. The new Canadian Auditing Standards (“CAS”) audit opinion delivered by MNP LLP confirms the audit was completed in accordance with the standards of the CAS.
The Management Discussion & Analysis for the year ended June 30, 2022 (“MD&A”) has been amended, which is attached as Exhibit 99.3. No changes were made to any of the amounts contained in the previously filed MD&A. Non-financial changes consisted of an update to the present day of the Company recent events, milestones and outlook, project descriptions and of the subsequent event disclosures contained therein.
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FORWARD LOOKING STATEMENTS
This Annual Report, including the Exhibits incorporated by reference into this Annual Report, contains “forward‑looking information” and “forward‑looking statements” (collectively, “forward-looking statements”) within the meaning of applicable securities legislation. The forward‑looking statements are provided as of the date of this Annual Report and the Company does not intend to and does not assume any obligation to update forward‑looking information, except as required by applicable law. For this reason and the reasons set forth below, investors should not place undue reliance on forward‑looking statements.
All statements included herein that address events or developments that we expect to occur in the future are forward-looking statements. 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 Mine 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; uncertainty due to the Covid-19 Pandemic; 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; economic dependence on the Molo Graphite Mine; the Company has a significant shareholder; additional permits and licenses are necessary to complete the development of the Molo Graphite Mine; construction and start-up of new mines and industrial plants; fluctuations in the market price of graphite and other metals may adversely affect the value of the Company’s securities, revenue projections and the ability of the Company to develop Phase 2 of the Molo Graphite Mine and the ability to develop BAF plants; estimates of mineral resources and mineral reserves may not be realized; the Company may not have access to sufficient capital to develop Phase 2 of the Molo Graphite Mine and value-added processing facilities; 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; 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; 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 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; 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’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 is exposed to general economic conditions, which could have a material adverse impact on its business, operating results and financial condition; the market price for the Common Shares is particularly volatile given the Company’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 Company does not intend to pay dividends in the foreseeable future; 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, this Form 40-F.
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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 make the Molo Graphite Mine 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.
This Form 40-F includes market, industry and economic data and projections obtained from various publicly available sources and other sources believed by the Company to be true. Although the Company believes these to be reliable, it has not independently verified the information from third party sources or analyzed or verified the underlying reports relied upon or referred to by the third parties or ascertained the underlying economic and other assumptions relied upon by the third parties. The Company believes the market, industry and economic data and projections are accurate and that the estimates and assumptions are reasonable, but there can be no assurance or guarantee as to their accuracy or completeness and the Company makes no representations as to the accuracy or completeness of such information.
RESOURCE AND RESERVE ESTIMATES
Unless otherwise indicated, all scientific and technical information, including mineral resource and mineral reserve estimates, included in the documents incorporated by reference into this Annual Report have been prepared in accordance with Canadian National Instrument 43-101 ("NI 43-101") and the Canadian Institute of Mining and Metallurgy Classification System. NI 43-101 is a rule developed by the Canadian securities administrators, which establishes standards for all public disclosure an issuer makes of scientific and technical information concerning mineral projects. Canadian standards, including NI 43-101, differ from the requirements of the United States Securities and Exchange Commission (the "SEC"), and scientific and technical information, including mineral resource and mineral reserve estimates, contained in the documents incorporated by reference into this Annual Report may not be comparable to similar information disclosed by U.S. companies subject to technical disclosure requirements of the SEC.
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DIFFERENCES IN UNITED STATES AND CANADIAN REPORTING PRACTICES
We prepare our financial statements, which are filed with this report on Form 40-F, in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board. Accordingly, our financial statements may not be comparable to financial statements of the United States companies.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents, or the portions thereof indicated below, that are filed as exhibits to this Annual Report, are incorporated herein by reference.
| · | Annual Information Form of the Company for the financial year ended June 30, 2022 (the "AIF"); |
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| · | Audited Consolidated Financial Statements for the years ended June 30, 2022 and 2021 and notes thereto, together with the report of auditors thereon (the "2022 Financial Statements"); and |
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| · | Amended Management's Discussion and Analysis of the Company for the years ended June 30, 2022 and 2021. |
ADDITIONAL INFORMATION RELATING TO MINING PROPERTIES
In response to comments received from the staff of the Securities and Exchange Commission’s Division of Corporation Finance, the following additional information regarding our mining properties is provided, which should be read in conjunction with this Form 40-F.
The following maps show the locations of our material and non-material mining properties. A property is “material” if it is important to our business or financial condition and is a matter that would be important to our investors. Our only material mining property is the Molo Graphite Mine.
Map of Madagascar showing location of our Molo and Green Giant Properties
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Map of Northern Quebec showing location of our Sagar Property
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Map of the Molo Graphite Mine Site
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Map of the Molo Graphite Mine Site – Plant and ROM Stockpile
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The Annual Information Form on page 12 contains a table outlining the reserve estimates. The reference to probable reserves of 8.37 Mt in that table was a typographical error, and should have been 8.27 Mt. The remaining information in the table is correct.
In connection with our estimates of mineralization, please note that the metallurgical recovery percentage is 88.3% and the price used for determining our estimates of resources and reserves is $1,000 per tonne of concentrate.
CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Disclosure controls and procedures are designed to provide reasonable assurance that all relevant information is gathered and reported to management, including the Chief Executive Officer and Chief Financial Officer, on a timely basis so that appropriate decisions can be made regarding public disclosure.
As of June 30, 2022, the end of the period covered by this Annual Report, our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of June 30, 2022, the end of the period covered by this Annual Report, the disclosure controls and procedures were not effective for the reasons set forth under “Attestation Report of the Registered Public Accounting Firm.”
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act). 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 not effective as of June 30, 2022 for the reasons set forth under “Attestation Report of the Registered Public Accounting Firm.”
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the fiscal year ended June 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Attestation Report of the Registered Public Accounting Firm
At the time of the filing of the Original 2022 Form 20-F, the Company believed it was a non-accelerated filer, and was not required to obtain or file an attestation report. However, upon later review we determined that the Company was an “accelerated filer” for the year ended June 30, 2022 and was required to obtain an attestation report. However, the Company has not obtained an attestation report.
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NOTICES PURSUANT TO REGULATION BTR
There were no notices required by Rule 104 of Regulation BTR that the Company sent during the fiscal year ended June 30, 2022 concerning any equity security subject to a blackout period under Rule 101 of Regulation BTR.
AUDIT COMMITTEE AND AUDITOR INFORMATION
We have a separately-designated standing audit committee established in accordance with section 3(a)(58)(A) of the Exchange Act. The following information is included in the "Audit Committee" section of our AIF, which are incorporated herein by reference to Exhibit 99.1:
| · | Information regarding our Audit Committee composition, independence, audit committee financial expert and pre-approval policies and procedures; and |
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| · | Information regarding fees billed by our principal accountants, |
CODE OF ETHICS
We have adopted a code of business conduct and ethics that applies to all of our directors, officers and employees. A copy of the code of business conduct and ethics is posted on our website at https://www.nextsourcematerials.com/investors/#corporate-governance. The Code meets the requirements for a “code of ethics” within the meaning of that term in General Instruction 9(b) of Form 40-F. The Company did not grant any waiver from a provision of the code to any of its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, during the fiscal period ended June 30, 2022.
OFF-BALANCE SHEET ARRANGEMENTS
The Company has no off-balance sheet arrangements.
MATERIAL CASH REQUIREMENTS FROM KNOWN CONTRACTUAL AND OTHER OBLIGATIONS1
Information regarding our material cash requirements from known contractual and other obligations is included in the Management Discussion and Analysis incorporated herein by reference to Exhibit 99.3.
MINE SAFETY DISCLOSURE
We do not operate any mine in the United States and have no mine safety incidents to report for the financial year ended June 30, 2022.
DISCLOSURE REGARDING FOREIGN JURISDICTION THAT PREVENT INSPECTIONS
Not applicable.
RECOVERY OF ERRONEOUSLY AWARDED COMPENSATION
Not applicable.
UNDERTAKINGS
We undertake to make available, in person or by telephone, representatives to respond to inquiries made by the SEC staff, and to furnish promptly, when requested to do so by the SEC staff, information relating to the securities registered pursuant to Form 40-F; the securities in relation to which the obligation to file an annual report on Form 40-F arises; or transactions in said securities.
CONSENT TO SERVICE OF PROCESS
We have concurrently filed with the SEC a written consent to service of process and power of attorney on Form F-X. Any change to the name or address of our agent for service shall be communicated promptly to the SEC by amendment to the Form F-X referencing our file number.
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EXHIBIT INDEX
The following documents are being filed with the SEC as exhibits to this Annual Report on Form 40-F.
Exhibit |
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| Annual Information Form of the Company for the financial year ended June 30, 2022 | |
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101 |
| Interactive Data File (formatted as Inline XBRL) |
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101.INS |
| Inline XBRL Instance Document–the instance document does not appear in the Interactive Data File as its XBRL tags are embedded within the Inline XBRL document |
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101.SCH |
| Inline XBRL Taxonomy Extension Schema Document |
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101.CAL |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF |
| Inline XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB |
| Inline XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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104 |
| Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
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SIGNATURES
Pursuant to the requirements of the Exchange Act, the Company certifies that it meets all of the requirements for filing on Form 40-F and has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized.
NEXTSOURCE MINERALS INC. |
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/s/ Craig Scherba |
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Name: Craig Scherba |
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Title: President and Chief Executive Officer |
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Date: July 24, 2023 |
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EXHIBIT 99.1
NextSource Materials Inc.
Annual Information Form (AIF)
For the year ended June 30, 2022
| NEXTSOURCE MATERIALS INC. ANNUAL INFORMATION FORM For the year ended June 30, 2022 |
TABLE OF CONTENTS
| 1. | INTRODUCTION. | 5 |
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| 2. | EXECUTIVE SUMMARY AND CORPORATE STRUCTURE | 5 |
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| 3. | GENERAL DEVELOPMENT OF THE BUSINESS. | 6 |
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| 4. | MINERAL DEVELOPMENT PROJECTS. | 9 |
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| 5. | VALUE-ADDED MATERIAL PROCESSING FACILITY. | 29 |
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| 6. | MINERAL EXPLORATION PROJECTS. | 30 |
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| 7. | SUSTAINABLE DEVELOPEMNT AND ENVIRONMENTAL POLICIES. | 31 |
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| 8. | RISK FACTORS. | 31 |
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| 9. | DIVIDENDS AND DISTRIBUTIONS. | 38 |
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| 10. | DESCRIPTION OF THE CAPITAL STRUCTURE. | 38 |
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| 11. | MARKET FOR SECURITIES. | 40 |
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| 12. | PRIOR SALES. | 41 |
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| 13. | SECURITIES SUBJECT TO CONTRACTUAL RESTRICTION ON TRANSFER. | 41 |
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| 14. | DIRECTORS AND OFFICERS. | 41 |
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| 15. | LEGAL PROCEEDINGS AND REGULATORY ACTIONS. | 42 |
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| 16. | INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS. | 42 |
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| 17. | TRANSFER AGENT AND REGISTRAR. | 43 |
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| 18. | MATERIAL CONTRACTS. | 43 |
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| 19. | INTEREST OF EXPERTS. | 43 |
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| 20. | AUDIT COMMITTEE.. | 43 |
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| 21. | ADDITIONAL INFORMATION. | 47 |
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| NEXTSOURCE MATERIALS INC. ANNUAL INFORMATION FORM For the year ended June 30, 2022 |
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
Certain statements contained in this document 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 Mine 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; uncertainty due to the Covid-19 Pandemic; 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; economic dependence on the Molo Graphite Mine; the Company has a significant shareholder; additional permits and licenses are necessary to complete the development of the Molo Graphite Mine; construction and start-up of new mines and industrial plants; fluctuations in the market price of graphite and other metals may adversely affect the value of the Company’s securities, revenue projections and the ability of the Company to develop Phase 2 of the Molo Graphite Mine and the ability to develop BAF plants; estimates of mineral resources and mineral reserves may not be realized; the Company may not have access to sufficient capital to develop Phase 2 of the Molo Graphite Mine and value-added processing facilities; 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; 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; 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 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; 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’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 is exposed to general economic conditions, which could have a material adverse impact on its business, operating results and financial condition; the market price for the Common Shares is particularly volatile given the Company’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 Company does not intend to pay dividends in the foreseeable future; 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 Annual Information Form (AIF).
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| NEXTSOURCE MATERIALS INC. ANNUAL INFORMATION FORM For the year ended June 30, 2022 |
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 make the Molo Graphite Mine 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.
This AIF includes market, industry and economic data and projections obtained from various publicly available sources and other sources believed by the Company to be true. Although the Company believes these to be reliable, it has not independently verified the information from third party sources or analyzed or verified the underlying reports relied upon or referred to by the third parties or ascertained the underlying economic and other assumptions relied upon by the third parties. The Company believes the market, industry and economic data and projections are accurate and that the estimates and assumptions are reasonable, but there can be no assurance or guarantee as to their accuracy or completeness and the Company makes no representations as to the accuracy or completeness of such information.
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| NEXTSOURCE MATERIALS INC. ANNUAL INFORMATION FORM For the year ended June 30, 2022 |
1. INTRODUCTION
This Annual Information Form (“AIF”) dated September 28, 2022 of NextSource Materials Inc. (“NextSource”, “we”, “our” or “the Company”) should be read in conjunction with Company’s audited Consolidated Financial Statements for the years ended June 30, 2022 and 2021 that were prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) that were filed on the Canadian Securities Administrators’ SEDAR website (the “Financial Statements”).
The Financial Statements and this MD&A are presented United States dollars (“USD” or “$”) and all units of measurement are expressed using the metric system, unless otherwise specified. Certain information in this MD&A is presented in Canadian dollars (“CAD$”). The term “NSR” stands for net smelter royalty. The term “tpa” stands for tonnes per annum. Additional information relating to the Company is available on the Canadian Securities Administrators’ (the “CSA”) SEDAR website at www.sedar.com and on the United States Securities and Exchange Commission’s (the “SEC”) website at www.sec.gov.
2. EXECUTIVE SUMMARY
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 are listed on the Toronto Stock Exchange (the “TSX”) under the symbol “NEXT” and the OTCQB under the symbol “NSRCF”.
NextSource is intent on becoming a vertically integrated global supplier of battery materials through the mining and value-added processing of graphite and other minerals while adhering to environmental, social and governance standards.
On March 29, 2021, the Company announced the initiation of construction for Phase 1 of the Molo Graphite Mine, located in Madagascar, with a production capacity of 17,000 tpa of SuperFlake® graphite concentrate Completion of construction activities and the start of mining activities is expected in November 2022. Completion of plant commissioning is expected in December 2022 followed by a ramp up period of up to three months prior to declaring commercial production.
On April 27, 2022, the Company released a Preliminary Economic Assessment (“PEA”) considering a Phase 2 expansion of the Molo Graphite Mine consisting of a stand-alone processing plant with a production capacity of 150,000 tpa. The Company has initiated a Feasibility Study and a front-end engineering design (“FEED”) study for the Phase 2 expansion considered in the PEA. The Feasibility Study is expected to be completed in December 2022 and the FEED study is expected to be completed after considering Phase 1 operational results. The Company will assess the results of the Feasibility and FEED studies prior to making a final construction decision.
The Company is committed to the construction of battery anode facilities (“BAF”), which are value-added processing facilities that convert flake graphite into spheronized and purified graphite (“SPG”) and coated spheronized graphite (“CSPG”). The CSPG is typically sold to battery manufacturers as anode material, which is then assembled along with cathode material and other components into a finished lithium-ion battery. On April 12, 2021, the Company announced a binding partnership agreement for the construction of BAF plants capable of converting flake graphite into SPG and CSPG using the partner’s proven processing technology. The Company is in the process of completing technical and economic studies for the first BAF plant.
The Company also owns the Green Giant Vanadium Project, located in Madagascar, and the Sagar Project, located in Quebec, both of which are at the exploration and evaluation stage.
The Company has not previously operated any mines and has not completed the construction of any mines. No commercial revenue has been generated from any mineral resources. The Company does not pay dividends and is unlikely to do so in the immediate or foreseeable future.
The Company accepts the risks which are inherent to mineral exploration and development programs and exposure to the cyclical nature of mineral and commodity prices. These risks are discussed in greater detail in the Risk Factors section of this AIF.
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 that owns the Green Giant project. GRAMAU owns 100% of ERG (Madagascar) SARLU (“ERGMAD”), a Madagascar subsidiary that owns the Molo Graphite Mine project.
| 5 |
| NEXTSOURCE MATERIALS INC. ANNUAL INFORMATION FORM For the year ended June 30, 2022 |
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Employees and Contractors
The Company relies on the geological and industry expertise of its management team and engages contractors to complete certain aspects of its mine development, mineral exploration and evaluation programs, and development of value-added processing facilities.
As of June 30, 2022, in addition to the Board of Directors, President & Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”), Chief Operating Officer (“COO”) and SVP Corporate Development, the Company had 4 employees. professional, administrative, mine development and mineral exploration and evaluation services are provided by contractors, including by corporations controlled by certain officers and directors of the Company. The Company intends to significantly expand the number of employees upon completion of construction of Phase 1 of the Molo Graphite Mine. No assurance can be given that qualified employees can be retained by the Company when necessary.
Competitive Conditions
The mineral exploration and mining business are highly competitive. We compete with numerous other companies and individuals in the search for and the acquisition of financially attractive mineral properties. Our ability to acquire mineral properties in the future will depend not only on our ability to develop our present properties, but also on our ability to select and acquire suitable producing properties or prospects for mineral development or mineral exploration. In addition, we also compete with other companies over retaining skilled experienced workers and sourcing raw materials and supplies used in connection with eventual development and mining operations.
Foreign Operations
Our foreign operations in Madagascar and Mauritius are exposed to various levels of political, economic and social risks and uncertainties. These risks and uncertainties vary from country to country and include, but are not limited to: terrorism; hostage taking; military repression; expropriation; political corruption, extreme fluctuations in currency exchange rates; high rates of inflation; labour unrest; war or civil unrest; renegotiation or termination of existing concessions, licenses, permits and contracts; ability of governments to unilaterally alter agreements; surface land access issues; illegal mining; changes in taxation policies, laws and regulations; restrictions on foreign exchange and repatriation; and changing political conditions, currency controls and governmental regulations that favor or require the awarding of contracts to local contractors or require foreign contractors to employ citizens of, or purchase supplies from, a particular jurisdiction. Any changes in regulations or shifts in political attitudes in such foreign countries are beyond our control and may adversely affect our business. Future development and operations may be affected in varying degrees by such factors as government regulations (or changes thereto) with respect to restrictions on production, export controls, import restrictions, such as restrictions applicable to, among other things, equipment, services and supplies, taxes, expropriation of property, repatriation of profits, environmental legislation, land use, water use, surface land access, land claims of local people and mine safety.
3. GENERAL DEVELOPMENT OF THE BUSINESS
Three-Year History
On September 27, 2019, the Company reported the results of a Feasibility Study (“FS”) for its Molo Graphite Project. The FS outlined a phased development approach with Phase 1 producing 17,000 tonnes per annum (“tpa”) over the first two years of production and Phase 2 producing a total of 45,000 tpa starting in year 3.
On October 24, 2019, the Company announced the successful registration of Molo SuperFlake® as a trademark in Canada.
| 6 |
| NEXTSOURCE MATERIALS INC. ANNUAL INFORMATION FORM For the year ended June 30, 2022 |
On October 25, 2019, the Company closed a non-brokered private placement offering of 2,907,777 units at a price of CAD$0.45 per unit for aggregate gross proceeds of USD$998,620 (CAD$1,308,500). Each unit consisted of one common share and one-half common share purchase warrant, with each warrant exercisable into one common share at an exercise price of CAD$0.90 for a period of two years. No finder fees or commissions were paid in association with the private placement.
On September 27, 2019, Quentin Yarie resigned as a director of the Company.
On December 2, 2019, Christopher Kruba and David McNeely became directors of the Company.
On January 23, 2020, John Sanderson and Dalton Larson resigned as directors of the Company and Dean Comand was appointed as Chair of the Board of Directors.
On April 9, 2020, the Company announced that it executed a Letter of Agreement (“LOI”) with a Japanese offtake partner and a leading Chinese processor of graphite anode material to collaborate on the construction of a Battery Anode Facility.
On July 2, 2020, the Company completed a non-brokered private placement of 6,157,887 units at a price of CAD$0.325 per unit for gross proceeds of USD$1,476,571 (CAD$2,001,310). Each unit consisted of one common share of the Company and one-half of one common share purchase warrant, with each full warrant entitling the holder to acquire one additional common share of the Company at a price of CAD$0.65 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 USD$9,293 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 Limited (“Vision Blue”) to provide a financing package (the “Financing Package”) for total gross proceeds of USD$29.5M for construction of Phase 1 of the Company’s Molo Graphite Mine. The Financing Package consisted of an initial private placement of $6.0 million completed on March 15, 2021, a second private placement for $12.5 million completed on May 19, 2021, and a $11.0 million royalty financing ($8.0 million less a $1.5 million royalty financing fee was received on June 28, 2021 and $3.0 million was received on August 17, 2022). As part of the royalty agreement, beginning on the biannual period ending June 30, 2022, the Company will pay to Vision Blue the greater of: (i) $825,000 (the “Minimum Repayment”) or (ii) 3% of the gross sales revenues from graphite concentrate sales (the “GSR”). Once Vision Blue has received cumulative royalty payments of $16.5 million, the Minimum Repayment will cease, and the royalty will be based on the GSR. NextSource will have the option at any time to reduce the GSR to 2.25% upon payment to Vision Blue of $20 million. The Company may delay each of the biannual Minimum Repayments by 12 months, which will become subject to accrued interest of 15% per annum. Vision Blue also received 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. The Company also granted Vision Blue the right to appoint two directors to the Board of the Company. The Chairman of Vision Blue, Sir Mick Davis, was appointed as Chair of the Board of Directors of the Company on March 15, 2021. The second Vision Blue appointee, Ian Pearce, was appointed to the Board of Directors of the Company on July 14, 2021. Vision Blue was granted a right of first refusal to finance the Phase 2 expansion of the Molo Graphite Mine, and if Vision Blue holds common shares representing at least 10% of the issued and outstanding common shares, a right to participate in future equity financings on the same terms as such financing to maintain its ownership percentage in the Company. Vision Blue and each of the Directors and Officers of the Company agreed to a 1-year lock-up period for the securities they held.
On March 15, 2021, the Company completed the initial private placement with Vision Blue consisting of 12,000,000 common shares at a price of CAD$0.65 per share for total gross proceeds of USD$6,000,000 (CAD$7,800,000). In connection with the non-brokered private placement, the Company incurred USD$16,367 in share issuance costs. The Company also announced the appointment of Sir 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.
On April 12, 2021, the Company announced a binding partnership agreement for the construction of BAF plants capable of converting flake graphite into SPG and CSPG using the partner’s proven processing technology. The Chinese partner will design and develop the process flowsheets, source all necessary equipment, and will provide all necessary training and operational know-how and in return will receive a 2% licensing royalty. Whereas the Japanese partner will leverage its sales relationships and will act as exclusive agent for sales, marketing, and trading and in return will receive a 3% sales commission royalty.
On May 11, 2021, the Company announced it initiated the procurement of processing plant equipment for the Molo Graphite Mine.
On May 19, 2021, the Company completed the second private placement with Vision Blue consisting of 23,214,286 units at a price of CAD$0.65 per unit for total gross proceeds of USD$12,500,000 (CAD$15,089,286). Each unit consisted of one common share of the Company and one common share purchase warrant, with each warrant entitling the holder to acquire one additional common share of the Company at a price of CAD$1.00 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 USD$87,788 in share issuance costs.
| 7 |
| NEXTSOURCE MATERIALS INC. ANNUAL INFORMATION FORM For the year ended June 30, 2022 |
On May 25, 2021, the Company announced that following a multi-year verification process, thyssenkrupp entered into a long-term partnership with NextSource and signed an offtake agreement to secure SuperFlake® graphite concentrate for their refractories/foundries, expandable graphite (graphite foil) and battery anode production businesses. The key highlights are:
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| · | Commercial agreement for the sale of 35,000 tpa of SuperFlake® graphite concentrate from the Molo mine |
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| · | 10-year term with an automatic 5-year extension |
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| · | Products under the agreement pertain to refractory, battery anode production and expandable graphite (graphite foil) markets |
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| · | Geographical regions include, but are not limited to, Europe, the UK, North America, Mexico, China and South Korea |
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| · | Minimum 7,300 tpa during Phase 1 initial production |
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| · | Ramp up to 35,000 tpa in Phase 2 |
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| · | Shipments in Phase 1 will be used to verify run-of-mill production to trigger the larger volume expansion |
On June 23, 2021, the Company announced initiation of a technical study for a Phase 2 production capacity to target 150,000 tpa of SuperFlake® for its Molo Graphite Mine in Madagascar.
On June 28, 2021, the Company received the initial Vision Blue royalty funding of $8.0 million, less a US$1.5 million royalty financing fee.
On July 14, 2021, the Company announced the appointment of Ian Pearce to the Board of Directors and the resignation of David McNeely as a Director of the Company.
On July 22, 2021, the Company announced that it has been accepted as a member of both the European Battery Alliance (“EBA”) and the European Raw Materials Alliance (“ERMA”).
On September 8, 2021, the Company announced it intends to assess emerging opportunities to accelerate expansion through the potential acquisition and development of additional metals and mineral assets that are expected to play a vital role in clean energy technologies.
On November 15, 2021, the Company announced the addition of proprietary graphite coating process to its BAF partnership for the production of CSPG.
On December 14, 2021, the Company announced the offshore fabrication and assembly of the processing plant had been completed.
On January 11, 2022, the Company announced the completion of factory acceptance testing and that preparations for the transport to the mine site had been initiated.
On April 27, 2022, the Company filed a Phase 2 PEA Technical Study that considers an enhanced Phase 2 expansion consisting of a stand-alone processing plant with a production capacity of 150,000 tonnes per annum of graphite concentrate over a 26-year life of mine. The PEA assumes the Phase 2 processing plant is built adjacent to the Phase 1 processing plant currently under construction.
On April 28, 2022, the Company announced the construction team was setup at the Molo Graphite Mine site in Madagascar and civil and earthworks have been initiated in preparation for the delivery and installation of the processing plant.
On April 28, 2022, the Company announced the initiation of a Feasibility Study and front-end engineering design (“FEED”) study for the proposed Phase 2 expansion of 150,000 tpa of graphite concentrate that was considered in the PEA.
On May 24, 2022, the Company announced construction of the solar, battery and thermal hybrid energy power plant had begun and all required licenses to initiate construction of the solar facility had been obtained. The Company also announced that due to increases in global logistics costs, the Phase 1 construction budget had been increased by approximately $3.0 million to $24.0 million plus an additional $3.0 million for working capital.
On August 9, 2022, the Company announced the processing plant had been unloaded in the port of Fort Dauphin and was expected to take approximately 45 days to transport and begin reassembly of the plant at the mine site.
On August 17, 2022, the Company received an additional $3.0 million from Vision Blue as part of the royalty financing agreement.
Significant Acquisitions
The Company has not completed any significant acquisitions during the most recently completed financial year.
| 8 |
| NEXTSOURCE MATERIALS INC. ANNUAL INFORMATION FORM For the year ended June 30, 2022 |
4. MINERAL DEVELOPMENT PROJECTS
The following section contains “forward-looking statements” and “forward-looking information” within the meaning of applicable securities laws. The Company continues to monitor the implications of the Covid-19 Pandemic. The manner and extent that the pandemic, and measures taken because of the pandemic by governments and others, will affect the Company in ways that cannot be predicted with certainty. See the Cautionary Statement Regarding Forward-Looking Information and Uncertainty due to the Covid-19 Pandemic in the Risks section of this AIF for a discussion of assumptions and risks relating to such statements and information and a discussion of certain risks facing the Company relating to the pandemic.
Molo Graphite Mine, Southern Madagascar Region, Madagascar
Overview and Phase 1 Project Plan
The Molo Graphite Mine project is located near the town of Fotadrevo in the Province of Toliara, Madagascar.
On December 14, 2011, the Company entered into a Definitive Joint Venture Agreement ("JVA") with Malagasy Minerals Limited ("Malagasy") to acquire a 75% interest in a property package for the exploration and development of industrial minerals, including graphite, vanadium and 25 other minerals.
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. 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.
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 and is subject to a 2% gross revenue royalty. 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 September 27, 2019, the Company reported the results of an updated Feasibility Study (“FS”) consisting of two phases. Phase 1 consisted of a processing plant with a production capacity of 17,000 tpa of graphite concentrate over a 30-year life of mine. Phase 2 consisted of an expansion in the third year, resulting in a combined production capacity of 45,000 tpa of graphite concentrate over the remaining 30-year life of mine.
On February 8, 2021, the Company announced that it entered into a binding agreement with Vision Blue Resources Limited (“Vision Blue”) to provide a financing package (the “Financing Package”) for total gross proceeds of $29.5 million. The proceeds of the Financing Package will be used to complete construction of Phase 1 of the Company’s Molo Graphite Mine. The Financing Package consisted of an initial private placement of $6.0 million (completed on March 15, 2021), a second private placement for $12.5 million (completed on May 19, 2021), and a $11.0 million royalty financing agreement ($8.0 million received on June 28, 2021 and $3.0 million received on August 17, 2022). Vision Blue was also granted a right of first refusal to finance a Phase 2 expansion of the mine.
| 9 |
| NEXTSOURCE MATERIALS INC. ANNUAL INFORMATION FORM For the year ended June 30, 2022 |
On March 29, 2021, the Company announced the initiation of the construction process for Phase 1 of the Molo Graphite Mine with a production capacity of 17,000 tpa of high-quality SuperFlake® graphite concentrate and began capitalizing development costs.
On May 11, 2021, the Company announced it initiated the procurement of processing plant equipment.
On December 14, 2021, the Company announced the offshore fabrication and assembly of the processing plant had been completed. On January 11, 2022, the Company announced the completion of factory acceptance testing and that preparations for the transport to the mine site had been initiated.
On April 28, 2022, the Company announced the construction team was setup at the Molo Graphite Mine site in Madagascar and civil and earthworks have been initiated in preparation for the delivery and installation of the processing plant.
On May 24, 2022, the Company announced construction of the solar, battery and thermal hybrid energy power plant had begun and all required licenses to initiate construction of the solar facility had been obtained. The Company also announced that due to increases in global logistics costs, the Phase 1 construction budget had been increased by approximately $3.0 million to $24.0 million plus an additional $3.0 million for working capital.
On August 9, 2022, the Company announced the processing plant had been unloaded in the port of Fort Dauphin.
Completion of construction activities and the start of mining activities is expected in November 2022. Completion of plant commissioning is expected in December 2022 followed by a ramp up period of up to three months prior to declaring commercial production.
Phase 2 Expansion
On April 27, 2022, the Company filed a Phase 2 PEA Technical Study that considers an enhanced Phase 2 expansion consisting of a stand-alone processing plant with a production capacity of 150,000 tonnes per annum of graphite concentrate over a 26-year life of mine. The PEA assumes the Phase 2 processing plant is built adjacent to the Phase 1 processing plant currently under construction.
On April 27, 2022, the Company released a Preliminary Economic Assessment (“PEA”) considering a Phase 2 expansion of the Molo Graphite Mine consisting of a stand-alone processing plant with a production capacity of 150,000 tpa. The Company has initiated a Feasibility Study and a front-end engineering design (“FEED”) study for the Phase 2 expansion considered in the PEA. The Feasibility Study is expected to be completed in December 2022 and the FEED study is expected to be completed after considering Phase 1 operational results.
The Company will assess the results of the Feasibility and FEED studies prior to making a final construction decision. Construction of the Phase 2 expansion is subject to the Feasibility Study confirming positive project economics and subsequently obtaining sufficient funding for construction costs and working capital.
Global market for and supply of flake graphite
Benchmark Intelligence estimated that global flake graphite demand in 2020 was approximately 900,000 tonnes and is expected to increase significantly over the next ten years due to increasing demand for lithium-ion batteries used in electric vehicles. A rule of thumb is that approximately 1.1 tonnes of flake graphite (2,500 lbs) is required for each 1GWh of electric vehicle capacity. Benchmark Intelligence has further estimated that global battery manufacturing capacity in 2020 was approximately 755 GWh and is set to increase by 2030 to 3,400 GWh through the construction of up to 200 new gigafactories. As a result, global flake graphite demand in 2030 is estimated at approximately 4,000,000 tonnes, which exceeds the existing global supply.
Benchmark Intelligence estimated that the global flake graphite market was in relative balance in recent years but has moved from an oversupply of 226,000 tpa in 2018 to a deficit of approximately 60,000 tpa in 2021. Flake graphite demand is forecast to exceed global supply by approximately 430,000 tpa by 2026 and increasing to approximately 1,888,000 tpa by 2030. The supply response for natural flake graphite is expected to be constrained by technical challenges, capital costs, development timelines and operating economics. The supply response for synthetic flake graphite is expected to be constrained by the economics and availability of petroleum needle coke, which is its primary raw material feedstock for synthetic graphite and is also in demand for use in the steel making industry.
As an industrial mineral, flake graphite pricing is determined by three factors: 1) flake size, 2) carbon purity and 3) industry-specific technical attributes of the flakes. Flake sizing is broadly classified into four ranges: small (-100 mesh, or <75µm), medium (-80 to 100 mesh, or 75µm to 180µm), large (-50 to 80 mesh, or 180µm to 300µm), and extra-large or jumbo (+50 mesh, or >300µm). These flake sizes are in turn classified by carbon content (”C”), and are typically sold in ranges of 88-93% C, 94-95% C, and 95-97% C. The specific technical attributes of the flakes are then defined by end-user parameters such as expansion coefficient, thermal and electrical conductivity, and charge-discharge stability and efficiency. Larger flake size is generally sold at a premium to smaller flake sizes, and higher purity products (e.g., above 94%) are sold at a premium to lower purity products. Pricing is further impacted by the regional location of supply.
| 10 |
| NEXTSOURCE MATERIALS INC. ANNUAL INFORMATION FORM For the year ended June 30, 2022 |
Transactions in the flake graphite market are generally based on private negotiations between buyers and sellers, as a result there is no spot or forward market. Research companies such as Benchmark Mineral Intelligence (“Benchmark”) and Roskill Information Services (“Roskill”) estimate current and historical pricing based on their proprietary market research and publish forward estimates for select grades and product types. Benchmark has estimated the following average FOB China 94-95% C flake graphite market prices for different mesh sizes during the past 12 months. Benchmark has not estimated the flake graphite market prices for 96-98% C flake graphite, which is the yield expected to be produced by the Molo Graphite Mine and is typically sold at a premium to 94-95% C flake graphite.
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 concentrates from the Molo Graphite Mine meet or exceed quality requirements for all major end-markets of natural flake graphite. The major end-markets for flake graphite include refractories, graphite 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 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, and contains no deleterious substances and has high crystallinity.
In response, NextSource has 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.
Sales, Marketing and Offtakes
The Company expects to sell the flake graphite produced at the Molo Graphite Mine to key customers under the following offtakes. Once a BAF plant is operational, as justified by market and operational conditions, the Company expects to prioritize the sale of small flake (-100 mesh, or <75µm) to the BAF plant.
| 11 |
| NEXTSOURCE MATERIALS INC. ANNUAL INFORMATION FORM For the year ended June 30, 2022 |
On October 16, 2018, the Company announced a binding offtake agreement for the supply of SuperFlake® graphite concentrate with a prominent Japanese Trading Company that is a primary supplier of flake graphite to a major Japanese electric vehicle anode producer. To protect certain confidential aspects of the agreement, the Japanese Trading Company and the Japanese electric vehicle anode producer requested not to be identified. The key highlights are:
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| · | Offtake is for a period of ten (10) years, beginning at the start of commercial production at the Molo Graphite Mine, with an automatic renewal for an additional five (5) years. |
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| · | Exclusive right to import and sell SuperFlake® graphite concentrate in Japan. |
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| · | Provided that commercial production commences within 3 years, following the ramp up period, the Japanese Partner will purchase 20,000 tonnes of SuperFlake® graphite per annum. |
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| · | Product prices will be negotiated on a per order basis between the parties and will be based on the market prices (FOB basis) prevailing in the region. |
On May 25, 2021, the Company announced that following a multi-year verification process, thyssenkrupp entered into a long-term partnership with NextSource and signed an offtake agreement to secure SuperFlake® graphite concentrate for their refractories/foundries, expandable graphite (graphite foil) and battery anode production businesses. The key highlights are:
|
| · | Commercial agreement for the sale of 35,000 tpa of SuperFlake® graphite concentrate from the Molo mine |
|
| · | 10-year term with an automatic 5-year extension |
|
| · | Products under the agreement pertain to refractory, battery anode production and expandable graphite (graphite foil) markets |
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| · | Geographical regions include, but are not limited to, Europe, the UK, North America, Mexico, China and South Korea |
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| · | Minimum 7,300 tpa during Phase 1 initial production |
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| · | Ramp up to 35,000 tpa in Phase 2 |
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| · | Shipments in Phase 1 will be used to verify run-of-mill production to trigger the larger volume expansion |
Non-Government Royalties
On June 28, 2021, the Company received the royalty funding from Vision Blue consisting of $8.0 million, less a $1.5 million royalty financing fee. The Company received a further $3.0 million received on August 17, 2022. In return for the royalty funding, the Company will pay to Vision Blue the greater of: (i) $1.65 million per annum or (ii) 3% of the gross revenues from SuperFlake® concentrate sales (the “GSR”). Once Vision Blue has received a cumulative royalty payment of $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 $20 million. The Company may delay each individual minimum repayments for a period of 12 months, whereby each deferred payment will be subject to accrued interest of 15% per annum. The Company expects to defer each minimum repayments and as a result, the first minimum repayment is expected to be completed on or about June 30, 2023.
On December 14, 2011, the Company entered into a Definitive Joint Venture Agreement ("JVA") with Malagasy Minerals Limited ("Malagasy") to acquire a 75% interest in a property package that included the Molo graphite exploration claims. 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”). 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.
Exploration and Evaluation
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 2013 Preliminary Economic Assessment (the “2013 PEA”), which was undertaken by DRA Mineral Projects and released in 2013.The positive outcome of the 2013 PEA resulted in another phase of exploration 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 released in February 2015, the second feasibility study released in September 2019, and the Phase 2 PEA Technical Study.
The resource remains open along strike and to depth. The Company intends to initiate additional drilling during the next 12 months to expand the resource along strike.
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| NEXTSOURCE MATERIALS INC. ANNUAL INFORMATION FORM For the year ended June 30, 2022 |
Resource and Reserve Estimate
Readers are cautioned to refer to the 2022 PEA Technical Report dated for all the material assumptions, qualifications and verification procedures relating to the current mineral resource and mineral reserve estimate for the Molo Graphite Project. Mineral Reserves and Mineral Resources did not change as a result of the PEA and remain the same as disclosed in the 2019 Feasibility Study. A summary of the PEA and the 2019 Feasibility Study are presented in the following sections.
The total Measured and Indicated Resource is estimated at 100.37 Mt, grading at 6.27% carbon. Additionally, an Inferred Resource of 40.91 Mt, grading at 5.78% carbon is stated. The current mineral resource estimate for the Molo Graphite Project is summarized below consisting of the resource categories, the tonnage, the carbon grade (“C%”) and the contained graphite (“C”) tonnage.
| 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 | 6.27% | 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% |
The effective date of the Mineral Resource tabulation is August 14, 2014. The Mineral Resources are classified according to the Canadian Institute of Mining, Metallurgy and Petroleum definitions. A cut-off grade of 4% C was used for the “higher grade” zones and 2% C for the “lower grade” zones. A relative density of 2.36t per cubic meter was assigned to the mineralized zones for the resource estimation. The resource remains open along strike and to depth.
Proven reserves are reported as the measured resources inside the designed open pit and above the grade cut-off of 4.5% C. Similarly, the probable reserves are reported as the Indicated Resources inside the designed open pit and above the grade cut-off of 4.5% C.
Preliminary Economic Study (Summary)
On April 27, 2022, the Company filed a Phase 2 PEA Technical Study that considers an enhanced Phase 2 expansion consisting of a stand-alone processing plant with a production capacity of 150,000 tonnes per annum of graphite concentrate over a 26-year life of mine. The PEA assumes the Phase 2 processing plant is built adjacent to the Phase 1 processing plant currently under construction. The PEA estimated that Phase 2 capital costs will be $155.8 million resulting in a pre-tax NPV utilizing an 8% discount rate of $904.8 million and a pre-tax IRR of 40.4%.
The following is a summary of the economic and operational highlights. The PEA incorporated 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 2 are accurate to +/- 25%
| Description | Phase 2 PEA (150K tpa production) |
| Economic Highlights |
|
| Pre-tax Net Present Value (“NPV”) (8% discount rate) (1)(2)(4)(8) | US$904.8 million |
| Post-tax NPV (8% discount rate) (1)(2)(3)(4)(8) | US$593.0 million |
| Pre-tax Internal Rate of Return (“IRR”) (1)(2)(4)(8) | 40.4% |
| Post-tax IRR (1)(2)(3)(4)(8) | 31.4% |
| Life of Mine (“LoM”) | 26 years |
| Pre-tax payback (1)(2)(4)(8) | 3.18 years |
| Post-tax payback (1)(2)(3)(4)(8) | 3.74 years |
| Capital costs ("CAPEX") including contingency of $31.96 million (2) | US$155.8 million |
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| NEXTSOURCE MATERIALS INC. ANNUAL INFORMATION FORM For the year ended June 30, 2022 |
| Description | Phase 2 PEA (150K tpa production) |
| Initial working capital | US$20.9 million |
| Sustaining and closure CAPEX | US$24.5 million |
| Operational Highlights |
|
| Graphite concentrate sale price (US$ per tonne of concentrate)(8) | US$1,230.50 |
| Average operating costs FOB (“Opex”) (US$ per tonne of concentrate following ramp-up)(7) | US$495.62 |
| Average annual production of concentrate (5)(6) | 150,000 tpa |
| Average ore mined per annum over LoM | 2,532,345 tpa |
| Average head grade | 6.16% |
| Concentrate purity (Cg) of finished product | 97% |
| Average stripping ratio | 0.53:1 |
| Average carbon recovery | 88.30% |
Notes
(1) Assumes Project is financed with 100% equity.
(2) Capex includes process equipment, civil and infrastructure, mining, buildings, electrical infrastructure, project and construction services.
(3) Assumes 2% government gross revenue royalty, 3% Vision Blue gross revenue royalty, 1.5% NSR royalty and corporate tax rate of 20%.
(4) Assumes no inflationary adjustments in sales price, or operating costs.
(5) Assumes all mineralized material from the Company’s 2019 Feasibility Study, including ore from the Measured, Indicated and Inferred Mineral Resource categories, are sent to the treatment plant.
(6) Assumes a cut-off grade of 4.5% carbon has been applied, with all material below this cut-off grade treated as waste.
(7) Assumes all concentrate will be sold on a FOB basis at the Port of Ehoala, Madagascar.
(8) Based on current market prices provided by UK-based commodity price reporting agencies Benchmark Minerals Intelligence and fast markets.
The following is an extract of the summary section of the PEA.
Introduction
The Company is a mineral exploration and development company based in Toronto, Canada. The Company is currently focused on the development of its 100% owned, flagship Molo Graphite Mine Project.
The Molo deposit is situated 160 km south-east of the city of Toliara, in the Tulear region of south-western Madagascar. The deposit occurs in a sparsely populated, dry savannah grassland region, which has easy access via a network of seasonal secondary roads radiating outward from the village of Fotadrevo. Fotadrevo in turn has an all-weather airstrip and access to a road system that leads to the regional capital (and port city) of Toliara and the Port of Ehoala at Fort Dauphin via the RN10, or RN13.
Geologically, Molo is situated in the Bekily block (Tolagnaro-Ampanihy high grade metamorphic province) of southern Madagascar. The Molo deposit is underlain predominantly by moderately to highly metamorphosed and sheared graphitic (biotite, chlorite and garnet-rich) quartzo-feldspathic schists and gneisses, which are variably mineralised. Near surface rocks are oxidised, and saprolitic to a depth, usually of less than 5m.
Molo was one of several surficial graphite trends discovered by the Company, (then Energizer Resources) in late 2011, and announced in early January 2012. The deposit was originally drill tested in 2012, with an initial seven holes being completed. Resource delineation, drilling and trenching on Molo took place between May and November of 2012 and allowed for a maiden Indicated and Inferred Resource to be stated in early December of the same year. This maiden Mineral Resource Estimate (“MRE”) formed the basis for a PEA, which was undertaken by DRA Projects in 2013 (the “Molo 2013 PEA").
The positive outcome of the Molo 2013 PEA led the Company to undertake another phase of exploratory drilling and sampling in 2014, which was done under the supervision of CCIC. This phase of exploration was aimed at improving the geological confidence of the deposit and it’s contained mineral resources and included an additional 32 diamond drill holes (totalling 2,063m) and 9 trenches (totalling 1,876m).
CCIC were subsequently engaged to update the geological model and resource estimate. The entire database on which this new model and resource estimate is based contains 80 drill holes (totalling 11,660m) and 35 trenches (totalling 8,492m). This new resource formed the basis of the Molo 2015 Feasibility Study, which was based on 860 ktpa of ore processing capacity (the “Molo 2015 FS”).
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| NEXTSOURCE MATERIALS INC. ANNUAL INFORMATION FORM For the year ended June 30, 2022 |
In 2017, the Company released the results of an updated Molo Feasibility Study, which was based on ore processing capacity of 240 ktpa (the “Molo 2017 FS”).
On September 27, 2019, the Company reported the results of an updated Feasibility Study (“FS”) consisting of two phases: Phase 1 consisted of a fully operational and sustainable graphite mine with a permanent processing plant capable of processing 240,000 tpa of ore producing approximately 17,000 tpa of graphite concentrate per year over a 30-year life of mine, and Phase 2 consisted of a modular expansion to a production capacity of 45,000 tpa of graphite concentrate in Year 3.
On March 29, 2021, the Company announced the initiation of the construction process for Phase 1 of the Molo Graphite Mine with a processing plant capable of processing 240,000 tpa of ore producing approximately 17,000 tpa of graphite concentrate.
Anticipating the future demand for industrial minerals such as those held by the Company (Graphite and Vanadium) is complex. The demand for these minerals is, to a large extent, driven by the development of the battery market which remains uncertain, but bullish. Significant research has been completed by various analysts and the consensus view is that an explosive increase in demand can be expected. The uncertainty, however, is the timing of such increase in demand.
The Company has announced graphite concentrate offtakes with a Japanese Trader and with thyssenkrupp. The Company is in the process of formalizing additional sales agreements. To ensure that the Company remains ahead of the competition and to appropriately plan for future market demand, the Company has opted for a flexible development approach, which comprises a modular solution yielding optimal cashflow and return metrics with suitable flexibility to enable them to rapidly respond to market changes.
