Silver Elephant Mining Corp 6-K, filed May 15, 2020
Silver Elephant Mining Corp. (SILEF)
6-K
2020-05-15
For: 2020-03-31
View Original
Added on
April 06, 2026
About this 6-K
Silver Elephant Mining Corp filed this 6-K on May 15, 2020.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 or 15d-16 UNDER
THE
SECURITIES EXCHANGE ACT OF 1934
For the
month of May
2020
Commission
File Number 000-55985
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SILVER ELEPHANT MINING CORP.
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(Translation
of registrant’s name into English)
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Suite 1610 – 409 Granville Street
Vancouver, British Columbia, Canada V6C 1T2
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(Address
of principal executive offices)
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Indicate
by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F
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Form
20-F
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☒
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Form
40-F
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☐
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Indicate
by check mark if the registrant is submitting the Form 6-K in paper
as permitted by Regulation S-T Rule 101(b)(1):
☐
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Note: Regulation S-T Rule 101(b)(1) only permits
the submission in paper of a Form 6-K if submitted solely to
provide an attached annual report to security holders.
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Indicate
by check mark if the registrant is submitting the Form 6-K in paper
as permitted by Regulation S-T Rule
101(b)(7): ☐
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Note: Regulation S-T Rule 101(b)(7) only permits
the submission in paper of a Form 6-K if submitted to furnish
a report or other document that the registrant foreign private
issuer must furnish and make public under the laws of the
jurisdiction in which the registrant is incorporated, domiciled or
legally organized (the registrant’s “home
country”), or under the rules of the home country exchange on
which the registrant’s securities are traded, as long as the
report or other document is not a press release, is not required to
be and has not been distributed to the registrant’s security
holders, and, if discussing a material event, has already been the
subject of a Form 6-K submission or other Commission filing on
EDGAR.
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SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
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SILVER
ELEPHANT MINING CORP.
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Date: May 15,
2020
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By:
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/s/ Brigitte McArthur
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Brigitte
McArthur
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Corporate
Secretary
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-2-
INDEX TO EXHIBITS
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Condensed
Interim Consolidated Financial Statements for the three months
ended March 31, 2020
Management’s
Discussion and Analysis for the three months ended March 31,
2020
Form
52-109F2 Certification of Interim Filings – CEO
Form
52-109F2 Certification of Interim Filings - CFO
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-3-
Exhibit
99.1
(Formerly
Prophecy Development Corp.)
Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2020 and 2019
(Expressed in Canadian Dollars)
Unaudited – Prepared by Management
1
TABLE
OF CONTENTS
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Condensed Interim Consolidated Statements of Financial
Position
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4
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Condensed Interim Consolidated Statements of Operations and
Comprehensive Loss
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5
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Condensed Interim Consolidated Statements of Changes in
Equity
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6
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Condensed Interim Consolidated Statements of Cash
Flows
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7
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1
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DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS
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8
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2
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BASIS OF PRESENTATION
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9
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3
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SEGMENTED INFORMATION
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9
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4
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CASH AND CASH EQUIVALENTS
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10
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5
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RIGHT-OF-USE ASSET
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10
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6
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EQUIPMENT
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10
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7
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MINERAL PROPERTIES
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12
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8
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ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
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16
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9
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LEASE LIABILITY
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16
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10
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SHARE CAPITAL
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17
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11
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FAIR VALUE MEASUREMENTS AND FINANCIAL INSTRUMENTS
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20
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12
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FINANCIAL RISK MANAGEMENT DISCLOSURES
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21
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13
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RELATED PARTY DISCLOSURES
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23
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14
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KEY MANAGEMENT PERSONNEL COMPENSATION
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24
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15
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SUPPLEMENTAL CASH FLOW INFORMATION
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24
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16
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CONTINGENCIES
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24
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17
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EVENTS AFTER THE REPORTING DATE
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25
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2
NOTICE OF NO AUDITOR REVIEW OF CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
The accompanying unaudited condensed interim consolidated financial
statements have been prepared by management of the Company and
approved by the Company’s Audit Committee. The
Company’s independent auditors have not performed a review of
these condensed interim consolidated financial statements in
accordance with the standards established for a review of interim
financial statements by an entity’s auditors.
3
SILVER ELEPHANT MINING CORP.
(formerly
Prophecy Development Corp.)
(Expressed
in Canadian Dollars) (Unaudited)
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As at
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March
31,
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December
31,
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Notes
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2020
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2019
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Assets
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Current
assets
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Cash
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4
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$930,856
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$3,017,704
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Receivables
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221,537
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246,671
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Prepaid
expenses
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131,913
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135,767
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Marketable
securities
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-
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-
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1,284,306
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3,400,142
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Non-current
assets
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Restricted cash
equivalents
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4
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34,500
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34,500
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Reclamation
deposits
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21,055
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21,055
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Right-of-use
asset
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5
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42,125
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50,023
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Equipment
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6
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164,919
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159,484
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Mineral
properties
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7
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25,240,483
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23,782,884
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$26,787,388
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$27,448,088
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Liabilities
and Equity (Deficiency)
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Current
liabilities
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Accounts payable
and accrued liabilities
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8
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$1,855,865
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$2,420,392
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Lease
liability
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9
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24,559
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32,285
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1,880,424
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2,452,677
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Non-current
liabilities
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Lease
liability
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9
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20,533
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20,533
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Provision for
closure and reclamation
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266,790
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266,790
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2,167,747
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2,740,000
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Equity
(Deficiency)
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Share
capital
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10
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181,774,743
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181,129,012
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Reserves
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10
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24,264,282
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24,058,336
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Deficit
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(181,419,384)
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(180,479,260)
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24,619,641
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24,708,088
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$26,787,388
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$27,448,088
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Approved
on behalf of the Board:
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"John Lee"
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"Greg Hall"
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John
Lee, Director
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Greg
Hall, Director
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Contingencies
(Note 16)
Events
after the reporting date (Note 17)
The
accompanying notes form an integral part of these unaudited
condensed interim consolidated financial statements.
4
SILVER ELEPHANT MINING CORP.
(formerly
Prophecy Development Corp.)
Condensed
Interim Consolidated Statements of Operations and Comprehensive
Loss
(Expressed in
Canadian Dollars) (Unaudited)
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Three Months
Ended March 31,
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Notes
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2020
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2019
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General
and Administrative Expenses
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Advertising and
promotion
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$50,625
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$134,048
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Consulting and
management fees
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13
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387,500
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58,552
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Depreciation and
accretion
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10,573
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10,690
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Director
fees
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13
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43,200
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22,500
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Insurance
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24,546
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21,966
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Office and
administration
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10,163
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16,527
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Professional
fees
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90,245
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58,330
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Salaries and
benefits
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199,589
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296,237
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Share-based
payments
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10
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203,191
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51,085
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Stock exchange and
shareholder services
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62,845
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45,361
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Travel and
accommodation
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55,521
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78,802
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(1,137,998)
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(794,098)
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Other
Items
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Costs in excess of
recovered coal
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(118,803)
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(21,002)
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Foreign exchange
gain/(loss)
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316,677
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19,549
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Impairment of
mineral property
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-
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(113,308)
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197,874
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(114,761)
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Net
Loss for Period
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(940,124)
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(908,859)
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Comprehensive
Loss for Period
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$(940,124)
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$(908,859)
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Loss Per Common Share, basic and
diluted
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$(0.01)
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$(0.01)
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Weighted
Average Number of Common Shares Outstanding
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121,469,898
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94,257,059
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The
accompanying notes form an integral part of these unaudited
condensed interim consolidated financial
statements.
5
SILVER ELEPHANT MINING CORP.
(formerly
Prophecy Development Corp.)
Condensed
Interim Consolidated Statements of Changes in Equity
(Expressed in
Canadian Dollars, except number of shares) (Unaudited)
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Number of
Shares
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Share
Capital
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Reserves
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Deficit
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Total Equity
(Deficiency)
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Balance, December 31,
2018
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95,316,127
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$173,819,546
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$23,413,830
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$(197,993,114)
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$(759,738)
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Share-based
payments
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-
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$-
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$112,657
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$-
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$112,657
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Loss for the
period
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-
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-
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-
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(908,859)
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(908,859)
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Balance, March 31,
2019
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95,316,127
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$173,819,546
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$23,526,487
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$(198,901,973)
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$(1,555,940)
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Balance, December 31,
2019
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121,299,508
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$181,129,012
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$24,058,336
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$(180,479,260)
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$24,708,088
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Share-based
payments
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-
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$-
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$208,277
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$-
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$208,277
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Bonus shares
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1,601,000
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640,400
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-
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-
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640,400
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Exercise of stock
options
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15,000
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5,331
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(2,331)
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-
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3,000
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Loss for the
period
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-
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-
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-
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(940,124)
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(940,124)
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Balance, March 31,
2020
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122,915,508
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$181,774,743
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$24,264,282
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$(181,419,384)
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$24,619,641
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The
accompanying notes form an integral part of these unaudited
condensed interim consolidated financial
statements.
6
SILVER ELEPHANT MINING CORP.
(formerly
Prophecy Development Corp.)
Condensed
Interim Consolidated Statements of Cash Flows
(Expressed
in Canadian Dollars) (Unaudited)
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Three Months
Ended March 31,
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2020
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2019
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Operating
Activities
|
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Net loss for
period
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$(940,124)
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$(908,859)
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Adjustments to
reconcile net loss to net cash flows:
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Depreciation and
accretion
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10,573
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10,690
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Share-based
payments
|
203,191
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51,085
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Unrealized foreign
exchange (gain)/loss
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-
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(169,218)
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Impairment of
mineral property
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-
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113,308
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(726,360)
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(902,994)
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Working capital
adjustments
|
|
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Receivables
|
25,134
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(3,184)
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Prepaid expenses
and reclamation deposits
|
3,854
|
66,087
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Accounts payable
and accrued liabilities
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213,181
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(83,412)
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242,169
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(20,509)
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Cash
Used in Operating Activities
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(484,191)
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(923,503)
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Investing
Activities
|
|
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Purchase of
property and equipment
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(15,810)
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-
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Mineral property
expenditures
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(1,580,701)
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(719,476)
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Cash
Used in Investing Activities
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(1,596,511)
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(719,476)
|
|
|
|
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Financing
Activities
|
|
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Proceeds from
exercise of stock options
|
3,000
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-
|
|
Lease
payments
|
(9,146)
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(8,929)
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Cash
Used in Financing Activities
|
(6,146)
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(8,929)
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|
Net Decrease in
Cash and Cash equivalents
|
(2,086,848)
|
(1,651,908)
|
|
Cash and cash
equivalents- beginning of period
|
3,017,704
|
5,304,097
|
|
Cash and cash
equivalents - end of period
|
$930,856
|
$3,652,189
|
Supplemental
cash flow information (Note 15)
The
accompanying notes form an integral part of these unaudited
condensed interim consolidated financial statements.
7
SILVER ELEPHANT MINING CORP.
(formerly
Prophecy Development Corp.)
Notes
to the Condensed Interim Consolidated Financial
Statements
For the
three months ended March 31, 2020 and 2019
(Expressed
in Canadian Dollars) (Unaudited)
1. DESCRIPTION
OF BUSINESS AND NATURE OF OPERATIONS
Silver
Elephant Mining Corp. (formerly Prophecy Development Corp.) (the
“Company”) is
incorporated under the laws of the province of British Columbia,
Canada. The Company’s common
shares (the “Shares”) are listed for trading on the Toronto
Stock Exchange (the “TSX”) under the symbol
“ELEF”, the OTCQX® Best Market under the
symbol “SILEF”, and
the Frankfurt Stock Exchange under the symbol
“1P2N”.
The
Company is an exploration stage company. The Company holds a mining
joint venture interest in the Pulacayo Paca silver-lead-zinc
property located in Bolivia. The Company also has a 100% interest
in two vanadium projects in North America including the Gibellini
vanadium project which is comprised of the Gibellini and Louie Hill
vanadium deposits and associated claims located in the State of
Nevada, USA and the Titan vanadium-titanium-iron property located
in the Province of Ontario, Canada. The Company also has a 100%
interest in the Ulaan Ovoo coal property located in Selenge
province, Mongolia and a 100% interest in the Chandgana Tal coal
property and Khavtgai Uul coal property located in Khentii
province, Mongolia.
The
Company maintains its registered and records office at Suite 1610
– 409 Granville Street, Vancouver, British Columbia, Canada,
V6C 1T2.
These
condensed interim consolidated financial statements have been
prepared under the assumption that the Company is a going concern,
which contemplates the realization of assets and the payment of
liabilities in the ordinary course of business. The Company has a
deficit of $181 million.
The
business of mineral exploration involves a high degree of risk and
there can be no assurance that the Company’s current
operations, including exploration programs, will result in
profitable mining operations. The recoverability of the carrying
value of mineral properties, and property and equipment interests
and the Company’s continued on going existence is dependent
upon the preservation of its interest in the underlying properties,
the discovery of economically recoverable reserves, the achievement
of profitable operations, the ability of the Company to raise
additional sources of funding, and/or, alternatively, upon the
Company’s ability to dispose of some or all of its interests
on an advantageous basis. Additionally, the current capital markets
and general economic conditions are significant obstacles to
raising the required funds. These conditions may cast significant
doubt upon the Company’s ability to continue as a going
concern.
In
assessing whether the going concern assumption is appropriate,
management takes into account all available information about the
future, which is at least, but not limited to, twelve months from
the end of the reporting period. Management is aware, in making its
assessment, of uncertainties related to events or conditions that
may cast significant doubt upon the entity’s ability to
continue as a going concern that these uncertainties are material
and, therefore, that it may be unable to realize its assets and
discharge its liabilities in the normal course of business.
Accordingly, they do not give effect to adjustments that would be
necessary should the Company be unable to continue as a going
concern and therefore to realize its assets and discharge its
liabilities and commitments in other than the normal course of
business and at amounts different from those in the accompanying
financial statements. These adjustments could be
material.
In
March 2020 the World Health Organization declared coronavirus
COVID-19 a global pandemic. This contagious disease outbreak, which
has continued to spread, and any related adverse public health
developments, has adversely affected workforces, economies, and
financial markets globally, potentially leading to an economic
downturn. It is not possible for the Company to predict the
duration or magnitude of the adverse results of the outbreak and
its effects on the Company’s business or results of
operations at this time.
8
SILVER ELEPHANT MINING CORP.
(formerly
Prophecy Development Corp.)
Notes
to the Condensed Interim Consolidated Financial
Statements
For the
three months ended March 31, 2020 and 2019
(Expressed
in Canadian Dollars) (Unaudited)
2.
BASIS
OF PRESENTATION
(a)
Statement of
compliance
These unaudited condensed interim consolidated
financial statements have been prepared in accordance with IAS 34,
Interim Financial Reporting. They do not include all the
information and disclosures required in the annual financial
statements and should be read in conjunction with the
Company’s annual financial statements as at and for the year
ended December 31, 2019 (“Annual Financial
Statements”). However,
selected explanatory notes are included to explain events and
transactions that are significant to an understanding of the
changes in the Company’s financial position and performance
since the last annual consolidated financial statements as at and
for the year ended December 31, 2019.