As such, the Company requested the completion of a PEA-level study for an enhanced Phase 2 expansion.
This Technical Report (hereinafter referred to as the “PEA”) considers a Phase 2 stand-alone processing plant capable of processing 2,500,000 tpa of ore producing approximately 150,000 tpa of graphite concentrate over a 26 year LoM.
This PEA utilises the knowledge base of the FS technical report. Where applicable and relevant, Phase 2 amounts from the FS are updated for inflation and current market realities. Phase 2 costing is derived from current market pricing and the factorisation of pricing obtained during construction of Phase 1. Phase 2 costs are therefore deemed accurate to PEA level. Costs are expected to be further optimised through economies of scale which are not considered in this report.
The Company has every intention to develop Phase 2 in close succession to the completion of Phase 1 and has the mineral resources to support further increases of its mining and beneficiation capacity as the inevitable increase in demand is realised.
Project Location
The Molo deposit is located some 160 km south-east of Madagascar’s administrative capital (and port city) of Toliara, in the Tulear region and about 220 km NW of Fort Dauphin and is approximately 13 km NE of the local village of Fotadrevo.
Project Description
The Phase 1 of the Molo Graphite Mine consists of the construction of a greenfield open pit mine, a processing plant capable of processing 240,000 tpa of ore producing 17,000 tpa of graphite concentrate, and all supporting infrastructure including water, fuel, power, tailings (co-disposed), buildings and permanent accommodation. This PEA considers a stand-alone Phase 2 processing plant capable of processing 2,500,000 tpa of ore producing 150,000 tpa of graphite concentrate over a 26 year LoM, and all supporting infrastructure including water, fuel, power, tailings (co-disposed), buildings and permanent accommodation. Only the Phase 2 revenues, operating costs and capital cost estimates form the basis of the PEA financial model.
Summary of Financial Results
The financial results for Phase 2, consisting of a stand-alone processing plant capable of producing 150,000 tpa of graphite concentrate over a 26 year LoM, are summarized in Table 1 below. The results are based on a discounted cash flow analysis of Phase 2 using real cash flows, which do not include the effects of inflation. NextSource completed all financial modelling and sensitivity analysis, including the estimates for the NPV, IRR, payback and initial working capital.
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| NEXTSOURCE MATERIALS INC. ANNUAL INFORMATION FORM For the year ended June 30, 2022 |
Table 1: Summary of Financial Results
| Description | Phase 2 PEA (150K tpa production) |
| Economic Highlights |
|
| Pre-tax Net Present Value (“NPV”) (8% discount rate) (1)(2)(4)(8) | US$904.8 million |
| Post-tax NPV (8% discount rate) (1)(2)(3)(4)(8) | US$593.0 million |
| Pre-tax Internal Rate of Return (“IRR”) (1)(2)(4)(8) | 40.4% |
| Post-tax IRR (1)(2)(3)(4)(8) | 31.4% |
| Life of Mine (“LoM”) | 26 years |
| Pre-tax payback (1)(2)(4)(8) | 3.18 years |
| Post-tax payback (1)(2)(3)(4)(8) | 3.74 years |
| Capital costs ("CAPEX") including contingency of $31.96 million (2) | US$155.8 million |
| Initial working capital | US$20.9 million |
| Sustaining and closure CAPEX | US$24.5 million |
| Operational Highlights |
|
| Graphite concentrate sale price (US$ per tonne of concentrate)(8) | US$1,230.50 |
| Average operating costs FOB (“Opex”) (US$ per tonne of concentrate following ramp-up)(7) | US$495.62 |
| Average annual production of concentrate (5)(6) | 150,000 tpa |
| Average ore mined per annum over LoM | 2,532,345 tpa |
| Average head grade | 6.16% |
| Concentrate purity (Cg) of finished product | 97% |
| Average stripping ratio | 0.53:1 |
| Average carbon recovery | 88.30% |
Notes
|
| (1) | Assumes Project is financed with 100% equity. |
|
| (2) | Capex includes process equipment, civil and infrastructure, mining, buildings, electrical infrastructure, project and construction services. |
|
| (3) | Assumes 2% government gross revenue royalty, 3% Vision Blue gross revenue royalty, 1.5% NSR royalty and corporate tax rate of 20%. |
|
| (4) | Assumes no inflationary adjustments in sales price, or operating costs. |
|
| (5) | Assumes all mineralized material from the Company’s 2019 Feasibility Study, including ore from the Measured, Indicated and Inferred Mineral Resource categories, are sent to the treatment plant. |
|
| (6) | Assumes a cut-off grade of 4.5% carbon has been applied, with all material below this cut-off grade treated as waste. |
|
| (7) | Assumes all concentrate will be sold on a FOB basis at the Port of Ehoala, Madagascar. |
|
| (8) | Based on current market prices provided by UK-based commodity price reporting agencies Benchmark Minerals Intelligence and fast markets. |
Property Description and Ownership
Property Description
The Project includes 790 claims and an area totalling 308.6 km2.
The Project is centred on UTM coordinates 495,289 easting 7,345,473 northing (UTM 38S, WGS 84 datum), and is located 11.5 km east-north-east of the town of Fotadrevo.
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| NEXTSOURCE MATERIALS INC. ANNUAL INFORMATION FORM For the year ended June 30, 2022 |
The property is within Exploitation / Mining Permit PE #39807 which covers an area of 175 km2 or 17,500 hectares (“ha”), and Exploration Permits PR #39806 and PR #39810 which cover areas of 96.1 km2 (9609 ha) and 37.5 km2 (3750 ha), respectively.
Ownership
On December 14, 2011, the Company entered into a Definitive JVA with Malagasy Minerals Limited, (hereinafter referred to as "Malagasy"), a public company on the Australian Stock Exchange, to acquire a 75% interest to explore and develop a group of industrial minerals, including graphite, vanadium and approximately 25 other minerals. On October 24, 2013, the Company signed a MOU with Malagasy to acquire the remaining 25% interest in the land position.
On April 16, 2014, the Company signed a Sale and Purchase Agreement and a Mineral Rights Agreement with Malagasy to acquire the remaining 25% interest. Malagasy retains a 1.5% Net Smelter Return Royalty ("NSR").
CCIC reviewed a copy of the Contrat d’Amodiation pertaining to this right and are satisfied that the rights to explore this permit have been ceded to the Company, or one of its Madagascar subsidiaries.
The Project was located within Exploration Permit PR #3432 as issued by the Bureau de Cadastre Minier de Madagascar (“BCMM”) pursuant to the Mining Code 1999 (as amended) and its implementing decrees. On January 18, 2019, Permit PR #3432 was transformed into two Exploration Permits (PR #39806 and PR #39810) and an Exploitation Permit (PE #39807) by the Ministry of Mines, with the official permit being granted to the Company by the BCMM on February 14, 2019.
Mineral Resources and Reserves delineated in Sections 14 and 15 of this Report are entirely within the bounds of Exploitation Permit PE #39807. The Company holds the exclusive right to exploit / mine and explore for graphite within this license area for a period of 40 years and can renew the license several times for a further period of 20 years upon each renewal.
The Company holds the exclusive right to explore for a defined group of industrial minerals within Exploration Permits PR #39806 and PR #39810. These industrial minerals include the following: Vanadium, Lithium, Aggregates, Alunite, Barite, Bentonite, Vermiculite, Carbonatites, Corundum, Dimensional stone, (excluding labradorite), Feldspar (excluding labradorite), Fluorspar, Granite, Graphite, Gypsum, Kaolin, Kyanite, Limestone / Dolomite, Marble, Mica, Olivine, Perlite, Phosphate, Potash–Potassium minerals, Pumice Quartz, Staurolite, Zeolites.
Companies in Madagascar first apply for an exploration mining permit with the BCMM, a government agency falling under the authority of the Minister of Mines. Permits under usual circumstances are generally issued within a month. The number of squares varies widely by claim number.
The updated Decret requires the payment of annual administration fees of Permits Research of 15,000 Ariary (MGA) for exploitation permits in years one and two. Annual fees increase by multiplying by a factor equivalent to the number of years (plus 1) that the company has held the permit. Exploration permits have an updated duration of five years, with the possibility of two renewals of an additional three years each. Payments of the administration fees are due each year on 31 March, along with the submission of an activity report. Each year the Company is required to pay a similar, although increasing amount to maintain the claims in good standing.
Reporting requirements of exploration activities carried out by the title holder on an Exploration Permit are minimal. A title holder must maintain a diary of events and record the names and dates present of persons active on the Project. In addition, a site plan with a scale between 1/100 and 1/10,000 showing “a map of the work completed” must be presented. CCIC is of the opinion that the Company is compliant in terms of its commitments under these reporting requirements.
The Project has not been legally surveyed; however, since all claim boundaries conform to the pre-determined rectilinear LaBorde Projection grid, these can be readily located on the ground by use of Global Positioning System (“GPS”) instruments. Most current GPS units and software packages do not, however, offer LaBorde among their available options and therefore defined shifts must be employed to display LaBorde data in the WGS 84 system. For convenience, all the Company’s positional data is collected in WGS 84, and if necessary, converted back to LaBorde.
The Company’s Royalties
The Madagascar government retains a 2% gross revenue royalty, Vision Blue Resources Limited (“Vision Blue”) retains a 3% gross revenue royalty, and Malagasy retains a 1.5% net smelter return royalty on the Project.
Permits
Exploitation Permit PE #39807 (175 km2) and Exploration Permits PR #39806 and PR #39810 are held under the name of a subsidiary of the Company called ERG (Madagascar) Ltd. S.A.R.L.U. and were granted to the Company by the BCMM on February 14, 2019.
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| NEXTSOURCE MATERIALS INC. ANNUAL INFORMATION FORM For the year ended June 30, 2022 |
The Madagascar Ministry of Environment’s Office National pour l'Environnement (the National Office for the Environment) or “ONE”, granted the Company’s Environmental License for Phase 1 of the Molo Graphite Mine on April 8, 2019, after reviewing the following Exploitation Permit PE #39807:
|
| · | Environmental and Social Impact Assessment (“ESIA”) and Relocation Action Plan (“RAP”) to International Finance Corporation (“IFC”) Performance and World Bank Standards. |
|
|
|
|
|
| · | Completion of local and regional stakeholder and community engagement, with overwhelming support from both the local community and local government, as well as regional government. |
|
|
|
|
|
| · | Signed agreements with all potentially affected land occupants to accept compensation for any affected crops and grazing land and relocation if needed. |
|
|
|
|
|
| · | Approved capital investment certification from the BCMM. |
|
|
|
|
|
| · | Receipt of Cahier des Charges Minière (mining specification) from the BCMM as pre-requisite to submitting the ESIA and RAP to ONE for review. |
|
|
|
|
|
| · | Successful completion of the ONE’s technical evaluation process which consisted of a site visit and four separate community consultations. |
|
|
|
|
|
| · | Joint agreement and signature of the Cahier des Charges Environnementales (environmental specification) with the ONE. |
Specific Environmental Management Plans (S/EMPs) are approved for the following Project components:
|
| · | Relocation Action Plan and Livelihood Restoration Plan for Phase 1. |
|
| · | Thermal and Solar Self-Generation of Electricity for Phase 1. |
|
| · | The Development of Roads and Pipelines for Phase 1. |
|
| · | The Waste Management Plan for Phase 1. |
The approval of the following additional Specific Environmental Management Plans (S/EMPs) is pending:
|
| · | The development of the Base Camp. |
|
| · | The development of the Processing Plant and associated buildings and structures. |
|
| · | The development of the Opencast Pit. |
The approval of the following additional permit is pending:
|
| · | The Tree Removal Permit. |
|
| · | Industrial Operating License. |
|
| · | Building / Construction Permit. |
|
| · | Long-term Land Lease. |
|
| · | Agreement with the Port of Ehoala. |
Geologic Setting and Mineralization
The Molo deposit occurs within the regional Ampanihy Shear Zone. The most conspicuous feature of rocks found within this shear zone is their well-developed north-south foliation and vertical to sub-vertical nature. Martelat et al. (2000) state that this observed bulk strain pattern is clearly related to a transpressional regime during bulk horizontal shortening of heated crust, which resulted in the exhumation of lower crustal material.
The Project area is underlain by supracrustal and plutonic rocks of late Neoproterozoic age that were metamorphosed under upper amphibolite facies and deformed with upright north-northeast-trending structures. The supracrustal rocks involve migmatitic (± biotite, garnet) quartzo-feldspathic gneiss, marble, chert, quartzite, and amphibolite gneiss. The metaplutonic rocks include migmatitic (± hornblende / diopside, biotite, garnet) feldspathic gneiss of monzodioritic to syenitic composition, biotite granodiorite, and leucogranite.
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| NEXTSOURCE MATERIALS INC. ANNUAL INFORMATION FORM For the year ended June 30, 2022 |
Mineral Resource Estimate
Mineral Reserves and Mineral Resources did not change as a result of the PEA and remain the same as disclosed in the FS.
The Project hosts the following resources:
|
| · | Measured mineral resource of 23.62 Mt grading 6.32% Carbon ("C"). |
|
| · | Indicated mineral resource of 76.75 Mt grading 6.25% C. |
|
| · | Inferred mineral resource of 40.91 Mt at 5.78% C. |
The effective date of the Mineral Resource tabulation is August 14, 2014. The Mineral Resources are classified according to the Canadian Institute of Mining, Metallurgy and Petroleum definitions. A cut-off grade of 4% C was used for the “higher grade” zones and 2% C for the “lower grade” zones. It is important to note that while the ‘high’ grade resource occurs within the ‘low’ grade resource, each was estimated and reported separately.
A relative density of 2.36t per cubic meter was assigned to the mineralized zones for the resource estimation. The resource remains open along strike and to depth. The Mineral Resources above are inclusive of the Mineral Reserves below.
The current MRE for Molo is summarized in Table 2 below. The mineral resources are classified in the Measured Indicated and Inferred categories as defined by the Canadian Institute of Mining, Metallurgy and Petroleum definition standards.
Table 2: Mineral Resource Statement for the Molo Graphite Deposit - September 2014
| Classification | Material Type | Tonnes | Grade - C% | Graphite - T |
| Measured | "Low Grade" | 13 048 373 | 4.64 | 605 082 |
| Measured | "High Grade" | 10 573 137 | 8.4 | 887 835 |
| Total Measured | 23 621 510 | 6.32 | 1 492 916 | |
| Indicated | "Low Grade" | 39 539 403 | 4.73 | 1 871 075 |
| Indicated | "High Grade" | 37 206 550 | 7.86 | 2 925 266 |
| Total Indicated | 76 745 953 | 6.25 | 4 796 341 | |
| Measured + Indicated | "Low Grade" | 52 587 776 | 4.71 | 2 476 157 |
| Measured + Indicated | "High Grade" | 47 779 687 | 7.98 | 3 813 101 |
| Total Measured + Indicated | 100 367 464 | 6.27 | 6 289 257 | |
| Inferred | "Low Grade" | 24 233 267 | 4.46 | 1 080 677 |
| Inferred | "High Grade" | 16 681 453 | 7.70 | 1 285 039 |
| Total Inferred | 40 914 721 | 5.78 | 2 365 716 | |
C% = carbon percentage; Graphite – T = Tonnes of graphite
Notes:
|
| · | Mineral Resources are classified according to the Canadian Institute of Mining definitions. |
|
| · | Mineral Resources are reported Inclusive of Mineral Reserves. |
|
| · | “Low Grade” Resources are stated at a cut-off grade of 2% C. |
|
| · | “High grade” Resources are stated at a cut-off grade of 4% C. |
|
| · | Eastern and western high-grade assays are capped at 15% C. |
A relative density of 2.36t per cubic meter (t/m3) was assigned to the mineralized zones for the resource tonnage estimation.
| 19 |
The total Measured and Indicated Resource is estimated at 100.37 Mt, grading at 6.27% carbon. Additionally, an Inferred Resource of 40.91 Mt, grading at 5.78% carbon is stated. When compared to November 2012 resource statement, (Hancox and Subramani, 2013), this shows a 13.7% increase in tonnage, a 3.4% decrease in grade and a 9.8% increase in graphite content.
The reason for the increase in tonnage is due to the 2014 drilling on the previously untested north-eastern limb of the deposit, which added additional new resources. Additionally, 23.62 million tonnes, grading at 6.32% carbon, have been upgraded by infill drilling from the Indicated to Measured Resource category.
Exploration
No further exploration is currently planned.
Mineral Reserve Estimate
Mineral Reserves and Mineral Resources did not change as a result of the PEA and remain the same as disclosed in the FS.
The mineral reserves referenced in this PEA are as per Table 3 below.
Table 3: Mineral Reserves
| Category | Tonnage | C Grade (%) |
| Proven | 14 169 741 | 7.00 |
| Probable | 8 266 944
| 7.04 |
| Proven and Probable | 22 436 685 | 7.02 |
Proven reserves are reported as the measured resources inside the designed open pit and above the grade cut-off of 4.5% C. Similarly, the probable reserves are reported as the Indicated Resources inside the designed open pit and above the grade cut-off of 4.5% C.
Metallurgical Test Work
The PEA is based on a full suite of metallurgical test work performed by SGS Canada Metallurgical Services Inc. in Lakefield, Ontario, Canada for the FS and remains the same for this PEA.
These tests included laboratory scale metallurgical work and a 200-tonne bulk sample / pilot plant program. The laboratory scale work included comminution tests, process development and optimization tests, variability flotation, and concentrate upgrading tests. Comminution test results place the Molo ore into the very soft to soft category with low abrasivity. A simple reagent regime consists of fuel oil number 2 and methyl isobutyl carbinol at dosages of approximately 120 g/t and 195 g/t, respectively. A total of approximately 150 open circuit and locked cycle flotation tests were completed on almost 70 composites as part of the process development, optimization, and variability flotation program.
The metallurgical programs culminated in a process flowsheet that is capable of treating the Molo ore using proven mineral processing techniques and its robustness has been successfully demonstrated in the laboratory and pilot plant campaigns.
The metallurgical programs indicated that variability exists with regards to the metallurgical response of the ore across the deposit, which resulted in a range of concentrate grades between 88.8% total carbon and 97.8% total carbon. Optical mineralogy on representative concentrate samples identified inter-layered graphite and non-sulphide gangue minerals as the primary source of impurities. The process risk that was created by the ore variability was mitigated with the design of an upgrading circuit, which improved the grade of a concentrate representing the average mill product of the first five years of operation from 92.1% total carbon to 97.1% total carbon.
The overall graphitic carbon recovery into the final concentrate is 88.3%.
The average composition of the combined concentrate grade is presented in Table 4. The size fraction analysis results were converted into a grouping reflecting a typical pricing matrix, which is shown in Table 5.
All assays were completed using control quality analysis and cross checks were completed during the mass balancing process to verify that the results were within the estimated measurement uncertainly of up to 1.7% relative for graphite concentrate grades greater than 90% total carbon.
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| NEXTSOURCE MATERIALS INC. ANNUAL INFORMATION FORM For the year ended June 30, 2022 |
Table 4: Metallurgical Data - Flake Size Distribution and Product Grade
| Product Size | % Distribution | Product Grade (%) Carbon |
| +48 mesh (jumbo flake) | 23.6 | 96.9 |
| +65 mesh (coarse flake) | 14.6 | 97.1 |
| +80 mesh (large flake) | 8.2 | 97.0 |
| +100 mesh (medium flake) | 6.9 | 97.3 |
| +150 mesh (medium flake) | 15.5 | 98.1 |
| +200 mesh (small flake) | 10.1 | 98.1 |
| -200 mesh (fine flake) | 21.1 | 97.5 |
Table 5: Pricing Matrix - Flake Size Distribution Grouping and Product Grade
| Product Size | % Distribution | Product Grade (%) Carbon |
| >50 mesh | 23.6 | 96.9 |
| -50 to +80 mesh | 22.7 | 97.1 |
| -80 to +100 mesh | 6.9 | 97.2 |
| -100 mesh | 46.8 | 97.6 |
Vendor testing including solid-liquid separation of tailings and concentrate, screening and dewatering of concentrate, and drying of concentrate was completed successfully.
Recovery Methods
The process design is based on an annual Phase 2 feed plant throughput capacity of 2,500,00 tpa at a nominal head grade of 6.16% C(t) producing an estimated average of 150,000 tpa of final concentrate.
The ore processing circuit consists of three stages of crushing which comprises jaw crushing in the primary circuit, followed by secondary cone crushing and tertiary cone crushing; the secondary and tertiary crushers operate in closed circuit with a double deck classification screen. Crushing is followed by primary milling and screening, graphite recovery by froth flotation and concentrate upgrading circuit by attritioning, and graphite product and tailings effluent handling unit operations. The crusher circuit is designed to operate 365 days per annum for 24 hours per day at ±55% utilization. The crushed product (P80 of approximately 13 mm) passes through a surge bin from where it is fed to the milling circuit.
The milling and flotation circuits are designed to operate 365 days per annum for 24 hours per day at 92% utilization. A single stage primary ball milling circuit is employed, incorporating a closed-circuit classifying screen and a scalping screen ahead of the mill. The scalping screen undersize feeds into a flash flotation cell before combining with the mill discharge material. Scalping and classification screen oversize are the fed to the primary mill.
Primary milling is followed by rougher flotation which, along with flash flotation, recovers graphite to concentrate from the mainstream. Rougher flotation employs six forced-draught trough cells. The recovered concentrate is then upgraded in the primary, fine-flake and attritioning cleaning circuits to an estimated final product grade of above 94% C(t). The primary cleaning circuit consists essentially of a dewatering screen, a polishing ball mill, a column flotation cell and flotation cleaner / cleaner scavenger trough cells.
The primary cleaner column cell concentrate gravitates to a 212 µm classifying screen, from where the large-flake oversize stream is pumped to a high-rate thickener located in the concentrate attritioning circuit whilst the undersize is pumped to the fine-flake cleaning circuit.
The fine flake cleaning circuit consists primarily of a dewatering screen, a polishing ball mill, a column flotation cell and flotation cleaner / cleaner scavenger trough cells. The attritioning cleaning circuit employs a high-rate thickener, an attritioning stirred media mill, a column flotation cell and flotation cleaner/cleaner scavenger trough cells. Fine flake column concentrate is combined with the +212 µm primary cleaner classifying screen oversize as it feeds the attritioning circuit thickener. Concentrate from the attrition circuit is pumped to the final concentrate thickener.
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| NEXTSOURCE MATERIALS INC. ANNUAL INFORMATION FORM For the year ended June 30, 2022 |
The combined fine flake cleaner concentrate and the +212 µm may also be processed through the secondary attrition circuit which consists of a dewatering screen, an attrition scrubber, column flotation cell and cleaner scavenger trough cells. Concentrate from this circuit is pumped to the final concentrate. The secondary attrition circuit is optimal.
Combined rougher and cleaner flotation final tailings are pumped to the final tailings thickener. Thickened final concentrate is pumped to a filter press for further dewatering before the filter cake is stockpiled prior to load and haul.
The concentrate thickener underflow is pumped to a linear belt filter for further dewatering and fed to a diesel fired rotary kiln for drying. The dried concentrate is then screened into four size fractions:
|
| · | +48 mesh. |
|
|
|
|
|
| · | -48 + 80 mesh. |
|
|
|
|
|
| · | -80 +100 mesh. |
|
|
|
|
|
| · | -100 mesh. |
The various product sizes are bagged and readied for shipping.
Chemical reagents are used throughout the froth flotation circuits and thickeners. Diesel fuel is used as collector and liquid Methyl Isobutyl Carbinol (“MIBC”) is used as frother within the flotation circuits. Diesel collector is pumped from a diesel storage isotainer, from where it enters a manifold system which supplies multiple variable speed peristaltic pumps which discretely pump the collector at set rates to the various points-of-use within the flotation circuits.
MIBC frother is delivered by road to an isotainer. A manifold system on the storage isotainer supplies multiple variable speed peristaltic pumps, which discretely pump the frother at set rates to the various points-of-use within the flotation circuits.
Flocculant powder (Magnafloc 24) is delivered by road to the plant reagent store in 25 kg bags. The bags are collected by forklift as required and delivered to a flocculant mixing and dosing area. Here the flocculant is diluted as required using parallel, duplicate vendor package automated make-up plants, each one being dedicated to supplying the concentrate and tailings thickeners due to the flocculant types required being different for each application. Variable speed peristaltic pumps discretely pump the flocculant at set rates to the thickeners’ points-of-use.
Coagulant powder (Magnafloc 1707) for thickening enhancement is handled similarly to the flocculant as described above, the exception being that a single make-up system is provided to supply both the concentrate and tailings thickeners. Again, variable speed peristaltic pumps discretely pump the coagulant at set rates to the thickeners’ points-of-use.
Infrastructure
The Project is located in a relatively remote part of south-western Madagascar, approximately 13 km north-east of the local village of Fotadrevo. There is currently limited infrastructure on site and although some infrastructure will be built during Phase 1 of the Project additional infrastructure will be required. The following Project infrastructure will be required and/or will have to be upgraded.
The following elements are all part of the Project scope:
|
| · | Raw water supply will have to be increase from 3 to 21 bore holes extracting ground water. |
|
|
|
|
|
| · | Power supply will have to be increased. |
|
|
|
|
|
| · | Sanitation for the plant, permanent camp will have to be expanded. |
|
|
|
|
|
| · | Storm water control and management will have to be expanded. |
|
|
|
|
|
| · | All permanent buildings, (offices, workshops, ablution facilities), will have to be duplicated. |
|
|
|
|
|
| · | A new mining workshop, product warehouse and reagent storage will have to be constructed. |
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|
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|
|
| · | In plant roads. |
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|
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|
|
| · | Haul road. |
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|
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|
|
| · | Waste, high and low grade -Rock dumps. |
Although the Phase1 plant is a small plant, some of the facilities in this plant could be leveraged, which will make construction of the Phase 2 plant significantly easier.
| 22 |
| NEXTSOURCE MATERIALS INC. ANNUAL INFORMATION FORM For the year ended June 30, 2022 |
Geotechnical
The geotechnical investigation conducted by SRK Consulting in 2014 was used as reference document for the design and planning of this Phase of the Project. (Report 479297 / Plant Geotech / Final). This was augmented with reports from both Jones and Wagener (TN162-21-J335-00-Rev 0) and C.E.R.MAD (report number CER 21 10 Soil Stabilization) during construction of Phase 1.
In summary, transported soils are present across all areas investigated to shallow depths not exceeding a maximum depth of 0.6m. From the consistencies noted during test pit excavations the transported soils are anticipated to have a maximum allowable bearing capacity of 100 kPa, limiting total consolidation settlement to 25 mm.
Residual soils were noted in the majority of the test pits excavated and comprised dense to very dense silty and/or clayey sands. The residual soils are expected to have a maximum allowable bearing capacity of 200 kPa, limiting total consolidation settlement to 25 mm (differential settlement expected to be half this value). This could only be achieved though soil stabilisation with 5% cement added to the in-situ material.
As rock is located at a shallow depth at most locations it is recommended that structures generally be founded on rock rather than the overlying thin soils. However, light structures with loads of less than 100 kPa could be founded on the soils if necessary.
A suitable source of both backfills and aggregates need to be identified for Phase 2 of the Project.
Concrete
Concrete grades and mix design were selected taking into consideration durability requirements. Particular attention will be given to wet process plant areas and wash down slabs. All foundations were designed as pad, or raft type foundations with load bearing pressures not exceeding 150 kPa. Foundations were designed to minimize settlement.
Storm Water
Storm water that run-off within the process plant areas will be dealt with by a minimum slope on the terrace platform. Run-off is then collected in concrete lined V-drains.
Storm water within the process plant area will be collected though dedicated storm water containment channels and then handled accordingly.
Product Pricing
As an industrial mineral, flake graphite pricing is determined by three factors:
|
| · | Flake size. |
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|
|
|
|
| · | Carbon purity. |
|
|
|
|
|
| · | Industry-specific technical attributes of the flakes (Benchmark, 2017a; Roskill, 2017). |
Flake sizing is broadly classified into four ranges:
|
| · | Small (-100 mesh, or <75 µm) |
|
|
|
|
|
| · | Medium (-80 to 100 mesh, or 75 µm to 180 µm) |
|
|
|
|
|
| · | Large (-50 to 80 mesh, or 180 µm to 300 µm) |
|
|
|
|
|
| · | Extra-large, or jumbo (+50 mesh, or >300 µm). |
|
| · | These flake sizes are in turn classified by carbon content (”C”) and are typically sold in ranges of 88% to 93% C, 94% to 95% C and 95% to 97% C. The specific technical attributes of the flakes are then defined by end-user parameters such as expansion co-efficient, thermal and electrical conductivity and charge-discharge stability and efficiency. As the technical parameters sought by end-users are proprietary to their processes, pricing is not publicly available. |
|
|
|
|
|
| · | The selling price of US$1,230.50 as outlined in Section 19.3 is the volume weighted average sales price for the various flake sizes and grades of graphite concentrate that are expected to be produced from the Molo deposit. This price used was based on current market prices provided by UK-based, commodity price reporting agencies Benchmark Minerals Intelligence and Fastmarkets, who are recognized as leaders in providing independent and unbiased market research, pricing trends and demand and supply analysis for the natural flake graphite market. |
| 23 |
| NEXTSOURCE MATERIALS INC. ANNUAL INFORMATION FORM For the year ended June 30, 2022 |
Logistics
The Port of Ehoala at Fort Dauphin is a modern (2009) port developed by Rio Tinto for the QMM Project. It has a 15m draft with shipping lines calling on a regular basis. There are, however, no crane facilities and vessels require their own cranes.
The following equipment is available at the port.
|
| · | 1 x 3.5T Telehandler. |
|
|
|
|
|
| · | 5 x Trailers for container movement (2 x 40 ft, 3 x 20 ft). |
|
|
|
|
|
| · | 1 x Tractor. |
|
|
|
|
|
| · | 3 x Reach stackers 45T Capacity. |
|
|
|
|
|
| · | 6 x Forklifts (1 x 2.5T; 2 x 5T; 3 x 7T). |
The port is fenced and there is a security service (G4S) for port guarding day and night. Despite the presence of a national airport, the port of Ehoala is mainly connected to the hinterland destinations by road. All types of trucks can obtain access to the port and this berth for cargo off-loading. However, the majority are container trucks (20 ft and 40 ft).
CMA CGM is currently the only carrier who offers a service into Fort Dauphin from South Africa. CMA has a small feeder vessel who services the route from Durban to Fort Dauphin. This vessel is limited to a maximum of 45 TEU’s per sailing. Sailings are every two weeks and for this reason, shippers are limited to 10 TEU’s per booking and only on special request with sufficient notice will this be reconsidered by CMA. It must also be noted that bookings made in advance is subject to a cancellation fee if the booked space is not occupied.
Customs are available on site and clearance can be streamlined via pre-clearance in order to lessen standing time of the containers once arrived. It is to be noted that all cargo items imported into the Republic of Madagascar, needs to have a BSC online cargo tracking note. Failing to submit the BSC certificate, cargo cannot be cleared, and the shipment will be sent back to origin and be subject to a fine of US$2,500 per bill of lading, plus regulations charges. All containers, vehicles, bulk commodities, including airfreight requires a BSC certificate.
The route from Molo to Fort Dauphin runs either via the RN 10, or the RN 13. Both these routes are in relatively poor condition and trucks are expected to take between four and five days to make the round trip. A truck was monitored over the route by a Madagascan trucking contractor to gauge cycle times and they managed to complete the journey in two days each way. This was in the dry season, in the wet season there may be periods of time when the roads become impassable. No money has been budgeted for roads repairs, or upgrades.
The rainy season in Madagascar starts is November to April, during this time transportation of cargo can be delayed for several weeks. Due to the poor road conditions, majority of cargo would have to be transported to site during the dry season.
Cargo transport limitations include:
|
| · | 12m (L) x 3.5m (W) x 2.8m (H) at a maximum of 35T per 3-axle trailer. |
|
|
|
|
|
| · | 12m (L) x 2.5m (W) x 3.5m (H) at a maximum of 26T per 2-axle trailer. |
Cargo exceeding 4m width pose problems to transport due to the Manambaro Bridge, as there is no possibility to divert. Some access areas would also need to be adjusted for items holding a width of 2.3m to 3.6m. (Ex. Raft of Bevilana). Any cargo exceeding the above-mentioned limitations would have to be considered on a case-by-case basis prior to importation.
For cargo’s exceeding 30T, a deviation to the right of Manambaro bridge is possible, however, this is subject to prior negotiations with the owners of the rice fields through which the possible deviation will have to run through.
Specialised trailers and equipment for transporting out-of-gauge items are limited. The design of equipment / plant would have to consider above mentioned limitations to ensure equipment can be transported to site from port.
| 24 |
| NEXTSOURCE MATERIALS INC. ANNUAL INFORMATION FORM For the year ended June 30, 2022 |
CAPEX and OPEX
The Phase 2 construction costs are estimated at US$155,851,935 including a 25% contingency. An additional US$20,876,922 is estimated for initial working capital. Over the LoM, an additional US$24,500,00M is estimated for sustaining capital and closure costs for equipment replacement and rehabilitation of the site at the end of the Project. The base date for the capital costs is January 2022 and no provision has been made for inflation. The accuracy of capital costs is considered to be within ±25%.
Table 6 summarizes the capital cost requirements.
Table 6: Capital Costs
| Capital Cost Breakdown | Phase 2 Costs |
| Supply Items (Plant & Logistics) | US$43,200,996 |
| Non supply Items (Engineering & Management, Civil & Infrastructure, P&G, Mechanical erection) | US$80,692,483 |
| Sub Total | US$123,893,479 |
| Fees and Contingencies | US$31,958,455 |
| Construction CAPEX Total | US$155,851,934 |
|
Additional costs: Initial working capital Sustaining costs over LoM and closure costs at end of project |
US$20,876,922 US$24,500.000 |
The average operating costs per tonne of graphite concentrate delivered on a FOB basis to the Port of Fort Dauphin, Madagascar, during the LoM is presented inTable 7.
Table 7: Operating Costs per Tonne of Finished Graphite Concentrate
| Breakdown | Phase 2 OPEX |
| Mining (US$/T) | US$145.88 |
| Processing (US$/T) | US$206.75 |
| Trucking to local port / Ft. Dauphin (US$/T) | US$133.00 |
| General and Administration (US$/T) | US$10.00 |
| Total | US$495.62 |
The reader should note that the estimated operating costs per tonne assume that the processing plant can successfully handle the variability in the ore body. As demonstrated by the SGS test work that is discussed in detail in Section 13, there is a risk that:
|
| · | The flake size distribution could be worse than expected. |
|
|
|
|
|
| · | The product grade could be lower than expected. |
|
|
|
|
|
| · | The recoveries could be lower than expected |
|
|
|
|
|
| · | Combination of all of above. |
|
| · | If the plant does not perform as expected, this could have a material impact on operating costs. |
| 25 |
| NEXTSOURCE MATERIALS INC. ANNUAL INFORMATION FORM For the year ended June 30, 2022 |
Economic Analysis
The economic analysis of Phase 2 revenues, operating and capital costs over a 26 LoM using discounted cash flow methods is summarized in Table 8 below. All values are expressed in millions of US$.
Table 8: Economic Analysis of the Project
| Metric | Values |
| Before tax and royalties | |
| Total Project Cash Flows (1)(2)(4)(5) | US$2,718.1 million |
| NPV @ 8% | US$904.8 million |
| NPV @ 10% | US$716.7 million |
| NPV @ 12% | US$574.4 million |
| IRR | 40.4% |
| Payback Period | 3.18 years |
| After tax and royalties | |
| Total Project Cash Flows (1)(2)(3)(4)(5) | US$1,884.9 million |
| NPV @ 8% | US$593.0 million |
| NPV @ 10% | US$459.3 million |
| NPV @ 12% | US$358.2 million |
| IRR | 31.4.0% |
| Payback Period | 3.74 years |
Note
|
| (1) | Assumes Project is financed with 100% equity. |
|
| (2) | Capex includes process equipment, civil and infrastructure, mining, buildings, electrical infrastructure, project and construction services. |
|
| (3) | Assumes 2% government gross revenue royalty, 3% Vision Blue gross revenue royalty, 1.5% NSR royalty and corporate tax rate of 20%. |
|
| (4) | Assumes no inflationary adjustments in sales price, or operating costs. |
|
| (5) | Based on current market prices provided by UK-based commodity price reporting agencies Benchmark Minerals Intelligence and fast markets. |
Environmental and Permitting
The Madagascar Ministry of Environment’s Office National pour l'Environnement (the National Office for the Environment) or “ONE”, granted the Company its Environmental License for Phase 1 of the Molo Graphite Mine on April 8 2019 after reviewing the following:
|
| · | Exploitation Permit PE #39807. |
|
|
|
|
|
| · | Environmental and Social Impact Assessment (“ESIA”) and Relocation Action Plan (“RAP”) to International Finance Corporation (“IFC”) Performance and World Bank Standards. |
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|
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|
|
| · | Completion of local and regional stakeholder and community engagement, with overwhelming support from both the local community and local government, as well as regional government. |
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|
|
|
|
| · | Signed agreements with all potentially affected land occupants to accept compensation for any affected crops and grazing land and relocation if needed. |
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|
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|
|
| · | Approved capital investment certification from the BCMM. |
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|
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|
|
| · | Receipt of Cahier des Charges Miniér (mining specification) from the BCMM as pre-requisite to submitting the ESIA & RAP to ONE for review. |
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|
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|
| · | Successful completion of the ONE’s technical evaluation process which consisted of a site visit and four separate community consultations. |
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|
|
|
|
| · | Joint agreement and signature of the Cahier des Charges Environnementales (environmental specification) with the ONE. |
| 26 |
| NEXTSOURCE MATERIALS INC. ANNUAL INFORMATION FORM For the year ended June 30, 2022 |
Specific Environmental Management Plans (S/EMP’s) are approved for the following Project components:
|
| · | RAP and Livelihood Restoration Plan (“LSP”) for Phase 1. |
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|
|
|
|
| · | Thermal and solar self-generation of electricity for Phase 1. |
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|
|
|
|
| · | The development of roads and pipelines for Phase 1. |
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|
|
|
|
| · | The waste management plan for Phase 1. |
The approval of the following additional S/EMPs is pending:
|
| · | The development of the base camp. |
|
|
|
|
|
| · | The development of the processing plant and associated buildings and structures. |
|
|
|
|
|
| · | The development of the opencast pit. |
|
|
|
|
|
| · | The approval of the following additional permits is pending. |
|
|
|
|
|
| · | The Tree Removal Permit. |
|
|
|
|
|
| · | Industrial Operating License. |
|
|
|
|
|
| · | Building / Construction Permit. |
|
|
|
|
|
| · | Long-term Land Lease. |
|
|
|
|
|
| · | Agreement with the Port of Ehoala. |
Environmental and Social Impact Assessment
A comprehensive Environmental and Social Impact Assessment was completed and submitted to Malagasy government as part of the Environmental Permit process.
Early integration of environmental and social sensitivities and risks ensured that the final impact assessment component revealed that there are no fatal flaws from an environmental and social perspective. The significance levels of impacts range from minor to major before any mitigation measures are applied and from minor to average with mitigation measures included. Notably, all major risks require significant reduction in risk via stringent controls. These controls have been incorporated into the Project design and planning with additional operational controls specified within the various environmental and social management plans.
To this end, the ESIA contains a chapter which details specific management measures which either remove the risks completely, or reduce their significance to an acceptable level.
In addition, each specific environmental and social component has a prescribed monitoring plan which will be followed during each Project developmental phase. This is aimed at monitoring compliance against various specifications such as the baseline environment and predicted impact removal and reduction measures.
Conclusions
Geology
The Company’s 2011 exploration program delineated a number of new graphitic trends in southern Madagascar. The resource delineation drilling undertaken during 2012-2014 focused on only one of these, the Molo Deposit, and this has allowed for an Independent, CIM compliant, updated resource statement for the Molo deposit.
The total Measured and Indicated Resource is estimated at 100.37 Mt, grading at 6.27% C. Additionally, an Inferred Resource of 40.91 Mt, grading at 5.78% C is stated. When compared to the November 2012 resource statement (Hancox and Subramani, 2013), this shows a 13.7% increase in tonnage, a 3.4 % decrease in grade, and a 9.8% increase in graphite content. The reason for the increase in tonnage is due to the 2014 drilling on the previously untested north-eastern limb of the deposit, which added additional new resources. Additionally, 23.62 Mt, grading at 6.32% Carbon, have been upgraded by infill drilling from the Indicated to Measured Resource category.
| 27 |
| NEXTSOURCE MATERIALS INC. ANNUAL INFORMATION FORM For the year ended June 30, 2022 |
Mining
The mineral reserves of 22,437,000t at an average grade of 7.02% were declared for the FS and is applied to this PEA.
Tailings
Tailings will be dried and co-disposed with the waste rock generated as part of the open cast mining and on the same basis as Molo phase 1. In the next phase of the study a detailed design will be completed, complete with environmental and social impact assessment and closure.
Risks
In addition to the qualitative risk assessment completed during the Molo 2015 FS, a comprehensive HAZOP study was completed as part of the FS. The outcomes of that also informs this PEA study
Permitting
The Mining and Environmental Permits have been obtained for the Phase 1 Project, with most supplementary sectoral permits obtained, and the remainder pending final approval for Phase 1.
Metallurgical Test Work
Comprehensive metallurgical test programs culminated in a process flowsheet that can treat the Molo ore using conventional and established mineral processing techniques.
Process risks associated with the variability with regards to metallurgical performance have been mostly mitigated through the addition of an upgrading circuit. The upgrading circuit treated the combined concentrate after the secondary cleaning circuit. Reduced flake degradation and an improved process flexibility may be obtained by employing separate upgrading circuits for the coarse and fine flakes.
Recommendations
Geology
No further recommendations.
Mining Recommendations and Concluding Report
The mine planning scenarios described in this section have included Inferred Resources in the conceptual mine planning. While the Inferred Resource is included in the pit optimisation models, the percentage of the ore considered to be associated with an Inferred Resource is 14.6% in Scenario 1 and 7.2% in Scenario 2. This renders the Inferred Resource category as a minor contributor to the total mineable ore. To provide more confidence to the Mineral Resource estimate, infill drilling is recommended.
The open pit mining operations were planned by utilising both the unconstrained (Scenario 1) and constrained (Scenario 2) LoM production scenarios. Both scenarios indicate that a 150 ktpa carbon concentrate plant can be sustainably supported by the orebody over the planned LoM period.
Metallurgical Test Work
|
| · | No further test work was carried out for this Phase of the study |
|
|
|
|
|
| · | Investigate the metallurgical impact of different attrition mill technologies such as stirred media mills, or attrition scrubbers. |
|
|
|
|
|
| · | Evaluate a range of different grinding media (e.g. different size, shape, material) to determine if flake degradation can be reduced without affecting the concentrate grade. |
|
|
|
|
|
| · | Develop a grinding energy versus concentrate grade relationship for the best grinding media. This will allow a more accurate prediction of the required attrition mill grinding energy as a function of the final concentrate grade. |
|
|
|
|
|
| · | Conduct attrition mill vendor tests to aid in the sizing of the equipment. |
|
|
|
|
|
| · | Carry out vendor testing on graphite tailings using the optimized reagent regime proposed by the reagent supplier. |
|
|
|
|
|
| · | Complete a series of flotation tests on samples covering mine life intervals for the PEA pit design. |
| 28 |
| NEXTSOURCE MATERIALS INC. ANNUAL INFORMATION FORM For the year ended June 30, 2022 |
Recovery Methods
No further recommendations.
Infrastructure
The following are recommended prior to the detailed design stage:
|
| · | A detailed geotechnical investigation will need to be undertaken to identify and confirm suitable sources of concrete aggregate and backfill material. This testing will need to include for concrete material testing and the production of concrete trial mixes with the material identified |
|
|
|
|
|
| · | A detailed topographical survey will need to be undertaken of the proposed construction site, borrow pit areas and the access road between Fotadrevo and the mine site. This information is required prior to the final detailed design of the plant layout and associated earthworks |
Water
The following is recommended during the detailed design phase:
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| · | Water quality and quantity data is required to provide a baseline for comparison once the Molo mine is commissioned. To provide the necessary baseline data, regular ground and surface water quality monitoring must be carried out leading up to the date when the Molo mine will be commissioned. Additional production and monitoring boreholes must be installed. This also should include the installation of flow meters on relevant pipelines to verify the dynamic water balance with measured flow rates during operations. |
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| · | The installation of a weather station on the Project site should be done as soon as possible. |
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| · | Quantitative and predictive water balance, ground water and geochemical analyses should be undertaken on regular intervals to update the water management plan. |
Environmental, Social
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| · | The installation of a suitable weather station at/or as near as possible to the proposed Project site, even before construction commences, is recommended. Accurate, local weather data is almost non-existent in Madagascar. This data will prove invaluable for model calibration, improvement in baseline understanding and for future energy supply options which could utilize wind and/or solar power generation. |
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| · | Clean and/or renewable energy supply should be considered as a medium to long term target. |
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| · | Appointment of a community representative and the establishment of a mandate to sensitize the local communities prior to any Project activities. |
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| · | Monitoring and auditing to commence at Project preparation phase. |
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| · | Compilation of Standard Operating Procedures (“SOP”) for Environmental and Social aspects requiring direct management and intervention. |
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| · | It is recommended that actual activity data, (e.g., kilometer’s travelled, or liters of diesel consumed) for a financial year is used when a GHG Assessment is being calculated. |
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| · | Community recruitment, skills development and training should begin at Project preparation phase. |
Permitting
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| · | Security of land tenure is a process and is estimated to take 6 to 9 months, thus this process should be commissioned as early as possible. The total area concerned is anticipated to be sufficient for the proposed Phase 2 expansion. |
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| · | Application for all other necessary permits, (water use, construction, mineral processing, transportation, export, labour and so forth should be undertaken prior to the Phase 2 expansion. |
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| · | Compilation of a comprehensive legal register. |
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| · | Application for an amendment of the requisite environmental and construction approvals would be required for the Phase 2 expansion. |
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| NEXTSOURCE MATERIALS INC. ANNUAL INFORMATION FORM For the year ended June 30, 2022 |
The PEA 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 Phase 2 Preliminary Economic Assessment, National Instrument 43-101 Technical Report” dated April 27, 2022 for certain other details and assumptions relating to the above mineral resource estimates and data verification procedures.
The PEA was prepared by Erudite Strategies (Pty) Ltd. (“Erudite”) of South Africa, an independent engineering and consulting firm specializing in the mining and processing of commodities and battery materials. The PEA 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.
The Company cautions that the PEA is preliminary in nature and includes inferred mineral resources that are considered too speculative geologically to have economic considerations applied to them that would enable them to be categorized as mineral reserves. Mineral resources are not mineral reserves and do not have demonstrated economic viability and there is no certainty that the PEA will be realized.