These
unaudited condensed interim consolidated financial statements were
approved and authorized for issue by the Audit Committee on May 11,
2020.
(a)
Use of judgments
and estimates
In preparing these interim financial statements,
management makes judgements, estimates and assumptions that affect
the application of accounting policies and the reported amounts of
assets and liabilities, income and expense. Actual results may
differ from these estimates. The significant judgements made by
management in applying the Company’s accounting policies and
the key sources of estimation uncertainty were the same as those
that applied to the Annual Financial Statements.
(b)
Significant
accounting policies and changes in accounting
standards
These interim financial statements follow the same accounting
policies and methods of application as the Annual Financial
Statements. Accordingly, they should be read in conjunction with
the Annual Financial Statements. Unless otherwise stated, these
policies have been consistently applied to all period
presented.
3.
SEGMENTED
INFORMATION
The
Company operates in one operating segment, being the acquisition,
exploration and development of mineral properties. Geographic
segmentation of Prophecy’s assets is as follows:
|
|
March 31,
2020
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||||
|
|
Canada
|
USA
|
Mongolia
|
Bolivia
|
Total
|
|
Reclamation
deposits
|
$-
|
$-
|
$21,055
|
$-
|
$21,055
|
|
Equipment
|
11,389
|
85,335
|
2,723
|
65,472
|
164,919
|
|
Mineral
properties
|
-
|
9,418,889
|
-
|
15,821,594
|
25,240,483
|
|
|
$11,389
|
$9,504,224
|
$23,778
|
$15,887,067
|
$25,426,457
|
|
|
December 31,
2019
|
||||
|
|
Canada
|
USA
|
Mongolia
|
Bolivia
|
Total
|
|
Reclamation
deposits
|
$-
|
$-
|
$21,055
|
$-
|
$21,055
|
|
Equipment
|
12,005
|
89,826
|
35,721
|
21,932
|
159,484
|
|
Mineral
properties
|
-
|
8,600,658
|
-
|
15,182,226
|
23,782,884
|
|
|
$12,005
|
$8,690,484
|
$56,776
|
$15,204,158
|
$23,963,423
|
9
SILVER ELEPHANT MINING CORP.
(formerly
Prophecy Development Corp.)
Notes
to the Condensed Interim Consolidated Financial
Statements
For the
three months ended March 31, 2020 and 2019
(Expressed
in Canadian Dollars) (Unaudited)
4.
CASH
AND CASH EQUIVALENTS
Cash
and cash equivalents of Prophecy are comprised of bank balances and
a guaranteed investment certificate which can be readily converted
into cash without significant restrictions, changes in value or
penalties.
|
|
March 31,
2020
|
December 31,
2019
|
|
Cash
|
$930,856
|
$3,017,704
|
|
Restricted
cash equivalents
|
34,500
|
34,500
|
|
|
$965,356
|
$3,052,204
|
Restricted Cash Equivalents
As at
March 31, 2020, a guaranteed investment certificate of $34,500
(2019 - $34,500) has been pledged as collateral for the
Company’s credit card.
5.
RIGHT-OF-USE
ASSET
During
the first-time application of IFRS 16 to the Company’s office
lease, the recognition of a right of use asset was required and the
leased asset was measured at the amount of the lease liability
using the Company’s current incremental borrowing rate of
10%. The following table presents the right-of-use-asset from
January 1, 2019 to March 31, 2020:
|
Initial recognition, January 1,
2019
|
$81,617
|
|
Additions
|
-
|
|
Depreciation
|
(31,594)
|
|
Balance at December 31,
2019
|
$50,023
|
|
Depreciation
|
(7,898)
|
|
Balance at March 31,
2020
|
$42,125
|
6.
EQUIPMENT
The
impaired value of $Nil for deferred development costs at Ulaan Ovoo
property at March 31, 2020 (December 31, 2019 - $Nil) remains
unchanged.
The
following table summarized information regarding the
Company’s equipment as at March 31, 2020 and December 31,
2019:
10
SILVER ELEPHANT MINING CORP.
(formerly
Prophecy Development Corp.)
Notes
to the Condensed Interim Consolidated Financial
Statements
For the
three months ended March 31, 2020 and 2019
(Expressed
in Canadian Dollars) (Unaudited)
6.
EQUIPMENT
(cont’d…)
|
|
Computer
|
Furniture &
|
|
Mining
|
|
|
|
Equipment
|
Equipment
|
Vehicles
|
Equipment
|
Total
|
|
Cost
|
|
|
|
|
|
|
Balance,
December 31, 2018
|
$103,254
|
$278,845
|
$172,692
|
$24,476
|
$579,267
|
|
Additions/Disposals
|
-
|
-
|
46,914
|
-
|
46,914
|
|
Balance,
December 31, 2019
|
$103,254
|
$278,845
|
$219,606
|
$24,476
|
$626,181
|
|
Accumulated depreciation
|
|
|
|
|
|
|
Balance,
December 31, 2018
|
$98,011
|
$233,424
|
$143,179
|
$3,491
|
$478,105
|
|
Disposals
|
-
|
-
|
(39,178)
|
-
|
(39,178)
|
|
Depreciation
for year
|
792
|
12,445
|
10,641
|
3,892
|
27,770
|
|
Balance,
December 31, 2019
|
$98,803
|
$245,869
|
$114,642
|
$7,383
|
$466,697
|
|
Carrying amount at December 31, 2019
|
$4,451
|
$32,976
|
$104,964
|
$16,238
|
$159,484
|
|
|
|
|
|
|
|
|
Cost
|
|
|
|
|
|
|
Balance,
December 31, 2019
|
$103,254
|
$278,845
|
$219,606
|
$24,476
|
$626,181
|
|
Additions/Disposals
|
-
|
-
|
40,874
|
-
|
40,874
|
|
Balance,
March 31, 2020
|
$103,254
|
$278,845
|
$260,480
|
$24,476
|
$667,055
|
|
Accumulated depreciation
|
|
|
|
|
|
|
Balance,
December 31, 2018
|
$98,803
|
$245,869
|
$114,642
|
$7,383
|
$466,697
|
|
Depreciation
for period
|
311
|
1,799
|
32,474
|
855
|
35,439
|
|
Balance,
March 31, 2020
|
$99,114
|
$247,668
|
$147,116
|
$8,238
|
$502,136
|
|
Carrying amount at March 31, 2020
|
$4,140
|
$31,177
|
$113,364
|
$16,238
|
$164,919
|
11
SILVER ELEPHANT MINING CORP.
(formerly
Prophecy Development Corp.)
Notes
to the Condensed Interim Consolidated Financial
Statements
For the
three months ended March 31, 2020 and 2019
(Expressed
in Canadian Dollars) (Unaudited)
7.