5. BATTERY ANODE FACILITY (BAF)
The Company is committed to the construction of battery anode facilities (“BAF”), which are value-added processing facilities that convert flake graphite into spheronized and purified graphite (“SPG”) and coated spheronized graphite (“CSPG”). The CSPG is typically sold to battery manufacturers as anode material, which is then assembled along with cathode material and other components into a finished lithium-ion battery.
The following is a representation of the flake graphite conversion process into CSPG:
The selling price of SPG and CSPG is significantly greater than that of flake graphite concentrate. Transactions in the SPG and CSPG market are generally based on private negotiations between buyers and sellers, and as a result there is no spot or forward market. Commodity research companies such as Benchmark and Roskill perform proprietary market research and periodically publish estimates of current, historical, and forward pricing for select grades and product types. According to Roskill, the average price of CSPG imported into China during 2019 and 2020 was US$7,157 per tonne and US$7,307 per tonne, respectively.
On April 12, 2021, the Company announced a binding partnership agreement for the construction of BAF plants capable of converting flake graphite into SPG and CSPG using the partner’s proven processing technology. The Japanese and Chinese partners currently operate facilities that produce SPG and CSPG to leading Japanese lithium-ion battery manufacturers that are part of the supply chains of major EV automotive companies. The Chinese partner will design and develop the process flowsheets, source all necessary processing equipment, and will provide all necessary training and operational know-how to produce SPG and CSPG material and in return will receive a 2% licensing royalty. Whereas the Japanese partner will leverage its sales relationships and will act as exclusive agent for sales, marketing, and trading of all SPG and CSPG material and in return will receive a 3% sales commission royalty.
The spherodization, purification and coating of flake graphite are highly technical processes that rely on proprietary intellectual property (“IP”) that has been developed and optimized over many years. The partnership agreement is exclusive to the Company and provides a significant first-mover advantage over other competitors that are developing their own graphite conversion intellectual property.
The Company is in the process of completing technical and economic studies for the first BAF plant. The Company initiated technical studies to estimate the capital and operating costs for a BAF plant with an initial production capacity of converting 7,200 tpa of flake graphite concentrate into 3,600 tpa of CSPG. Once the final BAF plant location has been determined, the Company will complete additional technical and economic studies and a front-end engineering design (“FEED”) study.
The Company will assess the results of the economic and FEED studies prior to making a final construction decision. Construction of BAF plants is subject to the economic studies confirming positive project economics and subsequently obtaining sufficient funding for construction costs and working capital.
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| NEXTSOURCE MATERIALS INC. ANNUAL INFORMATION FORM For the year ended June 30, 2022 |
While the Company believes that synergies exist by developing an integrated business model, both the Molo Graphite Mine and the BAF plants should be considered independent from each other with regards to their economic viability since the BAF plants will be capable of processing flake graphite obtained from third parties and will not be reliant on flake graphite from the Molo Graphite Mine. As justified by market and operational conditions, the Company will prioritize small flake graphite from the Molo Graphite Mine.
6. MINERAL EXPLORATION PROJECTS
Green Giant Vanadium Project, Province of Toliara, 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. On July 9, 2009, the Company acquired the remaining 25% interest. 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 Vanadium Project is located 15 kilometres from the Molo Graphite Project and hosts a large sedimentary-hosted vanadium deposit. 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. The Company plans to complete additional metallurgical evaluation of the property during the next 12 months to establish a mineral processing flow sheet.
Non-Government Royalties
On June 28, 2021, the Company received the royalty funding from Vision Blue for the construction of the Molo Graphite Mine. As part of the royalty agreement, 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.
Malagasy Minerals Limited holds a 2% NSR on the mineral claims. At the Company’s option, the first 1% of the NSR can be purchased for $0.5 million in cash or common shares, and the second 1% of the NSR can be purchased $1.0 million in cash or common shares.
Exploration and Evaluation
A comprehensive diamond-drill program confirmed five vanadium-bearing trends on the property. The Jaky and Manga trends were deemed the most prospective and were the focus of the 2009 and 2010 drill programs. The complete exploration program included 133 diamond drill holes totalling 21,957 metres, 140 trenches totalling 17,105 metres, 11,035 soil samples and 7,843-line kilometres of airborne surveys.
The mineral deposits on this property have been divided into three separate zones, which are referred to as the Jaky, Manga, and Mainty deposits. This mineral resource estimate utilized approximately 18,832 m of diamond drill hole data from the 2008, 2009 and 2010 drill program and was supplemented by approximately 5,928 m of trench data from the 2008, 2009 exploration programs.
The exploration work resulted in a National Instrument 43-101 compliant (“NI 43-101”) resource estimate dated January 14, 2011.
Mineral Resource Estimate
Readers are cautioned to refer to the technical study for certain other details and assumptions relating to the above mineral resource and reserve estimates and data verification procedures.
The current mineral resource estimate for the Green Giant Project is summarised below consisting of the resource categories, the tonnage, the vanadium grade (“V2O5%”) and the contained vanadium (“V2O5”) pounds. A cut-off grade of 0.5% V2O5 was used. The mineral resources are classified in the Indicated and Inferred categories as defined by the Canadian Institute of Mining, Metallurgy and Petroleum definition standards.
| Classification | Tonnage (Mt) | Grade (V2O5%) | V2O5 (million pounds) |
| Indicated | 49.5 | 0.693% | 756.3 |
| Inferred | 9.7 | 0.632% | 134.5 |
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| NEXTSOURCE MATERIALS INC. ANNUAL INFORMATION FORM For the year ended June 30, 2022 |
Mineral reserves can only be estimated on the basis of an economic evaluation that is used in a prefeasibility or feasibility study of a mineral project. Thus, no reserves have been estimated.
The Technical Report for the Green Giant Project 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 “Green Giant Project, Fotadrevo, Province of Toliara, Madagascar, Technical Report Update NI 43-101. Prepared by AGP Mining Consultants” dated January 14, 2011 for certain other details and assumptions relating to the above mineral resource estimates and data verification procedures.
Sagar Project, 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 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. Since early 2012, the Company has focused its efforts on the Molo Graphite Project and as such only minimal work has been completed on the Sagar Property since that time.
As of June 30, 2022, the Sagar property consisted of 184 claims covering a total area of 8,539.58 ha. The Company does not have any immediate plans to complete any further exploration on this property.
7. SUSTAINABLE DEVELOPEMNT AND ENVIRONMENTAL POLICIES
The Company is committed to the health and safety of our workers, protection of the environment, and protection of the rights, culture and development of local communities in which we operate. To ensure the Company incorporates sustainable development and environmental policies into every aspect of its operations, the Board of Directors has created a Sustainability Committee that has oversight over all health, safety, environmental sustainability and social issues, and has been tasked with developing a “Sustainable Development Policy” for the Company.
The Company is evaluating but has not adopted the requirements of the Mining Association of Canada’s industry leading Towards Sustainable Mining Initiative (the “TSM Initiative”), as well as the Global Reporting Initiative’s sustainability reporting guidelines for the mining industry (the “GRI Reporting Guidelines”). The TSM Initiative helps mining companies evaluate the quality, comprehensiveness and robustness of their management systems, tailings management, biodiversity management, health and safety, indigenous and community relations, prevention of child and forced labour, and water stewardship. The GRI Reporting Guidelines consist of principles for defining report content and ensuring the quality of reported information.
The Company’s exploration activities, mining and processing operations are subject to state, federal, provincial, territorial, regional and local environmental laws and regulations in the jurisdictions in which the Company’s activities and facilities are located. These include the requirements for planning and implementing the closure and reclamation of mining properties and related financial assurance.
As part of the advancement of the Molo Graphite Mine project, the Company completed a comprehensive Environmental and Social Impact Assessment ("ESIA") in 2018, which was developed to local Madagascar (“Malagasy”), Equator Principles, World Bank and International Finance Corporation (“IFC”) standards.
On April 11, 2019, the Company announced it had received the Global Environmental Permit for the Molo Graphite Mine from the Madagascar Ministry of Environment’s Office National pour l'Environnement (the National Office for the Environment; or “ONE”). This follows the completion of the Environmental & Social Impact Assessment (“ESIA”) and Relocation Action Plan (“RAP”) to International Finance Corporation (IFC) performance standards and World Bank standards, the completion of local and regional stakeholder and community engagement, and the completion of negotiations and signed agreements with all potentially affected land occupants to accept compensation for any affected crops and grazing land and relocation if needed.
8. RISK FACTORS
The Company manages risks inherent to its business and has procedures to identify and manage significant operational and financial risks. The reader is cautioned to carefully review the risk factors identified below in addition to the risk factors disclosed in our financial statements for the year ended June 30, 2022 and this AIF.
Any such risk factors could materially affect the Company’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 Company. Additional risks and uncertainties not currently identified by the Company or that the Company currently believes not to be material also may materially and adversely affect the Company’s business, financial condition, operations or prospects.
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| NEXTSOURCE MATERIALS INC. ANNUAL INFORMATION FORM For the year ended June 30, 2022 |
Any such risk factors could materially affect the Company’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 Company. Additional risks and uncertainties not currently identified by the Company or that the Company currently believes not to be material also may materially and adversely affect the Company’s business, financial condition, operations, or prospects.
Uncertainty due to the Covid-19 Pandemic
The impact of Covid-19 on the Company has been limited since it does not have any active exploration programs and construction activities related to the Molo Graphite Mine have to-date mainly focused on the assembly of the processing plant off-shore by our EPC contractor. Certain of our directors, officers, employees, consultants, and contractors have been indirectly impacted by intermittent lockdowns that have been imposed in Canada, Madagascar, Mauritius and in South Africa.
The Company has tried to incorporate the impact COVID-19 outbreaks and intermittent lockdowns into the development plans for the Molo Graphite Mine and its other projects. Notwithstanding, intermittent lockdowns have the potential to cause unforeseen delays in the plant assembly and delivery schedule, as well as with mine site works construction schedule. It is not possible for the Company to predict the duration or magnitude of adverse impacts from further outbreaks and predict the effects on the Company’s business or results of operations.
The duration and full financial effect of the COVID-19 pandemic is unknown at this time, as are the measures taken by governments, the Company or others related to the COVID-19 pandemic. Any estimate of the length and severity of these developments is therefore subject to significant uncertainty, and accordingly estimates of the extent to which the COVID-19 pandemic may materially and adversely affect the Company’s operations, financial results and condition in future periods are also subject to significant uncertainty.
Inputs and assumptions relate to, among other things, interest rates, foreign exchange rates, cost of capital, commodity prices, and the amount and timing of future cash flows, while accounting judgments take into consideration the business and economic uncertainties related to the COVID-19 pandemic and the future response of governments, the Company and others to those uncertainties. In the current environment, the inputs and assumptions and judgements are subject to greater variability than normal, which could in the future significantly affect judgments, estimates and assumptions made by management as they relate to potential impact of the COVID-19 pandemic on various financial accounts and note disclosures and could lead to a material adjustment to the carrying value of the assets or liabilities affected. The impact of current uncertainty on judgments, estimates and assumptions includes the Company’s valuation of the long-term assets (including the assessment for impairment and impairment reversal), estimation of reclamation provisions, estimation of mineral reserves and mineral resources, and estimation of income and mining taxes. Actual results may differ materially from these estimates.
Development, Commissioning, and Operation of the Molo Graphite Mine
The development, commissioning, and operation of Phase 1 is based on management’s expectations, and may be delayed by several factors, some of which are beyond the Company’s control. There is a risk that development, commissioning, and achievement of commercial production will not be completed on time or on budget, or at all. Successful development and operation of Phase 1 may be affected by the design and construction of an efficient processing facility, the cost and availability of suitable machinery, supplies, equipment and skilled labor, the existence of competent operational management, prudent financial administration, the availability and reliability of appropriately skilled and experienced employees and is dependent on the receipt of various operating permits and the import of equipment into Madagascar (none of which can be assured). Further, the revenues, costs, timing, and complexities of developing and operating the Molo Graphite Mine may be significantly higher than anticipated, which could add to the cost of development, production, and operation and/or impair production and activities, thereby affecting the Company’s profitability.
It is common for new mines and processing facilities to experience unexpected problems and delays during construction, development, start-up, and commissioning activities due to late delivery of components, the inadequate availability of skilled labor and mining equipment, energy at an economic cost, adverse weather or equipment failures, the rate at which expenditures are incurred, delays in construction schedules, or delays in obtaining the required permits or consents, or to obtain the required financing. In addition, delays in the early stages of mineral production often occur. During this time, the economic feasibility of production may change. Capital costs are estimates based on the interpretation of geological data, feasibility studies and other conditions, and there can be no assurance that they will prove to be accurate.
Construction and Start-Up of New Mines and Industrial Plants
The development and construction of the Molo Graphite Mine and the BAF require the construction of significant new industrial facilities. The success of construction projects and the start-up of new mines and industrial plants by the Company’s is subject to a number of risks and challenges including the availability and performance of engineering and construction contractors, suppliers and consultants; unforeseen geological formations; the implementation of new mining and industrial processes; the receipt of required governmental approvals and permits in connection with the construction of mining and industrial facilities and the conduct of operations, including environmental and operating permits; price escalation on all components of construction and start-up; engineering and mine design adjustments; the underlying characteristics, quality and unpredictability of the exact nature of mineralogy of a deposit and the consequent accurate understanding of ore or concentrate production; and the successful completion and operation of haulage ramp and conveyors to move ore and other operational elements. Any delay in the performance of any one or more of the contractors, suppliers, consultants or other persons on which the Company is dependent in connection with its construction and development activities, a delay in or failure to receive the required governmental approvals and permits in a timely manner or on reasonable terms, or a delay in or failure in connection with the completion and successful operation of the operational elements in connection with the mine and the industrial facilities could delay or prevent the construction and start-up as planned and may result in additional costs being incurred by the Company beyond those budgeted. There can be no assurance that current or future construction and start-up plans implemented by the Company will be successful.
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| NEXTSOURCE MATERIALS INC. ANNUAL INFORMATION FORM For the year ended June 30, 2022 |
Geopolitical Risk and Conflict
As the Company’s operations expand and reliance on global supply chains increases, the impact of significant geopolitical risk and conflict globally may have a more sizeable and unpredictable impact on the Company’s business, financial condition, and operations than has traditionally been the case. The recent conflict in Ukraine and the global response to this conflict as it relates to sanctions, trade embargos, and military support, has resulted in significant uncertainty as well as economic and supply chain disruptions. Should this conflict go on for an extended period of time, expand beyond Ukraine, or should other geopolitical disputes and conflicts emerge in other regions, this could result in material adverse effects on the Company.
Additional Financings
The Company will require additional financing through equity securities and/or debt to complete the development, construction and commissioning of Phase 2 of the Molo Graphite Mine and the BAF. The success and the pricing of any such capital raising and/or debt financing is dependent upon the prevailing market conditions at that time and upon the Company’s ability to attract significant amounts of debt and/or equity. There is no assurance that such financing will be obtained on terms satisfactory to the Company. Failure to obtain any financing necessary for the Company’s capital expenditure could result in the delay or indefinite postponement of further construction and development of either or both of the Molo Graphite Mine or the BAF, which in turn would materially and adversely affect the financial and operating results of the Company and the market price of the Company’s securities. If the Company raises additional funding by issuing additional equity securities or convertible debt securities such financings may substantially dilute the interests of shareholders of the Company and reduce the value of their investment. Additional financings and share issuances may result in a substantial dilution to shareholders of the Company and decrease the value of the Company’s securities.
The Company’s development and exploration projects are in the African country of Madagascar and are subject to country political and regulatory risks.
The Company is actively monitoring the political climate in Madagascar and continues to hold meetings with representatives of the government and the Ministries in charge of mining. Depending on future actions taken by the government, or any future government, the Company’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 Company’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 Company’s business, results of operations and financial condition. The Company’s operations may also be affected in varying degrees by terrorism; military conflict or repression; crime; populism; activism; labour unrest; attempts to renegotiate or nullify existing concessions, licenses, permits and contracts; unstable or unreliable legal systems; changes in fiscal regimes including taxation, and other risks arising out of sovereignty issues.
The Company 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 Company’s assets and operations in Madagascar.
The Company has a Significant Shareholder
Vision Blue holds approximately 35.8% of the issued and outstanding Common Shares. Vision Blue is also the beneficial owner of 23,214,286 Warrants. Dispositions by a significant shareholder could have an adverse effect on the market price of the Common Shares, as the market price of the Common Shares could fall. As a result of the significant holdings, there is a risk that the Company’s securities are less liquid and trade at a relative discount compared to circumstances where a significant shareholder does not have the ability to influence or determine matters affecting the Company. Additionally, there is a risk that its significant interests in the Company discourages transactions involving a change of control, including transactions in which an investor, as a holder of the Company’s securities, would otherwise receive a premium for its securities in the Company over the then current market price. Further, as long as Vision Blue maintains its current ownership interest in the Company, it may be able to exert influence over matters that are to be determined by votes of the holders of Common Shares. There is a risk that the interests of Vision Blue may differ from those of other shareholders.
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| NEXTSOURCE MATERIALS INC. ANNUAL INFORMATION FORM For the year ended June 30, 2022 |
Economic dependence on the Molo Graphite Mine.
The Company’s principal mineral property is the Molo Graphite Mine. As a result, unless the Company acquires or develops any additional material properties or projects, any adverse developments affecting this project or our rights to develop the Molo Graphite Mine could materially adversely affect the Company’s business, financial condition and results of operations.
Additional permits and licenses are necessary to complete the development of the Molo Graphite Mine.
The Company successfully converted its exploration permit for the Molo Graphite Mine into a mining permit. However, the Company 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 have been undertaken or will be in due course at the appropriate time. The Company 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.
Fluctuations in the market price of graphite and other metals may adversely affect and the value of the Company’s securities, revenue projections and the ability of the Company to develop Phase 2 of the Molo Graphite Mine.
The value of the Company’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 Company’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 slowing in China’s economic growth could result in even lower prices and could negatively impact the value of the Company’s securities. Excess global supply of graphite could result in a decrease in the price of graphite and other metals, which could adversely impact the projected revenues from the Molo Graphite Mine. Prolonged decreases in the price of graphite or other metals could adversely impact the ability of the Company to proceed with the development of Phase 2 of the Molo Graphite Mine.
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 Company 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
The Company has a limited operating history and expects to incur operating losses for the foreseeable future.
Since incorporation, the Company has principally operated as a mineral exploration and evaluation company and has not earned any revenues. Although the Company received a mining permit in 2019 and initiated construction of its first mine in 2021, the Company has no operating history as a mining company and there is no basis to assume the Company will be successful as a mining company. There are numerous difficulties normally encountered by mining companies and these companies experience a high rate of failure.
The Company expects continue to continue incur operating losses for the foreseeable future until the Molo Graphite Mine generates sufficient recurring revenues to report operating profits, but there is no assurance that construction will be completed or that the mine will ever achieve profitable operations.
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| NEXTSOURCE MATERIALS INC. ANNUAL INFORMATION FORM For the year ended June 30, 2022 |
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.
Exploration for minerals is a speculative venture involving substantial risk. There are numerous difficulties normally encountered by exploration companies and these companies experience a high rate of failure. The Company cannot provide investors with any assurance that any of the Company’s mineral claims, properties, resources or reserves will ever achieve commercial production. The exploration and evaluation work completed on the Molo Graphite Mine claims may not result in commercial production of graphite. The exploration and evaluation work completed on the Green Giant Vanadium Project may not result in commercial production of vanadium or other minerals.
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 Company’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 Company’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 Company’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 Company’s activities or those of other mining companies affecting the environment, human health and safety of communities in which the Company operates. Delays in obtaining or failure to obtain government permits and approvals may adversely affect the Company’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 Company’s operations, including its ability to explore or develop properties, commence production or continue operations.
The Company’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 Company 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 Company’s closure processes and operations.
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 search for valuable minerals involves numerous hazards. As a result, the Company may become subject to liability for such hazards, including pollution, cave-ins and other hazards against which the Company cannot, or may elect not, to insure against. The Company 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 Company’s asset value and cause us to liquidate all of its assets.
The Company’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 Company’s projects.
The Company 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 Company 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 Company’s is unable to full pay for the cost of remedying an environmental problem, the Company might be required to enter into an interim compliance measure pending completion of the required remedy.
| 36 |
| NEXTSOURCE MATERIALS INC. ANNUAL INFORMATION FORM For the year ended June 30, 2022 |
Should the Company lose the services of key executives, the Company’s financial condition and proposed expansion may be negatively impacted.
The Company depends on the continued contributions of the Company’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 Company relies on Craig Scherba, the President and Chief Executive Officer and Marc Johnson, the Chief Financial Officer.
The Company does not maintain key man life insurance. Should the Company lose any or all of their services and the Company is unable to replace their services with equally competent and experienced personnel, the Company’s operational goals and strategies may be adversely affected, which will negatively affect potential revenues.
Because access to the Company’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 Company’s claims and interests is restricted due to their remote locations and because of weather conditions. Some of the Company’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 Company’s business to fail.
Climate change and related regulatory responses may impact the Company’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 Company’s business or the regulatory responses to it, although the Company 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 Company operates, the Company could be harmed. While the Company 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 Company’s business, its plans may not fully protect us from all such disasters or events.
Compliance with changing regulation of corporate governance and public disclosure will result in additional expenses and pose challenges for management.
The Company’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 Company’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 Company’s assets or relevant contracting parties are located could result in some or all of the Company’s profits being subject to additional taxation or other tax liabilities being applicable to the Company 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 Company’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 Company’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 Company’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 Company less attractive to counterparties. Such changes could adversely affect the Company’s ability to raise additional funding or make future investments.
The Company may experience losses due to foreign exchange translations.
From time to time the Company 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 Company’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 Company’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 Company has not entered into derivative instruments to offset the impact of foreign exchange fluctuations. In addition, certain of the Company’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.
| 37 |
| NEXTSOURCE MATERIALS INC. ANNUAL INFORMATION FORM For the year ended June 30, 2022 |
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 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 Company’s corporate policies mandate compliance with these anti-bribery laws, which often carry substantial penalties. There can be no assurance that the Company’s internal control policies and procedures always will protect it from recklessness, fraudulent behavior, dishonesty or other inappropriate acts committed by the Company’s affiliates, employees or agents. As such, the Company’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 Company’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 Company 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 Company’s business and the Company’s financial condition. The current global macroeconomic environment may affect the Company’s ability to access the capital markets may be severely restricted at a time when the Company wishes or needs to access such markets, which could have a materially adverse impact on the Company’s flexibility to react to changing economic and business conditions or carry on operations.
The market price for the Common Shares is particularly volatile given the Company’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 Company 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 Company is a speculative or “risky” investment due to the Company’s limited operating history, lack of profits to date and uncertainty of future market acceptance for the Company’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 Company’s control and may decrease the market price of the Common Shares, regardless of the Company’s performance. The Company 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 Company’s financial condition or results of operations as reflected in its financial statements. Other factors unrelated to the performance of the Company 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 Company’s business may be limited if investment banks with research capabilities do not follow the Company’s securities; lessening in trading volume and general market interest in the Company’s securities may affect an investor’s ability to trade significant numbers of Common Shares; the size of the Company’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 Company. Class action litigation often has been brought against companies following periods of volatility in the market price of their securities. The Company 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.
| 38 |
| NEXTSOURCE MATERIALS INC. ANNUAL INFORMATION FORM For the year ended June 30, 2022 |
The Company does not intend to pay dividends in the foreseeable future.
The Company does not anticipate paying cash dividends in the foreseeable future. The Company may not have sufficient funds to legally pay dividends. Even if funds are legally available to pay dividends, the Company 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 Company’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 Company 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.
9. DIVIDENDS AND DISTRIBUTIONS
The Company does not pay dividends and is unlikely to do so in the immediate or foreseeable future.
10. DESCRIPTION OF THE CAPITAL STRUCTURE
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 common shares have no par value, and the authorized share capital is composed of an unlimited number of common shares.
As of June 30, 2022, the Company had the following outstanding securities:
| Common shares issued and outstanding |
|
| 101,872,614 |
|
| Warrants |
|
| 23,214,286 |
|
| Stock options |
|
| 1,910,000 |
|
| Restricted share units (RSUs) |
|
| 270,000 |
|
| Fully diluted common shares |
|
| 127,266,900 |
|
Common Shares
As of June 30, 2022, the Company had 101,872,614 common shares issued and outstanding (June 30, 2021: 98,184,260).
The following shares were issued during the year ended June 30, 2022:
|
| (a) | On September 23, 2021, a total of 211,112 warrants priced at CAD$0.90 were exercised into 211,112 common shares for gross proceeds of $150,588. |
|
|
|
|
|
| (b) | On October 5, 2021, a total of 54,616 warrants priced at CAD$0.65 and 206,667 warrants priced at CAD$0.90 were exercised into 261,283 common shares for gross proceeds of $175,077. |
|
|
|
|
|
| (c) | On October 20, 2021, a total of 155,556 warrants priced at CAD$0.90 were exercised into 155,556 common shares for gross proceeds of $113,110. |
|
|
|
|
|
| (d) | On October 22, 2021, a total of 214,445 warrants priced at CAD$0.90 were exercised into 214,445 common shares for gross proceeds of $156,129. |
|
|
|
|
|
| (e) | On November 23, 2021, a total of 100,000 warrants priced at CAD$0.65 were exercised into 100,000 common shares for gross proceeds of $51,407. |
|
|
|
|
|
| (f) | On December 16, 2021, a total of 123,518 RSUs were converted into common shares. |
|
|
|
|
|
| (g) | On March 2, 2022, a total of 461,539 warrants priced at CAD$0.65 were exercised into 461,539 common shares for gross proceeds of $235,804. |
|
|
|
|
|
| (h) | On March 31, 2022, a total of 30,800 warrants priced at CAD$0.65 were exercised into 30,800 common shares for gross proceeds of $15,998. |
|
|
|
|
|
| (i) | On April 28, 2022, a total of 38,500 warrants priced at CAD$0.65 were exercised into 38,500 common shares for gross proceeds of $19,575. |
|
|
|
|
| 39 |
| NEXTSOURCE MATERIALS INC. ANNUAL INFORMATION FORM For the year ended June 30, 2022 |
|
| (j) | On May 18, 2022, a total of 325,000 warrants priced at CAD$0.65 were exercised into 325,000 common shares for gross proceeds of $162,345. |
|
|
|
|
|
| (k) | On May 18, 2022, a total of 220,000 options priced at USD$0.66 were exercised into 220,000 common shares for gross proceeds of $144,833. |
|
|
|
|
|
| (l) | On May 23, 2022, a total of 220,000 options priced at USD$0.66 were exercised into 220,000 common shares for gross proceeds of $146,764. |
|
|
|
|
|
| (m) | On June 2, 2022, a total of 220,000 options priced at USD$0.66 were exercised into 220,000 common shares for gross proceeds of $145,200. |
|
|
|
|
|
| (n) | On June 9, 2022, a total of 215,000 options priced at USD$0.66 were exercised into 215,000 common shares for gross proceeds of $141,900. |
|
|
|
|
|
| (o) | On June 24, 2022, a total of 30,800 warrants priced at CAD$0.65 were exercised into 30,800 common shares for gross proceeds of $15,529. |
|
|
|
|
|
| (p) | On June 27, 2022, a total of 180,000 warrants priced at CAD$0.65 were exercised into 180,000 common shares for gross proceeds of $91,090. |
|
|
|
|
|
| (q) | On June 30, 2022, a total of 680,801 warrants priced at CAD$0.65 were exercised into 680,801 common shares for gross proceeds of $343,538. |
Common Share Purchase Warrants
As of June 30, 2022, the Company had 23,214,286 common share purchase warrants outstanding (June 30, 2021: 25,904,122) with a weighted average expiration of 0.88 years (June 30, 2021: 1.77 years), which are exercisable into 23,214,286 (June 30, 2021: 25,904,122) common shares at a weighted average exercise price of USD$0.78 (June 30, 2021: USD$0.78). All outstanding warrants vested on their respective issue dates.
|
|
|
| As at |
|
|
| As at |
| Issued | Expiration | Exercise | June 30, |
|
|
| June 30, |
| Date | Date | Price | 2021 | Issued | Cancelled | Exercised | 2022 |
| October 25, 2019 | October 25, 2021 | CAD $0.90 | 787,780 | - | - | (787,780) | - |
| July 2, 2020 | July 2, 2022 | CAD $0.65 | 1,902,056 | - | - | (1,902,056) | - |
| May 19, 2021 | May 19, 2023 | CAD $1.00 | 23,214,286 | - | - | - | 23,214,286 |
| Totals |
|
| 25,904,122 | - | - | (2,689,836) | 23,214,286 |
Nil common share purchase warrants were issued during the year ended June 30, 2022.
Stock Options
As of June 30, 2022, the Company had 1,910,000 stock options outstanding (June 30, 2021: 2,780,000) with a weighted average expiration of 1.74 years (June 30, 2021: 2.15), which are exercisable into 1,910,000 common shares (June 30, 2021: 2,780,000) at a weighted average exercise price of USD$2.17 (June 30, 2021: USD$1.73). All the outstanding stock options vested on their respective grant dates.
|
|
|
| As at |
|
|
| As at |
| Award & Vesting | Expiration | Exercise | June 30, |
|
|
| June 30, |
| Date | Date | Price | 2021 | Awarded | Cancelled | Exercised | 2022 |
| June 9, 2017 | June 9, 2022 | USD $0.66 | 900,000 | - | (25,000) | (875,000) | - |
| March 26, 2019 | March 26, 2024 | CAD $1.00 | 580,000 | - | - | - | 580,000 |
| March 19, 2021 | March 19, 2024 | CAD $3.60 | 1,300,000 | - | - | - | 1,300,000 |
| May 11, 2022 | May 11, 2025 | CAD $2.50 | - | 30,000 | - | - | 30,000 |
| Totals |
|
| 2,780,000 | 30,000 | (25,000) | (875,000) | 1,910,000 |
| 40 |
| NEXTSOURCE MATERIALS INC. ANNUAL INFORMATION FORM For the year ended June 30, 2022 |
The following stock options were granted during the year ended June 30, 2022:
|
| (a) | On May 11, 2022, the Company granted 30,000 stock options exercisable at a price of CAD$2.50 for a period of three years. The options were valued at $43,050 using the Black-Scholes pricing model based on a risk-free rate of 2.74%, a term of 3 years, volatility of 128% and a market price of $1.93 (CAD$2.50). These stock options vested on the grant date. |
Restricted Share Units (RSUs)
As of June 30, 2022, the Company had 270,000 RSUs issued and outstanding (June 30, 2021: 475,000) which entitle the holders to receive 270,000 common shares (June 30, 2021: 475,000) for no additional consideration but are subject to satisfying their respective vesting conditions. The RSUs have a weighted average until vesting of 0.38 years (June 30, 2021: 0.86) and weighted average until expiration of 1.00 years (June 30, 2021: 1.40). A total of $342,880 (2021: $468,844) was expensed as share-based compensation related to vesting or cancellation of RSUs
|
|
|
| As at |
|
|
| As at |
| Grant | Vesting | Expiration | June 30, |
|
|
| June 30, |
| Date | Date | Date | 2021 | Awarded | Cancelled | Converted | 2022 |
| Vesting condition - Employment on vesting date: |
|
|
|
|
| ||
| March 19, 2021 | December 31, 2022 | June 30, 2023 | 200,000 | - | - | - | 200,000 |
| May 11, 2022 | July 14, 2022 | June 30, 2023 | - | 40,000 | - | - | 40,000 |
| Vesting condition - Milestone achieved on vesting date: |
|
|
|
|
| ||
| March 19, 2021 | June 30, 2022 | December 31, 2022 | 125,000 | - | (125,000) | - | - |
| March 19, 2021 | May 17, 2021 | December 31, 2021 | 150,000 | - | - | (150,000) | - |
| May 11, 2022 | July 14, 2022 | June 30, 2023 | - | 30,000 | - | - | 30,000 |
| Totals |
|
| 475,000 | 70,000 | (125,000) | (150,000) | 270,000 |
The following RSUs were granted during the year ended June 30, 2022:
|
| (a) | On May 11, 2022, the Company granted 40,000 RSUs with a vesting date of July 14, 2022, whereby the holder will receive 40,000 common shares subject to achieving certain milestones on the vesting date. The grant date fair value was estimated at $77,230 based on a grant-date market price of $1.93 (CAD$2.50). |
|
|
|
|
|
| (b) | On May 11, 2022, the Company granted 30,000 RSUs with a vesting date of July 14, 2022, whereby the holder will receive 30,000 common shares subject to being employed on the vesting date. These RSUs vested on July 14, 2022. The grant date fair value was estimated at $57,922 based on a grant-date market price of $1.93 (CAD$2.50). |
The following occurred during the year ended June 30, 2022:
|
| (a) | A total of 125,000 RSUs did not satisfy their vesting conditions and were cancelled. |
|
|
|
|
|
| (b) | A total of 150,000 RSUs satisfied their vesting conditions whereby 123,518 were converted into common shares and 26,482 were forfeited to cover payroll deductions owed to the Company by the recipient resulting in a reduction of capital of $70,190. |
11. MARKET FOR SECURITIES
Trading Price and Volume
The table below sets forth the high and low closing sale prices and volume of our common shares on the TSX for each month of the most recently completed financial year. Over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, markdown or commission and may not necessarily represent actual transactions.
|
| TSX (in CAD$) | ||
| Month | High | Low | Volume |
| July 2021 | $2.91 | $2.24 | 1,976,473 |
| August 2021 | $2.71 | $2.18 | 748,990 |
| September 2021 | $3.04 | $1.91 | 2,366,325 |
| October 2021 | $3.67 | $2.59 | 2,860,702 |
| November 2021 | $3.55 | $3.04 | 3.441,316 |
| December 2021 | $3.34 | $2.94 | 2,207,881 |
| January 2022 | $4.51 | $3.45 | 6,161,025 |
| February 2022 | $4.53 | $3.64 | 3,368,504 |
| March 2022 | $4.18 | $3.43 | 2,942,958 |
| April 2022 | $3.75 | $3.06 | 1,769,209 |
| May 2022 | $3.15 | $2.29 | 2,781,107 |
| June 2022 | $2.40 | $1.93 | 1,558,845 |
| 41 |
| NEXTSOURCE MATERIALS INC. ANNUAL INFORMATION FORM For the year ended June 30, 2022 |
12. PRIOR SALES
The following table summarizes the issuance of unlisted securities of the Company during the year ended June 30, 2022.
| Date of Issuance | Number/Type of Security | Issue/Exercise Price per Security |
| May 11, 2022 | 30,000 stock options | CAD$2.50 (1) |
| May 11, 2022 | 40,000 restricted share units | $Nil (2) |
| May 11, 2022 | 30,000 restricted share units | $Nil (3) |
(1): Expiring May 11, 2025
(2): Expiring on June 30, 2023, which vested on July 14, 2022
(3): Expiring on June 30, 2023, which vested on July 14, 2022
13. SECURITIES SUBJECT TO CONTRACTUAL RESTRICTION ON TRANSFER
To the knowledge of the Company, there are not securities subject to a contractual restriction on transfer.
14. DIRECTORS AND OFFICERS
The following are the directors and officers of the Company.
| Name |
| Company Position | Principal Occupation (1) | Director Since | # and % of Common Shares Beneficially Owned, Controlled or Directed, Directly or Indirectly (2) |
| Sir Mick Davis (London, UK)
|
| Chair of the Board of Directors | CEO of Vision Blue Resources Limited | March 2021 | 35,214,286 (7) (35.8%) |
| Craig Scherba (6) (Riviere Noire, Mauritius) |
| Director, and President & Chief Executive Officer |
|
January 2010 | 419,000 (0.4%)
|
| Brett Whalen (3) (Markham, ON, Canada) |
| Director | Professional investor |
July 2020 | 1,025,000 (1.0%)
|
| Robin Borley (6) (Johannesburg, South Africa)
|
| Director, and Chief Operating Officer |
|
December 2013 | 1,199,563 (1.1%) |
| Christopher Kruba (3)(4)(5) (Windsor, ON, Canada) |
| Director | Vice-President and Senior Counsel of Nostrum Capital Corporation |
December 2020 | 360,000 (0.4%)
|
| Ian Pearce (3)(6) (Toronto, ON, Canada) |
| Director | Chair of the Board of Directors of Newgold Inc., Director of Nexa Resources, Northland Power Inc., and Metso Outotec
|
July 2021 | Nil (0.0%) |
| Marc Johnson (Toronto, ON, Canada)
|
| Chief Financial Officer |
|
| 445,601 (0.4%) |
| Brent Nykoliation (Toronto, ON, Canada)
|
| SVP Corporate Development |
|
| 430,175 (0.4%) |
| 42 |
| NEXTSOURCE MATERIALS INC. ANNUAL INFORMATION FORM For the year ended June 30, 2022 |
|
| (1) | Other than as described in the Company Position by the respective individual. |
|
| (2) | The number of securities beneficially owned or controlled or directed, directly or not directly, is not within the knowledge of the Company and has been furnished by the respective individual. |
|
| (3) | Ian Pearce, Brett Whalen, and Christopher Kruba are independent directors of the Company. |
|
| (4) | Members of the Audit Committee are Christopher Kruba (Chair), Brett Whalen, and Ian Pearce. |
|
| (5) | Members of the Governance Committee are Brett Whalen (Chair), Christopher Kruba, and Ian Pearce. |
|
| (6) | Members of the Sustainability Committee are Ian Pearce (Chair), Craig Scherba and Robin Borley. |
|
| (7) | These represent the common shares owned by Vision Blue Resources Limited. Vision Blue Resources Limited also holds 23,214,286 common share purchase warrants each exercisable at CAD$1.00 that expire on May 19, 2023. |
Cease Trade Orders, Bankruptcies, Penalties and Sanctions
No directors or executive officers of the Company: (i) is, as at the date hereof, or has been, within 10 years before the date hereof, a director, chief executive officer or chief financial officer of any company (including the Company) that (a) was subject to a cease trade order; an order similar to a cease trade order; or an order that denied the relevant company access to any exemption under securities legislation, that was in effect for a period of more than 30 consecutive days (collectively, an “Order”) that was issued while the proposed director was acting in the capacity as director, chief executive officer or chief financial officer, or (b) was subject to an Order that was issued after the proposed director ceased to be a director, chief executive officer or chief financial officer and which resulted from an event that occurred while that person was acting in the capacity as director, chief executive officer or chief financial officer; (ii) is, as at the date hereof, or has been within 10 years before the date hereof, a director or executive officer of any company (including the Company) that, while that person was acting in that capacity, or within a year of that person ceasing to act in that capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets; or (iii) has, within the 10 years before the date hereof, become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or become subject to or instituted any proceedings, arrangements or compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold the assets of the proposed director.
As at the date hereof, No directors or executive officers of the Company has been subject to: (i) any penalties or sanctions imposed by a court relating to securities legislation or by a securities regulatory authority or has entered into a settlement agreement with a securities regulatory authority; or (ii) any other penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable Stockholder in deciding whether to vote for a proposed director.
Conflicts of Interest
To the best of our knowledge, and other than as disclosed below, there are no known existing or potential conflicts of interest between us and any of our directors or officers, except that certain of the directors and officers serve as directors and officers of other public companies and therefore it is possible that a conflict may arise between their duties as a director or officer of NextSource and their duties as a director or officer of such other companies.
The Chair of the Board of Directors, Sir Mick Davis, is also the CEO of Vision Blue Resources Limited (“Vision Blue”), which owns 34.6% of the outstanding and issued common shares of the Company and 46.0% of the common shares on a fully diluted basis. Vision Blue also owns a royalty on the Molo Graphite Mine and a royalty on the Green Giant Vanadium Project. Vision Blue was also granted certain other rights in relation to the Investment Agreement announced on February 8, 2021, as described in Interest of Management and Others in Material Transactions.
15. LEGAL PROCEEDINGS AND REGULATORY ACTIONS
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 regulatory action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, securities commissions, 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.
16. INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS
To the knowledge of the Company, with the exception of what is provided herein, no director, executive officer, or person that beneficially owns, or controls or directs, directly or indirectly, more than 10% of any class or series of outstanding voting securities of the Company, or an associate or affiliate of any of the foregoing, have had any material interest, direct or indirect, in any transaction within the three most recently completed financial years or during the current financial year prior to the date of this Annual Information Form that has materially affected or is reasonably expected to materially affect the Company or its subsidiaries.
| 43 |
| NEXTSOURCE MATERIALS INC. ANNUAL INFORMATION FORM For the year ended June 30, 2022 |
On February 8, 2021, the Company announced that it entered into a binding agreement with Vision Blue Resources Limited (“Vision Blue”) to provide the Financing Package for total gross proceeds of USD$29.5M. As of the date of this AIF, Vision Blue is the beneficial owner of 35,214,286 common shares representing 34.6% of the issued and outstanding common shares of the Company. Vision Blue is also the beneficial owner of 150,000 stock options exercisable at CAD$3.60 (USD$2.63) until March 19, 2024, and 23,214,286 common share purchase warrants each exercisable at a price of CAD$1.00 (approximately USD$0.73) until May 19, 2023. If all outstanding warrants, stock options and restricted share units were exercised, Vision Blue would be the beneficial owner of 58,593,572 common shares representing 46.0% of the fully diluted common shares of the Company. The Chairman of Vision Blue, Sir Mick Davis, was appointed as Chair of the Board of Directors of the Company on March 5, 2021. The second Vision Blue appointee, Ian Pearce, was appointed to the Board of Directors of the Company on July 14, 2021.
17. TRANSFER AGENT AND REGISTRAR
The Company’s principal transfer agent and registrar for our common shares is TSX Trust Company and its principal offices are in Toronto, Canada.
18. MATERIAL CONTRACTS
The following lists material contracts that were entered into outside the normal course of business during the most recently completed fiscal year or before the last fiscal year that is still in effect:
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| a) | The Investment Agreement dated February 7, 2021, between Vision Blue Resources Limited and the Company. |
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| b) | The Royalty Agreement Relating to the Molo Graphite and Vanadium Project dated February 8, 2021, between Vision Blue Resources Limited as royalty holder, NextSource Graphite (Mauritius) Ltd., as graphite grantor, NextSource Minerals (Mauritius) Ltd. as vanadium grantor, and NextSource Materials Inc., ERG (Madagascar) SARLU, NextSource Minerals (Madagascar) and NextSource Materials (Mauritius) Ltd. as guarantors. |
19. INTEREST OF EXPERTS
Craig Scherba, P.Geo., the Company’s President and Chief Executive Officer is the Qualified Person, as defined by NI 43-101, and has reviewed and approved the scientific and technical information disclosed in this Annual Information Form. See “Directors and Officers”
Johann Knipe de Bruin, Pr. Eng, has acted as a qualified person on the Molo Feasibility Study and has reviewed and approved the information related to the Molo Feasibility Study in this Annual Information Form. Johann Knipe de Bruin, Pr. Eng, is independent of the Company in accordance with NI 43-101. As at the date hereof, Johann Knipe de Bruin hold less than one percent of the Company’s outstanding securities.
MNP LLP (“MNP”) was engaged to audit our consolidated financial statements and is independent within the meaning of the Rules of Professional Conduct of the Institute of Chartered Professional Accountants of Ontario.
20. AUDIT COMMITTEE
Oversight
The Audit Committee is responsible for the oversight and for recommending the appointment, compensation, retention, termination of an independent external auditor engaged for the purpose of preparing or issuing an audit report or performing other audit, review, or attest services for the Company. The Company has adopted a requirement to pre-approve non-audit services provided by the external auditor.
Meetings
During fiscal 2022, the audit committees met four (4) times in person or by telephone.
Composition
The members of the Audit Committee are Christopher Kruba (Chair), Brett Whalen, and Ian Pearce. Each member is independent and is financially literate as per the standards of National Instrument 52-110.
| 44 |
| NEXTSOURCE MATERIALS INC. ANNUAL INFORMATION FORM For the year ended June 30, 2022 |
Relevant Education and Experience
Christopher Kruba is Vice-President and Counsel to Nostrum Capital Corporation and a number of related corporations that are part of the Toldo Group. The Toldo Group is headquartered in Windsor, Ontario and is composed of several privately held corporations in Canada and the United States, some of which manufacture and operate in diversified sectors and others which are involved in active and passive investments across capital markets throughout North America, Europe and Africa. In addition to his responsibilities as counsel to the Toldo Group Mr. Kruba serves as corporate secretary to all the companies, is a member of group’s investment committee and he serves on the board of directors of many of the companies. In his roles Mr. Kruba is involved in capital market decisions, he has lead mergers and acquisitions and he has participated in the management and strategic planning for numerous companies, including venture capital corporations in which the group has invested. Prior to joining the Toldo Group in 2000 Mr. Kruba articled with and practiced at the law firm of Gignac, Sutts LLP in Windsor, Ontario. Mr. Kruba graduated from the University of Windsor’s Faculty of Law in 1998 and has been a Member of the Law Society of Ontario since 1999. Nostrum Capital Corporation and Mr. Kruba personally have been investors in NextSource Materials Inc. since 2011.
Brett Whalen has been a director since July 2020 and was appointed as Chair of the Board of Directors from July 2020 until March 2021. Mr. Whalen has over 20 years of investment banking and M&A expertise, spending over 16 of those years at Dundee Corporation (Dundee Corp.). During his tenure at Dundee Corp., Mr. Whalen was directly involved in completing approximately $2 billion in M&A deals and helped raise over $10 billion dollars in capital to the resource sector. Mr. Whalen became Vice President and Portfolio Manager of Goodman and Company (a division of Dundee) and was President and CEO of the CMP Group of Companies. Mr. Whalen has held Board seats of several TSX-listed and privately held companies and holds a BA (Honours) degree in Economics and Finance from Wilfrid Laurier University.
Ian Pearce is a Corporate Director with over 40 years of professional experience in the global metallurgy and mining related industries. Mr. Pearce held executive roles at Falconbridge Limited, including Chief Operating Officer and subsequently served as Chief Executive Officer of Xstrata Nickel, a subsidiary of Xstrata plc. He has also held senior engineering and project management roles managing numerous significant development projects in the mining extractives sector. Mr. Pearce currently is a Director of New Gold Inc, where he is Chair of the Board, Director of Metso Outotec Corporation and Director of Northland Power Inc. Mr. Pearce holds a Higher National Diploma in Engineering (Mineral Processing) from the University of Johannesburg and a Bachelor of Science degree from the University of the Witwatersrand in South Africa.
External Auditor Service Fees
MNP LLP served as external auditor for the fiscal year ended June 30, 2022. The Board considers that the work done by MNP LLP is compatible with maintaining MNP LLP as external auditor for the next fiscal year. All the work expended by MNP LLP on the audit was attributed to work performed by MNP LLP’s full-time permanent employees.
During the years ended June 30, 2022 and 2021, the Audit Committee pre-approved all of the fees invoiced by MNP LLP.