MINERAL
PROPERTIES
|
|
Gibellini
|
Chandgana Tal
|
Khavtgai Uul
|
Pulacayo Paca
|
Total
|
|
Balance, December 31, 2017
|
$490,356
|
$-
|
$-
|
$12,809,550
|
$13,299,906
|
|
Additions:
|
|
|
|
|
|
|
Acquisition
cost
|
$425,605
|
$-
|
$-
|
$-
|
$425,605
|
|
Deferred
exploration costs:
|
|
|
|
|
|
|
Licenses,
tax, and permits
|
387,149
|
1,271
|
261,168
|
-
|
649,588
|
|
Geological
and consulting
|
1,509,587
|
-
|
-
|
51,112
|
1,560,699
|
|
Personnel,
camp and general
|
831,023
|
20,590
|
3,741
|
847,538
|
1,702,892
|
|
|
2,727,759
|
21,861
|
264,909
|
898,650
|
3,913,179
|
|
Impairment
|
-
|
(21,861)
|
(264,909)
|
(13,708,200)
|
(13,994,970)
|
|
Balance, December 31, 2018
|
$3,643,720
|
$-
|
$-
|
$-
|
$3,643,720
|
|
Additions:
|
|
|
|
|
|
|
Acquisition
cost
|
$-
|
$-
|
$-
|
$-
|
$-
|
|
Deferred
exploration costs:
|
|
|
|
|
|
|
Licenses,
tax, and permits
|
286,158
|
-
|
-
|
-
|
286,158
|
|
Geological
and consulting
|
3,200,773
|
-
|
-
|
970,955
|
4,171,728
|
|
Personnel,
camp and general
|
1,470,007
|
-
|
-
|
503,071
|
1,973,079
|
|
|
4,956,939
|
-
|
-
|
1,474,026
|
6,430,965
|
|
Impairment
Recovery
|
-
|
-
|
-
|
13,708,200
|
13,708,200
|
|
Balance, December 31, 2019
|
$8,600,659
|
$-
|
$-
|
$15,182,226
|
$23,782,885
|
|
Additions:
|
|
|
|
|
|
|
Acquisition
cost
|
$-
|
$-
|
$-
|
$-
|
$-
|
|
Deferred
exploration costs:
|
|
|
|
|
|
|
Licenses,
tax, and permits
|
-
|
-
|
-
|
-
|
-
|
|
Geological
and consulting
|
355,529
|
-
|
-
|
564,955
|
920,484
|
|
Personnel,
camp and general
|
462,701
|
-
|
-
|
74,413
|
537,114
|
|
|
818,230
|
-
|
-
|
639,368
|
1,457,598
|
|
Balance, March 31, 2020
|
$9,418,889
|
$-
|
$-
|
$15,821,594
|
$25,240,483
|
12
SILVER ELEPHANT MINING CORP.
(formerly
Prophecy Development Corp.)
Notes
to the Condensed Interim Consolidated Financial
Statements
For the
three months ended March 31, 2020 and 2019
(Expressed
in Canadian Dollars) (Unaudited)
7.
MINERAL PROPERTIES
(cont’d…)
Gibellini Project, Nevada, United States
Gibellini Project
The Gibellini Project consists of a total of 354 unpatented lode
mining claims that include: the Gibellini group of 40 claims, the
VC Exploration group of 105 claims, and the Company group of 209
claims. All the claims are located in Eureka County, Nevada,
USA.
Gibellini Group
The
Gibellini group of claims was acquired on June 22, 2017, through
lease from the claimant (the “Gibellini Lessor”) and includes an
area of approximately 771 acres. Under the Gibellini Mineral Lease
Agreement (the “Gibellini
MLA”) the
Company leased the Gibellini group of claims which originally
constituted the Gibellini Project by among other things, agreeing
to pay to the Gibellini Lessor, US$35,000 (paid), and annual
advance royalty payments which will be tied, based on an agreed
formula (not to exceed US$120,000 per year), to the average
vanadium pentoxide price of the prior year. Upon commencement of
production, The Company will maintain its acquisition through lease
of the Gibellini group of claims by paying to the Gibellini Lessor,
a 2.5% NSR until a total of US$3,000,000 is paid. Thereafter, the
NSR will be reduced to 2% over the remaining life of the mine (and
referred to thereafter, as “production royalty
payments”). All advance royalty payments made, will be
deducted as credits against future production royalty payments. The
lease is for a term of 10 years, which can be extended for an
additional 10 years at The Company’s option.
On
April 23, 2018, the Company announced an amendment to the Gibellini MLA, whereby
the Company has been granted the right to cause the Gibellini
Lessor of the Gibellini mineral claims to transfer their title to
the claims to The Company. With the amendment, the Company will
have the option to, at any time during the term of the Gibellini
MLA, require the Gibellini Lessor to transfer title over all of the
leased, unpatented lode mining claims (excluding four claims which
will be retained by the Gibellini Lessor (the
“Transferred
Claims”) to The Company
in exchange for US$1,000,000, to be paid as an advance royalty
payment (the “Transfer
Payment”). A credit of
US$99,027 in favour of The Company towards the Transfer Payment is
already paid upon signing of the amendment, with the remaining
US$900,973 portion of the Transfer Payment due and payable by The
Company to the Gibellini Lessor upon completion of transfer of the
Transferred Claims from the Gibellini Lessor to The Company. The
advance royalty obligation and production royalty will not be
affected, reduced or relieved by the transfer of
title.
On June
22, 2019, the Company paid US$120,000 (2018 – US$101,943) of
the annual royalty payment to the Gibellini Lessor.
VC Exploration Group
On July 13, 2017, the Company acquired (through lease under the
mineral lease agreement “Louie Hill
MLA”) from the
holders (the “Former Louie Hill Lessors”) 10 unpatented lode claims totaling
approximately 207 acres that comprised the Louie Hill group of
claims located approximately 500 metres south of the
Gibellini group of claims. These claims were subsequently abandoned
by the holders, and on March 11, 2018 and March 12, 2018, the
Company’s wholly owned US subsidiaries, Vanadium Gibellini
Company LLC and VC Exploration (US) Inc., staked the area within
and under 17 new claims totaling approximately 340 gross acres
which now collectively comprise the expanded Louie Hill group of
claims.
Under
the Louie Hill MLA, the Company is required to make payments as
follows: cash payment of US$10,000 (paid), annual advance royalty
payments which will be tied, based on an agreed formula (not to
exceed US$28,000 per year), to the average vanadium pentoxide price
for the prior year. Upon commencement of production, the Company
will pay to the Former Louie Hill Lessors, a 2.5% NSR of which,
1.5% of the NSR may be purchased at
13
SILVER ELEPHANT MINING CORP.
(formerly
Prophecy Development Corp.)
Notes
to the Condensed Interim Consolidated Financial
Statements
For the
three months ended March 31, 2020 and 2019
(Expressed
in Canadian Dollars) (Unaudited)
7.
MINERAL PROPERTIES
(cont’d...)
Gibellini Project, Nevada, United States
(cont’d…)
any
time by the Company for US$1,000,000, leaving the total NSR to be
reduced to 1% over the remaining life of the mine (and referred to
thereafter, as “production royalty payments”). All
advance royalty payments made, will be deducted as credits against
future production royalty payments. The lease will be for a term of
10 years, which can be extended for an additional 10 years at The
Company’s option.
On
October 22, 2018, the Company and Former Louie Hill
Lessors entered
into a royalty agreement (the “Royalty Agreement”) that
terminated the Louie Hill MLA and provides for the Company to pay
the following royalties to the Former Louie Hill
Lessors as an
advance royalty: (i) US$75,000 upon the Company achieving
Commercial Production (as defined in the Royalty Agreement) at its
Gibellini Project; (ii) US$50,000 upon the Company selling,
conveying, transferring or assigning all or any portion of certain
claims defined in the Royalty Agreement to any third party and
(iii) annually upon the anniversary date of July 10, 2018 and the
like day thereafter during the term of the Royalty Agreement: (a)
if the average vanadium pentoxide price per pound as quoted on
www.metalbulletin.com (the
“Metal
Bulletin”) or another reliable and reputable industry
source as agreed by the parties, remains below US$7.00/lb during
the preceding 12 months, US$12,500; or (b) if the average vanadium
pentoxide price per pound as quoted on Metal Bulletin or another
reliable and reputable industry source as agreed by the parties,
remains equal to or above US$7.00/lb during the preceding 12
months, US$2,000 x average vanadium pentoxide price per pound up to
a maximum annual advance royalty payment of US$28,000. Further, the
Company will pay to the Former Louie Hill Lessors a production royalty of
2.5% of the net smelter returns of vanadium produced from the
royalty area and sold. The Company has an option to purchase 1.5%
of the 2.5% of the production royalty from the Former Louie Hill
Lessors for
US$1,000,000.
On June
18, 2019, the Company paid US$28,000 (2018 – US$21,491) of
the annual royalty payment to the Louie Hill Lessor.
On February 15, 2018, the Company acquired 105 unpatented lode
mining claims located adjacent to its Gibellini Project through the
acquisition of 1104002 B.C. Ltd. and its Nevada
subsidiary VC Exploration (US) Inc. (“VC
Exploration”) by
paying a total of $335,661 in cash and issuing 500,000 Share
purchase warrants (valued at $89,944) to
arm’s-length, private parties. Each warrant entitles the
holder upon exercise, to acquire one Share of the Company at a
price of $0.50 per Share until February 15, 2021. The acquisition
of the VC Exploration has been accounted for as an asset
acquisition as their activities at the time of the acquisition
consisted of mineral claims only.
The Company Group
During 2017 and 2018, the Company expanded the land position at the
Gibellini Project, by staking a total of 209 new claims immediately
adjacent to the Gibellini Project covering 4091 acres.
Pulacayo Paca Property, Bolivia
The Pulacayo property, a silver-lead-zinc project
located in southwestern Bolivia, was
acquired on January 2, 2015 through the acquisition of 100% of
Apogee’s interest in ASC Holdings Limited and ASC Bolivia
LDC, which together, hold ASC Bolivia LDC Sucursal Bolivia
(“ASC”), which in turn, holds a joint
venture interest in the Pulacayo Project.
ASC
controls the mining rights to the Pulacayo Project through a joint
venture agreement entered into between itself and the Pulacayo
Ltda. Mining Cooperative on July 30, 2002 (the “ASC Joint Venture”). The ASC Joint
Venture has a term of 23 years which commenced the day the ASC
Joint Venture was entered into. Pursuant to the ASC Joint Venture,
ASC is committed to pay monthly rent of US$1,000 to the state-owned
Mining Corporation of Bolivia, COMIBOL
and US$1,500 monthly rent to the Pulacayo Ltda. Mining Cooperative
until the Pulacayo Project starts commercial
production.
14
SILVER ELEPHANT MINING CORP.
(formerly
Prophecy Development Corp.)
Notes
to the Condensed Interim Consolidated Financial
Statements
For the
three months ended March 31, 2020 and 2019
(Expressed
in Canadian Dollars) (Unaudited)
7.
MINERAL PROPERTIES
(cont’d...)
Pulacayo Paca Property, Bolivia
(cont’d...)
During
the year ended December 31, 2018, the Company determined there were
several indicators of potential impairment of the carrying value of
the Pulacayo Paca property. The indicators of potential impairment
were as follows:
(i)
change in the
Company’s primary focus to the Gibellini
Project;
(ii)
management’s
decision to suspend further exploration activities;
and
(iii)
no positive
decision from the Bolivian Government to grant mining production
contract to develop the project.
As
result, in accordance with IFRS 6,
Exploration for and Evaluation of Mineral Resources and IAS 36, Impairment of Assets, at
December 31, 2018, the Company assessed the recoverable amount of
the Pulacayo Paca property exploration costs and determined that
its value in use is $nil. As at December 31, 2018, the recoverable
amount of $nil resulted in an impairment charge of $13,708,200
against the value of the deferred exploration costs, which was
reflected on the consolidated statement of operations.
During
the year ended December 31, 2019, the Company assessed whether
there was any indication that the previously recognized impairment
loss in connection with the Pulacayo Paca property may no longer exist or may have decreased. The
Company noted the following indications that the impairment may no
longer exist:
●
The Company signed
a mining production contract granting the Company the 100%
exclusive right to develop and mine at the Pulacayo Paca
property;
●
The
Company renewed its exploration focus to develop the Pulacayo Paca
property in the current year;
●
The Company re-initiated active exploration and
drilling program on the property;
●
Completed a
positive final settlement of Bolivian tax dispute (note
27).
As the
Company identified indications that the impairment may no longer
exist, the Company completed an assessment to determine the
recoverable amount of the Pulacayo Paca property.
In
order to estimate the fair-value of the property the Company
engaged a third-party valuation consultant and also utilized level
3 inputs on the fair value hierarchy to estimate the recoverable
amount based on the property’s fair value less costs of
disposal determined with reference to dollars per unit of metal
in-situ.
With
reference to metal in-situ, the Company applied US$0.79 per ounce
of silver resource to its 36.8 million ounces of silver resources
and US$0.0136 per pound of zinc or lead in resource to its 303
million pounds of zinc and lead.
The
Company also considered data derived from properties similar to the
Pulacayo Paca Property. The data consisted of property transactions
and market valuations of companies holding comparable properties,
adjusted to reflect the possible impact of factors such as
location, political jurisdiction, commodity, geology,
mineralization, stage of exploration, resources, infrastructure and
property size.
As the
recoverable amount estimated with respect to the above was $31.4
million an impairment recovery of $13,708,200 was recorded during
the year ended December 31, 2019.
15
SILVER ELEPHANT MINING CORP.
(formerly
Prophecy Development Corp.)
Notes
to the Condensed Interim Consolidated Financial
Statements
For the
three months ended March 31, 2020 and 2019
(Expressed
in Canadian Dollars) (Unaudited)
7.
MINERAL PROPERTIES
(cont’d...)
Previously Impaired Properties
Chandgana Properties, Mongolia
In March 2006, the Company acquired a 100% interest in
the Chandgana Tal property, a coal exploration property consisting
of two exploration licenses located in the northeast part of the
Nyalga coal basin, approximately 290 kilometers east of
Ulaanbaatar, Mongolia. In March 2011, the Company obtained a mine
permit from Ministry of Mineral Resources and Energy for the
Chandgana Tal coal project.
In
2007, the Company acquired a 100% interest in the Chandgana
Khavtgai property, a coal exploration property consisting of one
license located in the northeast part of the Nyalga coal
basin.
During
the year ended December 31, 2017, the Company determined there were
several indicators of potential impairment of the carrying value of
the Chandgana Tal and Khavtgai Uul properties. As result, in
accordance with IFRS 6,
Exploration for and Evaluation of Mineral Resources and IAS 36, Impairment of Assets, at
December 31, 2017, the Company assessed the recoverable amount of
the Chandgana Properties deferred exploration costs and determined
that its value in use is $nil. As at December 31, 2017, the
recoverable amount of $nil resulted in an impairment charge of
$14,733,067 against the value of the deferred exploration costs,
which was reflected on the consolidated statement of operations. As
at and for the three months ended March 31, 2020 and as for years
ended December 31, 2019 and 2018, there were no changes to the
impairment assessment and accordingly all costs remain
impaired.
8.
ACCOUNTS
PAYABLE AND ACCRUED LIABILITIES
Accounts
payable and accrued liabilities of the Company consist of amounts
outstanding for trade and other purchases relating to development
and exploration, along with administrative activities. The usual
credit period taken for trade purchases is between 30 to 90
days.
|
|
March 31,
2020
|
December 31,
2019
|
|
Trade
accounts payable
|
$1,780,865
|
$2,420,392
|
|
Accrued
liabilities
|
75,000
|
-
|
|
Lease
liability
|
24,559
|
32,285
|
|
|
$1,880,424
|
$2,452,677
|
9.