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| Year-ended June 30, 2022 | Year-ended June 30, 2021 |
| Audit Fees (1) | $58,422 | $46,010 |
| Audit-Related Fees (2) | $23,394 | $Nil |
| Tax Fees (3) | $20,447 | $12,412 |
| All Other Fees (4) | $Nil | $Nil |
(1): Audit Fees is the aggregate fees in USD billed by the issuer's external auditor during each of the last two fiscal years for audit services.
(2): Audit-Related Fees is the aggregate fees in USD billed during each of the last two fiscal years for assurance and related services by the issuer's external auditor that are reasonably related to the performance of the audit or review of the issuer's financial statements and are not reported under Audit Fees.
(3): Tax Fees is the aggregate fees in USD billed during each of the last two fiscal years for professional services rendered by the issuer's external auditor for tax compliance, tax advice, and tax planning.
(4): All Other Fees is the aggregate fees in USD billed during each of the last two fiscal years for products and services provided by the issuer's external auditor, other than the services reported under.
Audit Committee Charter
A. Purpose: Responsibilities and Authority
The audit committee (the “Audit Committee”) shall carry out its responsibilities under applicable laws, regulations, and stock exchange requirements with respect to the employment, compensation and oversight of the Company’s independent auditor, and other matters under the authority of the Audit Committee.
The Audit Committee shall also assist the Board in carrying out its oversight responsibilities relating to the Company’s financial, accounting and reporting processes, the management of financial and non-financial risks, the Company’s system of internal accounting and financial controls, the Company’s compliance with related legal and regulatory requirements, and the fairness of transactions between the Company and related parties.
In furtherance of this purpose, the Audit Committee shall have the following responsibilities and authority:
| 45 |
| NEXTSOURCE MATERIALS INC. ANNUAL INFORMATION FORM For the year ended June 30, 2022 |
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| (a) | External Auditors. |
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| (i) | The Audit Committee shall recommend to the Board the external auditor to be nominated for the purpose of preparing or issuing an auditor’s report or performing other audit, review, or attest services for the Company, and shall set the compensation for the external auditor and shall ensure that the external auditor reports directly to the Audit Committee. |
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| (ii) | The Audit Committee shall be directly responsible for overseeing the work of the external auditor, including the resolution of disagreements between management and the external auditor regarding financial reporting. |
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| (iii) | The Audit Committee shall review the external auditor’s audit plan, including scope, procedures, and timing of the audit. |
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| (iv) | The Audit Committee shall pre-approve all non-audit services to be provided by the external auditor. |
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| (v) | The Audit Committee shall review and approve the Company’s hiring policies regarding partners, employees and former partners and employers of the present and former external auditor. |
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| (vi) | The Audit Committee shall review fees paid by the Company to the external auditor and other professionals in respect of audit and non-audit services on an annual basis. |
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| (b) | Financial Reporting and Internal Controls. |
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| (i) | The Audit Committee shall review the annual audited financial statements to satisfy itself that they are presented in accordance with generally accepted accounting principles, that the information contained therein is not erroneous, misleading, or incomplete and that the audit function has been effectively carried out. |
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| (ii) | The Audit Committee shall report to the Board with respect to its review of the annual audited financial statements and recommend to the Board whether same should be approved prior to their being publicly disclosed. |
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| (iii) | The Audit Committee shall review the Company’s annual and interim financial statements, management’s discussion and analysis relating to annual and interim financial statements, and earnings press releases prior to any of the foregoing being publicly disclosed by the Company. |
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| (iv) | The Audit Committee shall satisfy itself that adequate procedures are in place for the review of the Company’s public disclosure of financial information extracted or derived from the Company’s financial statements other than the disclosure referred to in Section (b)(iii) of this Charter, and periodically assess the adequacy of these procedures. |
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| (v) | The Audit Committee shall oversee the preparation of reports relating to the Audit Committee required under applicable laws, regulations and stock exchange requirements. |
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| (vi) | The Audit Committee shall oversee any investigations of alleged fraud and illegality relating to the Company’s finances. |
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| (vii) | The Audit Committee shall establish whistleblowing procedures for: (1) the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters; and (2) the confidential, anonymous submission by employees of the Company or concerns regarding questionable accounting or auditing matters. |
| 46 |
| NEXTSOURCE MATERIALS INC. ANNUAL INFORMATION FORM For the year ended June 30, 2022 |
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| (c) | Risk Management |
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| (i) | The Audit Committee shall meet no less frequently than annually with the external auditor and the Chief Financial Officer to review accounting practices, internal controls, management information systems, cybersecurity, auditing matters and such other matters as the Audit Committee deems appropriate. |
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| (ii) | The Audit Committee shall inquire of management and the external auditor regarding significant financial and non-financial risks or exposures to which the Company may be subject and shall assess the adequacy of the steps that management has taken to minimize, manage and respond to such risks. |
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| (iii) | The Audit Committee shall discuss with management and the external auditor any correspondence with regulators or governmental agencies and any employee complaints or reports which raise material issues regarding the Company’s financial statements or accounting policies. |
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| (iv) | The Audit Committee shall oversee the internal audit functions (as applicable). |
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| (v) | The Audit Committee shall exercise oversight with respect to whistleblower and anti-fraud programs and controls. |
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| (vi) | The Audit Committee shall establish procedures for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters, and the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters. |
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| (vii) | The Audit Committee shall review the availability and or adequacy of insurance coverage for insurable risks. |
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| (viii) | The Audit Committee shall review legal and regulatory compliance matters that could have a material impact on the Company’s business, operations or financial statements. |
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| (d) | Additional Responsibilities and Authority |
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| (i) | The Audit Committee shall have the authority to: (i) to engage independent counsel and other advisors as it determines necessary to carry out its duties, (ii) to set and pay the compensation for any advisors employed by the Audit Committee, and (iii) to communicate directly with the internal (as applicable) and external auditors. |
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| (ii) | The Audit Committee shall perform any other responsibilities consistent with this Charter and any applicable laws as the Audit Committee or Board deems appropriate. |
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| (iii) | Conduct an annual performance evaluation of the Audit Committee and identify opportunities for improved effectiveness. |
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B. Limitation of Audit Committee’s Role
While the Audit Committee has the responsibilities and powers set forth in this Charter, it is not the duty of the Audit Committee to plan or conduct audits or to determine that the Company’s financial statements and disclosures are complete and accurate and are in accordance with GAAP and applicable rules and regulations. These are the responsibilities of management and the external auditor.
C. Structure and Membership
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| a. | Number and minimum qualifications |
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| The Audit Committee shall consist of a minimum of three persons.
All members of the Audit Committee shall meet the experience and financial literacy requirements of National Instrument NI 52-110 and the rules of the Toronto Stock Exchange. | |
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| b. | Independence Requirements |
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| All the members of the Audit Committee shall be “independent” as required for audit committees by National Instrument 52-110 and the rules of the Toronto Stock Exchange. | |
| 47 |
| NEXTSOURCE MATERIALS INC. ANNUAL INFORMATION FORM For the year ended June 30, 2022 |
|
| c. | Financial Literacy |
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| National Instrument 52-110
Section 3.1(4) states that each audit committee member must be financially literate.
Section 1.6 defines the meaning of financial literacy as follows:
“For the purposes of this Instrument, an individual is financially literate if he or she has the ability to read and understand a set of financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of the issues that can reasonably be expected to be raised by the issuer’s financial statements.” |
21. ADDITIONAL INFORMATION
Additional information related to the Company is provided in the Company’s audited Consolidated Financial Statements for the years ended June 30, 2022 and 2021.
Additional information, including the financial statements and management discussion and analysis (MD&A) for the most recently completed financial year, is available on SEDAR at www.sedar.com or on the Company website at www.nextsourcematerials.com.
| 48 |
EXHIBIT 99.2
Audited Consolidated Financial Statements
For the years ended June 30, 2022, and 2021
Expressed in US Dollars
Independent Auditor's Report |
To the Shareholders of NextSource Materials Inc.:
Opinion
We have audited the consolidated financial statements of NextSource Materials Inc. (the “Company”), which comprise the statements of consolidated financial position as at June 30, 2022 and June 30, 2021, and the consolidated statements of operations and comprehensive income (loss), changes in shareholders’ equity (deficit) and cash flows for each of the years in the three-year period ended June 30, 2022, and notes to the consolidated financial statements, including a summary of significant accounting policies.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as at June 30, 2022 and June 30, 2021, and its consolidated financial performance and its cash flows for each of the years in the three-year period ended June 30, 2022 in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Basis for Opinion
We conducted our audits in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audits of the consolidated financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Material Uncertainty Related to Going Concern
We draw attention to Notes 2 and 18 in the consolidated financial statements, which indicates that the Company had a working capital deficiency. As stated in Notes 2 and 18, these events or conditions, along with other matters as set forth in Note 18, indicate that a material uncertainty exists that may cast significant doubt on the Company’s ability to continue as a going concern. Our opinion is not modified in respect of this matter.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
In addition to the matter described in the Material Uncertainty Related to Going Concern section, we have determined the matter described below to be the key audit matters to be communicated in our report.
| 2 |
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| Key Audit Matter Description |
| Audit Response |
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| Royalty Obligation – Valuation
The Company has a $7,731,196 liability balance with respect to funds received from a royalty agreement. As minimum payments are due regardless of production outcome, the royalty obligation has been assessed as a financial liability. There are significant inputs involved in determining the value of the liability. Due to the estimates and assumptions involved in the determination of the value, we consider this to be a critical audit matter. Refer to Note 10 Royalty Obligation. |
| We responded to this matter by performing audit procedures in relation to the royalty liability. Our audit work in relation to this included, but was not restricted to, the following:
• Obtained the underlying agreement to support repayment and agreement terms.
• Assessed the mathematical accuracy of the valuation calculation and the reasonability of underlying assumptions, including the repayment schedule and forecasted Molo project revenue.
• Assessed the appropriateness of the related disclosures. |
Other Matter
We previously issued an audit opinion on these consolidated financial statements based on our audits conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB) dated September 28, 2022. Subsequent to the issuance of that opinion, the Company determined it was required to obtain an attestation report on Internal Controls over Financial Reporting (ICFR) for the year ended June 30, 2022. Accordingly, we have retracted our previously issued audit opinion. The Company has not obtained, and is not seeking to obtain now, an attestation report. This opinion conducted in accordance with Canadian generally accepted auditing standards replaces the September 28, 2022 opinion.
Other Information
Management is responsible for the other information. The other information comprises Management’s Discussion and Analysis.
Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.
In connection with our audits of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audits or otherwise appears to be materially misstated. We obtained the Management’s Discussion and Analysis prior to the date of this auditor’s report. If, based on the work we have performed on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact.
Management concluded that as of June 30, 2022, the end of the period covered by their Management’s Discussion and Analysis, they maintained effective disclosure controls and procedures. As noted in the Other Matter paragraph, the Company did not recognize that they were required to obtain an attestation report.
Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Standards Accounting Board, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
| 3 |
In preparing the consolidated financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting process.
Auditor's Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
| · | Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. |
| · | Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. |
| · | Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. |
| · | Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Company to cease to continue as a going concern. |
| · | Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. |
| · | Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. |
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audits and significant audit findings, including any significant deficiencies in internal control that we identify during our audits.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
| 4 |
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
The engagement partner on the audit resulting in this independent auditor's report is Sandra Alison Solecki.
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| Chartered Professional Accountants | |
July 5, 2023 |
| Licensed Public Accountants |
| 5 |
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NextSource Materials Inc. Consolidated Statements of Financial Position (Expressed in US Dollars) |
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| As at |
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Assets |
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Current Assets: |
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Cash and cash equivalents |
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Total Current Assets |
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Deposit |
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Property, plant, and equipment (note 7) |
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Total Assets |
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Liabilities |
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Current Liabilities: |
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Fair value of warrant derivative financial liabilities (note 11) |
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Total Current Liabilities |
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Total Liabilities |
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Accumulated deficit |
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Total Liabilities and Shareholders’ Equity (Deficit) |
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Nature of operations (note 1) |
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Basis of presentation and going concern (note 2) |
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Mine development property (note 5) |
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The accompanying notes are an integral part of these consolidated financial statements. |
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NextSource Materials Inc.
Consolidated Statements of Operations and Comprehensive Income (Loss)
(Expressed in US Dollars, except share and per share amounts)
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Revenues |
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General and administrative expenses (note 16 and 17) |
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Share-based compensation (note 17) |
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Amortization of plant and equipment (note 7) |
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Lease finance costs (note 9) |
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| |||
Flow through provision (gain) (note 12) |
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| ( | ) |
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| ( | ) |
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| |
Foreign currency translation (gain) loss |
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| |||
Interest (income) |
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| ( | ) |
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| ( | ) |
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Interest expense |
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Foreign taxes |
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Sub-total before other items |
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Realized gain on disposal of asset |
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| ( | ) |
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| |
Government assistance |
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| ( | ) | ||
Change in value of royalty obligation (note 10) |
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| |||
Change in value of warrant liability (note 11) |
|
| ( | ) |
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| ( | ) | |
Change in value of production obligation (note 12) |
|
| ( | ) |
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| ||
Net income (loss) for the year |
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| ( | ) |
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| ( | ) | |
Other comprehensive income |
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Items that will be reclassified subsequently to net loss |
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Translation adjustment for foreign operations |
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| |||
Net income (loss) and comprehensive income (loss) for the year |
| $ |
|
| $ | ( | ) |
| $ | ( | ) | |
Weighted-average common shares (basic and diluted) |
|
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| |||
Net income (loss) per common shares (basic and diluted) |
| $ |
|
| $ | ( | ) |
| $ | ( | ) | |
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The accompanying notes are an integral part of these consolidated financial statements. |
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| 7 |
|
NextSource Materials Inc.
Consolidated Statements of Changes in Shareholders’ Equity (Deficit)
(Expressed in US Dollars, except share amounts)
|
| Common Shares |
|
| Share |
|
| Accumulated |
|
| Accumulated Other |
|
| Total (Deficit) |
| |||||
|
| Outstanding |
|
| Capital |
|
| Deficit |
|
| Comprehensive Income |
|
| Equity |
| |||||
|
| # |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
Balance as at June 30, 2020 |
|
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|
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|
|
| ( | ) |
|
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| ( | ) | |||
Private placement of common shares |
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| |||||
Cost of issue of private placement of common shares |
|
| - |
|
|
| ( | ) |
|
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|
|
| ( | ) | ||
Reclassification as warrant liability |
|
| - |
|
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| ( | ) |
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| ( | ) | ||
Shares issued on exercise of stock options |
|
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| |||||
Restricted share units expensed over vesting period |
|
| - |
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Shares issued on exercise of warrants |
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Reclassification of warrant liability to equity on exercise of warrants |
|
| - |
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Shares issued on conversion of restricted share units |
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Stock options granted under long-term incentive plan |
|
| - |
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| ||||
Net loss for the year |
|
| - |
|
|
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| ( | ) |
|
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|
| ( | ) | ||
Cumulative translation adjustment |
|
| - |
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| ||||
Balance as at June 30, 2021 |
|
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| ( | ) |
|
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|
| ( | ) | |||
Reclassification of warrant liability to equity on exercise of warrants |
|
| - |
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| ||||
Shares issued on exercise of warrants |
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Shares issued on exercise of stock options |
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Stock options granted under long-term incentive plan |
|
| - |
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| ||||
Restricted share units expensed over vesting period |
|
| - |
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| ||||
Shares issued on conversion of restricted share units |
|
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| ( | ) |
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| ( | ) | |||
Net income for the year |
|
| - |
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| ||||
Cumulative translation adjustment |
|
| - |
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| ||||
Balance as at June 30, 2022 |
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| ( | ) |
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| ( | ) | |||
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The accompanying notes are an integral part of these consolidated financial statements. |
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| |||||||||||||||
| 8 |
|
NextSource Materials Inc.
Consolidated Statements of Cash Flows
(Expressed in US Dollars)
|
| Year ended |
|
| Year ended |
|
| Year ended |
| |||
|
| June 30, |
|
| June 30, |
|
| June 30, |
| |||
|
| 2022 |
|
| 2021 |
|
| 2020 |
| |||
Operating activities |
|
|
|
|
|
|
|
|
| |||
Net income (loss) for the year |
| $ |
|
| $ | ( | ) |
| $ | ( | ) | |
Add (deduct) items not affecting cash: |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of plant and equipment |
|
|
|
|
|
|
|
|
| |||
Change in value of lease obligations |
|
|
|
|
|
|
|
| ( | ) | ||
Change in value of royalty obligations |
|
|
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|
|
|
|
|
| |||
Change in value of warrant liability |
|
| ( | ) |
|
|
|
|
| ( | ) | |
Change in value of production obligation |
|
| ( | ) |
|
|
|
|
|
| ||
Realized gain on disposal of asset |
|
| ( | ) |
|
|
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|
| ||
Share-based compensation settled with shares |
|
|
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| |||
Government assistance |
|
|
|
|
|
|
|
| ( | ) | ||
Subtotal |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Change in non-cash working capital balances: |
|
|
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|
|
|
|
|
|
|
|
|
(Increase) decrease in amounts receivable and prepaid expenses |
|
| ( | ) |
|
| ( | ) |
|
|
| |
Increase (decrease) in accounts payable and accrued liabilities |
|
|
|
|
| ( | ) |
|
| ( | ) | |
Increase (decrease) in provision |
|
| ( | ) |
|
|
|
|
| ( | ) | |
Net cash used in operating activities |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Investing activities |
|
|
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|
|
Deposit |
|
| ( | ) |
|
|
|
|
|
| ||
Additions to property, plant, and equipment |
|
| ( | ) |
|
| ( | ) |
|
|
| |
Dispositions of equipment |
|
|
|
|
|
|
|
|
| |||
Net cash used in investing activities |
|
| ( | ) |
|
| ( | ) |
|
|
| |
Financing activities |
|
|
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|
|
Increase (decrease) in share subscriptions received in advance |
|
|
|
|
| ( | ) |
|
|
| ||
Proceeds from issuance of common shares |
|
|
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| |||
Common share issue costs |
|
|
|
|
| ( | ) |
|
| ( | ) | |
Exercise of stock options |
|
|
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|
|
|
|
|
| |||
Exercise of warrants |
|
|
|
|
|
|
|
|
| |||
Lease liability principal payments |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Short term debt |
|
|
|
|
| ( | ) |
|
|
| ||
Proceeds from royalty financing |
|
|
|
|
|
|
|
|
| |||
Net cash provided by financing activities |
|
|
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|
|
| |||
|
|
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|
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|
|
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|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
|
|
|
|
|
|
| |||
Net increase (decrease) in cash and cash equivalents during the year |
|
| ( | ) |
|
|
|
|
| ( | ) | |
Cash and cash equivalents, beginning of year |
|
|
|
|
|
|
|
|
| |||
Cash and cash equivalents, end of year |
| $ |
|
| $ |
|
| $ |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements. |
|
|
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|
| 9 |
|
NextSource Materials Inc. Notes to the Consolidated Financial Statements For the years ended June 30, 2022 and 2021 (Expressed in US Dollars) |
1. 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 are listed on the Toronto Stock Exchange (the “TSX”) under the symbol “NEXT” and the OTCQB under the symbol “NSRCF”.
NextSource is intent on becoming a vertically integrated global supplier of battery materials through the mining and value-added processing of graphite and other minerals.
On March 29, 2021, the Company announced the initiation of construction for Phase 1 of the Molo Graphite Mine, located in Madagascar, with a production capacity of 17,000 tpa of SuperFlake® graphite concentrate. Completion of construction activities and the start of mining activities is expected in November 2022. Completion of plant commissioning is expected in December 2022 followed by a ramp up period of up to three months prior to declaring commercial production.
On April 27, 2022, the Company released a Preliminary Economic Assessment (“PEA”) considering a Phase 2 expansion of the Molo Graphite Mine consisting of a stand-alone processing plant with a production capacity of 150,000 tpa. The Company has initiated a Feasibility Study and a front-end engineering design (“FEED”) study for the Phase 2 expansion considered in the PEA. The Feasibility Study is expected to be completed in December 2022 and the FEED study is expected to be completed after considering Phase 1 operational results. The Company will assess the results of the Feasibility and FEED studies prior to making a final construction decision.
The Company is also committed to the construction of battery anode facilities (“BAF”), which are value-added processing facilities that convert flake graphite into spheronized and purified graphite (“SPG”) and coated spheronized graphite (“CSPG”). The CSPG is typically sold to battery manufacturers as anode material, which is then assembled along with cathode material and other components into a finished lithium-ion battery. On April 12, 2021, the Company announced a binding partnership agreement for the construction of BAF plants capable of converting flake graphite into SPG and CSPG using the partner’s proven processing technology. The Company is in the process of completing technical and economic studies for the first BAF plant.
The Company also owns the Green Giant Vanadium Project, located in Madagascar, and the Sagar Project, located in Quebec, both of which are at the exploration and evaluation stage.
The Company has not previously operated any mines and has not completed the construction of any mines. No commercial revenue has been generated from any mineral resources. The Company does not pay dividends and is unlikely to do so in the immediate or foreseeable future.
These consolidated financial statements were approved by the Board of Directors of the Company (the “Board”) on July 5, 2023.
2. Basis of Presentation and Going Concern
Statement of compliance with IFRS
These consolidated financial statements have been prepared in accordance with and comply with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
Basis of measurement
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, under the historical cost basis except for certain financial instruments that are measured at fair value, as explained in the accounting policies below.
Basis of consolidation
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. GRAMAU owns 100% of ERG (Madagascar) SARLU (“ERGMAD”), a Madagascar subsidiary.
These consolidated financial statements include the financial position, results of operations and comprehensive income (loss) 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.
| 10 |
|
NextSource Materials Inc. Notes to the Consolidated Financial Statements For the years ended June 30, 2022 and 2021 (Expressed in US Dollars) |
2. Basis of Presentation (continued)
Going Concern Assumption
The accompanying consolidated financial statements have been prepared on the basis of a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. 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. These consolidated financial statements do not give effect to adjustments that would be necessary should the Company be unable to continue as a going concern and therefore need to realize its assets and liquidate its liabilities and commitments in other than the normal course of business and at amounts different from those in the accompanying consolidated financial statements.
The Company's ability to continue operations and fund its exploration and development expenditures is dependent on management's ability to secure additional financing. As of June 30, 2022, the Company had cash and cash equivalents of $
$
3. Accounting policies
Foreign currencies
The presentation and functional currency of the Company is the US dollar.
The Company has primarily expended its cash on international exploration projects and historically generated its equity funding in US dollars. The Company expects to sell graphite priced in US dollars once the Molo Graphite Mine achieves production. The Company office is located in Canada and the Company expends a portion of its payroll, professional and general and administrative costs in Canadian dollars, which are translated at the average exchange rates for the period, unless exchange rates fluctuated significantly during that period, in which case the exchange rates at the dates of transactions are used. The Company functional currency of the Mauritius subsidiaries is the United States dollar. The functional currency of the Madagascar subsidiaries is the Madagascar Ariary. Transfers of cash from the Company to its subsidiaries is typically completed using US dollars. All Ariary transactions are translated at the average exchange rates for the period, unless exchange rates fluctuated significantly during that period, in which case the exchange rates at the dates of transactions are used.
For the purpose of presenting consolidated financial statements, subsidiary company assets and liabilities are expressed in United States dollars using the prevailing exchange rates at the end of the reporting period. Any exchange differences that arise are recognized in other comprehensive income and cumulative translation adjustment in equity.
At the end of each reporting period, the Company translates foreign currency balances as follows:
| · | monetary items are translated at the closing rate in effect at the consolidated statement of financial position; |
| · | non-monetary items that are measured in terms of historical cost are translated using the exchange rate at the date of the transaction. Items measured at fair value are translated at the exchange rate in effect at the date the fair value was measured; and |
| · | revenue and expense items are translated using the average exchange rate during the period. |
The intercompany loans made to the subsidiary companies are considered part of the parent company’s net investment in a foreign operation as the Company does not plan to settle these balances in the foreseeable future. As a result of this assessment, the unrealized foreign exchange gains and losses on the intercompany loans are recorded through comprehensive income (loss). If the Company determined that settlement of these amounts was planned or likely in the foreseeable future, the resultant foreign exchange gains and losses would be recorded through the consolidated statement of operations and comprehensive income (loss).
Cash equivalents
The Company considers cash equivalents to be cash and highly liquid investments with original maturities of three months or less.
Prepayments and deposits
The Company makes prepayments and deposits to suppliers of services. These are recognized as prepayments when made and recognized as expenses when received. Prepayments and deposits on assets that are long term in nature are recorded as long-term prepayments and deposits.
| 11 |
|
NextSource Materials Inc. Notes to the Consolidated Financial Statements For the years ended June 30, 2022 and 2021 (Expressed in US Dollars) |
3. Summary of Significant Accounting Policies (continued)
Financial instruments
Financial assets and financial liabilities are recognised when the Company becomes a party to the contractual provisions of the financial instrument. Financial assets are derecognized when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and substantially all the risks and rewards are transferred. Financial liabilities are derecognized when the obligation under the liability is extinguished, discharged, cancelled or expired. Gains and losses on derecognition of financial assets and financial liabilities are recognized within financing income and financing expense, respectively.
Management determines the classification of financial assets and financial liabilities at initial recognition and, except in very limited circumstances, the classification is not changed subsequent to initial recognition. The classification depends on the purpose for which the financial instruments were acquired, their characteristics and/or management’s intent. Transaction costs with respect to instruments not classified as fair value through profit or loss are recognized as an adjustment to the cost of the underlying instruments and amortized using the effective interest method.
The Company’s financial instruments were classified in the following categories:
Financial assets measured at fair value through profit or loss (FVTPL):
An instrument is classified as fair value through profit or loss if it is held for trading or is designated as such upon initial recognition. A financial asset is classified as fair value through profit or loss if acquired principally for the purpose of selling in the short term or if so, designated by management. All derivative financial instruments fall into this category, except for those designated and effective as hedging instruments.
Financial instruments included in this category are initially recognized at fair value and transaction costs are taken directly to earnings along with gains and losses arising from changes in fair value. All changes in their fair value are recorded through the consolidated statement of operations and comprehensive income (loss).
The following financial assets are measured at fair value through profit or loss:
| · | Cash and cash equivalents |
Financial assets measured at amortized cost:
Financial assets measured at amortized cost are initially recognized at fair value net of transaction costs and are subsequently measured at amortized cost. Interest revenue on advances and loans receivable are recognized using the effective interest method.
The following financial assets are measured at amortized cost:
| · | Amounts receivable (excluding sales taxes) |
Impairment of financial assets measured at amortized costs:
At each reporting date, the Company assesses whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is impaired if there is objective evidence that the estimated future cash flows of the financial asset or the group of financial assets have been negatively impacted. Evidence of impairment may include indications that debtors are experiencing financial difficulty, default or delinquency in interest or principal payments, or other observable data which indicates that there is a measurable decrease in the estimated future cash flows.
If an impairment loss has occurred, the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The present value of the estimated future cash flows is discounted at the financial asset’s original effective interest rate. If a financial asset has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate.
The carrying amount of the asset is reduced through the use of an allowance account, and the loss is recognized in financing expense. Interest income continues to be accrued on the reduced carrying amount using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as part of financing income. Loans together with the associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realized or has been transferred to the Company.
| 12 |
|
NextSource Materials Inc. Notes to the Consolidated Financial Statements For the years ended June 30, 2022 and 2021 (Expressed in US Dollars) |
3. Summary of Significant Accounting Policies (continued)
If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is increased or reduced by adjusting the allowance account. If an impairment is later recovered, the recovery is credited to financing income.
The Company recognizes a loss allowance for the expected credit losses associated with its financial assets. Credit losses are defined as the difference between all the contractual cash flows that are due to an entity and the cash flows that it expects to receive. This difference is discounted at the original effective interest rate (or credit adjusted effective interest rate for purchased or originated credit-impaired financial assets). Expected credit losses are measured to reflect a probability-weighted amount, the time value of money, and reasonable and supportable information regarding past events, current conditions, and forecasts of future economic conditions. In applying this forward-looking approach, a distinction is made between:
| · | financial instruments that have not deteriorated significantly in credit quality since initial recognition or that have low credit risk, whereby ‘12-month expected credit losses’ are recognized (‘Stage 1’) |
| · | financial instruments that have deteriorated significantly in credit quality since initial recognition and whose credit risk is not low, whereby ‘lifetime expected credit losses’ are recognized (‘Stage 2’); and |
| · | financial assets that have objective evidence of impairment at the reporting date, whereby the asset is written off as there is no reasonable expectation of recovering all or any portion thereof (‘Stage 3’) |
The Company applied the simplified approach in accounting for amounts receivables and records the loss allowance as lifetime expected credit losses. These are the expected shortfalls in contractual cash flows, considering the potential for default at any point during the life of the financial instrument. The Company uses its historical experience, external indicators and forward- looking information to calculate the lifetime expected credit losses using a provision matrix.
For financial assets assessed as impaired at the reporting date, the Company continues to recognize a loss allowance equal to lifetime expected credit losses.
Loss allowances for expected credit losses are presented in the consolidated statement of financial position as a deduction from the gross carrying amount of the financial asset.
Financial liabilities measured at amortized cost:
Financial liabilities are initially recognized at fair value net of transaction costs and are subsequently measured at amortized cost using the effective interest method except for derivatives and financial liabilities designated as FVTPL.
All interest-related charges and, if applicable, changes in an instrument’s fair value that are reported in the consolidated statement of operations and comprehensive income (loss) are included within accretion of deferred obligation, finance costs or finance income.
The following financial liabilities are measured at amortized cost:
| · | Accounts payable |
| · | Accrued liabilities |
| · | Provisions |
| · | Royalty obligation |
| · | Short term debt |
Financial liabilities measured at fair value through profit or loss:
Financial liabilities designated as FVTPL are initially recognized at fair value and transaction costs are taken directly to the consolidated statement of operations and comprehensive income (loss) along with gains and losses arising from changes in fair value. Derivative instruments, including embedded derivatives, are recorded at fair value unless exempted from derivative treatment as normal purchase and sale. All changes in their fair value are recorded through the consolidated statement of operations and comprehensive income (loss).
The following financial liabilities are measured at fair value through profit or loss:
| · | Warrant derivative financial liabilities |
| 13 |
|
NextSource Materials Inc. Notes to the Consolidated Financial Statements For the years ended June 30, 2022 and 2021 (Expressed in US Dollars) |
3. Summary of Significant Accounting Policies (continued)
Fair value measurement
Financial instruments recorded at fair value on the consolidated statements of financial position are classified using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:
| · | Level 1 - valuation based on quoted prices (unadjusted) in active markets for identical assets or liabilities; |
| · | Level 2 - valuation techniques based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and |
| · | Level 3 - valuation techniques using inputs for the asset or liability that are not based on observable market data (unobservable inputs). |
The binomial and Black Scholes valuation techniques are permitted under IFRS for fair value calculations.
As of June 30, 2022, and 2021, only cash and cash equivalents, which is a Level 1 financial instrument, and the warrant liability, which is a Level 3 financial instrument, are recorded at fair value on the consolidated statements of financial position.
Exploration and evaluation expenditures
Exploration and evaluation expenditures are the costs incurred in the initial search for mineral deposits with economic potential or in the process of obtaining more information about existing mineral deposits. Exploration expenditures typically include costs associated with prospecting, sampling, mapping, diamond drilling and other work involved in searching for ore. Evaluation expenditures are the costs incurred to establish the technical and commercial viability of developing mineral deposits identified through exploration activities or by acquisition.
Exploration and evaluation expenditures are expensed as incurred unless it can be demonstrated that the project will generate future economic benefit. When it is determined that a project can generate future economic benefit the costs are capitalized in the property, plant and mine development line item in the consolidated statements of financial position.
The exploration and evaluation phase ends when the technical feasibility and commercial viability of extracting the mineral is demonstrable.
Mine Development Expenditures
Mine development stage expenditures are costs incurred to obtain access to proven and probable mineral reserves or mineral resources and provide facilities for extracting, treating, gathering, transporting and storing the minerals. The development stage of a mine commences when the technical feasibility and commercial viability of extracting the mineral resource has been determined.
Costs that are directly attributable to mine development are capitalized to the extent that they are necessary to bring the property to commercial production. Abnormal costs are expensed as incurred. Indirect costs are included only if they can be directly attributed to the area of interest. General and administrative costs are capitalized as part of the development expenditures when the costs are directly attributed to a specific mining development project.
Commercial Production
A mine construction project is considered to have entered the production stage when the mine construction assets are available for use. In determining whether mine construction assets are considered available for use, the criteria considered include, but are not limited to, the following:
| · | completion of a reasonable period of testing mine plant and equipment; |
| · | ability to produce minerals in saleable form (within specifications); and |
| · | ability to sustain ongoing production of minerals. |
When a mine construction project moves into the production stage, amortization commences, the capitalization of certain mine construction costs ceases, and expenditures are either capitalized to inventories or expensed as incurred. Exceptions include costs incurred for additions or improvements to property, plant, equipment, and mine development and for open-pit stripping activities.
| 14 |
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NextSource Materials Inc. Notes to the Consolidated Financial Statements For the years ended June 30, 2022 and 2021 (Expressed in US Dollars) |
3. Summary of Significant Accounting Policies (continued)
Mining properties, plant, and equipment
Mining Properties
The cost of mining properties includes the fair value attributable to proven and probable mineral reserves and mineral resources acquired in a business combination or asset acquisition, underground mine development costs, deferred stripping, capitalized exploration and evaluation costs and capitalized borrowing costs.
Significant payments related to the acquisition of land and mineral rights are capitalized as mining properties at cost. If a mineable ore body is discovered, such costs are amortized to income when commercial production commences, using the units-of-production method, based on estimated proven and probable mineral reserves and the mineral resources included in the current life of mine plan. If no mineable ore body is discovered, such costs are expensed in the period in which it is determined that the property has no future economic value.
Plant and Equipment
Expenditures for new facilities and improvements that can extend the useful lives of existing facilities are capitalized as plant and equipment at cost. The cost of an item of plant and equipment includes: its purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates; any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management; and the estimate of the costs of dismantling and removing the item and restoring the site on which it is located other than costs that arise as a consequence of having used the item to produce inventories during the period.
An item of plant and equipment is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the consolidated statements of operations and comprehensive income (loss) when the asset is derecognized.
Amortization of an asset begins when the asset is in the location and condition necessary for it to operate in the manner intended by management. Amortization ceases at the earlier of the date the asset is classified as held for sale or the date the asset is derecognized. Assets under construction are not amortized until the earlier of the end of the construction period or once commercial production is achieved. Amortization is charged according to either the units-of-production method or on a straight-line basis, according to the pattern in which the asset’s future economic benefits are expected to be consumed. The amortization method applied to an asset is reviewed at least annually.
Useful lives of plant and equipment are based on the lesser of the estimated mine lives as determined by proven and probable mineral reserves and the mineral resources included in the current life of mine plan and the estimated useful life of the asset. The following sets out the useful lives of certain assets:
| · | Exploration and evaluation equipment | |
| · | Office equipment | |
| · | Vehicles | |
| · | Right of use assets | |
| · | Processing plant |
Assets Under Construction
Cost components of a specific project that are included in the capital cost of the asset include salaries and wages directly attributable to the project, supplies and materials used in the project, and incremental overhead costs that can be directly attributable to the project.
Assets under construction are not amortized until the earlier of the end of the construction period or once commercial production is achieved. Upon achieving the production stage, the capitalized construction costs are transferred to the appropriate category within property, plant, equipment and mine development.
Borrowing Costs
Borrowing costs are capitalized to qualifying assets. Qualifying assets are assets that take a substantial period of time to prepare for the Company’s intended use, which includes projects that are in the exploration and evaluation, development or construction stages. Borrowing costs attributable to the acquisition, construction or production of qualifying assets are added to the cost of those assets until such time as the assets are substantially ready for their intended use. All other borrowing costs are recognized as finance costs in the period in which they are incurred. Where the funds used to finance a qualifying asset form part of general borrowings, the amount capitalized is calculated using a weighted average of rates applicable to the relevant borrowings during the period.
| 15 |
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NextSource Materials Inc. Notes to the Consolidated Financial Statements For the years ended June 30, 2022 and 2021 (Expressed in US Dollars) |
3. Summary of Significant Accounting Policies (continued)
Deferred Stripping
In open pit mining operations, it is necessary to remove overburden and other waste materials to access ore from which minerals can be extracted economically. The process of mining overburden and waste materials is referred to as stripping.
During the development stage of the mine, stripping costs are capitalized as part of the cost of building, developing and constructing the mine and are amortized once the mine has entered the production stage.
During the production stage of a mine, stripping costs are recorded as a part of the cost of inventories unless these costs are expected to provide a future economic benefit and, in such cases, are capitalized to property, plant and mine development.
Production stage stripping costs provide a future economic benefit when:
| · | It is probable that the future economic benefit (e.g., improved access to the ore body) associated with the stripping activity will flow to the Company; |
| · | The Company can identify the component of the ore body for which access has been improved; and |
| · | The costs relating to the stripping activity associated with that component can be measured reliably. |
Capitalized production stage stripping costs are amortized over the expected useful life of the identified component of the ore body that becomes more accessible as a result of the stripping activity.
Leases
At inception of a contract, the Company assesses whether a contract is, or contains, a lease. A contract contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Company assesses whether:
| · | The contract involves the use of an explicitly or implicitly identified asset; |
| · | The Company has the right to obtain substantially all of the economic benefits from the use of the asset throughout the contract term; |
| · | The Company has the right to direct the use of the asset. |
The Company recognizes a right-of-use asset and a lease liability at the commencement date of the lease (i.e. the date the underlying asset is available for use).
Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the initial amount of lease liabilities recognized, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received.
Unless the Company is reasonably certain to obtain ownership of the leased asset at the end of the lease term, the right-of-use assets are depreciated on a straight-line basis over the shorter of the estimated useful life and the lease term. Right-of-use assets are subject to impairment.
At the commencement date of the lease, the Company recognizes lease liabilities measured at the present value of lease payments to be made over the lease term, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing rate. The lease payments include fixed payments, variable lease payments that depend on an index or a rate, amounts expected to be paid under residual value guarantees and the exercise price of a purchase option reasonably certain to be exercised by the Company.
After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the fixed lease payments or a change in the assessment to purchase the underlying asset.
The Company presents right-of-use assets in the plant and equipment line item on the consolidated statements of financial position and lease liabilities in the lease obligations line item on the consolidated statements of financial position.
The Company has elected not to recognize right-of-use assets and lease liabilities for leases that have a lease term of 12 months or less and do not contain a purchase option or for leases related to low value assets. Lease payments on short-term leases and leases of low value assets are recognized as an expense in the consolidated statements of operations and comprehensive income (loss).
| 16 |
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NextSource Materials Inc. Notes to the Consolidated Financial Statements For the years ended June 30, 2022 and 2021 (Expressed in US Dollars) |
3. Summary of Significant Accounting Policies (continued)
Reclamation provisions
Asset retirement obligations (‘‘AROs’’) arise from the acquisition, development and construction of mining properties and plant and equipment due to government controls and regulations that protect the environment on the closure and reclamation of mining properties. The major parts of the carrying amount of AROs relate to tailings closure and rehabilitation, demolition of buildings and mine facilities, ongoing water treatment and ongoing care and maintenance of closed mines. The Company recognizes an ARO at the time the environmental disturbance occurs or a constructive obligation is determined to exist based on the Company’s best estimate of the timing and amount of expected cash flows expected to be incurred. When the ARO provision is recognized, the corresponding cost is capitalized to the related item of property, plant and equipment. Reclamation provisions that result from disturbance in the land to extract ore in the current period is included in the cost of inventories.
The timing of the actual environmental remediation expenditures is dependent on a number of factors such as the life and nature of the asset, the operating licence conditions and the environment in which the mine operates. Reclamation provisions are measured at the expected value of future cash flows discounted to their present value using a risk-free interest rate. AROs are adjusted each period to reflect the passage of time (accretion). Accretion expense is recorded in finance costs each period. Upon settlement of an ARO, the Company records a gain or loss if the actual cost differs from the carrying amount of the ARO. Settlement gains or losses are recorded in the consolidated statements of operations and comprehensive income (loss).
Expected cash flows are updated to reflect changes in facts and circumstances. The principal factors that can cause expected cash flows to change are the construction of new processing facilities, changes in the quantities of material in mineral reserves and mineral resources and a corresponding change in the life of mine plan, changing ore characteristics that impact required environmental protection measures and related costs, changes in water quality that impact the extent of water treatment required and changes in laws and regulations governing the protection of the environment.
Each reporting period, provisions for AROs are remeasured to reflect any changes to significant assumptions, including the amount and timing of expected cash flows and risk-free interest rates. Changes to the reclamation provision resulting from changes in estimate are added to or deducted from the cost of the related asset, except where the reduction of the reclamation provision exceeds the carrying value of the related assets in which case the asset is reduced to nil and the remaining adjustment is recognized in the consolidated statements of operations and comprehensive income (loss).
Environmental remediation liabilities (‘‘ERLs’’) are differentiated from AROs in that ERLs do not arise from environmental contamination in the normal operation of a long-lived asset or from a legal or constructive obligation to treat environmental contamination resulting from the acquisition, construction or development of a long-lived asset. The Company is required to recognize a liability for obligations associated with ERLs arising from past acts. ERLs are measured by discounting the expected related cash flows using a risk-free interest rate. The Company prepares estimates of the timing and amount of expected cash flows when an ERL is incurred. Each reporting period, the Company assesses cost estimates and other assumptions used in the valuation of ERLs to reflect events, changes in circumstances and new information available. Changes in these cost estimates and assumptions have a corresponding impact on the value of the ERLs. Any change in the value of ERLs results in a corresponding charge or credit to the consolidated statements of operations and comprehensive income (loss). Upon settlement of an ERL, the Company records a gain or loss if the actual cost differs from the carrying amount of the ERLs in the consolidated statements of operations and comprehensive income (loss).
The Company’s operations are subject to environmental regulations in Madagascar. As at the date of these financial statements, the Company did not have any environmental rehabilitation obligations (ERLs) and had no asset retirement obligations (AROs).
Provisions and contingent liabilities
Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where appropriate, the future cash flow estimates are adjusted to reflect risks specific to the obligation. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money. Where discounting is used, the increase in the provision due to the passage of time is recognized as financing expense. A contingent liability is disclosed where the existence of an obligation will only be confirmed by future events or where the amount of the obligation cannot be measured with reasonable reliability. Contingent assets are not recognized but are disclosed where an inflow of economic benefits is probable.
| 17 |
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NextSource Materials Inc. Notes to the Consolidated Financial Statements For the years ended June 30, 2022 and 2021 (Expressed in US Dollars) |
3. Summary of Significant Accounting Policies (continued)
Warrant liabilities
The Company issued share purchase warrants with an exercise price denominated in a currency other than its functional currency. As a result, the warrants are no longer considered solely indexed to the Company’s common shares and are classified as financial liabilities and recorded at the estimated fair value at each reporting date using the Black Scholes valuation model and Level 3 inputs on the financial instrument hierarchy. The Company records the change in fair value of the warrant liability as a component of other income and expense on the consolidated statement of operations and comprehensive income (loss).
Impairment of long-lived assets
A Cash Generating Unit (“CGU”) is defined as the smallest identifiable group of assets that are able to generate cash inflows. If an active market exists for the output produced by an asset or group of assets, that asset or group of assets shall be identified as a CGU, even if some or all of the output is used internally. At the end of each reporting period the Company assesses whether there is any indication that long-lived assets other than goodwill may be impaired. If an indicator of impairment exists, the recoverable amount of the asset is calculated in order to determine if any impairment loss is required. If it is not possible to estimate the recoverable amount of the individual asset, assets are grouped at the CGU level for the purpose of assessing the recoverable amount. An impairment loss is recognized for any excess of the carrying amount of the CGU over its recoverable amount. If the CGU includes goodwill, the impairment loss related to a CGU is first allocated to goodwill and the remaining loss is allocated on a pro-rata basis to the remaining long-lived assets of the CGU based on their carrying amounts. Impairment losses are recorded in the consolidated statements of operations and comprehensive income (loss) in the period in which they occur.
Any impairment charge that is taken on a long-lived asset other than goodwill is reversed if there are subsequent changes in the estimates or significant assumptions that were used to recognize the impairment loss that result in an increase in the recoverable amount of the CGU. If an indicator of impairment reversal has been identified, the recoverable amount of the asset is calculated in order to determine if any impairment reversal is required. A recovery is recognized to the extent the recoverable amount of the asset exceeds its carrying amount. The amount of the reversal is limited to the difference between the current carrying amount and the amount which would have been the carrying amount had the earlier impairment not been recognized and amortization of that carrying amount had continued. The impairment reversal is allocated on a pro-rata basis to the existing long-lived assets of the CGU based on their carrying amounts. Impairment reversals are recorded in the consolidated statements of operations and comprehensive income (loss) in the period in which they occur.
Share-based compensation
The Company offers equity-settled awards such as stock options and restricted share units to certain employees, officers and directors of the Company through its Long-Term Incentive Plan (“LTIP”).
Stock options
The Company’s LTIP provides for the granting of options to directors, officers, employees and service providers to purchase common shares. Options have exercise prices equal to the market price on the day prior to the date of grant. The fair value of these options is recognized in the consolidated statements of operations and comprehensive income (loss) or in the consolidated statements of financial position if capitalized as part of property, plant and mine development over the applicable vesting period as a compensation cost. Any consideration paid by employees on exercise of options or purchase of common shares is credited to share capital.
The fair value of share-based compensation is determined at the date of grant using the Black-Scholes option valuation model. Equity- settled share-based payment transactions with parties other than employees are measured at the fair value of the goods or services received, except where this fair value cannot be measured reliably, in which case they are measured at the fair value of the equity instruments granted, as at the date the Company obtains the goods or the counterparty renders the service. The fair value of the share- based compensation is only re-measured if there is a modification to the terms of the instrument, such as a change in exercise price or legal life. The fair value of the share-based compensation is recognized as an expense over the expected vesting period with a corresponding entry to shareholders’ equity.
Restricted share units (RSUs)
The Company’s LTIP provides for the granting of restricted share units (“RSU”) to directors, officers, employees and service providers to purchase common shares. RSUs are subject to vesting requirements based on specific performance measurements by the Company. The fair value for the portion of the RSUs related to market conditions is based on the application of pricing models at the grant date and the fair value for the portion related to non-market conditions is based on the market value of the shares at the grant date. Compensation expense is based on the current best estimate of the outcome for the specific performance measurement established by the Company and is recognized over the vesting period based on the number of units estimated to vest. The cost of the RSUs is recorded within equity until settled. Equity-settled awards are not remeasured subsequent to the initial grant date.
| 18 |
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NextSource Materials Inc. Notes to the Consolidated Financial Statements For the years ended June 30, 2022 and 2021 (Expressed in US Dollars) |
3. Summary of Significant Accounting Policies (continued)
Income taxes
Income tax comprises current and deferred tax. Income tax is recognized in profit or loss except to the extent that it relates to items recognized directly in equity or other comprehensive income, in which case the income tax is also recognized directly in equity or other comprehensive income.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted at the end of the reporting period, and any adjustment to tax payable in respect of previous years. Current tax assets and current tax liabilities are only offset if a legally enforceable right exists to offset the amounts and the Company intends to settle on a net basis, or to realize the asset and settle the liability simultaneously.
Deferred tax is recognized in respect of all qualifying temporary differences arising between the tax basis of assets and liabilities and their carrying amounts in the financial statements. Deferred income tax is determined on a non-discounted basis using tax rates and laws that have been enacted or substantively enacted at the end of the reporting period and are expected to apply when the deferred tax asset or liability is settled. Deferred tax assets are recognized to the extent that it is probable that the assets can be recovered. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset tax assets and liabilities and when the deferred tax balances relate to the same taxation authority.
Deferred tax assets are recognized to the extent future recovery is probable. At each reporting period end, deferred tax assets are reduced to the extent that it is no longer probable that sufficient taxable earnings will be available to allow all or part of the asset to be recovered.
Net income (loss) per share
Basic net income (loss) per share is calculated by dividing net income (loss) for a given period by the weighted average number of common shares outstanding during that same period. Diluted net income (loss) per share reflects the potential dilution that could occur if holders with rights to convert instruments to common shares exercise these rights. The weighted average number of common shares used to determine diluted net income (loss) per share includes an adjustment, using the treasury stock method, for outstanding stock options and warrants.
Under the treasury stock method:
| · | the exercise of stock options and warrants is assumed to occur at the beginning of the period (or date of issuance, if later); |
| · | the proceeds from the exercise of stock options and warrants plus the future period compensation expense on stock options and warrants granted are assumed to be used to purchase common shares at the average market price during the period; and |
| · | the incremental number of common shares (the difference between the number of shares assumed issued and the number of shares assumed purchased) is included in the denominator of the diluted net income (loss) per share calculation. |
Recently Issued Accounting Pronouncements
Property, Plant and Equipment — Proceeds before Intended Use (Amendments to IAS 16)
On May 14, 2020, the IASB issued Property, Plant and Equipment — Proceeds before Intended Use (Amendments to IAS 16)that clarify the accounting for the net proceeds from selling any items produced while bringing an item of property, plant and mine development to the location and condition necessary for it to be capable of operating in the manner intended by management. The amendments prohibit entities from deducting amounts received from selling items produced from the cost of property, plant and mine development while the Company is preparing the asset for its intended use. Instead, sales proceeds and the cost of producing these items will be recognized in the consolidated statements of operations and comprehensive income (loss). The amendments are effective for annual reporting periods beginning on or after January 1, 2022, with earlier application permitted. The amendments apply retrospectively, but only to assets brought to the location and condition necessary for them to be capable of operating in the manner intended by management on or after the beginning of the earliest period presented in the consolidated financial statements in which the Company first applies the amendments. The Company is evaluating the extent of the impact of the amendments on its Consolidated financial statements.
| 19 |
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NextSource Materials Inc. Notes to the Consolidated Financial Statements For the years ended June 30, 2022 and 2021 (Expressed in US Dollars) |
4. Significant judgments, estimates 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 consolidated financial statements and the reported values of revenues and expenses during the reporting period. By their nature, these are uncertain and actual outcomes could differ from the estimates, judgments, and assumptions. The impacts of such estimates are pervasive throughout the consolidated financial statements and may require accounting adjustments based on future occurrences. Revisions to accounting estimates are recognized in the period in which the estimate is revised and also in future periods when the revision affects both current and future periods. Significant accounting judgments, estimates and assumptions are reviewed on an ongoing basis.
Uncertainty due to the Covid-19 Pandemic
The impact of COVID-19 on the Company has been limited since it does not have any active exploration programs and construction activities related to the Molo Graphite Mine have mainly focused on overseas assembly and factory acceptance testing of the processing plant equipment by our EPC contractor. Certain of our directors, officers, employees, consultants, and contractors have been indirectly impacted by intermittent lockdowns imposed in Canada, Madagascar, Mauritius and in South Africa.
The Company has tried to incorporate the impacts of COVID-19 outbreaks and intermittent lockdowns into the development plans for the Molo Graphite Mine. Notwithstanding, intermittent lockdowns have the potential to cause unforeseen delays in the plant delivery and installation and commissioning schedule, as well as in the civil works and infrastructure construction schedule. It is not possible for the Company to predict the duration or magnitude of adverse impacts from further outbreaks or predict the effects on the Company’s business or results of operations.
The duration and full financial effect of the COVID-19 pandemic is unknown at this time, as are the measures taken by governments, the Company or others related to the COVID-19 pandemic. Any estimate of the length and severity of these developments is therefore subject to significant uncertainty, and accordingly estimates of the extent to which the COVID-19 pandemic may materially and adversely affect the Company’s operations, financial results and condition in future periods are also subject to significant uncertainty.
Inputs and assumptions relate to, among other things, interest rates, foreign exchange rates, cost of capital, commodity prices, and the amount and timing of future cash flows, while accounting judgments take into consideration the business and economic uncertainties related to the COVID-19 pandemic and the future response of governments, the Company and others to those uncertainties. In the current environment, the inputs and assumptions and judgements are subject to greater variability than normal, which could in the future significantly affect judgments, estimates and assumptions made by management as they relate to potential impact of the COVID-19 pandemic on various financial accounts and note disclosures and could lead to a material adjustment to the carrying value of the assets or liabilities affected. The impact of current uncertainty on judgments, estimates and assumptions includes the Company’s valuation of the long-term assets (including the assessment for impairment and impairment reversal), estimation of reclamation provisions, estimation of mineral reserves and mineral resources, and estimation of income and mining taxes. Actual results may differ materially from these estimates.
Going concern
The preparation of the consolidated financial statements requires management to make judgments regarding the ability to continue as a going concern.
Exploration and Evaluation Expenditures
The application of the Company’s accounting policy for exploration and evaluation expenditures requires judgment to determine whether future economic benefits are likely to arise and whether activities have reached a stage where the technical feasibility and commercial viability of extracting the mineral resource is demonstrable.
Development Stage Expenditures
The application of the Company’s accounting policy for development stage expenditures requires judgment to determine when the technical feasibility and commercial viability of extracting a mineral resource has been determined. Some of the factors that the Company may consider in its assessment of technical feasibility and commercial viability are set out below:
| · | The level of geological certainty of the mineral deposit; |
| · | Life of mine plans or economic models to support the economic extraction of reserves and mineral resources; |
| · | A preliminary economic assessment, prefeasibility study or feasibility study that demonstrates the reserves and mineral resources will generate a positive commercial outcome; |
| · | Reasonable expectations that operating permits will be obtained; and |
| · | Approval by the Board of development of the project. |
| 20 |
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NextSource Materials Inc. Notes to the Consolidated Financial Statements For the years ended June 30, 2022 and 2021 (Expressed in US Dollars) |
4. Significant judgments, estimates and assumptions (continued)
Income Taxes
Provisions for taxes are made using the best estimate of the amount expected to be paid based on a qualitative assessment of all relevant factors. The Company reviews the adequacy of these provisions at the end of the reporting period. However, it is possible that at some future date an additional liability could result from audits by taxing authorities. Where the final outcome of these tax‑related matters is different from the amounts that were initially recorded, such differences will affect the tax provisions in the period in which such determination is made.
Royalty obligation
The Company accounts for a royalty obligation using a discounted cash flow forecast prepared by management that is based on estimated future revenues from the Molo Graphite Mine. The model is not based on observable market data but rather on unobservable inputs of which the significant assumptions include the estimated flake graphite sales volumes and selling prices throughout the remainder of the royalty term. Changes to these assumptions could have a significant impact on the measurement of the royalty obligation. The value of the royalty obligation is disclosed in Note 10 – Royalty Obligation.
Warrant derivative liability
The Company measures the fair value of the derivative liability using an option pricing model. This estimate requires determining the most appropriate inputs to the valuation model including the expected life of the warrant, volatility, dividend yield, and rate of forfeitures and making assumptions about them. The value of the warrant liability along with the assumptions and model used for estimating fair value are disclosed in Note 11 - Warrant derivative liabilities.
Share-based compensation
Estimating fair value for granted stock options requires determining the most appropriate valuation model which is dependent on the terms and conditions of the grant. This estimate also requires determining the most appropriate inputs to the valuation model including the expected life of the option, volatility, dividend yield, and rate of forfeitures and making assumptions about them. The value of the share-based payment expense along with the assumptions and model used for estimating fair value for share-based compensation transactions are disclosed in Note 15 – Long term incentive plan.
5. Mine Development
Molo Graphite Mine, Southern Madagascar Region, Madagascar
On February 15, 2019, the Company received a
Phase 1
On February 8, 2021, the Company announced that it entered into a binding agreement with Vision Blue Resources Limited (“Vision Blue”) to provide a financing package (the “Financing Package”) for total gross proceeds of $
On March 29, 2021, the Company announced the initiation of construction for Phase 1 of the Molo Graphite Mine with a production capacity of
Phase 2 Expansion
On April 27, 2022, the Company released a Preliminary Economic Assessment (“PEA”) considering a Phase 2 expansion of the Molo Graphite Mine consisting of a stand-alone processing plant with a production capacity of
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NextSource Materials Inc. Notes to the Consolidated Financial Statements For the years ended June 30, 2022 and 2021 (Expressed in US Dollars) |
6. Exploration and Evaluation Properties
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
As part of Financing Package announced on February 8, 2021, Vision Blue will receive a royalty of
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 of June 30, 2022, the Company has not capitalized any acquisition, exploration, and evaluation costs.
Sagar Project, Labrador Trough Region, Quebec, Canada
In 2006, the Company purchased from Virginia Mines Inc. ("Virginia") a
As of June 30, 2022, the Company has not capitalized any acquisition, exploration, and evaluation costs.
As of June 30, 2022, the Sagar property consisted of 184 claims covering a total area of 8,539.58 ha. The Company does not have any immediate plans to complete any further exploration on this property.
7. Property, Plant, and Equipment
As of June 30, 2022, property, plant, and equipment was $
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|
| ( | ) |
|
| ( | ) | ||
As at June 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Accumulated amortization |
|
| - |
|
|
|
|
|
| ( | ) |
|
| ( | ) |
|
| ( | ) | |
As at June 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
| 22 |
|
NextSource Materials Inc. Notes to the Consolidated Financial Statements For the years ended June 30, 2022 and 2021 (Expressed in US Dollars) |
8. Short-Term Debt
9. Lease obligations
On July 1, 2019, the Company recognized a right of use asset and lease obligations of $
On March 31, 2022, the Company recognized a right of use asset and lease obligations of $
The following table sets out the carrying amounts of lease obligations for right of use assets included in the consolidated statement of financial position and the movements between the reporting periods:
|
| Camp Lease |
|
| Property Lease |
|
| Total Obligations |
| |||
|
| $ |
|
| $ |
|
| $ |
| |||
As at June 30, 2020 |
|
|
|
|
|
|
|
|
| |||
Lease payments |
|
| ( | ) |
|
|
|
|
| ( | ) | |
Finance costs |
|
|
|
|
|
|
|
|
| |||
Foreign exchange adjustments |
|
|
|
|
|
|
|
|
| |||
As at June 30, 2021 |
|
|
|
|
|
|
|
|
| |||
Additions |
|
|
|
|
|
|
|
|
| |||
Lease payments |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Finance costs |
|
|
|
|
|
|
|
|
| |||
Foreign exchange adjustments |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
As at June 30, 2022 |
|
|
|
|
|
|
|
|
| |||
The following table sets out the lease obligations included in the consolidated statements of financial position:
|
| Camp Lease |
|
| Property Lease |
|
| Total Obligations |
| |||
|
| $ |
|
| $ |
|
| $ |
| |||
Current portion of lease obligations |
|
|
|
|
|
|
|
|
| |||
Long-term lease obligations |
|
|
|
|
|
|
|
|
| |||
As at June 30, 2022 |
|
|
|
|
|
|
|
|
| |||
Future minimum lease payments required to meet obligations that have initial or remaining non-cancellable lease terms are set out in the following table:
|
| Camp Lease |
|
| Property Lease |
|
| Total Obligations |
| |||
|
| $ |
|
| $ |
|
| $ |
| |||
Within 12 months |
|
|
|
|
|
|
|
|
| |||
Between 13 and 24 months |
|
|
|
|
|
|
|
|
| |||
Between 25 and 36 months |
|
|
|
|
|
|
|
|
| |||
Between 37 and 48 months |
|
|
|
|
|
|
|
|
| |||
Between 49 and 60 months |
|
| - |
|
|
|
|
|
|
| ||
Over 60 months |
|
| - |
|
|
|
|
|
|
| ||
Total undiscounted lease obligations |
|
|
|
|
|
|
|
|
| |||
Leases of low value assets, short term leases of 12 months or less, and leases with variable payments proportional to the rate of use of the underlying asset do not give rise to a lease obligation. During the year ended June 30, 2022, the Company recognized short-term rent expenses of $
| 23 |
|
NextSource Materials Inc.
Notes to the Consolidated Financial Statements
For the years ended June 30, 2022 and 2021
(Expressed in US Dollars)
10. Royalty obligations
Vision Blue
On February 8, 2021, the Company announced that it entered into a binding agreement with Vision Blue to provide a Financing Package for total gross proceeds of $
| (a) | The Company received the initial royalty funding of $ |
| (b) | Beginning on the biannual period ending June 30, 2022, the Company will pay to Vision Blue the greater of: (i) $ |
| (c) | Vision Blue received a royalty of |
On June 30, 2021, the Company recognized a royalty obligation at the fair value of $
During the year ended June 30, 2022, the royalty obligation was increased by accretion of $
$
|
| Total |
| |
|
| $ |
| |
As at June 30, 2020 |
|
|
| |
Recognition of royalty obligation |
|
|
| |
As at June 30, 2021 |
|
|
| |
Accretion of royalty obligation |
|
|
| |
Remeasurement of royalty obligation |
|
|
| |
As at June 30, 2022 |
|
|
| |
Future undiscounted minimum royalty payments including accrued interest on deferrals are set out in the following table:
|
| Total |
| |
|
| $ |
| |
Within 12 months |
|
|
| |
Between 13 and 24 months |
|
|
| |
Between 25 and 36 months |
|
|
| |
Between 37 and 48 months |
|
|
| |
Between 49 and 60 months |
|
|
| |
Over 60 months |
|
|
| |
Total undiscounted minimum payments and interest |
|
|
| |
Malagasy Minerals
On December 14, 2011,
24 |
|
NextSource Materials Inc.
Notes to the Consolidated Financial Statements
For the years ended June 30, 2022 and 2021
(Expressed in US Dollars)
10. Royalty obligations (continued)
BAF Plants
On April 12, 2021, the Company announced a binding partnership agreement for the construction of BAF plants capable of converting flake graphite into SPG and CSPG using the partner’s proven processing technology. The Chinese partner will design and develop the process flowsheets, source all necessary equipment, and will provide all necessary training and operational know-how and in return will receive a 2% licensing royalty. Whereas the Japanese partner will leverage its sales relationships and will act as exclusive agent for sales, marketing, and trading and in return will receive a
11. Warrant Derivative Liabilities
Warrants issued in a currency other than the Company’s functional currency are considered a derivative financial liability settled through the consolidated statement of operations and comprehensive income (loss) as per IFRS 9 Financial Instruments. The fair value of warrants is initially measured on their issue date as a financial liability using the Black-Scholes option valuation model. The fair value of exercised warrants is remeasured on their exercise date and the fair value is reallocated to equity. The fair value of expired warrants is remeasured on their expiration date and at each reporting period date through the consolidated statement of operations and comprehensive income (loss).
During the year ended June 30, 2022, a total of $
|
| Warrant Liability |
| |
|
| $ |
| |
As at June 30, 2020 |
|
|
| |
Recognition of derivative liability |
|
|
| |
Reclassification to equity on exercise of warrants |
|
| ( | ) |
Change in fair value |
|
| ( | ) |
As at June 30, 2021 |
|
|
| |
Reclassification to equity on exercise of warrants |
|
| ( | ) |
Change in fair value |
|
| ( | ) |
As at June 30, 2022 |
|
|
| |
The fair value of warrants expiring October 25, 2021 was estimated using the following model inputs on the following valuation dates:
Warrants Expiring October 25, 2021 |
| Warrant Liability |
| |
|
| $ |
| |
As of June 30, 2020 |
|
|
| |
Reclassification to equity on exercise of warrants |
|
| ( | ) |
Change in fair value |
|
|
| |
As of June 30, 2021 |
|
|
| |
Reclassification to equity on exercise of warrants |
|
| ( | ) |
Change in fair value |
|
|
| |
As of June 30, 2022 |
|
|
| |
The fair value of warrants expiring October 25, 2021 was estimated using the following model inputs on the following valuation dates:
Warrants Expiring July 2, 2022 |
| Warrant Liability |
| |
|
| $ |
| |
As of June 30, 2020 |
|
| - |
|
Recognition on July 2, 2020 (issue date) |
|
|
| |
Reclassification to equity on exercise of warrants |
|
| ( | ) |
Change in fair value |
|
|
| |
As of June 30, 2021 |
|
|
| |
Reclassification to equity on exercise of warrants |
|
| ( | ) |
Change in fair value |
|
| ( | ) |
As of June 30, 2022 |
|
|
| |
| 25 |
|
NextSource Materials Inc.
Notes to the Consolidated Financial Statements
For the years ended June 30, 2022 and 2021
(Expressed in US Dollars)
11. Warrant Derivative Liabilities (continued)
The initial fair value of $
The fair value of warrants expiring May 19, 2023 was estimated using the following model inputs on the following valuation dates:
Warrants Expiring May 19, 2023 |
| Warrant Liability |
| |
|
| $ |
| |
As of June 30, 2020 |
|
| - |
|
Recognition on May 19, 2021 (issue date) |
|
|
| |
Reclassification to equity on exercise of warrants |
|
|
| |
Change in fair value through profit and loss |
|
| ( | ) |
Share price on measurement date |
| (CAD $ |
| |
Exercise price |
| (CAD $ |
| |
Risk free rate |
|
| % | |
Expected volatility |
|
| % | |
Expected dividend yield |
| Nil |
| |
Expected life (in years) |
|
|
| |
As of June 30, 2021 |
|
|
| |
Reclassification to equity on exercise of warrants |
|
| - |
|
Change in fair value through profit and loss |
|
| ( | ) |
Share price on measurement date |
| (CAD $ |
| |
Exercise price |
| (CAD $ |
| |
Risk free rate |
|
| % | |
Expected volatility |
|
| % | |
Expected dividend yield |
| Nil |
| |
Expected life (in years) |
|
|
| |
As of June 30, 2022 |
|
|
| |
12. Provisions
Commercial production provision
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
During the year ended June 30, 2022, accretion of $
Flow-through provision
During fiscal 2014, the Company issued
As of June 30, 2022, based on the limited amount of completed settlements the Company revised the provision to $nil (June 30, 2021:
$
| 26 |
|
NextSource Materials Inc.
Notes to the Consolidated Financial Statements
For the years ended June 30, 2022 and 2021
(Expressed in US Dollars)
13. 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 June 30, 2022, the Company had
The following shares were issued during the year ended June 30, 2022:
| (a) | On September 23, 2021, a total of |
|
|
|
| (b) | On October 5, 2021, a total of |
|
|
|
| (c) | On October 20, 2021, a total of |
|
|
|
| (d) | On October 22, 2021, a total of |
|
|
|
| (e) | On November 23, 2021, a total of |
|
|
|
| (f) | On December 16, 2021, a total of |
|
|
|
| (g) | On March 2, 2022, a total of |
|
|
|
| (h) | On March 31, 2022, a total of |
|
|
|
| (i) | On April 28, 2022, a total of |
|
|
|
| (j) | On May 18, 2022, a total of |
|
|
|
| (k) | On May 18, 2022, a total of |
|
|
|
| (l) | On May 23, 2022, a total of |
|
|
|
| (m) | On June 2, 2022, a total of |
|
|
|
| (n) | On June 9, 2022, a total of |
|
|
|
| (o) | On June 24, 2022, a total of |
|
|
|
| (p) | On June 27, 2022, a total of |
|
|
|
| (q) | On June 30, 2022, a total of |
| 27 |
|
NextSource Materials Inc.
Notes to the Consolidated Financial Statements
For the years ended June 30, 2022 and 2021
(Expressed in US Dollars)
13. Share Capital (continued)
The following changes to the issued and outstanding common shares occurred during the year ended June 30, 2021:
| (a) | On July 2, 2020, the Company completed a non-brokered private placement of |
|
|
|
| (b) | On December 22, 2020, a total of |
|
|
|
| (c) | On February 9, 2021, a total of |
|
|
|
| (d) | On February 12, 2021, a total of |
|
|
|
| (e) | On February 19, 2021, a total of |
|
|
|
| (f) | On February 23, 2021, a total of |
|
|
|
| (g) | On February 26, 2021, a total of |
|
|
|
| (h) | On March 4, 2021, a total of |
|
|
|
| (i) | On March 8, 2021, a total of |
|
|
|
| (j) | On March 15, 2021, the Company completed a non-brokered private placement of |
|
|
|
| (k) | On April 12, 2021, a total of |
|
|
|
| (l) | On May 19, 2021, the Company completed a non-brokered private placement of |
|
|
|
| (m) | On May 25, 2021, a total of |
|
|
|
| (n) | On June 7, 2021, a total of |
|
|
|
| (o) | On June 23, 2021, a total of |
| 28 |
|
NextSource Materials Inc.
Notes to the Consolidated Financial Statements
For the years ended June 30, 2022 and 2021
(Expressed in US Dollars)
14. Warrants
The Company 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 June 30, 2022, the Company had
|
|
|
|
|
| As at |
|
|
|
|
|
|
|
|
|
|
| As at |
| |||||
Issued |
| Expiration |
| Exercise |
| June 30, |
|
|
|
|
|
|
|
|
|
|
| June 30, |
| |||||
Date |
| Date |
| Price |
| 2021 |
|
| Issued |
|
| Cancelled |
|
| Exercised |
|
| 2022 |
| |||||
|
| CAD $0.90 |
|
|
|
|
| - |
|
|
|
|
|
| ( | ) |
|
|
| |||||
|
| CAD $0.65 |
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| - |
| |||||
|
| CAD $1.00 |
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
| ||||||
Totals |
|
|
|
|
|
|
|
|
| - |
|
|
| - |
|
|
| ( | ) |
|
|
| ||
Nil common share purchase warrants were issued during the year ended June 30, 2022.
|
|
|
|
|
| As at |
|
|
|
|
|
|
|
|
|
|
| As at |
| |||||
Issued |
| Expiration |
| Exercise |
| June 30, |
|
|
|
|
|
|
|
|
|
|
| June 30, |
| |||||
Date |
| Date |
| Price |
| 2020 |
|
| Issued |
|
| Cancelled |
|
| Exercised |
|
| 2021 |
| |||||
|
| CAD $1.00 |
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
| - |
| |||||
|
| CAD $0.90 |
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
| ||||||
|
| CAD $0.65 |
|
|
|
|
|
|
|
| - |
|
|
| ( | ) |
|
|
| |||||
|
| CAD $1.00 |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Totals |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) |
|
|
| |||
The following common share purchase warrants were issued during the year ended June 30, 2021:
(a) | On July 2, 2020, the Company completed a non-brokered private placement of | |
(b) | On May 19, 2021, the Company completed a non-brokered private placement of |
| 29 |
|
NextSource Materials Inc.
Notes to the Consolidated Financial Statements
For the years ended June 30, 2022 and 2021
(Expressed in US Dollars)
15. 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 Company determined the fair value of stock options using the Black-Scholes option valuation model, which has 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 recorded in equity and expensed through profit and loss 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 June 30, 2022, the Company had
|
|
|
|
|
| As at |
|
|
|
|
|
|
|
|
|
|
| As at |
| |||||
Award & Vesting |
| Expiration |
| Exercise |
| June 30, |
|
|
|
|
|
|
|
|
|
|
| June 30, |
| |||||
Date |
| Date |
| Price |
| 2021 |
|
| Awarded |
|
| Cancelled |
|
| Exercised |
|
| 2022 |
| |||||
|
| USD $ |
|
|
|
|
| - |
|
|
| ( | ) |
|
| ( | ) |
|
|
| ||||
|
| CAD $ |
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
| ||||||
|
| CAD $ |
|
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
| ||||
|
| CAD $ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Totals |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) |
|
|
| |||
The following stock options were granted during the year ended June 30, 2022:
| (a) | On May 11, 2022, the Company granted |
|
|
|
|
|
| As at |
|
|
|
|
|
|
|
|
|
|
| As at |
| |||||
Award & Vesting |
| Expiration |
| Exercise |
| June 30, |
|
|
|
|
|
|
|
|
|
|
| June 30, |
| |||||
Date |
| Date |
| Price |
| 2020 |
|
| Awarded |
|
| Cancelled |
|
| Exercised |
|
| 2021 |
| |||||
|
| USD $ |
|
|
|
|
| - |
|
|
| ( | ) |
|
| ( | ) |
|
|
| ||||
|
| USD $ |
|
|
|
|
| - |
|
|
| ( | ) |
|
| ( | ) |
|
|
| ||||
|
| CAD $ |
|
|
|
|
| - |
|
|
| ( | ) |
|
| ( | ) |
|
|
| ||||
|
| CAD $ |
|
|
|
|
|
|
|
| - |
|
|
| - |
|
|
|
| |||||
Totals |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) |
|
|
| |||
The following stock options were granted during the year ended June 30, 2021:
| (a) | On March 19, 2021, the Company granted |
| 30 |
|
NextSource Materials Inc.
Notes to the Consolidated Financial Statements
For the years ended June 30, 2022 and 2021
(Expressed in US Dollars)
15. Long term incentive plan (continued)
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 a 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 recorded in equity and expensed through profit and loss over the expected 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 June 30, 2022, the Company had
|
|
|
|
|
| As at |
|
|
|
|
|
|
|
|
|
|
|
|
|
| As at |
| ||
Grant |
| Vesting |
| Expiration |
| June 30, |
|
|
|
|
|
|
|
|
|
|
|
|
|
| June 30, |
| ||
Date |
| Date |
| Date |
| 2021 |
|
| Awarded |
|
| Cancelled |
|
| Converted |
|
| 2022 |
| |||||
Vesting condition - Employment on vesting date: | ||||||||||||||||||||||||
March 19, 2021 |
|
|
|
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Vesting condition - Milestone achieved on vesting date: | ||||||||||||||||||||||||
|
|
|
|
|
|
| - |
|
|
| ( | ) |
|
| - |
|
|
| - |
| ||||
| May 17, 2021 |
| December 31, 2021 |
|
|
|
|
| - |
|
|
|
|
|
| ( | ) |
|
| - |
| |||
May 11, 2022 |
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
| |||||
Totals |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) |
|
|
| |||
The following RSUs were granted during the year ended June 30, 2022:
| (a) | On May 11, 2022, the Company granted |
|
|
|
| (b) | On May 11, 2022, the Company granted |
The following occurred during the year ended June 30, 2022:
| (a) | A total of 125,000 RSUs did not satisfy their vesting conditions and were cancelled. |
|
|
|
| (b) | A total of |
|
|
|
|
|
| As at |
|
|
|
|
|
|
|
|
|
|
|
|
|
| As at |
| ||
Grant |
| Vesting |
| Expiration |
| June 30, |
|
|
|
|
|
|
|
|
|
|
|
|
|
| June 30, |
| ||
Date |
| Date |
| Date |
| 2020 |
|
| Awarded |
|
| Cancelled |
|
| Converted |
|
| 2021 |
| |||||
Vesting condition - Employment on vesting date: | ||||||||||||||||||||||||
March 19, 2021 |
|
|
|
| - |
|
|
|
|
|
| - |
|
|
| - |
|
|
|
| ||||
Vesting condition - Milestone achieved on vesting date: | ||||||||||||||||||||||||
December 29, 2020 |
|
|
|
| - |
|
|
|
|
|
| - |
|
|
| ( | ) |
|
| - |
| |||
|
|
|
| - |
|
|
|
|
|
| - |
|
|
| ( | ) |
|
| - |
| ||||
|
|
|
| - |
|
|
|
|
|
| - |
|
|
| ( | ) |
|
| - |
| ||||
|
|
|
| - |
|
|
|
|
|
| - |
|
|
| - |
|
|
|
| |||||
|
|
|
| - |
|
|
|
|
|
| - |
|
|
| - |
|
|
|
| |||||
Totals |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
| ( | ) |
|
|
| ||
| 31 |
|
NextSource Materials Inc.
Notes to the Consolidated Financial Statements
For the years ended June 30, 2022 and 2021
(Expressed in US Dollars)
15. Long term incentive plan (continued)
The following RSUs were granted during the year ended June 30, 2021:
| (a) | On December 29, 2020, the Company granted |
|
|
|
| (b) | On March 19, 2021, the Company granted the following RSUs: |
| a. | |
| b. | |
| c. |
The following occurred during the year ended June 30, 2021:
(a) A total of
| 32 |
|
NextSource Materials Inc.
Notes to the Consolidated Financial Statements
For the years ended June 30, 2022 and 2021
(Expressed in US Dollars)
16. Segmented Reporting
The Company currently has two operating segments, consisting of mine development and the exploration and evaluation of mineral resources. No commercial revenues have been generated by the Company. 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 segments.
The following is detailed information for each operating segment:
|
| Year ended |
|
| Year ended |
|
| Year ended |
| |||
|
| June 30, |
|
| June 30, |
|
| June 30, |
| |||
|
| 2022 |
|
| 2021 |
|
| 2020 |
| |||
Revenues |
| $ |
|
| $ |
|
| $ |
| |||
Mine development expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Mineral claims (Madagascar) |
|
|
|
|
|
|
|
|
| |||
Payroll and benefits |
|
|
|
|
|
|
|
|
| |||
Engineering and metallurgical (Canada, South Africa) |
|
|
|
|
|
|
|
|
| |||
Consulting fees (Madagascar) |
|
| ( | ) |
|
|
|
|
|
| ||
Mine admin (Madagascar) |
|
|
|
|
|
|
|
|
| |||
Travel |
|
|
|
|
|
|
|
|
| |||
Total mine development expenses |
|
|
|
|
|
|
|
|
| |||
Exploration and evaluation expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Mineral claims (Canada) |
|
|
|
|
|
|
|
|
| |||
Mineral claims (Madagascar) |
|
|
|
|
|
|
|
|
| |||
Exploration camp and admin (Madagascar) |
|
|
|
|
|
|
|
|
| |||
Total exploration and evaluation expenses |
|
|
|
|
|
|
|
|
| |||
General and administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Payroll and benefits |
|
|
|
|
|
|
|
|
| |||
Consulting Fees |
|
|
|
|
|
|
|
|
| |||
Legal Fees |
|
|
|
|
|
|
|
|
| |||
Professional Fees |
|
|
|
|
|
|
|
|
| |||
Public Company expenses |
|
|
|
|
|
|
|
|
| |||
Travel expenses |
|
|
|
|
|
|
|
|
| |||
Insurance expenses |
|
|
|
|
|
|
|
|
| |||
Rent expenses |
|
|
|
|
|
|
|
|
| |||
Office and admin |
|
|
|
|
|
|
|
|
| |||
Total general and administrative expenses |
|
|
|
|
|
|
|
|
| |||
Share-based compensation |
|
|
|
|
|
|
|
|
| |||
Amortization of plant and equipment |
|
|
|
|
|
|
|
|
| |||
Lease finance costs |
|
|
|
|
|
|
|
|
| |||
Flow through provision (gain) |
|
| ( | ) |
|
| ( | ) |
|
|
| |
Foreign currency translation (gain) loss |
|
|
|
|
|
|
|
|
| |||
Interest (income) |
|
| ( | ) |
|
| ( | ) |
|
|
| |
Interest expense |
|
|
|
|
|
|
|
|
| |||
Foreign taxes |
|
|
|
|
|
|
|
|
| |||
Sub-total before other items |
|
|
|
|
|
|
|
|
| |||
Government Assistance |
|
|
|
|
|
|
|
| ( | ) | ||
Realized gain on disposal of asset |
|
| ( | ) |
|
|
|
|
|
| ||
Change in value of royalty obligation |
|
|
|
|
|
|
|
|
| |||
Change in value of warrant liability |
|
| ( | ) |
|
|
|
|
| ( | ) | |
Change in value of production obligation |
|
| ( | ) |
|
|
|
|
|
| ||
Net income (loss) for the year |
|
|
|
|
| ( | ) |
|
| ( | ) | |
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
Items that will be reclassified subsequently to net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
Translation adjustment for foreign operations |
|
|
|
|
|
|
|
|
| |||
Net income (loss) and comprehensive income (loss) for the year |
| $ |
|
| $ | ( | ) |
| $ | ( | ) | |
| 33 |
|
NextSource Materials Inc.
Notes to the Consolidated Financial Statements
For the years ended June 30, 2022 and 2021
(Expressed in US Dollars)
16. Segmented Reporting (continued)
Limited amounts of cash and equipment are currently held in Madagascar and Mauritius. A significant amount of the assets under construction capitalized in Canada as property, plant, equipment is currently being assembled offshore and will be reclassified under Madagascar as it is imported into Madagascar. The following is detailed information by geographic region:
|
| Canada |
|
| Mauritius |
|
| Madagascar |
|
| Total |
| ||||
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Amounts receivable |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Prepaid expenses |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Deposit |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Property, plant, and equipment |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total assets as at June 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
| Canada |
|
| Mauritius |
|
| Madagascar |
|
| Total |
| ||||
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Amounts receivable |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Prepaid expenses |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Property, plant, and equipment |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total assets as at June 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
17. 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. Other related parties include companies controlled by key management personnel. 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.
A transaction is considered 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.
The following key management related party transactions occurred during the following reporting periods:
|
| Year ended |
|
| Year ended |
| ||
|
| June 30, |
|
| June 30, |
| ||
|
| 2022 |
|
| 2021 |
| ||
Payroll and benefits |
| $ |
|
| $ |
| ||
Consulting fees |
|
|
|
|
|
| ||
Professional fees |
|
|
|
|
|
| ||
Share-based compensation |
|
|
|
|
|
| ||
Total |
| $ |
|
| $ |
| ||
The following key management related party balances existed as of the end of the following reporting periods:
|
| As of |
|
| As of |
| ||
|
| June 30, |
|
| June 30, |
| ||
|
| 2022 |
|
| 2021 |
| ||
Amounts receivable |
| $ |
|
| $ |
| ||
Prepaid expenses |
|
|
|
|
|
| ||
Accrued liabilities |
|
|
|
|
|
| ||
Payroll and benefits are for employment compensation received by Craig Scherba (CEO), Brent Nykoliation (SVP), Brett Whalen (Director), Chris Kruba (Director), Ian Pearce (Director) and Sir Mick Davis (Chairman). Consulting fees are for consulting compensation received by companies controlled by Marc Johnson (CFO) and Robin Borley (COO). Professional fees are for the provision of accounting services by a company controlled by Marc Johnson (CFO). Share-based compensation are for the vesting of stock options and RSUs awarded to officers and directors of the Company. Amounts receivable are for short-term loans to officers related to payroll advances and the exercise of stock options. Accrued liabilities are for the accrual of director fees.
| 34 |
|
NextSource Materials Inc.
Notes to the Consolidated Financial Statements
For the years ended June 30, 2022 and 2021
(Expressed in US Dollars)
18. Capital Management
There were no changes in the Company's approach to capital management during the year ended June 30, 2022.
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.
The Company is not subject to any externally imposed capital requirements.
The Company has not generated any revenues from mineral property interests, which are still in the development, or exploration & evaluation stage. To date, the Company has funded its operations by raising equity and obtaining a royalty financing agreement. To minimize liquidity risk, the Company has implemented cost control measures including a construction budget and the minimizing of discretionary expenditures unless the project has sufficient economic or geologic merit.
The Company manages its capital structure (consisting of shareholders’ deficiency) on an ongoing basis and in response to changes in economic conditions and risk characteristics of its underlying assets. Changes to the capital structure could involve the issuance of new equity, obtaining working capital loans, construction financing, issuing debt, the acquisition or disposition of assets, or adjustments to the amounts held in cash, cash equivalents and short-term investments.
Capital resource analysis
As of June 30, 2022, the Company had a working capital deficit of $
As part of the royalty financing agreement, the Company received a further $
Although the Company has a working capital surplus excluding warrant derivative liabilities, a significant amount of working capital is expected to be utilized to complete construction of Phase 1 of the Molo Graphite Mine and related working capital, and for general and administrative expenditures and general working capital.
The Molo Mine Phase 1 capital costs are expected to be within the $
The Company believes its capital resources are sufficient to complete construction of Phase 1 but will require additional funding to cover general and administrative costs, technical studies, and general working capital requirements over the next 12 months. The Company expects this shortfall will be covered through the exercise of outstanding common share purchase warrants, equity, and debt financing. Notwithstanding, the Company may choose to reduce discretionary spending or raise additional capital by issuing new equity, obtaining working capital loans, or additional construction financing. Based on management’s assessment of its past ability to obtain required funding, the Company believes it will be able to satisfy its current and long-term obligations as they come due. While the Company has been successful in obtaining funding in the past, there is no assurance that future financings will be available on terms acceptable to the Company.
19. Financial Instruments and Risk Management
Financial instruments are exposed to certain financial risks, which may include liquidity risk, credit risk, interest rate risk, commodity price risk, and currency risk:
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.
In managing liquidity, the Company’s primary objective is to ensure the entity can continue as a going concern while obtaining sufficient funding to meet its obligations as they come due. 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.
None of the Company’s obligations have contractual maturities over the next
| 35 |
|
NextSource Materials Inc.
Notes to the Consolidated Financial Statements
For the years ended June 30, 2022 and 2021
(Expressed in US Dollars)
19. Financial Instruments and Risk Management (continued)
| · | Accounts payable and accrued liabilities, which are generally due within 30 days. |
| · | Minimum Repayments under the royalty agreement, which can each be deferred by 12 months. |
| · | Warrant derivative liabilities, which are expected to be settled upon the exercise or expiration of the underlying common share purchase warrants. |
As of June 30, 2022, the Company had cash and cash equivalents of $
$
Credit risk
The Company does not have commercial customers and therefore does not have credit risk related to amounts receivables. The Company has credit risk arising from amounts classified as loans to officers. 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, whereas any offshore deposits are held with reputable financial institutions.
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, and future cash flows generated 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. Graphite is not a commodity product and therefore does not have an established forward pricing or futures market. 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 and the South African Rand. The Company purchases services and has certain salary commitments in those foreign 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 commitments to deliver products quoted in foreign currencies. Due to construction activities related to the Molo Graphite Mine, the Company is increasing its sensitivity to foreign exchange risk arising from the translation of the financial statements of subsidiaries with a functional currency other than the US dollar whereby changes in certain assets, liabilities and equity are measured through other comprehensive income.
As of June 30, 2022, the Company estimated that a 10% decrease of the USD versus foreign exchange rates would result in a gain of $
|
| As at |
|
| As at |
| ||
|
| June 30, |
|
| June 30, |
| ||
|
| 2022 |
|
| 2021 |
| ||
Cash and cash equivalents (CAD) |
| $ |
|
| $ |
| ||
Cash and cash equivalents (MGA) |
|
|
|
| $ |
| ||
Amounts receivable (CAD) |
|
|
|
|
|
| ||
Amounts receivable (MGA) |
|
|
|
|
|
| ||
Accounts payable and accrued liabilities (CAD) |
|
| ( | ) |
|
| ( | ) |
Accounts payable and accrued liabilities (MGA) |
|
| ( | ) |
|
| ( | ) |
Accounts payable and accrued liabilities (ZAR) |
|
| ( | ) |
|
|
| |
Accounts payable and accrued liabilities (EUR) |
|
|
|
|
| ( | ) | |
Provisions (CAD) |
|
| ( | ) |
|
| ( | ) |
Net foreign exchange exposure in USD |
| $ |
|
|
|
| ||
Impact of 10% change in foreign exchange rates |
| $ |
|
|
|
| ||
| 36 |
|
NextSource Materials Inc.
Notes to the Consolidated Financial Statements
For the years ended June 30, 2022 and 2021
(Expressed in US Dollars)
20. Income Taxes
The reconciliation of the combined Canadian federal and provincial statutory income tax rate of
|
| As at |
|
| As at |
| ||
|
| June 30, |
|
| June 30, |
| ||
|
| 2022 |
|
| 2021 |
| ||
Net income (loss) for the year before recovery of income taxes |
| $ |
|
| $ | ( | ) | |
Expected income tax (recovery) expense |
|
|
|
|
| ( | ) | |
Non-deductible expenses and other |
|
|
|
|
|
| ||
Share cost of issue booked to equity |
|
|
|
|
| ( | ) | |
Share based compensation |
|
|
|
|
|
| ||
Change in value of warrant liability |
|
| ( | ) |
|
|
| |
Difference in foreign tax rates |
|
|
|
|
|
| ||
Change in tax benefits not recognized |
|
|
|
|
|
| ||
Income tax (recovery) expense |
| $ |
|
| $ |
| ||
Deferred Tax
The following table summarizes the components of deferred tax:
|
| As at |
|
| As at |
| ||
|
| June 30, |
|
| June 30, |
| ||
|
| 2022 |
|
| 2021 |
| ||
Deferred tax assets |
|
|
|
|
|
| ||
Canadian operating tax losses carried forward |
| $ |
|
| $ |
| ||
Non-Canadian operating tax losses carried forward |
|
|
|
|
|
| ||
Capital lease obligation |
|
|
|
|
|
| ||
Royalty obligation |
|
|
|
|
|
| ||
Share issuance cost |
|
|
|
|
|
| ||
Subtotal of deferred tax assets |
|
|
|
|
|
| ||
Deferred tax liabilities |
|
|
|
|
|
|
|
|
Property, plant, and equipment |
|
| ( | ) |
|
|
| |
Royalty obligation |
|
| ( | ) |
|
| ( | ) |
Subtotal of deferred tax liabilities |
|
| ( | ) |
|
| ( | ) |
Net deferred tax liability |
| $ |
|
| $ |
| ||
Deferred tax assets and liabilities have been offset where they relate to income taxes levied by the same taxation authority and the Company has the legal right and intent to offset.
Unrecognized Deferred Tax Assets
Deferred taxes are provided as a result of temporary differences that arise due to the differences between the income tax values and the carrying amount of assets and liabilities. Deferred tax assets have not been recognized in respect of the following deductible temporary differences:
|
| As at |
|
| As at |
| ||
|
| June 30, |
|
| June 30, |
| ||
|
| 2022 |
|
| 2021 |
| ||
Canadian operating tax losses carried forward |
| $ |
|
| $ |
| ||
Non-Canadian operating tax losses carried forward |
|
|
|
|
|
| ||
Property, plant, and equipment |
|
|
|
|
|
| ||
Share and debt issuance cost |
|
|
|
|
|
| ||
Capital losses carried forward |
|
|
|
|
|
| ||
Tax credits |
|
|
|
|
|
| ||
Canadian resource pools – mineral properties |
|
|
|
|
|
| ||
Unrecognized deferred tax assets |
| $ |
|
| $ |
| ||
| 37 |
|
NextSource Materials Inc.
Notes to the Consolidated Financial Statements
For the years ended June 30, 2022 and 2021
(Expressed in US Dollars)
20. Income Taxes (continued)
The Canadian Operating tax losses carried forward expire as noted in the table below. Non-Canadian operating tax losses carried forward expire between 2023 and 2027. The capital losses carried forward can be carried forward indefinitely but can only be used to reduce capital gains. Investment tax credits expire from 2026 to 2029. The remaining deductible temporary differences may be carried forward indefinitely. Deferred tax assets have not been recognized in respect of these items because it is not probable that future taxable profit will be available against which the group can utilize the benefits therefrom.
The Company's Canadian operating tax losses carried forward expire as follows:
|
| As at |
| |
|
| June 30, |
| |
|
| 2022 |
| |
2027 |
|
|
| |
2028 |
|
|
| |
2029 |
|
|
| |
2030 |
|
|
| |
2031 |
|
|
| |
2032 |
|
|
| |
2033 |
|
|
| |
2034 |
|
|
| |
2035 |
|
|
| |
2036 |
|
|
| |
2037 |
|
|
| |
2038 |
|
|
| |
2039 |
|
|
| |
2040 |
|
|
| |
2041 |
|
|
| |
2042 |
|
|
| |
|
|
|
| |
Although NextSource redomiciled into Canada on December 27, 2017, the Company is treated as a United States corporation for United States federal income tax purposes and is subject to United States federal income tax on its worldwide income. However, for Canadian tax purposes, NextSource is treated as a Canadian resident company for Canadian income tax purposes. As a result, NextSource is subject to taxation both in Canada and the United States.
21. Subsequent events
On July 28, 2022, the Company granted
On August 17, 2022, the Company received the remaining royalty funding of $
On October 31, 2022, a total of
On February 28, 2023, the Company recognized a ROU asset and lease obligation of $
On June 30, 2023, a total of
On June 30, 2023, a total of
38 |
EXHIBIT 99.3
NextSource Materials Inc.
Amended Management’s Discussion and Analysis (MD&A)
For the years ended June 30, 2022, and 2021
Expressed in US Dollars
| NEXTSOURCE MATERIALS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS For the years ended June 30, 2022 and 2021 |
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
Certain statements contained in this document 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 Mine 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; uncertainty due to the Covid-19 Pandemic; 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; economic dependence on the Molo Graphite Mine; the Company has a significant shareholder; additional permits and licenses are necessary to begin operations of Phase 1 of the Molo Graphite additional permits and licenses are necessary to complete the development of Phase 2 of the Molo Graphite Mine; construction and start-up of new mines and industrial plants; fluctuations in the market price of graphite and other metals may adversely affect the value of the Company’s securities, revenue projections and the ability of the Company to develop Phase 2 of the Molo Graphite Mine and the ability to develop BAF plants; estimates of mineral resources and mineral reserves may not be realized; the Company may not have access to sufficient capital to develop Phase 2 of the Molo Graphite Mine and value-added processing facilities; 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; 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; 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 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, royalty and tariff risks; 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’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 is exposed to general economic conditions, which could have a material adverse impact on its business, operating results and financial condition; the market price for the Common Shares is particularly volatile given the Company’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 Company does not intend to pay dividends in the foreseeable future; 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 Annual Information Form (AIF).
Forward-looking information is based on the reasonable assumptions, estimates, analysis and opinions of management and/or “qualified persons” (as such term is defined under National Instrument 43-101 – Standards of Disclosure for Mineral Projects (“NI 43-101”) made in light of their experience and their perception of trends, current conditions and expected developments, as well as other factors that management and/or qualified persons believe to be relevant and reasonable in the circumstances at the date that such statements are made, but which may prove to be incorrect. Although the Company believes that the assumptions and expectations reflected in such forward-looking information are reasonable, undue reliance should not be placed on forward-looking information because the Company can give no assurance that such expectations will prove to be correct. In addition to the assumptions discussed herein the material assumptions upon which such forward-looking statements are based include, among others, that: the Company will be successful in its financing activities; the demand for graphite will develop as anticipated; graphite prices will remain at or attain levels that would make the Molo Graphite Mine 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.