LEASE
LIABILITY
As at
March 31, 2020, the Company recorded $45,092 of lease liability.
The incremental borrowing rate for lease liability initially
recognized as of January 1, 2019 was 10%. The Company does not face
a significant liquidity risk with regard to its lease liability.
Lease liability is monitored within the Company treasury function.
The non-current lease liability matures in 2021.
16
SILVER ELEPHANT MINING CORP.
(formerly
Prophecy Development Corp.)
Notes
to the Condensed Interim Consolidated Financial
Statements
For the
three months ended March 31, 2020 and 2019
(Expressed
in Canadian Dollars) (Unaudited)
9.
LEASE LIABILITY
(cont’d…)
|
IFRS
16 adoption as at January 1, 2019
|
$81,617
|
|
Cash
flows:
|
|
|
Lease
payments for year
|
(36,528)
|
|
Non-cash
changes:
|
|
|
Accretion
expenses for year
|
7,729
|
|
Balance
at December 31, 2019
|
$52,818
|
|
|
|
|
Cash
flows:
|
|
|
Lease
payments for perod
|
(9,146)
|
|
Non-cash
changes:
|
|
|
Accretion
expenses for period
|
1,420
|
|
Balance
at March 31, 2020
|
45,092
|
|
Current
lease liability
|
$24,559
|
|
Non-current
lease liability
|
20,533
|
|
Balance
at March 31, 2020
|
$45,092
|
10.
SHARE
CAPITAL
(a)
Authorized
The
authorized share capital consists of an unlimited number of common
shares without par value (the “Shares”). There are no authorized
preferred shares. At March 31, 2020, the Company had 122,915,508
(December 31, 2019 – 121,299,508) common shares issued and
outstanding.
(b)
Equity
issuances
During
the three months ended March 31, 2020, the Company issued 1,601,000
Shares with a value of $640,400 as a bonus payments to certain
directors, officers, employees, and consultants of the
Company.
During
the tree months ended March 31, 2020, the Company issued 15,000
Shares on the exercise of stock options for total proceeds of
$3,000.
On
September 6, 2019, the Company closed its non-brokered private
placement for $2,600,000 through the issuance of 13,000,0000 Shares
at a price of $0.20 per Share. The Company paid $15,209 and issued
525,000 Shares as a finder’s fee valued at $105,000. $175,000
of the private placement was for prepaid consulting fees for the
Company’s executive chairman, of which $35,000 is included in
prepaid expenses as at December 31, 2019 and $41,503 for services.
Included in accounts receivable as at December 31, 2019 is $30,497
of subscriptions receivable.
On October 18, 2019, the Company closed its non-brokered
private placement for gross proceeds of $3,900,000 through the
issuance of 9,750,000 Shares at a price of $0.40 per Share. Also,
the Company issued 654,500 Shares as a finder’s fee valued at
$261,800.
On
October 9, 2019, the Company issued 104,951 Shares with a value of
$43,030, to its directors to settle director fees debts owing to
them.
During
the year ended December 31, 2019, the Company issued 622,500 and
651,430 Shares on the exercise of stock options and warrants
respectively for total proceeds of $424,822.
17
SILVER ELEPHANT MINING CORP.
(formerly
Prophecy Development Corp.)
Notes
to the Condensed Interim Consolidated Financial
Statements
For the
three months ended March 31, 2020 and 2019
(Expressed
in Canadian Dollars) (Unaudited)
10. SHARE CAPITAL (cont’d…)
(c)
Equity-based
compensation plan
The
following is a summary of the changes in Company’s stock
options from December 31, 2018 to March 31, 2020:
|
|
Number of Options
|
Weighted Average Exercise Price
|
|
Outstanding,
December 31, 2018
|
9,591,000
|
$0.34
|
|
Granted
|
3,965,000
|
$0.31
|
|
Expired
|
(315,000)
|
$0.65
|
|
Cancelled
|
(2,247,000)
|
$0.32
|
|
Forfeited
|
(794,000)
|
$0.54
|
|
Exercised
|
(622,500)
|
$0.28
|
|
Outstanding,
December 31, 2019
|
9,577,500
|
$0.31
|
|
Granted
|
100,000
|
$0.41
|
|
Cancelled
|
(220,000)
|
$0.31
|
|
Exercised
|
(15,000)
|
$0.20
|
|
Outstanding,
March 31, 2020
|
9,442,500
|
$0.30
|
As
of March 31, 2020, the following Company’s stock options were
outstanding:
|
Exercise
|
|
Expiry
|
Options Outstanding
|
Exercisable
|
Unvested
|
|
|
Price
|
|
Date
|
March 31
|
December 31,
|
March 31
|
March 31
|
|
|
|
|
2020
|
2019
|
2020
|
2020
|
|
$0.41
|
|
January 6, 2025
|
100,000
|
-
|
12,500
|
87,500
|
|
$0.33
|
|
November 15, 2024
|
100,000
|
100,000
|
25,000
|
75,000
|
|
$0.00
|
|
November 1, 2024
|
1,600,000
|
1,610,000
|
400,000
|
1,200,000
|
|
$0.20
|
|
July 29, 2024
|
1,525,000
|
1,565,000
|
571,875
|
953,125
|
|
$0.00
|
|
April 1, 2024
|
500,000
|
500,000
|
250,000
|
250,000
|
|
$0.33
|
|
October 17, 2023
|
670,000
|
705,000
|
418,750
|
251,250
|
|
$0.22
|
|
July 23, 2023
|
400,000
|
400,000
|
300,000
|
100,000
|
|
$0.31
|
|
May 1, 2023
|
-
|
150,000
|
-
|
-
|
|
$0.28
|
|
April 6, 2023
|
862,500
|
862,500
|
754,688
|
107,813
|
|
$0.31
|
|
February 20, 2023
|
200,000
|
200,000
|
200,000
|
-
|
|
$0.35
|
|
September 1, 2022
|
980,000
|
980,000
|
980,000
|
-
|
|
$0.33
|
|
June 12, 2022
|
805,000
|
805,000
|
805,000
|
-
|
|
$0.49
|
|
January 12, 2022
|
620,000
|
620,000
|
620,000
|
-
|
|
$0.20
|
|
June 2, 2021
|
990,000
|
990,000
|
990,000
|
-
|
|
$0.50
|
|
June 22, 2020
|
30,000
|
30,000
|
30,000
|
-
|
|
$0.50
|
|
April 7, 2020
|
60,000
|
60,000
|
60,000
|
-
|
|
$0.65
|
|
May 1, 2019
|
-
|
-
|
-
|
-
|
|
|
|
|
9,442,500
|
9,577,500
|
6,417,813
|
3,024,688
|
18
SILVER ELEPHANT MINING CORP.
(formerly
Prophecy Development Corp.)
Notes
to the Condensed Interim Consolidated Financial
Statements
For the
three months ended March 31, 2020 and 2019
(Expressed
in Canadian Dollars) (Unaudited)
10. SHARE CAPITAL (cont’d…)
(c)
Equity-based
compensation plan (cont’d…)
Share-based
payment expenses resulting from stock options are amortized over
the corresponding vesting period. The three months ended March 31,
2020, included $203,191 (same period 2018 - $51,085) in share-based
payment costs related to stock options expensed as general and
administrative expenses and 5,087 (same period 2018 –
$61,571) capitalized to mineral properties. The share-based payment
expenses were calculated using the Black-Scholes option pricing
model and the following weighted average assumptions: risk-free
interest rate – 1.40; expected life – 4.3 years;
expected volatility – 130%; expected dividends –
Nil.