This MD&A includes market, industry and economic data and projections obtained from various publicly available sources and other sources believed by the Company to be true. Although the Company believes these to be reliable, it has not independently verified the information from third party sources or analyzed or verified the underlying reports relied upon or referred to by the third parties or ascertained the underlying economic and other assumptions relied upon by the third parties. The Company believes the market, industry and economic data and projections are accurate and that the estimates and assumptions are reasonable, but there can be no assurance or guarantee as to their accuracy or completeness and the Company makes no representations as to the accuracy or completeness of such information.
| 2 |
| NEXTSOURCE MATERIALS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS For the years ended June 30, 2022 and 2021 |
INTRODUCTION
This Management’s Discussion and Analysis (“MD&A”) dated July 5, 2023 of NextSource Materials Inc. (“NextSource”, “we”,
“our” or “the Company”) should be read in conjunction with Company’s audited Consolidated Financial Statements for the years ended June 30, 2022 and 2021 that were prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) that were filed on the Canadian Securities Administrators’ SEDAR website (the “Financial Statements”).
The Financial Statements and this MD&A are presented United States dollars (“USD” or “$”) and all units of measurement are expressed using the metric system, unless otherwise specified. Certain information in this MD&A is presented in Canadian dollars (“CAD$”). The term “NSR” stands for net smelter royalty. The term “tpa” stands for tonnes per annum. The term “EBITDA” stands for earnings before interest, tax, depreciation and amortization and is defined in Supplementary Disclosure - Non-IFRS Measures. All references to Vision Blue mean Vision Blue Resources Limited.
Additional information relating to the Company is available on the Canadian Securities Administrators’ (the “CSA”) SEDAR website at www.sedar.com and on the United States Securities and Exchange Commission’s (the “SEC”) website at www.sec.gov.
AMENDMENT
On July 5, 20223, the Company approved audited consolidated financial statements for the years ended June 30, 2022 and 2021 (the “Financial Statements”) with an audit opinion completed in accordance with Canadian generally accepted auditing standards (the “CAS Opinion”) in order to replace the Public Company Accounting Oversight Board (United States) (“PCAOB”) audit opinion.
The Financial Statements are not amended or restated financial statements, and the CAS Opinion delivered by MNP LLP, the Company auditors, complies with Canadian securities regulations. There are no changes to any of the amounts contained in the previously filed financial statements. The non-financial changes consisted of an update to the present day of Note 21 - Subsequent Events.
The Management Discussion & Analysis for the years ended June 30, 2022 and 2021 (“MD&A”) was refiled to accompany the Financial Statements. There are no changes to any of the amounts contained in the previously filed MD&A. The non-financial changes consisted of an update to the present day the Company recent events, outlook and milestones, project descriptions, and subsequent event disclosures contained in the Financial Statements.
As a registrant with the Securities and Exchange Commission (the “SEC”), the Company misidentified itself as a “non-accelerated filer” instead of as an “accelerated filer” for the fiscal year ended June 30, 2022. As a result of the misidentification, the Company did not obtain, and the Company’s auditors were not engaged, to complete an attestation of its internal controls over financial reporting (“ICFR”) (as required by Section 404(b) of the Sarbanes-Oxley Act) as required for an “accelerated filer” in accordance with the applicable rules and regulations of the SEC and the PCAOB. Since the Company did not obtain, and is not seeking, an attestation of its ICFR, the previously issued PCAOB audit opinion needed to be retracted.
Furthermore, the Company intends to file an amendment to its annual report on Form 40-F with the SEC followed by a Form 15 to suspend its reporting obligations under Section 13 and 15(d) of the Securities Exchange Act of 1934, as amended.
EXECUTIVE SUMMARY
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 are listed on the Toronto Stock Exchange (the “TSX”) under the symbol “NEXT” and the OTCQB under the symbol “NSRCF”.
Business Strategy
NextSource is intent on becoming a vertically integrated global supplier of battery materials through the mining and value-added processing of graphite and other minerals. The Company owns the Molo Graphite Mine in Madagascar and plans to build global Battery Anode Facility (“BAFs”):
| · | On March 23, 2023, the Company announced the initiation of commissioning of Phase 1 of the Molo Graphite Mine, which has a production capacity of 17,000 tonnes per annum (“tpa”) of SuperFlake® graphite concentrate. The mine produced its first tonne of graphite on June 21, 2023 and is expected to ramp up to its nameplate capacity of 17,000 tpa of flake graphite concentrate over a period of up to three months. |
|
|
|
| · | The Company is progressing with a Feasibility Study for a proposed Phase 2 Expansion of the Molo Graphite Mine. Prior to making a Phase 2 construction decision, the Company will consider the Feasibility Study results as well as Phase 1 operational results. |
|
|
|
| · | On February 28, 2023, the Company announced the results of a technical study for a Mauritius BAF (“Mauritius BAF”) capable of producing coated spheronized purified graphite (“CSPG”). The Company also announced the signing of an industrial lease at a site located in a freeport-classified industrial park. Mauritius was selected due to its proximity to the Molo Graphite Mine and strategic position on shipping routes to key markets. Front-end engineering and environmental and social impact assessment (“ESIA”) permitting for BAF1 is currently in progress. |
| 3 |
| NEXTSOURCE MATERIALS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS For the years ended June 30, 2022 and 2021 |
The Company also owns the Green Giant Vanadium Project, located in Madagascar, and the Sagar Project, located in Quebec, both of which are at the exploration and evaluation stage.
The Company has not previously operated any mines or processing facilities, and no commercial revenues have been generated from any mineral resources. The Company does not pay dividends and is unlikely to do so in the immediate or foreseeable future.
The Company accepts the risks which are inherent to mineral exploration and development programs and exposure to the cyclical nature of mineral and commodity prices. These risks are discussed in greater detail in the Risk Factors section of this MD&A.
RECENT HIGHLIGHTS
On July 14, 2021, the Company announced the appointment of Ian Pearce to the Board of Directors and the resignation of David McNeely as a Director of the Company.
On July 22, 2021, the Company announced that it has been accepted as a member of both the European Battery Alliance (“EBA”) and the European Raw Materials Alliance (“ERMA”).
On September 8, 2021, the Company announced it intends to assess emerging opportunities to accelerate expansion through the potential acquisition and development of additional metals and mineral assets that are expected to play a vital role in clean energy technologies.
On November 15, 2021, the Company announced the addition of proprietary graphite coating process to its BAF partnership for the production of CSPG.
On December 14, 2021, the Company announced the offshore fabrication and assembly of the processing plant had been completed.
On January 11, 2022, the Company announced the completion of factory acceptance testing and that preparations for the transport to the mine site had been initiated.
On April 27, 2022, the Company filed a Phase 2 PEA Technical Study that considers an enhanced Phase 2 expansion consisting of a stand-alone processing plant with a production capacity of 150,000 tonnes per annum of graphite concentrate over a 26-year life of mine. The PEA assumes the Phase 2 processing plant is built adjacent to the Phase 1 processing plant currently under construction.
On April 28, 2022, the Company announced the construction team was setup at the Molo Graphite Mine site in Madagascar and civil and earthworks have been initiated in preparation for the delivery and installation of the processing plant.
On April 28, 2022, the Company announced the initiation of a Feasibility Study and front-end engineering design (“FEED”) study for the proposed Phase 2 expansion of 150,000 tpa of graphite concentrate that was considered in the PEA.
On May 24, 2022, the Company announced construction of the solar, battery and thermal hybrid energy power plant had begun and all required licenses to initiate construction of the solar facility had been obtained. The Company also announced that due to increases in global logistics costs, the Phase 1 construction budget had been increased by approximately $3.0 million to $24.0 million plus an additional $3.0 million for working capital.
On August 9, 2022, the Company announced the processing plant had been unloaded in the port of Fort Dauphin and was expected to take approximately 45 days to transport and begin reassembly of the plant at the mine site.
On August 17, 2022, the Company received an additional $3.0 million from Vision Blue as part of the royalty financing agreement.
On October 25, 2022, the Company announced the early exercise of 23,214,286 warrants by Vision Blue, which was completed on October 31, 2022 resulting in gross proceeds of $17.0 million. As a result of the exercise, Vision Blue will have beneficial ownership of, or control and direction over 58,428,572 common shares representing approximately 46.71% of the outstanding common shares.
On October 25, 2022, the Company announced that all processing plant modules and supporting equipment had been transported to the mine site and that reassembly of the processing plant was in progress. The Company announced the addition of Danniel Stokes as Vice President, Special Projects, and Wilhelm Reitz as Mine Manager of the Molo Graphite Mine.
| 4 |
| NEXTSOURCE MATERIALS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS For the years ended June 30, 2022 and 2021 |
On February 28, 2023, the Company announced the results of an economic study for its first battery anode facility (BAF) to be located in in a freeport-classified industrial site in Port-Louis, Mauritius. The economic study estimated capital costs and working capital investments at $32.8 million for a facility generating annual revenues at $33.7 million with an EBITDA (as defined herein) of $13.2 million, resulting in a post-tax NPV of US$106.9 million using an 8% discount rate, an IRR of 42.7% and a payback of 2.4 years.
On February 28, 2023, the Company recognized a ROU asset and lease obligation of $12,125,134 using an incremental borrowing rate of 11.5% for the Mauritius BAF industrial lease, which has an initial term of 20 years plus a renewal of 5 years. The lease is payable annually in USD and as of March 31,2023, had a remaining term of 24.9 years. The initial annual lease is $1,338,637 and will increase according to the annual change in US CPI with a minimum of 0% and maximum of 3%.
On March 23, 2023, the Company announced that commissioning of the Company’s Molo Graphite Mine in Madagascar had been initiated and the installation of the solar and battery facility for the hybrid power plant was in progress. The Company also announced the addition of Dr. Markus Reichardt as Vice President of Sustainability.
On June 21, 2023, the Company announced production of the first tonne of SuperFlake® graphite concentrate as part of the commissioning and optimization of the processing plant. The operations team will now shift their focus to ramping up the plant throughput to its nameplate capacity of 17,000 tpa of flake graphite concentrate over a period of up to three months.
OUTLOOK AND MILESTONES
Plant commissioning was initiated in March 2023. Normal mine operations are expected to begin in July 2023 with a ramp up period to full production capacity of up to three months. The Company is not providing any forward guidance on production volumes, revenues, or operating costs for Phase 1 of the Molo Graphite Mine.
The Company is working to achieve the following milestones over the next twelve months:
| · | Completion of ramp-up to full Phase 1 production capacity |
| · | Declaration of commercial production and first commercial shipment |
| · | Completion of a Feasibility Study for a Phase 2 expansion |
| · | Decision of whether to proceed with construction of a Phase 2 expansion |
| · | Decision of whether to proceed with construction of the Mauritius BAF plant |
| · | Obtaining sufficient financing to initiate construction of the Mauritius BAF plant |
RESULTS OF OPERATIONS
The Company currently has two operating segments, consisting of mine development and the exploration and evaluation of mineral resources. No commercial revenues have been generated by the Company. 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 segments.
Financial Results for the years ended June 30, 2022 and 2021
|
|
| Year ended |
|
| Year ended |
|
| Three months ended |
|
| Three months ended |
| ||||
|
|
| June 30, |
|
| June 30, |
|
| June 30, |
|
| June 30, |
| ||||
|
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
| Revenues |
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| Mine development expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Mineral claims (Madagascar) |
|
| 121,115 |
|
|
| 3,335 |
|
|
| 68,840 |
|
|
| (10,197 | ) |
| Payroll and benefits |
|
| 5,976 |
|
|
| - |
|
|
| 2,975 |
|
|
| - |
|
| Engineering and metallurgical (Canada, South Africa) |
|
| 9,191 |
|
|
| 38,598 |
|
|
| 9,191 |
|
|
| 28,763 |
|
| Consulting fees (Madagascar) |
|
| (142,083 | ) |
|
| 265,635 |
|
|
| 11,249 |
|
|
| 164,220 |
|
| Mine admin (Madagascar) |
|
| 41,895 |
|
|
| - |
|
|
| 22,939 |
|
|
| - |
|
| Travel |
|
| 29,066 |
|
|
| 16,100 |
|
|
| 23,796 |
|
|
| 16,100 |
|
| Total mine development expenses |
|
| 65,160 |
|
|
| 323,668 |
|
|
| 138,990 |
|
|
| 198,886 |
|
| Exploration and evaluation expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Mineral claims (Canada) |
|
| 4,927 |
|
|
| 15,335 |
|
|
| 277 |
|
|
| 12,810 |
|
| Mineral claims (Madagascar) |
|
| 60,546 |
|
|
| 4,449 |
|
|
| 40,068 |
|
|
| (29,974 | ) |
| Engineering and metallurgical (Canada, South Africa) |
|
| - |
|
|
| - |
|
|
| (9,191 | ) |
|
| - |
|
| Exploration camp and admin (Madagascar) |
|
| 112,482 |
|
|
| 27,031 |
|
|
| 38,835 |
|
|
| 11,614 |
|
| Total exploration and evaluation expenses |
|
| 177,955 |
|
|
| 46,815 |
|
|
| 69,989 |
|
|
| (5,550 | ) |
| General and administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Payroll and benefits |
|
| 707,936 |
|
|
| 483,519 |
|
|
| 218,913 |
|
|
| 186,316 |
|
| Consulting Fees |
|
| 416,503 |
|
|
| 383,841 |
|
|
| 109,751 |
|
|
| 115,060 |
|
| Legal Fees |
|
| 65,291 |
|
|
| 99,316 |
|
|
| 35,620 |
|
|
| 27,424 |
|
| Professional Fees |
|
| 215,481 |
|
|
| 155,108 |
|
|
| 67,591 |
|
|
| 41,033 |
|
| Public Company expenses |
|
| 134,674 |
|
|
| 163,533 |
|
|
| (5,041 | ) |
|
| 51,756 |
|
| Travel expenses |
|
| 81,748 |
|
|
| 23,399 |
|
|
| 36,106 |
|
|
| 20,656 |
|
| Insurance expenses |
|
| 124,498 |
|
|
| 30,816 |
|
|
| 75,196 |
|
|
| 9,554 |
|
| Rent expenses |
|
| 7,141 |
|
|
| 19,857 |
|
|
| 544 |
|
|
| 4,977 |
|
| Office and admin |
|
| 176,020 |
|
|
| 37,412 |
|
|
| (87,914 | ) |
|
| 16,107 |
|
| Total general and administrative expenses |
|
| 1,929,292 |
|
|
| 1,396,801 |
|
|
| 450,766 |
|
|
| 472,883 |
|
| Share-based compensation |
|
| 385,930 |
|
|
| 3,744,172 |
|
|
| 229,272 |
|
|
| (48,932 | ) |
| Amortization of plant and equipment |
|
| 35,040 |
|
|
| 6,592 |
|
|
| 14,230 |
|
|
| 1,745 |
|
| Lease finance costs |
|
| 11,980 |
|
|
| 1,317 |
|
|
| 11,214 |
|
|
| 266 |
|
| Flow through provision (gain) |
|
| (28,385 | ) |
|
| (146,814 | ) |
|
| (28,385 | ) |
|
| (146,814 | ) |
| Foreign currency translation (gain) loss |
|
| 87,543 |
|
|
| 101,252 |
|
|
| 87,874 |
|
|
| 136,898 |
|
| Interest (income) |
|
| (191 | ) |
|
| (104 | ) |
|
| (57 | ) |
|
| (104 | ) |
| Interest expense |
|
| 32 |
|
|
| 273 |
|
|
| - |
|
|
| 128 |
|
| Royalty Fee |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
| Foreign taxes |
|
| 26 |
|
|
| 92 |
|
|
| 26 |
|
|
| 92 |
|
| Sub-total before other items |
|
| 2,664,382 |
|
|
| 5,474,064 |
|
|
| 973,919 |
|
|
| 609,498 |
|
| Government assistance |
|
| - |
|
|
| - |
|
|
| - |
|
|
|
|
|
| Realized gain on disposal of asset |
|
| (2,530 | ) |
|
| - |
|
|
| (2,530 | ) |
|
| - |
|
| Change in value of royalty obligation |
|
| 495,704 |
|
|
| - |
|
|
| 95,405 |
|
|
| - |
|
| Change in value of warrant liability |
|
| (19,229,287 | ) |
|
| 36,486,420 |
|
|
| (30,775,492 | ) |
|
| 26,810,060 |
|
| Change in value of production obligation |
|
| (48,472 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
| Net income (loss) for the year |
|
| 16,120,203 |
|
|
| (41,960,484 | ) |
|
| 29,708,698 |
|
|
| (27,419,558 | ) |
| Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Items that will be reclassified subsequently to net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Translation adjustment for foreign operations |
|
| 76,154 |
|
|
| 134,639 |
|
|
| 83,370 |
|
|
| 134,846 |
|
| Net income (loss) and comprehensive income (loss) for the year |
| $ | 16,196,357 |
|
| $ | (41,825,845 | ) |
| $ | 29,792,068 |
|
| $ | (27,284,712 | ) |
| 5 |
| NEXTSOURCE MATERIALS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS For the years ended June 30, 2022 and 2021 |
Discussion of the years ended June 30, 2022 and 2021
The Company had net income and comprehensive income of $16,196,357 (2021: net loss and comprehensive loss of $41,825,845).
Mine development expenditures decreased to $65,160 (2021: $323,668) due to the reversal of consulting fee accruals resulting in a gain of $142,083 (2021: expense of $265,635) and increased mineral claims expenses to $121,115 (2021: $3,335).
Exploration and evaluation expenditures increased to $177,955 (2021: $46,815) due to increased exploration camp and administration expenses to $112,483 (2021: $27,031). The exploration camp has been used to support mine development activities in anticipation of completion of the mine construction camp.
General and administrative expenses increased to $1,929,292 (2021: $1,396,801) due to increased payroll and benefits to $707,936 (2021: $483,519), consulting fees to $416,503 (2021: $383,841), professional fees to $215,481 (2021: $155,108), travel expenses to $81,748 (2021: $23,399), insurance expenses to $124,498 (2021: $30,816), and office and admin expenses to $176,019 (2021: $37,412). Public company and legal fees decreased since no new equity financings were completed during fiscal 2022.
Share-based compensation decreased to $385,930 (2021: $3,744,172) since no stock options were granted during fiscal 2022. The royalty obligation was remeasured resulting in a change in value loss of $495,704 (2021: $nil). The warrant derivative liabilities were remeasured resulting in a change in value gain of $19,229,287 (2021: loss of $36,486,420). The production obligation was remeasured resulting in a change in value gain of $48,272 (2021: $nil). The Company realized a gain on disposal of asset of $2,530 (2021: $nil).
Discussion of the three months ended June 30, 2022 and 2021
Mine development expenditures decreased to $138,990 (2021: $198,886) due to lower consulting fees to $11,249 (2021: $164,220) net of increased mineral claim expenses of $68,840 (2021: gain of $10,197).
Exploration and evaluation expenditures increased to $69,990 (2021: gain of $5,550) due to increased exploration camp and admin expenses to $38,835 (2021: $11,614). The exploration camp has been used to support mine development activities in anticipation of completion of the mine construction camp.
General and administrative expenses decreased to $450,766 (2021: $472,883) due to increased payroll and benefits to $218,913 (2021: $186,316), professional fees to $67,591 (2021: $41,033), travel to $36,106 (2021: $20,656) and insurance expenses to $75,196 (2021: $9,554). Public company expenses decreased to a gain of $5,041 (2021: $51,756). Office and admin expenses decreased to a gain of $87,914 (2021: $16,107).
Share-based compensation increased to $229,272 (2021: gain of $48,932). The royalty obligation was remeasured resulting in a change in value loss of $95,405 (2021: $nil). The warrant derivative liabilities were remeasured resulting in a change in value gain of $30,775,492 (2021: loss of $26,810,060). The Company realized a gain on disposal of asset of $2,530 (2021: $nil).
| 6 |
| NEXTSOURCE MATERIALS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS For the years ended June 30, 2022 and 2021 |
STATEMENT OF FINANCIAL POSITION
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 |
| Canada |
|
| Mauritius |
|
| Madagascar |
|
| Total |
| ||||
|
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
| As at June 30, 2022 |
|
| 9,641,083 |
|
|
| 61,010 |
|
|
| 91,160 |
|
|
| 9,793,253 |
|
| As at June 30, 2021 |
|
| 22,422,783 |
|
|
| 1,130 |
|
|
| 13,173 |
|
|
| 22,437,086 |
|
Amounts Receivable and Prepaid Expenses
Amounts receivables increased to $574,260 (June 30, 2021: $92,370) due to short-term loans to officers and increased value-added tax receivables. Prepaid expenses increased to $96,792 (June 30, 2021: $52,974) due to an increase in prepaid software licenses.
Long-Term Deposits
Deposits increased to $181,161 (June 30, 2021: $nil) for prepaid expenditures relating to assets under construction.
Property, Plant, and Equipment
As of June 30, 2022, property, plant, and equipment was $18,652,394 (June 30, 2021: $4,337,161). The Assets Under Construction consist of $15,692,451 for Phase 1 of the Molo Mine, $552,960 for Phase 2 of the Molo Mine and $547,812 for the BAF plant. During the year ended June 30, 2022, the Company capitalized additions of $14,350,273 (year ended June 30, 2021: 4,325,642) and amortized $35,040 (year ended June 30, 2021: $6,592). The Mining Property additions include production obligation accretion of $94,634. The Assets Under Construction additions include royalty obligation accretion of $904,771. The Right of Use Assets additions of $389,049 consist of the recognition of long-term property lease obligation.
|
|
| Mining |
|
| Assets Under |
|
| Equipment & |
|
| Right of Use |
|
|
| ||||||
|
|
| Property |
|
| Construction |
|
| Vehicles |
|
| Assets |
|
| Total |
| |||||
|
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
| As at June 30, 2020 |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 18,111 |
|
|
| 18,111 |
|
| Additions |
|
| 708,514 |
|
|
| 3,611,890 |
|
|
| 5,238 |
|
|
| - |
|
|
| 4,325,642 |
|
| Amortization |
|
| - |
|
|
| - |
|
|
| (555 | ) |
|
| (6,037 | ) |
|
| (6,592 | ) |
| As at June 30, 2021 |
|
| 708,514 |
|
|
| 3,611,890 |
|
|
| 4,683 |
|
|
| 12,074 |
|
|
| 4,337,161 |
|
| Additions |
|
| 398,836 |
|
|
| 13,181,333 |
|
|
| 239,542 |
|
|
| 530,562 |
|
|
| 14,350,273 |
|
| Amortization |
|
| - |
|
|
| - |
|
|
| (29,053 | ) |
|
| (5,987 | ) |
|
| (35,040 | ) |
| As at June 30, 2022 |
|
| 1,107,350 |
|
|
| 16,793,223 |
|
|
| 215,172 |
|
|
| 536,649 |
|
|
| 18,652,394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cost |
|
| 708,514 |
|
|
| 3,611,890 |
|
|
| 5,238 |
|
|
| 24,165 |
|
|
| 4,349,807 |
|
| Accumulated amortization |
|
| - |
|
|
| - |
|
|
| (555 | ) |
|
| (12,091 | ) |
|
| (12,646 | ) |
| As at June 30, 2021 |
|
| 708,514 |
|
|
| 3,611,890 |
|
|
| 4,683 |
|
|
| 12,074 |
|
|
| 4,337,161 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cost |
|
| 1,107,350 |
|
|
| 16,793,223 |
|
|
| 244,780 |
|
|
| 554,727 |
|
|
| 18,700,080 |
|
| Accumulated amortization |
|
| - |
|
|
| - |
|
|
| (29,608 | ) |
|
| (18,078 | ) |
|
| (47,686 | ) |
| As at June 30, 2022 |
|
| 1,107,350 |
|
|
| 16,793,223 |
|
|
| 215,172 |
|
|
| 536,649 |
|
|
| 18,652,394 |
|
| 7 |
| NEXTSOURCE MATERIALS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS For the years ended June 30, 2022 and 2021 |
Accounts Payable and Accrued Liabilities
Accounts payable increased to $817,265 (June 30, 2021: $383,428) due to an increase in construction related payables. Accrued liabilities increased to $1,047,400 (June 30, 2021: $221,692) due to increased accruals related to mine construction expenditures.
Short-Term Debt
The Company had a Canada Emergency Business Account (CEBA), which had loan forgiveness provisions whereby 25% of the loan principal would be forgiven if 75% of the loan principal was repaid prior to December 31, 2022. The Company had previously withdrawn CAD$40,000 and repaid CAD$30,000 of loan principal, thereby recognizing a CAD$10,000 provision for loan forgiveness resulting in a carrying balance of $nil on June 30, 2021. On January 28, 2022, the Company received confirmation the CAD$10,000 forgiveness had been received and the CEBA was closed.
Lease Obligations
On July 1, 2019, the Company recognized a right of use asset and lease obligations of $24,164 using an incremental borrowing rate of 10.43% related to the long-term lease of the exploration camp in Fotadrevo, Madagascar. As of June 30, 2022, the exploration camp lease had a remaining term of 12 months.
On March 31, 2022, the Company recognized a right of use asset and lease obligations of $389,049 using an incremental borrowing rate of 13.8% related to the long-term emphyteutic property lease for the Molo mining property, which is payable to the Government of Madagascar and will expire in 2072.
The following table sets out the carrying amounts of lease obligations for right of use assets included in the consolidated statement of financial position and the movements between the reporting periods:
|
|
| Camp Lease |
|
| Property Lease |
|
| Total Obligations |
| |||
|
|
| $ |
|
| $ |
|
| $ |
| |||
| As at June 30, 2020 |
|
| 16,018 |
|
|
| - |
|
|
| 16,018 |
|
| Additions |
|
| - |
|
|
| - |
|
|
| - |
|
| Lease payments |
|
| (6,367 | ) |
|
| - |
|
|
| (6,367 | ) |
| Finance costs |
|
| 1,317 |
|
|
| - |
|
|
| 1,317 |
|
| Foreign exchange adjustments |
|
| 131 |
|
|
| - |
|
|
| 131 |
|
| As at June 30, 2021 |
|
| 11,099 |
|
|
| - |
|
|
| 11,099 |
|
| Additions |
|
| - |
|
|
| 389,049 |
|
|
| 389,049 |
|
| Lease payments |
|
| (6,027 | ) |
|
| (47,252 | ) |
|
| (53,279 | ) |
| Finance costs |
|
| 900 |
|
|
| 11,080 |
|
|
| 11,980 |
|
| Foreign exchange adjustments |
|
| (318 | ) |
|
| (8,713 | ) |
|
| (9,031 | ) |
| As at June 30, 2022 |
|
| 5,654 |
|
|
| 344,164 |
|
|
| 349,818 |
|
The following table sets out the lease obligations included in the consolidated statements of financial position:
|
|
| Camp Lease |
|
| Property Lease |
|
| Total Obligations |
| |||
|
|
| $ |
|
| $ |
|
| $ |
| |||
| Current portion of lease obligations |
|
| 5,654 |
|
|
| 46,071 |
|
|
| 51,725 |
|
| Long-term lease obligations |
|
| - |
|
|
| 298,093 |
|
|
| 298,093 |
|
| As at June 30, 2022 |
|
| 5,654 |
|
|
| 344,164 |
|
|
| 349,818 |
|
Future minimum lease payments required to meet obligations that have initial or remaining non-cancellable lease terms are set out in the following table:
|
|
| Camp Lease |
|
| Property Lease |
|
| Total Obligations |
| |||
|
|
| $ |
|
| $ |
|
| $ |
| |||
| Within 12 months |
|
| 5,890 |
|
|
| 46,071 |
|
|
| 51,961 |
|
| Between 13 and 24 months |
|
| - |
|
|
| 46,071 |
|
|
| 46,071 |
|
| Between 25 and 36 months |
|
| - |
|
|
| 46,071 |
|
|
| 46,071 |
|
| Between 37 and 48 months |
|
| - |
|
|
| 46,071 |
|
|
| 46,071 |
|
| Between 49 and 60 months |
|
| - |
|
|
| 46,071 |
|
|
| 46,071 |
|
| Over 60 months |
|
| - |
|
|
| 2,027,124 |
|
|
| 2,027,124 |
|
| Total undiscounted lease obligations |
|
| 5,890 |
|
|
| 2,257,479 |
|
|
| 2,263,369 |
|
| 8 |
| NEXTSOURCE MATERIALS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS For the years ended June 30, 2022 and 2021 |
Leases of low value assets, short term leases of 12 months or less, and leases with variable payments proportional to the rate of use of the underlying asset do not give rise to a lease obligation. During the year ended June 30, 2022, the Company recognized short-term rent expenses of $7,141 (2021: $19,857) in the consolidated statements of operations and comprehensive income (loss).
Royalty obligations – Vision Blue
On February 8, 2021, the Company announced that it entered into a binding agreement with Vision Blue to provide a Financing Package for total gross proceeds of $29.5 million consisting of private placements and a royalty financing agreement. As part of the royalty financing agreement:
|
| · | The Company received the initial royalty funding of $8.0 million (less a $1.5 million royalty financing fee) on June 28, 2021 and received the remaining $3.0 million on August 17, 2022. |
|
|
|
|
|
| · | Beginning on the biannual period ending June 30, 2022, the Company will pay to Vision Blue the greater of: (i) $825,000 (the “Minimum Repayment”) or (ii) 3% of the gross sales revenues from graphite concentrate sales (the “GSR”). Once Vision Blue has received cumulative royalty payments of $16.5 million, the Minimum Repayment will cease, and the royalty will be based on the GSR. NextSource will have the option at any time to reduce the GSR to 2.25% upon payment to Vision Blue of $20 million. The Company may delay each of the biannual Minimum Repayments by 12 months, which will become subject to accrued interest of 15% per annum. |
|
|
|
|
|
| · | Vision Blue received 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. |
On June 30, 2021, the Company recognized a royalty obligation at the fair value of $6.5 million, which was equal to the present value using an effective discount rate of 13.8% of (1) the deferred royalty funding of $3.0 million, (2) the minimum royalty payments, (3) the accrued interest on minimum royalty payment deferrals of 12 months each, and (4) the perpetual 3% royalty on the estimated revenues of the remaining 30-year life of mine for Phase 1. The discount rate was determined at recognition by calculating the internal rate of return (IRR) of the expected cash flows. Upon recognition, a total of $169,279 of capitalized legal fees was netted against the obligation resulting in an initial carrying value of $6,330,721. The carrying value of the royalty obligation will be remeasured at each reporting period based on the revised expected future cash flows using the original discount rate under the amortized cost method.
During the year ended June 30, 2022, the royalty obligation was increased by accretion of $904,771 (2021: $Nil), which was capitalized as Assets Under Construction under property, plant, and equipment. As of June 30, 2022, the royalty obligation was remeasured at $7,731,196 (June 30, 2021: $6,330,721) resulting in a change in valuation of $495,704 (2021: $Nil).
|
|
| Total |
| |
|
|
| $ |
| |
| As at June 30, 2020 |
|
| - |
|
| Recognition of royalty obligation |
|
| 6,330,721 |
|
| As at June 30, 2021 |
|
| 6,330,721 |
|
| Accretion of royalty obligation |
|
| 904,771 |
|
| Remeasurement of royalty obligation |
|
| 495,704 |
|
| As at June 30, 2022 |
|
| 7,731,196 |
|
Future undiscounted minimum royalty payments including accrued interest on deferrals are set out in the following table:
|
|
| Total |
| |
|
|
| $ |
| |
| Within 12 months |
|
| 948,750 |
|
| Between 13 and 24 months |
|
| 1,897,500 |
|
| Between 25 and 36 months |
|
| 1,897,500 |
|
| Between 37 and 48 months |
|
| 1,897,500 |
|
| Between 49 and 60 months |
|
| 1,897,500 |
|
| Over 60 months |
|
| 10,436,250 |
|
| Total undiscounted minimum payments and interest |
|
| 18,975,000 |
|
Royalty obligations - Malagasy
On December 14, 2011, the Company entered into a Definitive Joint Venture Agreement ("JVA") with Malagasy Minerals Limited ("Malagasy") to acquire a 75% interest in a property package that included graphite and vanadium exploration claims. 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”). 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.
| 9 |
| NEXTSOURCE MATERIALS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS For the years ended June 30, 2022 and 2021 |
Royalty obligations – BAF Plant
On April 12, 2021, the Company announced a binding partnership agreement for the construction of BAF plants capable of converting flake graphite into SPG and CSPG using the partner’s proven processing technology. The Chinese partner will design and develop the process flowsheets, source all necessary equipment, and will provide all necessary training and operational know-how and in return will receive a 2% licensing royalty. Whereas the Japanese partner will leverage its sales relationships and will act as exclusive agent for sales, marketing, and trading and in return will receive a 3% sales commission royalty.
Warrant Derivative Liabilities
During the year ended June 30, 2022, a total of $4,462,156 was reclassified to equity upon the exercise of warrants. As of June 30, 2022, the derivative liability was remeasured at $21,689,490 (June 30, 2021: $45,380,933) resulting in a change in fair value of $19,229,287 (2021: $6,808,106) through the consolidated statement of operations and comprehensive income (loss).
|
|
| Warrant Liability |
| |
|
|
| $ |
| |
| As at June 30, 2020 |
|
| 208,768 |
|
| Recognition of derivative liability |
|
| 56,216,388 |
|
| Reclassification to equity on exercise of warrants |
|
| (4,236,117 | ) |
| Change in fair value |
|
| (6,808,106 | ) |
| As at June 30, 2021 |
|
| 45,380,933 |
|
| Reclassification to equity on exercise of warrants |
|
| (4,462,156 | ) |
| Change in fair value |
|
| (19,229,287 | ) |
| As at June 30, 2022 |
|
| 21,689,490 |
|
Commercial production provision
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 CAD$1,000,000 will be due within five days of the commencement of commercial production (the “Commercial Production Fee”). On June 30, 2021, the Company recognized a provision of $708,514 using a 13.8% discount rate based on the expected settlement of the Commercial Production Fee on or around June 30, 2022. The provision was recorded at amortized cost and was capitalized as Property under Property, Plant and Equipment.
During the year ended June 30, 2022, accretion of $94,634 (2021: $Nil) was capitalized as Property and a remeasurement gain of $48,472 was recognized through the consolidated statement of operations and comprehensive income (loss). On June 30, 2022, the provision was remeasured at $727,051 (June 30, 2021: $708,514) due to changes in foreign exchange that were recognized the consolidated statement of operations and comprehensive income (loss).
Flow-through 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 provisions 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.
As of June 30, 2022, based on the limited amount of completed settlements the Company revised the provision to $nil (June 30, 2021: $29,508) resulting in a gain of $28,385 (June 30, 2021: $146,814) recognized through the consolidated statement of operations and comprehensive income (loss).
OUTSTANDING SECURITIES
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 common shares have no par value, and the authorized share capital is composed of an unlimited number of common shares.
| 10 |
| NEXTSOURCE MATERIALS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS For the years ended June 30, 2022 and 2021 |
As of June 30, 2022, the Company had the following outstanding securities:
| Common shares issued and outstanding |
|
| 101,872,614 |
|
| Warrants |
|
| 23,214,286 |
|
| Stock options |
|
| 1,910,000 |
|
| Restricted share units (RSUs) |
|
| 270,000 |
|
| Fully diluted common shares |
|
| 127,266,900 |
|
Common Shares
As of June 30, 2022, the Company had 101,872,614 common shares issued and outstanding (June 30, 2021: 98,184,260).
The following shares were issued during the year ended June 30, 2022:
|
| (a) | On September 23, 2021, a total of 211,112 warrants priced at CAD$0.90 were exercised into 211,112 common shares for gross proceeds of $150,588. |
|
|
|
|
|
| (b) | On October 5, 2021, a total of 54,616 warrants priced at CAD$0.65 and 206,667 warrants priced at CAD$0.90 were exercised into 261,283 common shares for gross proceeds of $175,077. |
|
|
|
|
|
| (c) | On October 20, 2021, a total of 155,556 warrants priced at CAD$0.90 were exercised into 155,556 common shares for gross proceeds of $113,110. |
|
|
|
|
|
| (d) | On October 22, 2021, a total of 214,445 warrants priced at CAD$0.90 were exercised into 214,445 common shares for gross proceeds of $156,129. |
|
|
|
|
|
| (e) | On November 23, 2021, a total of 100,000 warrants priced at CAD$0.65 were exercised into 100,000 common shares for gross proceeds of $51,407. |
|
|
|
|
|
| (f) | On December 16, 2021, a total of 123,518 RSUs were converted into common shares. |
|
|
|
|
|
| (g) | On March 2, 2022, a total of 461,539 warrants priced at CAD$0.65 were exercised into 461,539 common shares for gross proceeds of $235,804. |
|
|
|
|
|
| (h) | On March 31, 2022, a total of 30,800 warrants priced at CAD$0.65 were exercised into 30,800 common shares for gross proceeds of $15,998. |
|
|
|
|
|
| (i) | On April 28, 2022, a total of 38,500 warrants priced at CAD$0.65 were exercised into 38,500 common shares for gross proceeds of $19,575. |
|
|
|
|
|
| (j) | On May 18, 2022, a total of 325,000 warrants priced at CAD$0.65 were exercised into 325,000 common shares for gross proceeds of $162,345. |
|
|
|
|
|
| (k) | On May 18, 2022, a total of 220,000 options priced at USD$0.66 were exercised into 220,000 common shares for gross proceeds of $144,833. |
|
|
|
|
|
| (l) | On May 23, 2022, a total of 220,000 options priced at USD$0.66 were exercised into 220,000 common shares for gross proceeds of $146,764. |
|
|
|
|
|
| (m) | On June 2, 2022, a total of 220,000 options priced at USD$0.66 were exercised into 220,000 common shares for gross proceeds of $145,200. |
|
|
|
|
|
| (n) | On June 9, 2022, a total of 215,000 options priced at USD$0.66 were exercised into 215,000 common shares for gross proceeds of $141,900. |
|
|
|
|
|
| (o) | On June 24, 2022, a total of 30,800 warrants priced at CAD$0.65 were exercised into 30,800 common shares for gross proceeds of $15,529. |
|
|
|
|
|
| (p) | On June 27, 2022, a total of 180,000 warrants priced at CAD$0.65 were exercised into 180,000 common shares for gross proceeds of $91,090. |
|
|
|
|
|
| (q) | On June 30, 2022, a total of 680,801 warrants priced at CAD$0.65 were exercised into 680,801 common shares for gross proceeds of $343,538. |
| 11 |
| NEXTSOURCE MATERIALS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS For the years ended June 30, 2022 and 2021 |
The following changes to the issued and outstanding common shares occurred during the year ended June 30, 2021:
|
| (a) | On July 2, 2020, the Company completed a non-brokered private placement of 6,157,887 units at a price of $0.24 (CAD$0.325) per unit for gross proceeds of $1,476,571 (CAD$2,001,310). Each unit consisted of one common share of the Company and one-half of one common share purchase warrant, with each full warrant entitling the holder to acquire one additional common share of the Company at a price of $0.48 (CAD$0.65) 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 $9,293 in share issuance costs. |
|
|
|
|
|
| (b) | On December 22, 2020, a total of 72,174 stock options priced at $0.56 were exercised into 72,174 common shares for gross proceeds of $40,418. |
|
|
|
|
|
| (c) | On February 9, 2021, a total of 147,000 stock options priced at $0.66 were exercised into 147,000 common shares for gross proceeds of $97,054. |
|
|
|
|
|
| (d) | On February 12, 2021, a total of 55,000 warrants priced at CAD$0.90 and 15,385 warrants at a price of CAD$0.65 were exercised into 70,385 common shares for gross proceeds of $46,760. |
|
|
|
|
|
| (e) | On February 19, 2021, a total of 22,223 stock options priced at CAD$0.90 were exercised into 22,223 common shares for gross proceeds of $15,857 and a total of 517,443 RSUs that vested on February 7, 2021 were converted into common shares for no additional consideration. |
|
|
|
|
|
| (f) | On February 23, 2021, a total of 73,000 stock options priced at $0.66 were exercised into 73,000 common shares for gross proceeds of $48,439. |
|
|
|
|
|
| (g) | On February 26, 2021, a total of 111,112 warrants priced at CAD$0.90 were exercised into 111,112 common shares for gross proceeds of $79,172. |
|
|
|
|
|
| (h) | On March 4, 2021, a total of 50,000 warrants priced at CAD$0.65 were exercised into 50,000 common shares for gross proceeds of $25,681. |
|
|
|
|
|
| (i) | On March 8, 2021, a total of 290,000 stock options priced at CAD$1.00 and 220,000 stock options priced at $0.66 were exercised into 510,000 common shares for gross proceeds of $374,494. |
|
|
|
|
|
| (j) | On March 15, 2021, the Company completed a non-brokered private placement of 12,000,000 common shares at a price of CAD$0.65 per share for total gross proceeds of $6,000,000 (CAD$7,800,000). In connection with the non-brokered private placement, the Company incurred $16,367 in share issuance costs. |
|
|
|
|
|
| (k) | On April 12, 2021, a total of 361,500 warrants priced at CAD$0.65 and 55,555 warrants priced at CAD$0.90 were exercised into 417,055 common shares for gross proceeds of $226,506. |
|
|
|
|
|
| (l) | On May 19, 2021, the Company completed a non-brokered private placement of 23,214,286 units at a price of CAD$0.65 per unit for total gross proceeds of $12,500,000 (CAD$15,089,286). Each unit consisted of one common share of the Company and one common share purchase warrant, with each warrant entitling the holder to acquire one additional common share of the Company at a price of CAD$1.00 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 $87,788 in share issuance costs. |
|
|
|
|
|
| (m) | On May 25, 2021, a total of 750,000 warrants priced at CAD$0.65 were exercised into 750,000 common shares for gross proceeds of $403,705. |
|
|
|
|
|
| (n) | On June 7, 2021, a total of 200,000 warrants priced at CAD$0.90 were exercised into 200,000 common shares for gross proceeds of $148,518. |
|
|
|
|
|
| (o) | On June 23, 2021, a total of 222,223 warrants priced at CAD$0.90 were exercised into 222,223 common shares for gross proceeds of $162,000. |
Common Share Purchase Warrants
As of June 30, 2022, the Company had 23,214,286 common share purchase warrants outstanding (June 30, 2021: 25,904,122) with a weighted average expiration of 0.88 years (June 30, 2021: 1.77 years), which are exercisable into 23,214,286 (June 30, 2021: 25,904,122) common shares at a weighted average exercise price of USD$0.78 (June 30, 2021: USD$0.78). All outstanding warrants vested on their respective issue dates.
| 12 |
| NEXTSOURCE MATERIALS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS For the years ended June 30, 2022 and 2021 |
|
|
|
|
| As at |
|
|
|
|
|
|
|
| As at |
| ||||||||||
| Issued |
| Expiration |
| Exercise |
| June 30, |
|
|
|
|
|
|
|
| June 30, |
| ||||||||
| Date |
| Date |
| Price |
| 2021 |
|
| Issued |
|
| Cancelled |
|
| Exercised |
|
| 2022 |
| |||||
| October 25, 2019 |
| October 25, 2021 |
| CAD $0.90 |
|
| 787,780 |
|
|
| - |
|
|
| - |
|
|
| (787,780 | ) |
|
| - |
|
| July 2, 2020 |
| July 2, 2022 |
| CAD $0.65 |
|
| 1,902,056 |
|
|
| - |
|
|
| - |
|
|
| (1,902,056 | ) |
|
| - |
|
| May 19, 2021 |
| May 19, 2023 |
| CAD $1.00 |
|
| 23,214,286 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 23,214,286 |
|
| Totals |
|
|
|
|
|
| 25,904,122 |
|
|
| - |
|
|
| - |
|
|
| (2,689,836 | ) |
|
| 23,214,286 |
|
Nil common share purchase warrants were issued during the year ended June 30, 2022.
|
|
|
|
| As at |
|
|
|
|
|
|
|
| As at |
| ||||||||||
| Issued |
| Expiration |
| Exercise |
| June 30, |
|
|
|
|
|
|
|
| June 30, |
| ||||||||
| Date |
| Date |
| Price |
| 2020 |
|
| Issued |
|
| Cancelled |
|
| Exercised |
|
| 2021 |
| |||||
| August 17, 2018 |
| August 17, 2020 |
| CAD $1.00 |
|
| 1,065,265 |
|
|
| - |
|
|
| (1,065,265 | ) |
|
| - |
|
|
| - |
|
| October 25, 2019 |
| October 25, 2021 |
| CAD $0.90 |
|
| 1,453,892 |
|
|
| - |
|
|
| - |
|
|
| (666,112 | ) |
|
| 787,780 |
|
| July 2, 2020 |
| July 2, 2022 |
| CAD $0.65 |
|
| - |
|
|
| 3,078,941 |
|
|
| - |
|
|
| (1,176,885 | ) |
|
| 1,902,056 |
|
| May 19, 2021 |
| May 19, 2023 |
| CAD $1.00 |
|
| - |
|
|
| 23,214,286 |
|
|
| - |
|
|
| - |
|
|
| 23,214,286 |
|
| Totals |
|
|
|
|
|
| 2,519,157 |
|
|
| 26,293,227 |
|
|
| (1,065,265 | ) |
|
| (1,842,997 | ) |
|
| 25,904,122 |
|
The following common share purchase warrants were issued during the year ended June 30, 2021:
|
| (a) | On July 2, 2020, the Company completed a non-brokered private placement of 6,157,887 units at a price of $0.24 (CAD$0.325) per unit 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 CAD$0.65 (USD$0.52) per share for a period of 24 months. |
|
|
|
|
|
| (b) | On May 19, 2021, the Company completed a non-brokered private placement of 23,214,286 units at a price of CAD$0.65 per unit for total gross proceeds of $12,500,000 (CAD$15,089,286). Each unit consisted of one common share of the Company and one common share purchase warrant, with each warrant entitling the holder to acquire one additional common share of the Company at a price of CAD$1.00 (USD$0.80) per share for a period of 24 months. |
Stock Options
As of June 30, 2022, the Company had 1,910,000 stock options outstanding (June 30, 2021: 2,780,000) with a weighted average expiration of 1.74 years (June 30, 2021: 2.15), which are exercisable into 1,910,000 common shares (June 30, 2021: 2,780,000) at a weighted average exercise price of USD$2.17 (June 30, 2021: USD$1.73). All the outstanding stock options vested on their respective grant dates.