On July
29, 2019, the Company amended the exercise price of 794,000 stock
options that had previously been granted to certain directors,
officers, and employees with expiry dates on April 7, 2020, June
22, 2020, and November 14, 2023 by reducing the exercise prices
(which ranged from $0.50 to $0.65) to $0.20 per share subject to
TSX and shareholder approval. Also, the expiry dates of these
options were amended to July 29, 2024. The vesting schedule has not
been changed and it is a two-year whereby 12.5% per quarter
following the date of grant. As at December 31, 2019, the
re-issuing of these options had not been approved by the
shareholders; consequently, these options were not
valued.
As at
March 31, 2020, these amended options were ratified by the
Company’s shareholders at a special shareholder meeting held
on March 16, 2020. Consequently, the incremental fair value of
$53,111 of these options was determined using the Black-Scholes
option pricing model using the weighted average assumptions as
follows: risk free rate – 1.46%, expected life – 5
years, expected volatility - 134%, dividend yield – 0%, and a
stock price of $0.18.
(d)
Share purchase
warrants
The
following is a summary of the changes in the Company’s Share
purchase warrants from December 31, 2018 to March 31,
2020.
|
|
Number of Warrants
|
Weighted Average Exercise Price
|
|
Outstanding,
December 31, 2018
|
27,318,027
|
$0.44
|
|
Exercised
|
(651,430)
|
$0.38
|
|
Outstanding,
December 31, 2019
|
26,666,597
|
$0.44
|
|
Outstanding,
March 31, 2020
|
26,666,597
|
$0.44
|
At
March 31, 2020, there were 26,666,597 (December 31, 2019 –
26,666,597) warrants outstanding with a weighted-average exercise
price of $0.44 (December 31, 2009 - $0.44), as
follows:
19
SILVER ELEPHANT MINING CORP.
(formerly
Prophecy Development Corp.)
Notes
to the Condensed Interim Consolidated Financial
Statements
For the
three months ended March 31, 2020 and 2019
(Expressed
in Canadian Dollars) (Unaudited)
10. SHARE CAPITAL (cont’d…)
(c)
Equity-based
compensation plan (cont’d…)
|
|
|
Number
of warrants
|
|
|
Exercise
Price
|
Expiry
Date
|
at
March 31, 2020
|
at
December 31, 2019
|
|
$0.50
|
June
13, 2022
|
596,590
|
596,590
|
|
$0.50
|
April
12, 2022
|
1,032,500
|
1,032,500
|
|
$0.40
|
January
13, 2022
|
499,990
|
499,990
|
|
$0.44
|
August
29, 2021
|
1,013,670
|
1,013,670
|
|
$0.40
|
August
13, 2021
|
198,237
|
198,237
|
|
$0.40
|
July
6, 2021
|
3,863,180
|
3,863,180
|
|
$0.40
|
June
2, 2021
|
7,500,000
|
7,500,000
|
|
$0.50
|
February
15, 2021
|
500,000
|
500,000
|
|
$0.40
|
January
25, 2021
|
650,000
|
650,000
|
|
$0.40
|
December
18, 2020
|
211,250
|
211,250
|
|
$0.70
|
November
13, 2020
|
625,000
|
625,000
|
|
$0.40
|
October
16, 2020
|
2,533,020
|
2,533,020
|
|
$0.70
|
September
30, 2020
|
1,112,000
|
1,112,000
|
|
$0.40
|
September
20, 2020
|
3,983,490
|
3,983,490
|
|
$0.60
|
June
24, 2020
|
1,147,670
|
1,147,670
|
|
$0.50
|
May
22, 2020
|
1,200,000
|
1,200,000
|
|
|
26,666,597
|
26,666,597
|
|
11.
FAIR
VALUE MEASUREMENTS AND FINANCIAL INSTRUMENTS
Fair Value Measurements
Fair value hierarchy
Fair
value is the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market
participants at the measurement date. The fair value hierarchy
establishes three levels to classify the inputs to valuation
techniques used to measure fair value. Level 1 inputs are quoted
prices (unadjusted) in active markets for identical assets or
liabilities. Level 2 inputs are quoted prices in markets that are
not active, quoted prices for similar assets or liabilities in
active markets, inputs other than quoted prices that are observable
for the asset or liability (for example, interest rate and yield
curves observable at commonly quoted intervals, forward pricing
curves used to value currency and commodity contracts and
volatility measurements used to value option contracts), or inputs
that are derived principally from or corroborated by observable
market data or other means. Level 3 inputs are unobservable
(supported by little or no market activity). The fair value
hierarchy gives the highest priority to Level 1 inputs and the
lowest priority to Level 3 inputs. The Company utilizes a fair value
hierarchy that prioritizes the inputs to valuation techniques used
to measure fair value as follows:
Level 1
– quoted prices (unadjusted) in active markets for identical
assets or liabilities;
Level 2
– inputs are quoted prices in markets that are not active,
quoted prices for similar assets or liabilities in active markets,
inputs other than quoted prices that are observable for the asset
or liability (for example, interest rate and yield curves
observable at commonly quoted intervals, forward pricing curves
used to value currency and commodity contracts and volatility
measurements used to value option contracts), or inputs that are
derived principally from or corroborated by observable market data
or other means; and
20
SILVER ELEPHANT MINING CORP.
(formerly
Prophecy Development Corp.)
Notes
to the Condensed Interim Consolidated Financial
Statements
For the
three months ended March 31, 2020 and 2019
(Expressed
in Canadian Dollars) (Unaudited)
11.
FAIR VALUE MEASUREMENTS AND FINANCIAL
INSTRUMENTS (cont’d…)
Fair Value Measurements (cont’d…)
Fair value hierarchy (cont’d…)
Level 3
– inputs for the asset or liability that are not based on
observable market data (unobservable inputs).
The
fair value hierarchy gives the highest priority to Level 1 inputs
and the lowest priority to Level 3 inputs. The following table sets
forth Prophecy’s financial assets measured at fair value by
level within the fair value hierarchy.
|
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|
Financial
assets
|
|
|
|
|
|
Cash,
March 31, 2020
|
$930,856
|
$-
|
$-
|
$930,856
|
|
Cash,
December 31, 2019
|
$3,017,704
|
$-
|
$-
|
$3,017,704
|
Categories of financial instruments
The
fair values of financial assets and financial liabilities
approximate their carrying amounts in the condensed interim
consolidated balance sheet. The Company does not offset financial
assets with financial liabilities. There were no changes to the
method of fair value measurement during the period. The
Company’s financial assets and financial liabilities are
categorized as follows:
Categories of financial instruments
|
|
March
31,
2020
|
December
31,
2019
|
|
Fair
value through profit or loss
|
|
|
|
Cash
|
$930,856
|
$3,017,704
|
|
Fair
value through other comprehensive income
|
|
|
|
Marketable
securities
|
$-
|
$-
|
|
Amortized
cost
|
|
|
|
Receivables
|
$221,537
|
$246,671
|
|
Restricted
cash equivalents
|
$34,500
|
$34,500
|
|
|
$1,186,893
|
$3,298,875
|
|
Amortized
cost
|
|
|
|
Accounts payable
and accrued liabilities
|
$1,855,865
|
$2,420,392
|
|
Lease
liability
|
$24,559
|
$32,285
|
|
|
$1,880,424
|
$2,420,392
|
12.