|
|
|
|
| As at |
|
|
|
|
|
|
|
| As at |
| ||||||||||
| Award & Vesting |
| Expiration |
| Exercise |
| June 30, |
|
|
|
|
|
|
|
| June 30, |
| ||||||||
| Date |
| Date |
| Price |
| 2021 |
|
| Awarded |
|
| Cancelled |
|
| Exercised |
|
| 2022 |
| |||||
| June 9, 2017 |
| June 9, 2022 |
| USD $0.66 |
|
| 900,000 |
|
|
| - |
|
|
| (25,000 | ) |
|
| (875,000 | ) |
|
| - |
|
| March 26, 2019 |
| March 26, 2024 |
| CAD $1.00 |
|
| 580,000 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 580,000 |
|
| March 19, 2021 |
| March 19, 2024 |
| CAD $3.60 |
|
| 1,300,000 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,300,000 |
|
| May 11, 2022 |
| May 11, 2025 |
| CAD $2.50 |
|
| - |
|
|
| 30,000 |
|
|
| - |
|
|
| - |
|
|
| 30,000 |
|
| Totals |
|
|
|
|
|
| 2,780,000 |
|
|
| 30,000 |
|
|
| (25,000 | ) |
|
| (875,000 | ) |
|
| 1,910,000 |
|
The following stock options were granted during the year ended June 30, 2022:
|
| (a) | On May 11, 2022, the Company granted 30,000 stock options exercisable at a price of CAD$2.50 for a period of three years. The options were valued at $43,050 using the Black-Scholes pricing model based on a risk-free rate of 2.74%, a term of 3 years, volatility of 128% and a market price of $1.93 (CAD$2.50). These stock options vested on the grant date. |
|
|
|
|
| As at |
|
|
|
|
|
|
|
| As at |
| ||||||||||
| Award & Vesting |
| Expiration |
| Exercise |
| June 30, |
|
|
|
|
|
|
|
| June 30, |
| ||||||||
| Date |
| Date |
| Price |
| 2020 |
|
| Awarded |
|
| Cancelled |
|
| Exercised |
|
| 2021 |
| |||||
| December 22, 2015 |
| December 22, 2020 |
| USD $0.56 |
|
| 630,001 |
|
|
| - |
|
|
| (557,826 | ) |
|
| (72,175 | ) |
|
| - |
|
| June 9, 2017 |
| June 9, 2022 |
| USD $0.66 |
|
| 1,810,000 |
|
|
| - |
|
|
| (470,000 | ) |
|
| (440,000 | ) |
|
| 900,000 |
|
| March 26, 2019 |
| March 26, 2024 |
| CAD $1.00 |
|
| 1,185,000 |
|
|
| - |
|
|
| (315,000 | ) |
|
| (290,000 | ) |
|
| 580,000 |
|
| March 19, 2021 |
| March 19, 2024 |
| CAD $3.60 |
|
| - |
|
|
| 1,300,000 |
|
|
| - |
|
|
| - |
|
|
| 1,300,000 |
|
| Totals |
|
|
|
|
|
| 3,625,001 |
|
|
| 1,300,000 |
|
|
| (1,342,826 | ) |
|
| (802,175 | ) |
|
| 2,780,000 |
|
| 13 |
| NEXTSOURCE MATERIALS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS For the years ended June 30, 2022 and 2021 |
The following stock options were granted during the year ended June 30, 2021:
|
| (a) | On March 19, 2021, the Company granted 1,300,000 stock options exercisable at a price of CAD$3.60 for a period of three years. The options were valued at $2,777,404 using the Black-Scholes pricing model based on a risk-free rate of 0.53%, a term of 3 years, volatility of 130% and a market price of $2.88 (CAD$3.60). These stock options vested on the grant date. |
Restricted Share Units (RSUs)
As of June 30, 2022, the Company had 270,000 RSUs issued and outstanding (June 30, 2021: 475,000) which entitle the holders to receive 270,000 common shares (June 30, 2021: 475,000) for no additional consideration but are subject to satisfying their respective vesting conditions. The RSUs have a weighted average until vesting of 0.38 years (June 30, 2021: 0.86) and weighted average until expiration of 1.00 years (June 30, 2021: 1.40). A total of $342,880 (2021: $468,844) was expensed as share-based compensation related to vesting or cancellation of RSUs
|
|
|
| As at |
|
|
| As at |
| Grant | Vesting | Expiration | June 30, |
|
|
| June 30, |
| Date | Date | Date | 2021 | Awarded | Cancelled | Converted | 2022 |
| Vesting condition - Employment on vesting date: |
|
|
|
|
| ||
| March 19, 2021 | December 31, 2022 | June 30, 2023 | 200,000 | - | - | - | 200,000 |
| May 11, 2022 | July 14, 2022 | June 30, 2023 | - | 40,000 | - | - | 40,000 |
| Vesting condition - Milestone achieved on vesting date: |
|
|
|
|
| ||
| March 19, 2021 | June 30, 2022 | December 31, 2022 | 125,000 | - | (125,000) | - | - |
| March 19, 2021 | May 17, 2021 | December 31, 2021 | 150,000 | - | - | (150,000) | - |
| May 11, 2022 | July 14, 2022 | June 30, 2023 | - | 30,000 | - | - | 30,000 |
| Totals |
|
| 475,000 | 70,000 | (125,000) | (150,000) | 270,000 |
The following RSUs were granted during the year ended June 30, 2022:
|
| (a) | On May 11, 2022, the Company granted 40,000 RSUs with a vesting date of July 14, 2022, whereby the holder will receive 40,000 common shares subject to achieving certain milestones on the vesting date. The grant date fair value was estimated at $77,230 based on a grant-date market price of $1.93 (CAD$2.50). |
|
|
|
|
|
| (b) | On May 11, 2022, the Company granted 30,000 RSUs with a vesting date of July 14, 2022, whereby the holder will receive 30,000 common shares subject to being employed on the vesting date. These RSUs vested on July 14, 2022. The grant date fair value was estimated at $57,922 based on a grant-date market price of $1.93 (CAD$2.50). |
The following occurred during the year ended June 30, 2022:
|
| (a) | A total of 125,000 RSUs did not satisfy their vesting conditions and were cancelled. |
|
|
|
|
|
| (b) | A total of 150,000 RSUs satisfied their vesting conditions whereby 123,518 were converted into common shares and 26,482 were forfeited to cover payroll deductions owed to the Company by the recipient resulting in a reduction of capital of $70,190. |
|
|
|
| As at |
|
|
| As at |
| Grant | Vesting | Expiration | June 30, |
|
|
| June 30, |
| Date | Date | Date | 2020 | Awarded | Cancelled | Converted | 2021 |
| Vesting condition - Employment on vesting date: |
|
|
|
|
| ||
| March 19, 2021 | December 31, 2022 | June 30, 2023 | - | 200,000 | - | - | 200,000 |
| Vesting condition - Milestone achieved on vesting date: |
|
|
|
|
| ||
| December 29, 2020 | February 7, 2021 | February 19,2021 | - | 172,481 | - | (172,481) | - |
| December 29, 2020 | February 7, 2021 | August 19, 2021 | - | 172,481 | - | (172,481) | - |
| December 29, 2020 | February 7, 2021 | February 19, 2022 | - | 172,481 | - | (172,481) | - |
| March 19, 2021 | June 30, 2022 | December 31, 2022 | - | 125,000 | - | - | 125,000 |
| March 19, 2021 | May 17, 2021 | December 31, 2021 | - | 150,000 | - | - | 150,000 |
| Totals |
|
| - | 992,443 | - | (517,443) | 475,000 |
The following RSUs were granted during the year ended June 30, 2021:
|
| (a) | On December 29, 2020, the Company granted 517,443 RSUs with variable vesting dates subject to achieving certain milestones prior to expiration whereby 33.33% was set to expire on each of Feb 16, 2021, August 16, 2021, and Feb 16, 2022. The fair value was estimated at $364,852 based on a grant-date market price of CAD$0.90 (USD$0.71). |
| 14 |
| NEXTSOURCE MATERIALS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS For the years ended June 30, 2022 and 2021 |
|
| (b) | On March 19, 2021, the Company granted the following RSUs: |
|
| a. | 200,000 RSUs with a vesting date of December 31, 2022, whereby the holders will receive 200,000 common shares subject to achieving the vesting condition of being employees or consultants of the Company on the vesting date. The grant date fair value was estimated at $575,352 based on a grant-date market price of $2.88 (CAD$3.60). |
|
| b. | 125,000 RSUs with a vesting date of June 30, 2023, whereby the holders will receive 125,000 common shares subject to achieving the milestone vesting conditions by the vesting date. The grant date fair value was estimated at $359,595 based on a grant-date market price of $2.88 (CAD$3.60). |
|
| c. | 150,000 RSUs with a vesting date of May 17, 2021, whereby the holders will receive 150,000 common shares subject to achieving the milestone vesting condition by the vesting date. The grant date fair value was estimated at $431,514 based on the grant-date market price of $2.88 (CAD$3.60). |
The following occurred during the year ended June 30, 2021:
|
| (a) | A total of 517,443 RSUs satisfied their vesting conditions whereby 517,443 were converted into common shares. |
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. Other related parties include companies controlled by key management personnel. 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.
A transaction is considered 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.
The following key management related party transactions occurred during the following reporting periods:
|
|
| Year ended |
|
| Year ended |
| ||
|
|
| June 30, |
|
| June 30, |
| ||
|
|
| 2022 |
|
| 2021 |
| ||
| Payroll and benefits |
| $ | 452,631 |
|
| $ | 448,984 |
|
| Consulting fees |
|
| 339,612 |
|
|
| 341,541 |
|
| Professional fees |
|
| 27,506 |
|
|
| 35,946 |
|
| Share-based compensation |
|
| 385,930 |
|
|
| 3,744,172 |
|
| Total |
| $ | 1,205,679 |
|
| $ | 4,570,643 |
|
The following key management related party balances existed as of the end of the following reporting periods:
|
|
| As of |
|
| As of |
| ||
|
|
| June 30, |
|
| June 30, |
| ||
|
|
| 2022 |
|
| 2021 |
| ||
| Amounts receivable |
| $ | 193,471 |
|
| $ | 17,007 |
|
| Prepaid expenses |
|
| - |
|
|
| 6,949 |
|
| Accrued liabilities |
|
| 35,257 |
|
|
| 64,503 |
|
Payroll and benefits are for employment compensation received by Craig Scherba (CEO), Brent Nykoliation (SVP), Brett Whalen (Director), Chris Kruba (Director), Ian Pearce (Director) and Sir Mick Davis (Chairman). Consulting fees are for consulting compensation received by companies controlled by Marc Johnson (CFO) and Robin Borley (COO). Professional fees are for the provision of accounting services by a company controlled by Marc Johnson (CFO). Share-based compensation are for the vesting of stock options and RSUs awarded to officers and directors of the Company. Amounts receivable are for short-term loans to officers related to payroll advances and the exercise of stock options. Accrued liabilities are for the accrual of director fees.
LIQUIDITY AND CAPITAL MANAGEMENT
Capital Management
There were no changes in the Company's approach to capital management during the year ended June 30, 2022.
| 15 |
| NEXTSOURCE MATERIALS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS For the years ended June 30, 2022 and 2021 |
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.
The Company is not subject to any externally imposed capital requirements.
The Company has not generated any revenues from mineral property interests, which are still in the development, or exploration & evaluation stage. To date, the Company has funded its operations by raising equity and obtaining a royalty financing agreement. To minimize liquidity risk, the Company has implemented cost control measures including a construction budget and the minimizing of discretionary expenditures unless the project has sufficient economic or geologic merit.
The Company manages its capital structure (consisting of shareholders’ deficiency) on an ongoing basis and in response to changes in economic conditions and risk characteristics of its underlying assets. Changes to the capital structure could involve the issuance of new equity, obtaining working capital loans, construction financing, issuing debt, the acquisition or disposition of assets, or adjustments to the amounts held in cash, cash equivalents and short-term investments.
Capital resource analysis
As of June 30, 2022, the Company had a working capital deficit of $13,868,626 (June 30, 2021: deficit of $24,147,490). Excluding the $21,689,490 (2021: $45,380,933) of warrant derivative liabilities that are expected to be settled through the issuance of common shares upon the exercise or expiration of the underlying common share purchase warrants, the Company had a working capital surplus of $7,820,864 (June 30, 2021: surplus of $21,233,443).
|
|
| As at |
|
| As at |
| ||
|
|
| June 30, |
|
| June 30, |
| ||
|
|
| 2022 |
|
| 2021 |
| ||
|
|
|
|
|
|
|
| ||
| Current Assets: |
|
|
|
|
|
| ||
| Cash and cash equivalents |
| $ | 9,793,253 |
|
| $ | 22,437,086 |
|
| Amounts receivable |
|
| 574,260 |
|
|
| 92,370 |
|
| Prepaid expenses |
|
| 96,792 |
|
|
| 52,974 |
|
| Total Current Assets |
|
| 10,464,305 |
|
|
| 22,582,430 |
|
|
|
|
|
|
|
|
|
|
|
| Current Liabilities: |
|
|
|
|
|
|
|
|
| Accounts payable |
|
| 817,265 |
|
|
| 383,428 |
|
| Accrued liabilities |
|
| 1,047,400 |
|
|
| 221,692 |
|
| Short term debt |
|
| - |
|
|
| - |
|
| Current portion of lease obligations |
|
| 51,725 |
|
|
| 5,845 |
|
| Fair value of warrant derivative liabilities |
|
| 21,689,490 |
|
|
| 45,380,933 |
|
| Provision |
|
| 727,051 |
|
|
| 738,022 |
|
| Total Current Liabilities |
|
| 24,332,931 |
|
|
| 46,729,920 |
|
|
|
|
|
|
|
|
|
|
|
| Working Capital (Deficit) surplus |
|
| (13,868,626 | ) |
|
| (24,147,490 | ) |
| Working Capital (Deficit) surplus excluding warrant liabilities |
|
| 7,820,864 |
|
|
| 21,233,443 |
|
As part of the royalty financing agreement, the Company received a further $3.0 million from Vision Blue on August 17, 2022.
Although the Company has a working capital surplus excluding warrant derivative liabilities, a significant amount of working capital is expected to be utilized to complete construction of Phase 1 of the Molo Graphite Mine and related working capital, and for general and administrative expenditures and general working capital.
The Molo Mine Phase 1 capital costs are expected to be within the $24.0 million construction budget whereas working capital investments are now estimated at up to $6.3 million. As of June 30, 2022, the Company had capitalized or prepaid construction costs of $16.2 million and is expected to incur remaining construction costs of $7.8 million plus working capital. Completion of construction activities and the start of mining activities is expected in November 2022. Completion of plant commissioning is expected in December 2022 followed by a ramp up period of up to three months before achieving commercial production.
The Company believes its capital resources are sufficient to complete construction of Phase 1 but will require additional funding to cover general and administrative costs, technical studies, and general working capital requirements over the next 12 months. The Company expects this shortfall will be covered through the exercise of outstanding common share purchase warrants, equity, and debt financing. Notwithstanding, the Company may choose to reduce discretionary spending or raise additional capital by issuing new equity, obtaining working capital loans, or additional construction financing. Based on management’s assessment of its past ability to obtain required funding, the Company believes it will be able to satisfy its current and long-term obligations as they come due. While the Company has been successful in obtaining funding in the past, there is no assurance that future financings will be available on terms acceptable to the Company.
| 16 |
| NEXTSOURCE MATERIALS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS For the years ended June 30, 2022 and 2021 |
Cash flows from operating, investing, and financing activities
The following are the Company’s cash flows from operating, investing and financing activities for the years ended June 30, 2022 and 2021:
|
|
| Year ended |
|
| Year ended |
|
| Year ended |
| |||
|
|
| June 30, |
|
| June 30, |
|
| June 30, |
| |||
|
|
| 2022 |
|
| 2021 |
|
| 2020 |
| |||
|
|
|
|
|
|
|
|
|
|
| |||
| Operating activities |
|
|
|
|
|
|
|
|
| |||
| Net income (loss) for the year |
| $ | 16,120,203 |
|
| $ | (41,960,484 | ) |
| $ | (977,635 | ) |
| Add (deduct) items not affecting cash: |
|
|
|
|
|
|
|
|
|
|
|
|
| Amortization of plant and equipment |
|
| 35,040 |
|
|
| 6,592 |
|
|
| 6,053 |
|
| Change in value of lease obligations |
|
| 2,949 |
|
|
| 1,448 |
|
|
| (3,337 | ) |
| Change in value of royalty obligations |
|
| 495,704 |
|
|
| - |
|
|
| - |
|
| Change in value of warrant liability |
|
| (19,229,287 | ) |
|
| 36,486,420 |
|
|
| (386,940 | ) |
| Change in value of production obligation |
|
| (48,472 | ) |
|
| - |
|
|
| - |
|
| Realized gain on disposal of asset |
|
| (2,530 | ) |
|
| - |
|
|
| - |
|
| Share-based compensation settled with shares |
|
| 315,740 |
|
|
| 3,744,172 |
|
|
| - |
|
| Government assistance |
|
| - |
|
|
| - |
|
|
| (7,373 | ) |
| Subtotal |
|
| (2,310,653 | ) |
|
| (1,721,852 | ) |
|
| (1,369,232 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Change in non-cash working capital balances: |
|
|
|
|
|
|
|
|
|
|
|
|
| (Increase) decrease in amounts receivable and prepaid expenses |
|
| (525,708 | ) |
|
| (112,321 | ) |
|
| 51,049 |
|
| Increase (decrease) in accounts payable and accrued liabilities |
|
| 1,259,545 |
|
|
| (89,205 | ) |
|
| (69,692 | ) |
| Increase (decrease) in provision |
|
| (57,133 | ) |
|
| 563,604 |
|
|
| (6,234 | ) |
| Net cash used in operating activities |
|
| (1,633,949 | ) |
|
| (1,359,774 | ) |
|
| (1,394,109 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
| Deposit |
|
| (181,161 | ) |
|
| - |
|
|
| - |
|
| Additions to property, plant, and equipment |
|
| (12,961,819 | ) |
|
| (4,325,642 | ) |
|
| - |
|
| Dispositions of equipment |
|
| 2,530 |
|
|
| - |
|
|
| - |
|
| Net cash used in investing activities |
|
| (13,140,450 | ) |
|
| (4,325,642 | ) |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
| Increase (decrease) in share subscriptions received in advance |
|
| - |
|
|
| (68,411 | ) |
|
| 68,411 |
|
| Proceeds from issuance of common shares |
|
| - |
|
|
| 19,976,571 |
|
|
| 998,620 |
|
| Common share issue costs |
|
| - |
|
|
| (113,446 | ) |
|
| (7,821 | ) |
| Exercise of stock options |
|
| 577,500 |
|
|
| 560,406 |
|
|
| - |
|
| Exercise of warrants |
|
| 1,530,192 |
|
|
| 1,108,200 |
|
|
| - |
|
| Lease liability principal payments |
|
| (53,279 | ) |
|
| (6,367 | ) |
|
| (4,810 | ) |
| Short term debt |
|
| - |
|
|
| (22,115 | ) |
|
| 29,486 |
|
| Proceeds from royalty financing |
|
| - |
|
|
| 6,330,721 |
|
|
| - |
|
| Net cash provided by financing activities |
|
| 2,054,413 |
|
|
| 27,765,559 |
|
|
| 1,083,886 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Effect of exchange rate changes on cash and cash equivalents |
|
| 76,153 |
|
|
| 134,638 |
|
|
| 3,197 |
|
| Net increase (decrease) in cash and cash equivalents during the year |
|
| (12,643,833 | ) |
|
| 22,214,781 |
|
|
| (307,026 | ) |
| Cash and cash equivalents, beginning of year |
|
| 22,437,086 |
|
|
| 222,305 |
|
|
| 529,331 |
|
| Cash and cash equivalents, end of year |
| $ | 9,793,253 |
|
| $ | 22,437,086 |
|
| $ | 222,305 |
|
Net cash used in operating activities increased to $1,633,949 (2021: $1,359,774) due to an increase in mine development expenditures and an increase in amounts receivable and prepaid expenses.
Net cash used in investing activities increased to $13,140,450 (2021: $4,325,642) due to the capitalization of mine construction costs and purchase of vehicles and equipment.
Net cash provided by financing activities decreased to $2,054,413 (2021: $27,765,559) due to the completion of a private placement in the prior year period.
| 17 |
| NEXTSOURCE MATERIALS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS For the years ended June 30, 2022 and 2021 |
Contractual Obligations and Commitments
The Company is subject to contractual obligations related to the royalties, royalty obligation minimum repayments and the long-term lease agreements for the Molo property and camp in Fotadrevo. The Company’s future operating cash flows are expected to be sufficient to satisfy contractual obligations related to these obligations and commitments.
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.
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.
In managing liquidity, the Company’s primary objective is to ensure the entity can continue as a going concern while obtaining sufficient funding to meet its obligations as they come due. 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.
None of the Company’s obligations have contractual maturities over the next 12 months, except the following:
|
| · | Accounts payable and accrued liabilities, which are generally due within 30 days. |
|
| · | Minimum royalty payment obligations, which have been deferred until June 2023. |
|
| · | Warrant derivative liabilities, which are expected to be settled upon the exercise or expiration of the underlying common share purchase warrants. |
As of June 30, 2022, the Company had cash and cash equivalents of $9,793,253 (June 30, 2021: $22,437,086) to settle current liabilities of $2,643,441 (June 30, 2021: $1,348,987), which amount excludes the $21,689,490 of warrant derivative liabilities (June 30, 2021: $45,380,933) that are expected to be settled upon the exercise or expiration of the underlying common share purchase warrants. As a result, the Company is not currently exposed to liquidity risk but may become exposed if additional working capital funding is not obtained to cover general and administrative costs, technical studies, and general working capital requirements over the next 12 months.
Credit risk
The Company does not have commercial customers and therefore does not have credit risk related to amounts receivables. The Company has credit risk arising from short-term loans to officers related to payroll advances and the exercise of stock options. 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, whereas any offshore deposits are held with reputable financial institutions.
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, and future cash flows generated 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. Graphite is not a commodity product and therefore does not have an established forward pricing or futures market. 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 and the South African Rand. The Company purchases services and has certain salary commitments in those foreign 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 commitments to deliver products quoted in foreign currencies. Due to construction activities related to the Molo Graphite Mine, the Company is increasing its sensitivity to foreign exchange risk arising from the translation of the financial statements of subsidiaries with a functional currency other than the US dollar whereby changes in certain assets, liabilities and equity are measured through other comprehensive income.
| 18 |
| NEXTSOURCE MATERIALS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS For the years ended June 30, 2022 and 2021 |
As of June 30, 2022, the Company estimated that a 10% decrease of the USD versus foreign exchange rates would result in a gain of $68,224 (June 30, 2021: gain of $1,463).
|
|
| As at |
|
| As at |
| ||
|
|
| June 30, |
|
| June 30, |
| ||
|
|
| 2022 |
|
| 2021 |
| ||
| Cash and cash equivalents (CAD) |
| $ | 1,341,893 |
|
| $ | 1,011,996 |
|
| Cash and cash equivalents (MGA) |
|
| 62,433 |
|
| $ | 1,698 |
|
| Amounts receivable (CAD) |
|
| 319,555 |
|
|
| 73,707 |
|
| Amounts receivable (MGA) |
|
| 61,234 |
|
|
| 26 |
|
| Accounts payable and accrued liabilities (CAD) |
|
| (124,023 | ) |
|
| (137,329 | ) |
| Accounts payable and accrued liabilities (MGA) |
|
| (203,028 | ) |
|
| (30,574 | ) |
| Accounts payable and accrued liabilities (ZAR) |
|
| (48,773 | ) |
|
| - |
|
| Accounts payable and accrued liabilities (EUR) |
|
| - |
|
|
| (166,869 | ) |
| Provisions (CAD) |
|
| (727,051 | ) |
|
| (738,022 | ) |
| Net foreign exchange exposure in USD |
| $ | 682,240 |
|
|
| 14,633 |
|
| Impact of 10% change in foreign exchange rates |
| $ | 68,224 |
|
|
| 1,463 |
|
SUBSEQUENT EVENTS
On July 28, 2022, the Company granted 160,000 RSUs with a vesting date of June 30, 2023, whereby the holders will receive 160,000 common shares subject to being employed or a consultant on the vesting date.
On August 17, 2022, the Company received the remaining royalty funding of $3.0 million.
On October 31, 2022, a total of 23,214,286 warrants priced at CAD$1.00 were exercised into 23,214,286 common shares for gross proceeds of $17,002,227 (CAD$23,214,286).
On February 28, 2023, the Company recognized a ROU asset and lease obligation of $12,125,134 using an incremental borrowing rate of 11.5% for the Mauritius BAF industrial lease, which has an initial term of 20 years plus a renewal of 5 years. The lease is payable annually in USD and as of March 31,2023, had a remaining term of 24.9 years. The initial annual lease is $1,338,637 and will increase according to the annual change in US CPI with a minimum of 0% and maximum of 3%.
On June 30, 2023, a total of 200,000 RSUs that vested on December 31, 2022 and 70,000 RSUs that vested on July 14, 2022 were converted into to a total of 184,107 common shares for no additional consideration and 85,893 common shares were forfeited to cover income taxes payable upon conversion.
On June 30, 2023, a total of 160,000 RSUs satisfied their vesting conditions.
MINERAL DEVELOPMENT PROJECTS
Molo Graphite Mine, Southern Madagascar Region, Madagascar
Overview
The Molo Graphite Mine project is located near the town of Fotadrevo in the Province of Toliara, Madagascar.
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 March 29, 2021, the Company announced the initiation of the construction process for Phase 1 of the Molo Graphite Mine with a production capacity of 17,000 tpa of high-quality SuperFlake® graphite concentrate and began capitalizing development costs.
| 19 |
| NEXTSOURCE MATERIALS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS For the years ended June 30, 2022 and 2021 |
On May 11, 2021, the Company announced it initiated the procurement of processing plant equipment. On December 14, 2021, the Company announced the offshore fabrication and assembly of the processing plant had been completed. On January 11, 2022, the Company announced the completion of factory acceptance testing and that preparations for the transport to the mine site had been initiated. On April 28, 2022, the Company announced the construction team was setup at the Molo Graphite Mine site in Madagascar and civil and earthworks have been initiated in preparation for the delivery and installation of the processing plant. On May 24, 2022, the Company announced that offshore construction of the solar, battery and thermal hybrid energy power plant had begun and all required licenses to initiate construction of the solar facility had been obtained. On October 25, 2022, the Company announced that all processing plant modules and supporting equipment had been transported to the mine site and that reassembly of the processing plant was in progress.
On March 23, 2023, the Company announced the initiation of commissioning.
On June 21, 2023, the Company announced production of the first tonne of SuperFlake® graphite concentrate as part of the commissioning and optimization of the processing plant. The operations team will now shift their focus to ramping up the plant throughput to its nameplate capacity of 17,000 tpa of flake graphite concentrate over a period of up to three months.
The Company expects to sell all of the flake graphite produced at the Molo Graphite Mine to key customers under existing offtakes.
The Company will also begin to send flake graphite qualifying material to our BAF partners for conversion into coated, spheronized, purified graphite (“CSPG”), which is the final form of anode material that is assembled along with cathode material into finished lithium-ion batteries used in electric vehicle (“EV”) applications.
Phase 2 Expansion
On April 27, 2022, the Company released a Preliminary Economic Assessment (“PEA”) considering a Phase 2 expansion of the Molo Graphite Mine consisting of a stand-alone processing plant with a production capacity of 150,000 tpa.
The Company is progressing with a Feasibility Study and front-end engineering design (“FEED”) study for a proposed Phase 2 Expansion. Prior to making a Phase 2 construction decision, the Company will consider the Feasibility and FEED study results as well as Phase 1 operational results.
Construction of the Phase 2 expansion is subject to the Feasibility Study confirming positive project economics and subsequently obtaining sufficient funding for construction costs and working capital.
Global market for and supply of flake graphite
Benchmark Intelligence estimated that global flake graphite demand in 2020 was approximately 900,000 tonnes and is expected to increase significantly over the next ten years due to increasing demand for lithium-ion batteries used predominantly in electric vehicles. A rule of thumb is that approximately 1.1 tonnes of flake graphite (2,500 lbs) is required for each 1GWh of electric vehicle capacity. Benchmark Intelligence has further estimated that global battery manufacturing capacity in 2020 was approximately 755 GWh and is set to increase by 2030 to 3,400 GWh through the construction of up to 200 new gigafactories. As a result, global flake graphite demand in 2030 is estimated at approximately 4,000,000 tonnes, which exceeds the existing global supply.
Benchmark Intelligence estimated that the global flake graphite market was in relative balance in recent years but has moved from an oversupply of 226,000 tpa in 2018 to a deficit of approximately 60,000 tpa in 2021. Flake graphite demand is forecast to exceed global supply by approximately 430,000 tpa by 2026 and increasing to approximately 1,888,000 tpa by 2030. The supply response for natural flake graphite is expected to be constrained by technical challenges, capital costs, development timelines and operating economics. The supply response for synthetic flake graphite is expected to be constrained by the economics and availability of petroleum needle coke, which is its primary raw material feedstock for synthetic graphite and is also in demand for use in the steel making industry.
As an industrial mineral, flake graphite pricing is determined by three factors: 1) flake size, 2) carbon purity and 3) industry-specific technical attributes of the flakes. Flake sizing is broadly classified into four ranges: small (-100 mesh, or <75µm), medium (-80 to 100 mesh, or 75µm to 180µm), large (-50 to 80 mesh, or 180µm to 300µm), and extra-large or jumbo (+50 mesh, or >300µm). These flake sizes are in turn classified by carbon content (”C”), and are typically sold in ranges of 88-93% C, 94-95% C, and 95-97% C. The specific technical attributes of the flakes are then defined by end-user parameters such as expansion coefficient, thermal and electrical conductivity, and charge-discharge stability and efficiency. Larger flake size is generally sold at a premium to smaller flake sizes, and higher purity products (e.g., above 94%) are sold at a premium to lower purity products. Pricing is further impacted by the regional location of supply.
Transactions in the flake graphite market are generally based on private negotiations between buyers and sellers, as a result there is no spot or forward market. Research companies such as Benchmark Mineral Intelligence (“Benchmark”) and Roskill Information Services (“Roskill”) estimate current and historical pricing based on their proprietary market research and publish forward estimates for select grades and product types.
| 20 |
| NEXTSOURCE MATERIALS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS For the years ended June 30, 2022 and 2021 |
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 concentrates from the Molo Graphite Mine meet or exceed quality requirements for all major end-markets of natural flake graphite. The major end-markets for flake graphite include refractories, graphite 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 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, and contains no deleterious substances and has high crystallinity.
In response, NextSource has 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.
Sales, Marketing and Offtakes
The Company expects to sell all of the flake graphite produced at the Molo Graphite Mine to key customers under existing offtakes.
On October 16, 2018, the Company announced a binding offtake agreement for the supply of SuperFlake® graphite concentrate with a prominent Japanese Trading Company that is a primary supplier of flake graphite to a major Japanese electric vehicle anode producer. To protect certain confidential aspects of the agreement, the Japanese Trading Company and the Japanese electric vehicle anode producer requested not to be identified. The key highlights are:
|
| · | Offtake is for a period of ten (10) years, beginning at the start of commercial production at the Molo Graphite Mine, with an automatic renewal for an additional five (5) years. |
|
| · | Exclusive right to import and sell SuperFlake® graphite concentrate in Japan. |
|
| · | Provided that commercial production commences within 3 years, following the ramp up period, the Japanese Partner will purchase up to 20,000 tpa of SuperFlake® graphite. |
|
| · | Product prices will be negotiated on a per order basis between the parties and will be based on the market prices (FOB basis) prevailing in the region. |
On May 25, 2021, the Company announced that following a multi-year verification process, thyssenkrupp entered into a long-term partnership with NextSource and signed an offtake agreement to secure SuperFlake® graphite concentrate for their refractories/foundries, expandable graphite (graphite foil) and battery anode production businesses. The key highlights are:
|
| · | Minimum 7,300 tpa during Phase 1 initial production |
|
| · | Ramp up to 35,000 tpa in Phase 2 |
|
| · | Commercial agreement for the sale of up to 35,000 tpa of SuperFlake® graphite concentrate from the Molo mine |
|
| · | 10-year term with an automatic 5-year extension |
|
| · | Products under the agreement pertain to refractory, battery anode production and expandable graphite (graphite foil) markets |
|
| · | Geographical regions include, but are not limited to, Europe, the UK, North America, Mexico, China and South Korea |
|
| · | Shipments in Phase 1 will be used to verify run-of-mill production to trigger the larger volume expansion |
Once a BAF plant is operational, as justified by market and operational conditions, the Company expects to prioritize the sale of small flake (-100 mesh, or <75µm) to the BAF plant.
Royalties
On February 8, 2021, the Company announced a financing agreement with Vision Blue for gross proceeds of $29.5 million consisting of private placements and a royalty financing agreement. As part of the royalty financing agreement:
|
| (a) | The Company received the initial royalty funding of $8.0 million (less a $1.5 million royalty financing fee) on June 28, 2021 and received the remaining $3.0 million on August 17, 2022. |
|
|
|
|
|
| (b) | Beginning on the biannual period ending June 30, 2022, the Company must pay the greater of: (i) $825,000 (the “Minimum Repayment”) or (ii) 3% of the gross sales revenues from graphite concentrate sales (the “GSR”). Once Vision Blue has received cumulative royalty payments of $16.5 million, the Minimum Repayment will cease, and the royalty will only be based on the GSR. NextSource has the option at any time to reduce the GSR to 2.25% by paying $20 million to Vision Blue. Each of the biannual Minimum Repayments can be deferred by 12 months, subject to accrued interest of 15% per annum. |
The Molo Graphite Mine is subject to a 1.5% net smelter royalty (“NSR”) owned by Capricorn Metals (formerly known as Malagasy Minerals) (“Capricorn”). Prior to becoming a Director of the Company, Brett Whalen purchased an option to acquire the 1.5% NSR from Capricorn upon the mine achieving commercial production in return for a further payment to Capricorn.
The Molo Graphite Mine is also subject to a 2% gross revenue royalty payable to the Government of Madagascar.
| 21 |
| NEXTSOURCE MATERIALS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS For the years ended June 30, 2022 and 2021 |
Exploration and Evaluation
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 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 mineral resource estimate that formed the basis for the 2013 Preliminary Economic Assessment (the “2013 PEA”), which was undertaken by DRA Mineral Projects and released in 2013.The positive outcome of the 2013 PEA resulted in another phase of exploration 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 released in February 2015, the second feasibility study released in September 2019, and the PEA Technical Report dated April 27, 2022. The mineralization remains open along strike and to depth.
Resource and Reserve Estimate
The Company’s Mineral Resources and Reserves did not change during the fiscal year ended June 30, 2022.
Readers are cautioned to refer to the NI 43-101 compliant Phase 2 PEA Technical Report dated April 27, 2022 for all the material assumptions, qualifications and verification procedures relating to the Mineral Resource and Mineral Reserve estimates for the Molo Graphite Project that are stated in the tables below.
The Mineral Resources are classified in the Measured Indicated and Inferred categories as defined by the Canadian Institute of Mining, Metallurgy and Petroleum definition standards.
Mineral Resource Statement for the Molo Graphite Deposit
| Classification | Material Type | Tonnes | Grade - C% | Graphite - T |
| Measured | "Low Grade" | 13 048 373 | 4.64 | 605 082 |
| Measured | "High Grade" | 10 573 137 | 8.4 | 887 835 |
| Total Measured | 23 621 510 | 6.32 | 1 492 916 | |
| Indicated | "Low Grade" | 39 539 403 | 4.73 | 1 871 075 |
| Indicated | "High Grade" | 37 206 550 | 7.86 | 2 925 266 |
| Total Indicated | 76 745 953 | 6.25 | 4 796 341 | |
| Measured + Indicated | "Low Grade" | 52 587 776 | 4.71 | 2 476 157 |
| Measured + Indicated | "High Grade" | 47 779 687 | 7.98 | 3 813 101 |
| Total Measured & Indicated | 100 367 464 | 6.27 | 6 289 257 | |
| Inferred | "Low Grade" | 24 233 267 | 4.46 | 1 080 677 |
| Inferred | "High Grade" | 16 681 453 | 7.70 | 1 285 039 |
| Total Inferred |
| 40 914 721 | 5.78 | 2 365 716 |
C% = Carbon percentage
Graphite – T = Tonnes of graphite
| 22 |
| NEXTSOURCE MATERIALS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS For the years ended June 30, 2022 and 2021 |
Notes:
|
| · | Mineral Resources are classified according to the Canadian Institute of Mining definitions. |
|
| · | Mineral Resources are reported Inclusive of Mineral Reserves. |
|
| · | “Low Grade” Resources are stated at a cut-off grade of 2% C. |
|
| · | “High grade” Resources are stated at a cut-off grade of 4% C. |
|
| · | Eastern and western high-grade assays are capped at 15% C. |
The Mineral Resources are classified according to the Canadian Institute of Mining, Metallurgy and Petroleum definitions. A cut-off grade of 4% C was used for the “higher grade” zones and 2% C for the “lower grade” zones. It is important to note that while the ‘high’ grade resource occurs within the ‘low’ grade resource, each was estimated and reported separately. A relative density of 2.36t per cubic meter was assigned to the mineralized zones for the resource estimation. The resource remains open along strike and to depth. The Mineral Resources above are inclusive of the Mineral Reserves below.
The Mineral Reserves are classified in the Proven and Probable categories as defined by the Canadian Institute of Mining, Metallurgy and Petroleum definition standards. Proven Reserves are reported as the Measured Resources inside the designed open pit and above the grade cut-off of 4.5% C. The Probable Reserves are reported as the Indicated Resources inside the designed open pit and above the grade cut-off of 4.5% C.
Mineral Reserves Statement for the Molo Graphite Deposit
| Category | Tonnage | C Grade (%) |
| Proven | 14 169 741 | 7.00 |
| Probable | 8 266 944 | 7.04 |
| Proven & Probable | 22 436 685 | 7.02 |
Preliminary Economic Study Summary
On April 27, 2022, the Company filed a NI 43-101 compliant Phase 2 PEA Technical Report (the “PEA”) that considers an enhanced Phase 2 expansion consisting of a stand-alone processing plant with a production capacity of 150,000 tonnes per annum of graphite concentrate over a 26-year life of mine. The PEA assumes the Phase 2 processing plant is built adjacent to the Phase 1 processing plant currently under construction. The PEA estimated that Phase 2 capital costs will be $155.8 million resulting in a pre-tax NPV utilizing an 8% discount rate of $904.8 million and a pre-tax IRR of 40.4%.
The following is a summary of the economic and operational highlights. The PEA incorporated 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 2 are accurate to +/- 25%
| Description | Phase 2 PEA (150K tpa production) |
| Economic Highlights |
|
| Pre-tax Net Present Value (“NPV”) (8% discount rate) (1)(2)(4)(8) | US$904.8 million |
| Post-tax NPV (8% discount rate) (1)(2)(3)(4)(8) | US$593.0 million |
| Pre-tax Internal Rate of Return (“IRR”) (1)(2)(4)(8) | 40.4% |
| Post-tax IRR (1)(2)(3)(4)(8) | 31.4% |
| Life of Mine (“LoM”) | 26 years |
| Pre-tax payback (1)(2)(4)(8) | 3.18 years |
| Post-tax payback (1)(2)(3)(4)(8) | 3.74 years |
| Capital costs ("CAPEX") including contingency of $31.96 million (2) | US$155.8 million |
| Initial working capital | US$20.9 million |
| Sustaining and closure CAPEX | US$24.5 million |
| Operational Highlights |
|
| Graphite concentrate sale price (US$ per tonne of concentrate)(8) | US$1,230.50 |
| Average operating costs FOB (“Opex”) (US$ per tonne of concentrate following ramp-up)(7) | US$495.62 |
| Average annual production of concentrate (5)(6) | 150,000 tpa |
| Average ore mined per annum over LoM | 2,532,345 tpa |
| Average head grade | 6.16% |
| Concentrate purity (Cg) of finished product | 97% |
| Average stripping ratio | 0.53:1 |
| Average carbon recovery | 88.30% |
| 23 |
| NEXTSOURCE MATERIALS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS For the years ended June 30, 2022 and 2021 |
Notes
(1) Assumes Project is financed with 100% equity.
(2) Capex includes process equipment, civil and infrastructure, mining, buildings, electrical infrastructure, project and construction services.
(3) Assumes 2% government gross revenue royalty, 3% Vision Blue gross revenue royalty, 1.5% NSR royalty and corporate tax rate of 20%.
(4) Assumes no inflationary adjustments in sales price, or operating costs.
(5) Assumes all mineralized material from the Company’s 2019 Feasibility Study, including ore from the Measured, Indicated and Inferred Mineral Resource categories, are sent to the treatment plant.
(6) Assumes a cut-off grade of 4.5% carbon has been applied, with all material below this cut-off grade treated as waste.
(7) Assumes all concentrate will be sold on a FOB basis at the Port of Ehoala, Madagascar.
(8) Based on current market prices provided by UK-based commodity price reporting agencies Benchmark Minerals Intelligence and fast markets.
The PEA 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 Phase 2 Preliminary Economic Assessment, National Instrument 43-101 Technical Report” dated April 27, 2022 for certain other details and assumptions relating to the above mineral resource estimates and data verification procedures.
The PEA was prepared by Erudite Strategies (Pty) Ltd. (“Erudite”) of South Africa, an independent engineering and consulting firm specializing in the mining and processing of commodities and battery materials. The PEA 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.
The Company cautions that the PEA is preliminary in nature and includes inferred mineral resources that are considered too speculative geologically to have economic considerations applied to them that would enable them to be categorized as mineral reserves. Mineral resources are not mineral reserves and do not have demonstrated economic viability and there is no certainty that the PEA will be realized.
Green Giant Vanadium Project, Province of Toliara, Madagascar
Overview
The Green Giant Vanadium Project is located 15 kilometres from the Molo Graphite Project and hosts a large sedimentary-hosted vanadium deposit. 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. The Company plans to complete additional metallurgical evaluation of the property to establish a mineral processing flow sheet.
Non-Government Royalties
On June 28, 2021, the Company received the royalty funding from Vision Blue for the construction of the Molo Graphite Mine. As part of the royalty agreement, 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.
The Green Giant Vanadium Project is subject to a 2.0% net smelter royalty (“NSR”) owned by Capricorn Metals (formerly known as Malagasy Minerals) (“Capricorn”). The first 1% NSR can be acquired at the Company's option by paying $0.5 million in cash or common shares and the second 1% NSR can be acquired at the Company’s option by paying $1 million in cash or common shares.
Exploration and Evaluation
A comprehensive diamond-drill program confirmed five vanadium-bearing trends on the property. The Jaky and Manga trends were deemed the most prospective and were the focus of the 2009 and 2010 drill programs. The complete exploration program included 133 diamond drill holes totalling 21,957 metres, 140 trenches totalling 17,105 metres, 11,035 soil samples and 7,843-line kilometres of airborne surveys.
| 24 |
| NEXTSOURCE MATERIALS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS For the years ended June 30, 2022 and 2021 |
The mineral deposits on this property have been divided into three separate zones, which are referred to as the Jaky, Manga, and Mainty deposits. This mineral resource estimate utilized approximately 18,832 m of diamond drill hole data from the 2008, 2009 and 2010 drill program and was supplemented by approximately 5,928 m of trench data from the 2008, 2009 exploration programs.
The exploration work resulted in a National Instrument 43-101 compliant (“NI 43-101”) resource estimate dated January 14, 2011.
Mineral Resource Estimate
Readers are cautioned to refer to the technical study for certain other details and assumptions relating to the above mineral resource and reserve estimates and data verification procedures.
The current mineral resource estimate for the Green Giant Project is summarised below consisting of the resource categories, the tonnage, the vanadium grade (“V2O5%”) and the contained vanadium (“V2O5”) pounds. A cut-off grade of 0.5% V2O5 was used. The mineral resources are classified in the Indicated and Inferred categories as defined by the Canadian Institute of Mining, Metallurgy and Petroleum definition standards.
| Classification | Tonnage (Mt) | Grade (V2O5%) | V2O5 (million pounds) |
| Indicated | 49.5 | 0.693% | 756.3 |
| Inferred | 9.7 | 0.632% | 134.5 |
Mineral reserves can only be estimated on the basis of an economic evaluation that is used in a prefeasibility or feasibility study of a mineral project. Thus, no reserves have been estimated.
The Technical Report for the Green Giant Project 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 “Green Giant Project, Fotadrevo, Province of Toliara, Madagascar, Technical Report Update NI 43-101. Prepared by AGP Mining Consultants” dated January 14, 2011 for certain other details and assumptions relating to the above mineral resource estimates and data verification procedures.
Sagar Project, Labrador Trough Region, Quebec, Canada
Overview
As of December 31, 2022, the Sagar property consisted of 184 claims covering a total area of 8,539.58 ha. 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. The Company does not have any immediate plans to complete any further exploration on this property.
Non-Government Royalties
Virginia Mines Inc. ("Virginia") retains a 2% net smelter royalty ("NSR") on certain claims within the property. Other unrelated parties 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.
BATTERY ANODE FACILITIES (BAF) DEVELOPMENT PROJECTS
Overview
The Company announced on February 28, 2023 its strategy for the staged buildout of Battery Anode Facilities (“BAFs”) in key geographic locations starting with Mauritius. The BAFs are value-added processing facilities that convert flake graphite into coated, spheronized, purified graphite (“CSPG”), which is the final form of anode material that is assembled along with cathode material into finished lithium-ion batteries used in electric vehicle (“EV”) applications.
The highlights of the BAF strategy are as follows:
|
| · | Plans to construct multiple BAFs in key jurisdictions capable of producing CSPG anode material for use in lithium-ion batteries for EV applications. The BAF designs will leverage the Company’s exclusive partnership with two leading value-added graphite processors for use of their proprietary and well-established graphite processing technology, which currently produces CSPG for the supply chains of major EV companies (“OEMs”) such as Tesla and Toyota. |
|
|
|
|
|
| · | The first BAF will be in Mauritius (the “Mauritius BAF”), which was selected due to its proximity to the Molo Graphite Mine in Madagascar and its position on strategic shipping routes to Asian markets: |
| 25 |
| NEXTSOURCE MATERIALS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS For the years ended June 30, 2022 and 2021 |
|
| o | A long-term lease has been signed to build the Mauritius BAF within a new industrial facility in Port Louis, Mauritius (the “Mauritius BAF Property”). |
|
|
|
|
|
| o | A technical study for the Mauritius BAF with a production capacity of 3,600 tpa of CSPG (the “Mauritius BAF Technical Study”) estimated initial capital costs and working capital investments of US$28.4 million and annual revenues at US$33.7 million with an EBITDA of US$13.2 million. The resulting post-tax economic results over a 30-year term demonstrated an NPV of US$106.9 million using an 8% discount rate, an IRR of 42.7% and a payback of 2.2 years. |
|
|
|
|
|
| o | Subject to obtaining necessary funding, completion of the front-end engineering and design (“FEED”) study, and completion of the environmental and social impact assessment (“ESIA”) process, the Company is targeting the start of a 12-month construction process in Q3 2023 resulting in potential initial production at the Mauritius BAF in Q3 2024. |
| · | Evaluation of the potential construction of a BAF in North America (a “North America BAF”) and initiation of the application process to access various financial loans and grants offered under Canadian federal and provincial programs and under the U.S. Inflation Reduction Act (the “IRA”). |
|
|
|
| · | Evaluation of the potential construction of a BAF in the United Kingdom (a “UK BAF”) and initiation of the application process to access various financial loans and grants offered under the UK Government Automotive Transformation Fund. |
|
|
|
| · | Evaluation of the potential construction of a BAF in the European Union (a “European BAF”). |
|
|
|
| · | Evaluation and potential construction of an artificial graphite (“AG”) production facility, which would enable the Company to supply AG anode material. |
BAF Technology Partnership
The BAFs will leverage the Company’s exclusive partnership with two leading value-added graphite processors (the “BAF Partners”) for use of their proprietary and well-established graphite processing technology, which currently produces CSPG for the supply chains of major EV companies (“OEMs”) such as Tesla and Toyota.
The spherodization, purification and coating of flake graphite are highly technical processes that rely on proprietary intellectual property that has been developed and optimized over many years. The partnership with the Partners is exclusive to the Company and provides a significant first-mover advantage over other competitors that are developing their own graphite conversion intellectual property.
The BAF Partners (consisting of a Technology Partner and a Sales Partner) currently operate facilities that produce and sell CSPG to leading Japanese lithium-ion battery manufacturers that are part of the supply chains of major EV companies. The Technology Partner will design and develop the process flowsheets, source all necessary processing equipment, and will provide all necessary training and operational know-how to produce CSPG material and in return will receive a 2% licensing royalty. The Sales Partner will leverage its sales relationships and will function as the exclusive agent for sales, marketing, and trading of all CSPG material and in return will receive a 3% sales commission royalty.
Mauritius BAF
Mauritius was selected as the optimal site to develop the first BAF plant due to its proximity to the Molo Graphite Mine in Madagascar and its strategic position as a major hub along shipping routes to Asian markets. As such, the Mauritius BAF will seek to leverage low transport costs into Asian markets by targeting Japanese and South Korean OEM customers, as well as produce qualification material for global OEM customers.
Mauritius was also selected as it features modern infrastructure, an educated workforce, and a highly supportive business environment. The government of Mauritius also offers favourable tax incentives for import/export-focused industries such as freeport zones and attractive corporate income tax rates.
On January 31, 2023, a long-term industrial lease was signed a new industrial facility within a freeport-classified industrial park in proximity to the international container port of Port Louis, Mauritius. The initial lease term is 20-years plus a renewal of 5-years unless either party provides written notice to the other of its intention not to renew at least 12 months prior to the end of the initial term and/or of any subsequent renewal.
The first production line of the Mauritius BAF will be constructed within a newly constructed industrial building on the property and is expected to have a production capacity of 3,600 tpa of CSPG. The Mauritius BAF Property has sufficient space for additional buildings which could result in an expansion of up to three (3) additional production lines of 3,600 tpa each, resulting in a potential total production capacity of 14,400 tpa of CSPG. The FEED and ESIA permitting for the first production line are currently in progress.
| 26 |
| NEXTSOURCE MATERIALS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS For the years ended June 30, 2022 and 2021 |
The Company is in active discussions with strategic offtake partners and debt and equity financiers that have expressed interest in funding the construction of the Mauritius BAF. Construction of the Mauritius BAF is subject to completion of the FEED study and ESIA process, obtaining all necessary permits, and obtaining sufficient funding for construction costs and working capital. Once initiated, the construction process is expected to take approximately twelve (12) months, resulting in potential initial production at the Mauritius BAF in Q3 2024.
While the Company believes that synergies exist by developing an integrated business model, the BAF plants will be capable of processing flake graphite obtained from third parties and will not be reliant on flake graphite produced from the Molo Graphite Mine. As such, the Molo Graphite Mine and the BAF plants should be considered independent from each other with regards to their economic viability. Notwithstanding, as justified by market and operational conditions, the Company will prioritize the purchase of small flake graphite from the Molo Graphite Mine as feedstock for the Mauritius BAF.
Economic Results for Mauritius BAF
The Mauritius BAF Technical Study (dated February 28, 2023) estimated that a production line with a capacity of 3,600 tpa of CSPG, constructed within the existing building on the Mauritius BAF Property (“Line 1”), would require initial capital expenditures of US$23.5 million and working capital investments of US$4.9 million, and that at full capacity would generate annual revenues at US$33.7 million with an EBITDA of US$13.2 million and net income of $12.2 million. The resulting post-tax economic results estimated an NPV of US$106.9 million using an 8% discount rate, an IRR of 42.7% and a payback period of 2.2 years.
The Mauritius BAF Technical Study assumes product pricing of US$8,750 per tonne of CSPG, US$550 per tonne of by-product fines, and estimated operating costs of US$5,535 per tonne of CSPG (based on a full cost allocation to CSPG) excluding any deductions for by-product revenues, and excluding royalties, taxes, depreciation, and amortization.
The following presents the economic results for Line 1 as included in the Mauritius BAF Technical Study:
| Economic Highlights of Line 1 of the Mauritius BAF
| Post-Tax Results (US$)
|
| Net Present Value (“NPV”) (8% discount rate)(1)(2)(3)(4) | 106.9 million |
| Initial Capital Expenditures (2) | 23.5 million |
| Initial Working Capital Investments (3) | 4.9 million |
| Sustaining and Rehabilitation Capital Expenditures | 15.4 million |
| Life of Operation (“LoO”) | 30 years |
| Internal Rate of Return (“IRR”)(1)(4) | 42.7% |
| Payback Period (1)(4) | 2.2 years |
| Annual Revenues(5) | 33.7 million |
| Annual EBITDA(5) | 13.2 million |
| Annual Net Income (6) | 12.2 million |
| Economic Operational Highlights
| |
| Average Annual Production |
|
| Anode material (CSPG) | 3,600 tpa |
| By-products (fines) | 4,000 tpa |
| Average Sales Price Assumption |
|
| Anode material (CSPG) | US$8,750 per tonne |
| By-products (fines) | US$550 per tonne |
| Average Operating Costs (CSPG)(4)(7) | US$5,535 per tonne |
| (1) | Assumes Line 1 is financed with 100% equity. |
| (2) | CAPEX includes process equipment, civil & infrastructure, electrical and utilities, project and construction services, and contingency of US$2.9 million. |
| (3) | Working capital for first 3 months of operation and raw materials inventory. |
| (4) | As measured from start of operation of Line 1 and assumes no inflationary adjustments in sales price or operating costs. |
| (5) | Estimate is for first full year of operation at full capacity and excludes royalties, taxes, depreciation, and amortization. |
| (6) | Estimate is for first full year of operation at full capacity and assumes the first year of operation is subject to a tax holiday resulting in $nil taxes. |
| (7) | Assumes all OPEX is allocated to CSPG production without deduction for by-product revenues, and excludes royalties, taxes, depreciation, and amortization. |
| 27 |
| NEXTSOURCE MATERIALS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS For the years ended June 30, 2022 and 2021 |
The Mauritius BAF Technical Study also estimated that construction of a total of four production lines of 3,600 tpa each, with each line being constructed in sequence, for a total production capacity of 14,400 tpa of CSPG, (“Lines 1-4”) would require would require initial capital expenditures of US$23.5 million and working capital investments of US$4.9 million for the first line plus incremental capital expenditures of US$74.0 million over the next three years (approximately US$16.0 million could be funded from Line 1 cash flows) and at full capacity could generate annual revenues at US$134.8 million with an EBITDA of US$57.7 million and net income of US$53.6 million. The resulting post-tax economic results demonstrated an NPV of US$439.7 million using an 8% discount rate, an IRR of 45.8% and a payback period of 3.2 years.
The capital cost estimates were prepared by the Company’s EPCM Erudite Strategies (“Erudite”) to a confidence level of +/- 15% to 20% and are preliminary in nature. These results should not be relied upon for investment decisions. The Mauritius BAF Technical Study is not a technical report for the purposes of National Instrument 43-101 but rather is a preliminary economic and technical study relating to the design, construction, and operation of the Mauritius BAF.
North America BAF Project
The Company is evaluating the potential construction of a North America BAF and has initiated the application process to access various financial loans and grants offered under Canadian federal and provincial programs and under the IRA.
The IRA provides for US$370 billion in climate and clean energy incentives and tax credits for EVs assembled in North America that meet strict critical material requirements. Critical minerals used in EV batteries must meet a gradually increasing percentage of components that have been extracted, processed, or recycled in North America (or in countries that have free trade agreements with the U.S.), starting at 40% in 2023 and increasing by 10% each year, up to 80% in 2026. Starting in 2025, EVs will not qualify for the tax credit if the critical minerals were extracted, processed, or recycled by a “foreign entity of concern” (i.e. China).
The Company is completing an initial economic and site selection evaluation process that identifies prospective jurisdictions, which includes locations in the USA and Canada, that offer strategic positions along coastal and internal transport corridors, low power costs, skilled labour pools, and attractive regional infrastructure and tax incentives.
Advancement of a North American BAF will require project development expenditures consisting of economic evaluations of constructing a North American-adapted BAF at several prospective sites, final site selection, grant application process, environmental permitting and engineering specific to the selected site prior to making a final investment decision.
UK BAF Project
The Company is evaluating the potential construction of a UK BAF and has initiated the application process to access various financial loans and grants offered under the UK Government Automotive Transformation Fund.
The Company has completed an initial economic and site selection evaluation process that identified several prospective jurisdictions that offers a strategic position along coastal and internal transport corridors, skilled labour pool, and attractive regional infrastructure and tax incentives.
Advancement of a UK BAF will require project development expenditures consisting of economic evaluations of constructing a UK-adapted BAF at prospective sites, final site selection, grant application process, environmental permitting and engineering specific to the selected site prior to making a final investment decision.
European BAF Project
The Company is evaluating the potential construction of a European BAF for the supply of CSPG into the European Union (“EU”) market.
Advancement of a European BAF project will require project development expenditures consisting of an initial economic evaluation for the construction of a European-adapted BAF at several prospective sites. If the economic evaluation supports further development of a European BAF, the Company will require additional funding beyond the Offering to complete final site selection, grant application process, environmental permitting and engineering specific to the selected site prior to making a final investment decision.
Artificial Graphite Production Facility
The Company is prioritizing the evaluation and potential construction of an AG production facility, which would enable the Company to supply AG anode material.
Ongoing discussions with OEMs have identified significant demand for non-Chinese AG that will be required for existing battery chemistries following the implementation of IRA critical mineral restrictions. Consequently, the Company is pursuing collaboration agreements for the potential construction of an AG production facility in a suitable North American jurisdiction.
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| NEXTSOURCE MATERIALS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS For the years ended June 30, 2022 and 2021 |
Advancement of the AG production facility will now require project development expenditures consisting of an initial economic evaluation for the construction of an AG production facility adapted to prospective jurisdictions in North America. If the economic evaluation supports further development, the Company will require additional funding beyond the Offering to complete final site selection, grant application process, environmental permitting and engineering specific to the selected site prior to making a final investment decision.
CSPG Pricing
The selling price of CSPG is significantly greater than that of flake graphite concentrate. Transactions in the CSPG market are generally based on private negotiations between buyers and sellers, and as a result there is no spot or forward market. Commodity research companies such as Benchmark Minerals perform proprietary market research and periodically publish estimates of current, historical, and forward pricing for select grades and product types.
SUPPLEMENTARY DISCLOSURE – NON-IFRS MEASURES
These definitions are used in this MD&A as a measure of financial performance and the potential profitability of development projects:
| · | EBITDA is defined as gross profit before interest, taxes, depreciation and amortization. |
| · | Net Present Value is defined as present value of net cash used in operating activities and net cash used in investing activities from future periods. |
| · | Internal Rate of Return is defined as the discount rate used in an NPV calculation that results in a value of $nil. |
| · | Payback Period is defined as the period of time required for cumulative undiscounted net cash from operating activities from future periods to equal the sum of the initial capital expenditures and working capital investments. |
The Company believes EBITDA, NPV, IRR and Payback Period (collectively “Non-IFRS Measures”) are useful to investors because these are frequently used by securities analysts, investors and other interested parties to evaluate companies in the same industry. However, Non-IFRS Measures are not measures recognized by IFRS and do not have standardized meanings prescribed by IFRS. Therefore, Non-IFRS Measures may not be comparable to similarly titled measures presented by other publicly traded companies and should not be construed as alternatives to other financial measures determined in accordance with IFRS.
Furthermore, EBITDA should not be viewed in isolation and does not purport to be an alternative to net income or gross profit as an indicator of operating performance, or of cash flows from operating activities as a measure of liquidity. EBITDA is not intended to be a measure of free cash flow for discretionary use, as the term does not consider certain cash requirements such as capital expenditures, changes in working capital, contractual commitments, interest payments, tax payments and debt service requirements.
The following table is a reconciliation of the Mauritius BAF Technical Study net income to EBITDA for the first full year of operation at full capacity:
|
|
| BAF Line 1 US$ million |
|
| BAF Lines 1-4 US$ million |
| ||
| Net income |
|
| 12.2 |
|
|
| 53.6 |
|
| Add: income taxes |
|
| - |
|
|
| - |
|
| Add: debt interest costs |
|
| - |
|
|
| - |
|
| Add: Depreciation and Amortization |
|
| 1.0 |
|
|
| 4.1 |
|
| Earnings before interest, taxes, depreciation and amortization (EBITDA) |
|
| 13.2 |
|
|
| 57.7 |
|
SUSTAINABLE DEVELOPMENT AND ENVIRONMENTAL POLICIES
The Company is committed to the health and safety of our workers, protection of the environment, and protection of the rights, culture and development of local communities in which we operate. To ensure the Company incorporates sustainable development and environmental policies into every aspect of its operations, the Board of Directors has created a Sustainability Committee that has oversight over all health, safety, environmental sustainability and social issues, and has been tasked with developing a “Sustainable Development Policy” for the Company.
The Company is evaluating but has not adopted the requirements of the Mining Association of Canada’s industry leading Towards Sustainable Mining Initiative (the “TSM Initiative”), as well as the Global Reporting Initiative’s sustainability reporting guidelines for the mining industry (the “GRI Reporting Guidelines”). The TSM Initiative helps mining companies evaluate the quality, comprehensiveness and robustness of their management systems, tailings management, biodiversity management, health and safety, indigenous and community relations, prevention of child and forced labour, and water stewardship. The GRI Reporting Guidelines consist of principles for defining report content and ensuring the quality of reported information.
The Company’s exploration activities, mining and processing operations are subject to state, federal, provincial, territorial, regional and local environmental laws and regulations in the jurisdictions in which the Company’s activities and facilities are located. These include the requirements for planning and implementing the closure and reclamation of mining properties and related financial assurance.
| 29 |
| NEXTSOURCE MATERIALS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS For the years ended June 30, 2022 and 2021 |
As part of the advancement of the Molo Graphite Mine project, the Company completed a comprehensive Environmental and Social Impact Assessment ("ESIA") in 2018, which was developed to local Madagascar (“Malagasy”), Equator Principles, World Bank and International Finance Corporation (“IFC”) standards.
On April 11, 2019, the Company announced it had received the Global Environmental Permit for the Molo Graphite Mine from the Madagascar Ministry of Environment’s Office National pour l'Environnement (the National Office for the Environment; or “ONE”). This follows the completion of the Environmental & Social Impact Assessment (“ESIA”) and Relocation Action Plan (“RAP”) to IFC performance standards and World Bank standards, the completion of local and regional stakeholder and community engagement, and the completion of negotiations and signed agreements with all potentially affected land occupants to accept compensation for any affected crops and grazing land and relocation if needed.
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 regulatory action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, securities commissions, 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.
RISK FACTORS
The Company manages risks inherent to its business and has procedures to identify and manage significant operational and financial risks. The reader is cautioned to carefully review the risk factors identified below in addition to the risk factors disclosed in our financial statements for the year ended June 30, 2022 and our most recent AIF.
Any such risk factors could materially affect the Company’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 Company. Additional risks and uncertainties not currently identified by the Company or that the Company currently believes not to be material also may materially and adversely affect the Company’s business, financial condition, operations, or prospects.
Development, Commissioning, and Operation of the Molo Graphite Mine
The commissioning, and operation of Phase 1 is based on management’s expectations, and may be delayed by several factors, some of which are beyond the Company’s control. There is a risk that commissioning, and achievement of commercial production will not be completed on time or on budget, or at all. Successful commissioning and operation of Phase 1 may be affected by the design and construction of an efficient processing facility, the cost and availability of suitable machinery, supplies, equipment and skilled labor, the existence of competent operational management, prudent financial administration, the availability and reliability of appropriately skilled and experienced employees and is dependent on the receipt of various operating permits and the import of equipment into Madagascar (none of which can be assured). Further, the revenues, costs, timing, and complexities of developing and operating the Molo Graphite Mine may be significantly higher than anticipated, which could add to the cost of development, production, and operation and/or impair production and activities, thereby affecting the Company’s profitability.
It is common for new mines and processing facilities to experience unexpected problems and delays during construction, development, start-up, and commissioning activities due to late delivery of components, the inadequate availability of skilled labor and mining equipment, energy at an economic cost, adverse weather or equipment failures, the rate at which expenditures are incurred, delays in construction schedules, or delays in obtaining the required permits or consents, or to obtain the required financing. In addition, delays in the early stages of mineral production often occur. During this time, the economic feasibility of production may change. Capital costs are estimates based on the interpretation of geological data, feasibility studies and other conditions, and there can be no assurance that they will prove to be accurate.
Construction and Start-Up of New Mines and Industrial Plants
The development and construction of the Molo Graphite Mine and the BAF require the construction of significant new industrial facilities. The success of construction projects and the start-up of new mines and industrial plants by the Company is subject to a number of risks and challenges including the availability and performance of engineering and construction contractors, suppliers and consultants; unforeseen geological formations; the implementation of new mining and industrial processes; the receipt of required governmental approvals and permits in connection with the construction of mining and industrial facilities and the conduct of operations, including environmental and operating permits; price escalation on all components of construction and start-up; engineering and mine design adjustments; the underlying characteristics, quality and unpredictability of the exact nature of mineralogy of a deposit and the consequent accurate understanding of ore or concentrate production; and the successful completion and operation of haulage ramp and conveyors to move ore and other operational elements. Any delay in the performance of any one or more of the contractors, suppliers, consultants or other persons on which the Company is dependent in connection with its construction and development activities, a delay in or failure to receive the required governmental approvals and permits in a timely manner or on reasonable terms, or a delay in or failure in connection with the completion and successful operation of the operational elements in connection with the mine and the industrial facilities could delay or prevent the construction and start-up as planned and may result in additional costs being incurred by the Company beyond those budgeted. There can be no assurance that current or future construction and start-up plans implemented by the Company will be successful.
| 30 |
| NEXTSOURCE MATERIALS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS For the years ended June 30, 2022 and 2021 |
Geopolitical Risk and Conflict
As the Company’s operations expand and reliance on global supply chains increases, the impact of significant geopolitical risk and conflict globally may have a more sizeable and unpredictable impact on the Company’s business, financial condition, and operations than has traditionally been the case. The recent conflict in Ukraine and the global response to this conflict as it relates to sanctions, trade embargos, and military support, has resulted in significant uncertainty as well as economic and supply chain disruptions. Should this conflict go on for an extended period of time, expand beyond Ukraine, or should other geopolitical disputes and conflicts emerge in other regions, this could result in material adverse effects on the Company.
Additional Financings
The Company will require additional financing through equity securities and/or debt to complete the development, construction and commissioning of Phase 2 of the Molo Graphite Mine and the BAF. The success and the pricing of any such capital raising and/or debt financing is dependent upon the prevailing market conditions at that time and upon the Company’s ability to attract significant amounts of debt and/or equity. There is no assurance that such financing will be obtained on terms satisfactory to the Company. Failure to obtain any financing necessary for the Company’s capital expenditure could result in the delay or indefinite postponement of further construction and development of either or both of the Molo Graphite Mine or the BAF, which in turn would materially and adversely affect the financial and operating results of the Company and the market price of the Company’s securities. If the Company raises additional funding by issuing additional equity securities or convertible debt securities such financings may substantially dilute the interests of shareholders of the Company and reduce the value of their investment. Additional financings and share issuances may result in a substantial dilution to shareholders of the Company and decrease the value of the Company’s securities.
The Company’s development and exploration projects are in the African country of Madagascar and are subject to country political and regulatory risks.
The Company is actively monitoring the political climate in Madagascar and continues to hold meetings with representatives of the government and the Ministries in charge of mining. Depending on future actions taken by the government, or any future government, the Company’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. This could include, but is not limited to, the increase of government royalty rates and the imposition of export tariffs on raw or finished materials.
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 Company’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 Company’s business, results of operations and financial condition. The Company’s operations may also be affected in varying degrees by terrorism; military conflict or repression; crime; populism; activism; labour unrest; attempts to renegotiate or nullify existing concessions, licenses, permits and contracts; unstable or unreliable legal systems; changes in fiscal regimes including taxation, and other risks arising out of sovereignty issues.
The Company 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 Company’s assets and operations in Madagascar.
The Company has a Significant Shareholder
As of October 31, 2022, Vision Blue holds approximately 46.7% of the issued and outstanding common shares, which have been acquired for investment purposes. Dispositions of common shares by such a significant shareholder could cause the market price of the common shares to fall. As a result of the significant holdings, there is a risk that the Company’s securities are less liquid and trade at a relative discount compared to circumstances where a significant shareholder does not have the ability to influence or determine matters affecting the Company. Additionally, there is a risk that its significant interests in the Company discourages transactions involving a change of control, including transactions in which an investor, as a holder of the Company’s securities, would otherwise receive a premium for its securities in the Company over the then current market price. Further, as long as Vision Blue maintains its current ownership interest in the Company, it may be able to exert influence over matters that are to be determined by votes of the holders of Common Shares. There is a risk that the interests of Vision Blue may differ from those of other shareholders.
| 31 |
| NEXTSOURCE MATERIALS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS For the years ended June 30, 2022 and 2021 |
Economic dependence on the Molo Graphite Mine.
The Company’s principal mineral property is the Molo Graphite Mine. As a result, unless the Company acquires or develops any additional material properties or projects, any adverse developments affecting this project or our rights to develop the Molo Graphite Mine could materially adversely affect the Company’s business, financial condition and results of operations.
Additional permits and licenses are necessary to operate Phase 1 of the Molo Graphite Mine.
Additional permits will be necessary to operate Phase 1 of the Molo Graphite Mine. Applications for these additional permits and licenses have been undertaken or will be in due course at the appropriate time. The Company cannot provide any assurance as to the timing of the receipt of any of the additional permits and licenses necessary to initiate construction of Phase 2 of the mine.
Additional permits and licenses are necessary to complete the development of Phase 2 of the Molo Graphite Mine.
Additional permits will be necessary to develop Phase 2 of the Molo Graphite Mine. Applications for these additional permits and licenses have been undertaken or will be in due course at the appropriate time. The Company cannot provide any assurance as to the timing of the receipt of any of the additional permits and licenses necessary to initiate construction of Phase 2 of the mine.
Uncertainty due to the Covid-19 Pandemic
The impact of Covid-19 on the Company has been limited since it does not have any active exploration programs and construction activities related to the Molo Graphite Mine have to-date mainly focused on the assembly of the processing plant off-shore by our EPC contractor. Certain of our directors, officers, employees, consultants, and contractors have been indirectly impacted by intermittent lockdowns that have been imposed in Canada, Madagascar, Mauritius and in South Africa.
The Company has tried to incorporate the impact COVID-19 outbreaks and the potential for intermittent lockdowns into the development plans for the Molo Graphite Mine and its other projects. It is not possible for the Company to predict the duration or magnitude of adverse impacts from further outbreaks and predict the effects on the Company’s business or results of operations.
The duration and full financial effect of the COVID-19 pandemic is unknown at this time, as are the measures taken by governments, the Company or others related to the COVID-19 pandemic. Any estimate of the length and severity of these developments is therefore subject to significant uncertainty, and accordingly estimates of the extent to which the COVID-19 pandemic may materially and adversely affect the Company’s operations, financial results and condition in future periods are also subject to significant uncertainty.
Inputs and assumptions relate to, among other things, interest rates, foreign exchange rates, cost of capital, commodity prices, and the amount and timing of future cash flows, while accounting judgments take into consideration the business and economic uncertainties related to the COVID-19 pandemic and the future response of governments, the Company and others to those uncertainties. In the current environment, the inputs and assumptions and judgements are subject to greater variability than normal, which could in the future significantly affect judgments, estimates and assumptions made by management as they relate to potential impact of the COVID-19 pandemic on various financial accounts and note disclosures and could lead to a material adjustment to the carrying value of the assets or liabilities affected. The impact of current uncertainty on judgments, estimates and assumptions includes the Company’s valuation of the long-term assets (including the assessment for impairment and impairment reversal), estimation of reclamation provisions, estimation of mineral reserves and mineral resources, and estimation of income and mining taxes. Actual results may differ materially from these estimates.
Fluctuations in the market price of graphite and other metals may adversely affect and the value of the Company’s securities, revenue projections and the ability of the Company to develop Phase 2 of the Molo Graphite Mine.
The value of the Company’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 Company’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 slowing in China’s economic growth could result in even lower prices and could negatively impact the value of the Company’s securities. Excess global supply of graphite could result in a decrease in the price of graphite and other metals, which could adversely impact the projected revenues from the Molo Graphite Mine. Prolonged decreases in the price of graphite or other metals could adversely impact the ability of the Company to proceed with the development of Phase 2 of the Molo Graphite Mine.
| 32 |
| NEXTSOURCE MATERIALS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS For the years ended June 30, 2022 and 2021 |
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 Company 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
The Company has a limited operating history and expects to incur operating losses for the foreseeable future.
Since incorporation, the Company has principally operated as a mineral exploration and evaluation company and has not earned any revenues. Although the Company received a mining permit in 2019 and initiated construction of the Molo Graphite Mine in 2021, the Company has no operating history as a mining company and there is no basis to assume the Company will be successful as a mining company. There are numerous difficulties normally encountered by mining companies and these companies experience a high rate of failure.
The Company expects to continue to incur operating losses for the foreseeable future until the Molo Graphite Mine generates sufficient recurring revenues to report operating profits, but there is no assurance that construction will be completed or that the mine will ever achieve profitable operations.
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.
Exploration for minerals is a speculative venture involving substantial risk. There are numerous difficulties normally encountered by exploration companies and these companies experience a high rate of failure. The Company cannot provide investors with any assurance that any of the Company’s mineral claims, properties, resources or reserves will ever achieve commercial production. The exploration and evaluation work completed on the Molo Graphite Mine claims may not result in commercial production of graphite. The exploration and evaluation work completed on the Green Giant Vanadium Project may not result in commercial production of vanadium or other minerals.
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 Company’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 Company’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 Company’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 Company’s activities or those of other mining companies affecting the environment, human health and safety of communities in which the Company operates. Delays in obtaining or failure to obtain government permits and approvals may adversely affect the Company’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 Company’s operations, including its ability to explore or develop properties, commence production or continue operations.
The Company’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 Company 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 Company’s closure processes and operations.
| 33 |
| NEXTSOURCE MATERIALS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS For the years ended June 30, 2022 and 2021 |
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 search for valuable minerals involves numerous hazards. As a result, the Company may become subject to liability for such hazards, including pollution, cave-ins and other hazards against which the Company cannot, or may elect not, to insure against. The Company 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 Company’s asset value and cause us to liquidate all of its assets.
The Company’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 Company’s projects.
The Company 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 Company 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 Company is unable to pay the full cost of remedying an environmental problem, the Company might be required to enter into an interim compliance measure pending completion of the required remedy.
Should the Company lose the services of key executives, the Company’s financial condition and proposed expansion may be negatively impacted.
The Company depends on the continued contributions of the Company’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 Company relies on Craig Scherba, the President and Chief Executive Officer and Marc Johnson, the Chief Financial Officer.
The Company does not maintain key man life insurance. Should the Company lose any or all of their services and the Company is unable to replace their services with equally competent and experienced personnel, the Company’s operational goals and strategies may be adversely affected.
Because access to the Company’s properties may be restricted by inclement weather or proper infrastructure.
Access to most of the properties underlying the Company’s claims and interests is restricted due to their remote locations and because of weather conditions. Some of the Company’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.
Climate change and related regulatory responses may impact the Company’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 Company’s business or the regulatory responses to it, although the Company 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 Company operates, the Company could be harmed. While the Company 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 Company’s business, its plans may not fully protect us from all such disasters or events.
Compliance with changing regulation of corporate governance and public disclosure will result in additional expenses and pose challenges for management.
The Company’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.
| 34 |
| NEXTSOURCE MATERIALS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS For the years ended June 30, 2022 and 2021 |
Tax risks.
Changes in tax laws or tax rulings could materially affect the Company’s financial position and results of operations. Changes to, or differing interpretations of, taxation laws or regulations in Canada, Madagascar, Mauritius, the United States of America, or any of the countries in which the Company’s assets or relevant contracting parties are located could result in some or all of the Company’s profits being subject to additional taxation or other tax liabilities being applicable to the Company 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 Company’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 Company’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 Company’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 Company less attractive to counterparties. Such changes could adversely affect the Company’s ability to raise additional funding or make future investments.
The Company may experience losses due to foreign exchange translations.
From time to time the Company 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 Company’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 Company’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 Company has not entered into derivative instruments to offset the impact of foreign exchange fluctuations. In addition, certain of the Company’s ongoing expenditures are in South African Rand, Madagascar Ariary and Euros requiring us to occasionally hold reserves of these foreign currencies with a similar risk of foreign exchange currency translation losses.
The 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 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 Company’s corporate policies mandate compliance with these anti-bribery laws, which often carry substantial penalties. There can be no assurance that the Company’s internal control policies and procedures always will protect it from recklessness, fraudulent behavior, dishonesty or other inappropriate acts committed by the Company’s affiliates, employees or agents. As such, the Company’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 Company’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 Company 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 Company’s business and the Company’s financial condition. The current global macroeconomic environment may affect the Company’s ability to access the capital markets may be severely restricted at a time when the Company wishes or needs to access such markets, which could have a materially adverse impact on the Company’s flexibility to react to changing economic and business conditions or carry on operations.
The market price for the Common Shares is particularly volatile given the Company’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 Company 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 Company is a speculative or “risky” investment due to the Company’s limited operating history, lack of profits to date and uncertainty of future market acceptance for the Company’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 Company’s control and may decrease the market price of the Common Shares, regardless of the Company’s performance. The Company 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.
| 35 |
| NEXTSOURCE MATERIALS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS For the years ended June 30, 2022 and 2021 |
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 Company’s financial condition or results of operations as reflected in its financial statements. Other factors unrelated to the performance of the Company 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 Company’s business may be limited if investment banks with research capabilities do not follow the Company’s securities; lessening in trading volume and general market interest in the Company’s securities may affect an investor’s ability to trade significant numbers of Common Shares; the size of the Company’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 Company. Class action litigation often has been brought against companies following periods of volatility in the market price of their securities. The Company 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.
The Company does not intend to pay dividends in the foreseeable future.
The Company does not anticipate paying cash dividends in the foreseeable future. The Company may not have sufficient funds to legally pay dividends. Even if funds are legally available to pay dividends, the Company 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 Company’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 Company 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.
SUMMARIZED ANNUAL DATA
|
|
| Year ended |
|
| Year ended |
|
| Year ended |
| |||
|
|
| June 30, |
|
| June 30, |
|
| June 30, |
| |||
|
|
| 2022 |
|
| 2021 |
|
| 2020 |
| |||
|
|
| $ |
|
| $ |
|
| $ |
| |||
| Revenues |
| $ | - |
|
| $ | - |
|
| $ | - |
|
| Mine development expenses |
|
| 65,160 |
|
|
| 323,668 |
|
|
| 179,256 |
|
| Exploration and evaluation expenses |
|
| 177,955 |
|
|
| 46,815 |
|
|
| 66,110 |
|
| General and administrative expenses |
|
| 1,929,292 |
|
|
| 1,396,801 |
|
|
| 1,114,087 |
|
| Net income (loss) |
|
| 16,120,203 |
|
|
| (41,960,484 | ) |
|
| (977,635 | ) |
| Net income (loss) and comprehensive income (loss) |
|
| 16,196,357 |
|
|
| (41,825,845 | ) |
|
| (974,439 | ) |
| Weighted-average common shares (basic and diluted) |
|
| 99,204,079 |
|
|
| 66,654,804 |
|
|
| 52,720,608 |
|
| Net income (loss) per common share (basic and diluted) |
|
| 0.16 |
|
|
| (0.63 | ) |
|
| (0.02 | ) |
| Dividends declared |
|
| - |
|
|
| - |
|
|
| - |
|
| Total assets |
|
| 29,297,860 |
|
|
| 26,919,591 |
|
|
| 273,439 |
|
| Total non-current liabilities |
|
| 8,029,289 |
|
|
| 6,335,975 |
|
|
| 10,679 |
|
| Total liabilities |
|
| 32,362,220 |
|
|
| 53,065,895 |
|
|
| 1,184,055 |
|
| Total shareholders’ equity (deficit) |
|
| (3,064,360 | ) |
|
| (26,146,304 | ) |
|
| (910,616 | ) |
| 36 |
| NEXTSOURCE MATERIALS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS For the years ended June 30, 2022 and 2021 |
SUMMARIZED QUARTERLY DATA
|
|
| Quarter Ended |
| |||||||||||||
|
|
| June 30, |
|
| March 31, |
|
| December 31, |
|
| September 30, |
| ||||
|
|
| 2022 |
|
| 2022 |
|
| 2021 |
|
| 2021 |
| ||||
|
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
| Revenues |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
| Mine development expenses |
|
| 138,990 |
|
|
| 25,779 |
|
|
| 22,307 |
|
|
| (121,916 | ) |
| Exploration and evaluation expenses |
|
| 69,989 |
|
|
| 14,558 |
|
|
| 40,550 |
|
|
| 52,858 |
|
| General and administrative expenses |
|
| 450,766 |
|
|
| 602,987 |
|
|
| 456,770 |
|
|
| 418,769 |
|
| Net income (loss) |
|
| 29,708,698 |
|
|
| (4,714,086 | ) |
|
| (6,527,454 | ) |
|
| (2,346,955 | ) |
| Net income (loss) and comprehensive income (loss) |
|
| 29,792,068 |
|
|
| (4,651,499 | ) |
|
| (6,832,442 | ) |
|
| (2,111,770 | ) |
| Net income (loss) per share (basic and diluted) |
|
| 0.30 |
|
|
| (0.05 | ) |
|
| (0.07 | ) |
|
| (0.02 | ) |
| Working capital (deficit) surplus |
|
| (13,868,626 | ) |
|
| (42,484,978 | ) |
|
| (37,099,064 | ) |
|
| (29,161,919 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter Ended | ||||||||||||||
|
|
| June 30, |
|
| March 31, |
|
| December 31, |
|
| September 30, |
| ||||
|
|
| 2021 |
|
| 2021 |
|
| 2020 |
|
| 2020 |
| ||||
|
|
|
| $ |
|
| $ |
|
|
| $ |
|
| $ |
| ||
| Revenues |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
| Mine development expenses |
|
| 198,886 |
|
|
| 17,586 |
|
|
| 97,361 |
|
|
| 9,835 |
|
| Exploration and evaluation expenses |
|
| (5,550 | ) |
|
| 5,162 |
|
|
| 40,736 |
|
|
| 6,467 |
|
| General and administrative expenses |
|
| 472,883 |
|
|
| 357,069 |
|
|
| 283,586 |
|
|
| 283,263 |
|
| Net income (loss) |
|
| (27,419,558 | ) |
|
| (12,710,273 | ) |
|
| (1,549,938 | ) |
|
| (280,715 | ) |
| Net income (loss) and comprehensive income (loss) |
|
| (27,284,712 | ) |
|
| (12,708,656 | ) |
|
| (1,552,307 | ) |
|
| (280,170 | ) |
| Net income (loss) per share (basic and diluted) |
|
| (0.32 | ) |
|
| (0.20 | ) |
|
| (0.03 | ) |
|
| (0.00 | ) |
| Working capital (deficit) surplus |
|
| (24,500,482 | ) |
|
| (3,952,895 | ) |
|
| (1,761,218 | ) |
|
| (269,775 | ) |
CRITICAL IFRS ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES
The Company’s Interim Financial Statements are prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. The Interim Financial Statements follow the same accounting policies and methods of their application as disclosed in Note 3 to the Company’s audited consolidated financial statements for the year ended June 30, 2022.
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 consolidated financial statements and the reported values of revenues and expenses during the reporting period. By their nature, these are uncertain and actual outcomes could differ from the estimates, judgments, and assumptions. The impacts of such estimates are pervasive throughout the consolidated financial statements and may require accounting adjustments based on future occurrences. Revisions to accounting estimates are recognized in the period in which the estimate is revised and also in future periods when the revision affects both current and future periods. Significant accounting judgments, estimates and assumptions are reviewed on an ongoing basis.
The areas involving significant judgments, estimates and assumptions have been detailed in Note 4 to the Company’s audited consolidated financial statements for the year ended June 30, 2022.
Management has discussed the development and selection of critical accounting policies and estimates with the Audit Committee, which has reviewed the Company’s disclosure in this MD&A.
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.
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.
Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the year ended June 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
As of June 30, 2022, 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 Officer and Chief Financial Officer concluded that as of June 30, 2022, the end of the period covered by this MD&A, we maintained effective disclosure controls and procedures.
| 37 |
| NEXTSOURCE MATERIALS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS For the years ended June 30, 2022 and 2021 |
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 June 30, 2022.
OTHER INFORMATION
Additional information related to the Company, including the Company’s Annual Information Form (“AIF”), is available on the Canadian Securities Administrators’ SEDAR website at www.sedar.com or on the Company website at www.nextsourcematerials.com. The Company’s Form 20-F (“20-F) and other United States Securities and Exchange Commission’s (the “SEC”) is available on the SEC website at www.sec.gov.
| 38 |
EXHIBIT 99.4
CERTIFICATION PURSUANT TO
RULE 13a-14 OF THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Craig Scherba, certify that:
| 1. | I have reviewed this annual report on Form 40-F for the fiscal year ended June 30, 2022 of NextSource Materials Inc.; |
|
|
|
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
|
|
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
|
|
| 4. | The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
|
|
|
|
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
|
|
|
|
| (c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
|
|
|
|
| (d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
| 5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
|
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
|
|
|
|
|
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: July 24, 2023
| By: | /s/ Craig Scherba |
|
|
| Craig Scherba |
|
|
| Chief Executive Officer |
|
|
| (principal executive officer) |
|
EXHIBIT 99.5
CERTIFICATION PURSUANT TO
RULE 13a-14 OF THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Marc Johnson, certify that:
| 1. | I have reviewed this annual report on Form 40-F for the fiscal year ended June 30, 2022 of NextSource Materials Inc.; |
|
|
|
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
|
|
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
|
|
| 4. | The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
|
|
|
|
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
|
|
|
|
| (c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
|
|
|
|
| (d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
| 5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
|
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
|
|
|
|
|
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: July 24, 2023
| By: | /s/ Marc Johnson |
|
|
| Marc Johnson |
|
|
| Chief Financial Officer |
|
|
| (principal accounting officer) |
|
EXHIBIT 99.6
CERTIFICATION PURSUANT TO
18 U.S.C. §1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 40-F for the fiscal year ended June 30, 2022 of NextSource Materials Inc. (the "Company"), the undersigned, in the capacity and on the date indicated below, hereby certifies pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
|
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
|
|
|
|
|
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
Date: July 24, 2023
| By: | /s/ Craig Scherba |
|
|
| Craig Scherba |
|
|
| Chief Executive Officer |
|
|
| (principal executive officer) |
|
EXHIBIT 99.7
CERTIFICATION PURSUANT TO
18 U.S.C. §1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 40-F for the fiscal year ended June 30, 2022 of NextSource Materials Inc. (the "Company"), the undersigned, in the capacity and on the date indicated below, hereby certifies pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
|
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
|
|
|
|
|
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
Date: July 24, 2023
| By: | /s/ Marc Johnson |
|
|
| Marc Johnson |
|
|
| Chief Financial Officer |
|
|
| (principal accounting officer) |
|
EXHIBIT 99.8
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference of our auditor’s report dated July 5, 2023, with respect to the consolidated financial statements of NextSource Materials Inc as at June 30, 2022 and 2021, and for each of the years in the three year period ended June 30, 2022, included in the annual report on Form 40-F/A of NextSource Materials Inc. for the year ended June 30, 2022, as filed with the United States Securities Exchange Commission.
Signed:
Mississauga, Ontario July 24, 2023
EXHIBIT 99.9
CONSENT OF CRAIG SCHERBA
July 24, 2023
VIA EDGAR
United States Securities and Exchange Commission
| Re: | NextSource Materials Inc. (the “Company”) |
|
| Annual Report on Form 40-F of the Company for the year ended June 30, 2022 (the “Form 40-F) |
I, Craig Scherba, hereby consent to the inclusion in this Annual Report on Form 40-F of NextSource Materials Inc., which is being filed with the United States Securities and Exchange Commission, of references to my name and to the use of the scientific and technical information related to the Molo Graphite Project. This consent extends to any amendments to the Form 40-F. There have been no changes to the Annual Information Form of the Company for the fiscal year ended June 30, 2022, which was originally filed on September 28, 2022 and is incorporated into this Annual Report.
| /s/ Craig Scherba |
|
| Craig Scherba, P. Geo |
|
| President and Chief Executive Officer |
|
| NextSource Materials Inc. |
|
EXHIBIT 99.10
CONSENT OF JOHANN KNIPE DE BRUIN
July 24, 2023
VIA EDGAR
United States Securities and Exchange Commission
| Re: | NextSource Materials Inc. (the “Company”) |
|
| Annual Report on Form 40-F of the Company for the year ended June 30, 2022 (the “Form 40-F) |
I, Johann Knipe de Bruin, hereby consent to the use of my name in connection with reference to my involvement in the preparation of the technical report titled “Molo Phase 2 Preliminary Economic Assessment on the Molo Graphite Project located near the village of Fotadrevo, in the Province of Toliara, Madagascar,” dated April 27, 2022 (the “Technical Report”) and to references to the Technical Report, or portions thereof, in the Form 40-F and the Annual Information Form of the Company for the fiscal year ended June 30, 2022 (the “AIF”), and to the inclusion or incorporation by reference of the information derived from the Technical Report related to me in the Form 40-F and the AIF. This consent extends to any amendments to the Form 40-F. There have been no changes to the AIF which was originally filed on September 28, 2022 and is incorporated into this Annual Report.
I hereby consent to the use of my name in connection with reference to my involvement in the review and approval of certain technical disclosure in the AIF.
| /s/ Johann Knipe de Buin |
|
|
|
|
| Johann Knipe de Buin, Pr.Eng |
|
EXHIBIT 99.11
CONSENT OF CONSENT OF ERUDITE STRATEGIES (PTY) LTD
July 24, 2023
VIA EDGAR
United States Securities and Exchange Commission
| Re: | NextSource Materials Inc. (the “Company”) |
|
| Annual Report on Form 40-F of the Company for the year ended June 30, 2022 (the “Form 40-F) |
The undersigned hereby consents to the incorporation by reference in the Form 40-F and the Annual Information Form of the Company for the fiscal year ended June 30, 2022 (the “AIF”), of references to Erudite Strategies (Pty) Ltd’s name and to the use of the scientific and technical information, including any reserve or resource estimates, from the technical report titled “Molo Phase 2 Preliminary Economic Assessment on the Molo Graphite Project located near the village of Fotadrevo, in the Province of Toliara, Madagascar,” dated April 27, 2022 (the “Technical Report”), including extracts from or summaries of the Technical Report that are contained in the Form 40-F or the AIF. There have been no changes to the AIF which was originally filed on September 28, 2022 and is incorporated into this Annual Report.
Erudite Strategies (Pty) Ltd
| /s/ Johann Knipe de Buin |
|
| Name: Johann Knipe de Bruin, Pr.Eng |
|
| Title: Chief Executive Officer |
|
| /s/ H.A. Smith |
|
| Name: H.A. Smith, Pr. Eng |
|
| Title: Senior Electrical Engineer |
|
EXHIBIT 99.12
CONSENT OF TODD MCCRACKEN
July 24 2023
VIA EDGAR
United States Securities and Exchange Commission
| Re: | NextSource Materials Inc. (the “Company”) |
|
| Annual Report on Form 40-F of the Company for the year ended June 30, 2022 (the “Form 40-F) |
I, Todd McCracken, hereby consent to the use of my name in connection with reference to my involvement in the preparation of the technical report titled “Green Giant Project, Fotadrevo, Province of Toliara, Madagascar, Technical Report Update NI 43-101,” dated January 14, 2011 (the “Technical Report”) and to references to the Technical Report, or portions thereof, in the Form 40-F and the Annual Information Form of the Company for the fiscal year ended June 30, 2022 (the “AIF”), and to the inclusion or incorporation by reference of the information derived from the Technical Report related to me in the Form 40-F and the AIF. This consent extends to any amendments to the Form 40-F. There have been no changes to the AIF which was originally filed on September 28, 2022 and is incorporated into this Annual Report.
I hereby consent to the use of my name in connection with reference to my involvement in the review and approval of certain technical disclosure in the AIF.
| /s/ Todd McCracken |
|
|
|
|
| Todd McCracken, P.Geo. |
|
EXHIBIT 99.13
CONSENT OF ANDY HOLLOWAY
July 24, 2023
VIA EDGAR
United States Securities and Exchange Commission
| Re: | NextSource Materials Inc. (the “Company”) |
|
| Annual Report on Form 40-F of the Company for the year ended June 30, 2022 (the “Form 40-F) |
I, Andy Holloway, hereby consent to the use of my name in connection with reference to my involvement in the preparation of the technical report titled “Green Giant Project, Fotadrevo, Province of Toliara, Madagascar, Technical Report Update NI 43-101,” dated January 14, 2011 (the “Technical Report”) and to references to the Technical Report, or portions thereof, in the Form 40-F and the Annual Information Form of the Company for the fiscal year ended June 30, 2022 (the “AIF”), and to the inclusion or incorporation by reference of the information derived from the Technical Report related to me in the Form 40-F and the AIF. This consent extends to any amendments to the Form 40-F. There have been no changes to the AIF which was originally filed on September 28, 2022 and is incorporated into this Annual Report.
I hereby consent to the use of my name in connection with reference to my involvement in the review and approval of certain technical disclosure in the AIF.
| /s/ Andy Holloway |
|
|
|
|
| Andy Holloway, P.Eng. |
|