FINANCIAL
RISK MANAGEMENT DISCLOSURES
(a)
Liquidity
risk
Liquidity risk is
the risk that an entity will be unable to meet its financial
obligations as they fall due. The Company manages liquidity risk by
preparing cash flow forecasts of upcoming cash requirements. As at
March 31, 2020, the Company had a cash balance of $930,856
(December 31, 2019 – $3,017,704). As at March 31, 2020,
the Company had accounts payable and accrued liabilities of
$1,855,865 (December 31, 2019 - $2,420,392), which have
contractual maturities of 90 days or less.
21
SILVER ELEPHANT MINING CORP.
(formerly
Prophecy Development Corp.)
Notes
to the Condensed Interim Consolidated Financial
Statements
For the
three months ended March 31, 2020 and 2019
(Expressed
in Canadian Dollars) (Unaudited)
12.
FINANCIAL RISK MANAGEMENT DISCLOSURES
(cont’d…)
(b)
Credit risk
(cont’d…)
Credit risk is the
risk that one party to a financial instrument will fail to
discharge an obligation and cause the other party to incur a
financial loss. The Company is exposed to credit risk primarily
associated to cash and restricted cash equivalents and
receivables, net of allowances. Management believes that the credit
risk concentration with respect to these financial instruments is
remote as the balances primarily consist of amounts
on
deposit with a major financial institution and amounts receivable
from the Government of Canada. The carrying amount of assets
included on the statements of financial position represents the
maximum credit exposure.
(c)
Market
risk
The
significant market risks to which the Company is exposed are
interest rate risk, foreign currency risk, and commodity and equity
price risk. The objective of market risk management is to manage
and control market risk exposures within acceptable limits, while
maximizing returns.
(i)
Interest rate
risk
Interest rate risk
is the risk that the fair value or future cash flows of a financial
instrument will fluctuate due to changes in market interest rates.
The Company’s cash and restricted cash equivalents primarily
include highly liquid investments that earn interest at market
rates that are fixed to maturity. Due to the short‐ term nature of these
financial instruments, fluctuations in market rates do not have
significant impact on the fair values of the financial instruments
as of March 31, 2020.
(ii)
Foreign currency
risk
The
Company is exposed to foreign currency risk to the extent that
monetary assets and liabilities held by the Company are not
denominated in Canadian dollars.
The
Company has exploration and development projects in the United
States, Mongolia and Bolivia and undertakes transactions in various
foreign currencies. The Company is therefore exposed to foreign
currency risk arising from transactions denominated in a foreign
currency and the translation of financial instruments denominated
in US dollars, Mongolian tugrik, and Bolivian boliviano into its
functional and reporting currency, the Canadian
dollar.
Based
on the above, net exposures as at March 31, 2020, with other
variables unchanged, a 10% (December 31, 2018 – 10%)
strengthening (weakening) of the Canadian dollar against the
Mongolian tugrik would impact net loss with other variables
unchanged by $28,000. A 10% strengthening (weakening) of the
Canadian dollar against the Bolivian boliviano would impact net
loss with other variables unchanged by $42,000. A 10% strengthening
(weakening) of the US dollar against the Canadian dollar would
impact net loss with other variables unchanged by $32,000. The
Company currently does not use any foreign exchange contracts to
hedge this currency risk.
(iii)
Commodity and
equity price risk
Commodity price
risk is defined as the potential adverse impact on earnings and
economic value due to commodity price movements and volatilities.
Commodity prices fluctuate on a daily basis and are affected by
numerous factors beyond the Company’s control. The supply and
demand for these commodities, the level of interest rates, the rate
of inflation, investment decisions by large holders of commodities
including governmental reserves and stability of exchange rates can
all cause significant fluctuations in prices. Such external
economic factors are in turn influenced by changes in international
investment patterns and monetary systems and political
developments.
22
SILVER ELEPHANT MINING CORP.
(formerly
Prophecy Development Corp.)
Notes
to the Condensed Interim Consolidated Financial
Statements
For the
three months ended March 31, 2020 and 2019
(Expressed
in Canadian Dollars) (Unaudited)
12.
FINANCIAL RISK MANAGEMENT DISCLOSURES
(cont’d…)
(c)
Market risk
(cont’d…)
(iii)
Commodity and
equity price risk (cont’d…)
The
Company is also exposed to price risk with regards to equity
prices. Equity price risk is defined as the potential adverse
impact on the Company’s earnings due to movements in
individual equity prices or general movements in the level of the
stock market.
The
Company closely monitors commodity prices, individual equity
movements and the stock market to determine the appropriate course
of action to be taken by the Company. Fluctuations in value may be
significant.
13.
RELATED
PARTY DISCLOSURES
The
Company had related party transactions with the following
companies, related by way of directors and key management
personnel:
●
Linx Partners Ltd.,
a private company controlled by John Lee, Director, CEO and
Executive Chairman of Prophecy, provides management and consulting
services to the Company.
●
MaKevCo Consulting
Inc., a private company 50% owned by Greg Hall, Director of the
Company, provides consulting services to the Company.
●
Sophir Asia Ltd., a
private company controlled by Masa Igata, Director of the Company,
provides consulting services to the Company.
A
summary of amounts paid or accrued to related parties is as
follows:
|
|
Three Months Ended March 31,
|
|
|
Related
parties
|
2020
|
2019
|
|
Directors
and officers
|
$641,035
|
$467,463
|
|
Linx
Partners Ltd.
|
105,000
|
84,000
|
|
MaKevCo
Consulting Inc.
|
11,500
|
5,700
|
|
Sophir
Asia Ltd.
|
10,900
|
5,400
|
|
|
$768,435
|
$562,563
|
A
summary of the transactions by nature among the related parties is
as follows:
|
|
Three Months Ended March 31,
|
|
|
Related
parties
|
2020
|
2019
|
|
Consulting
and management fees
|
$52,500
|
$106,950
|
|
Directors'
fees
|
43,200
|
22,500
|
|
Mineral
properties
|
493,585
|
175,910
|
|
Salaries
|
179,149
|
257,203
|
|
|
$768,435
|
$562,563
|
As at
March 31, 2019, amounts due to related parties totaled $37,813
(December 31, 2019 – $30,533).
23
SILVER ELEPHANT MINING CORP.
(formerly
Prophecy Development Corp.)
Notes
to the Condensed Interim Consolidated Financial
Statements
For the
three months ended March 31, 2020 and 2019
(Expressed
in Canadian Dollars) (Unaudited)
14.
KEY
MANAGEMENT PERSONNEL COMPENSATION
Key
management personnel are those persons having authority and
responsibility for planning, directing and controlling the
activities of the Company, including directors of the
Company.
|
|
Three Months Ended March 31,
|
|
|
Key
Management Personnel
|
2020
|
2018
|
|
Salaries
and short term benefits
|
$206,313
|
$289,919
|
|
Directors'
fees
|
43,200
|
22,500
|
|
Share-based
payments
|
138,410
|
121,096
|
|
|
$387,924
|
$433,515
|
15.
SUPPLEMENTAL
CASH FLOW INFORMATION
|
|
Three months ended March 31
|
|
|
|
2020
|
2019
|
|
Supplementary
information
|
|
|
|
Non-Cash Financing
and Investing Activities
|
|
|
|
Bonus
shares
|
$640,400
|
$-
|
|
Depreciation
included in mineral property
|
$18,617
|
$9,621
|
|
Equipment
expenditures included in accounts payable
|
$481,711
|
$489,890
|
|
Mineral property
expenditures included in accounts payable
|
$1,105,991
|
$1,505,207
|
|
Share-based
payments capitalized in mineral properties
|
$5,088
|
$61,572
|
16.
CONTINGENCIES
ASC tax claim
On
January 2, 2015, the Company acquired ASC Holdings Limited and ASC
Bolivia LDC (which together, hold ASC Bolivia LDC Sucursal Bolivia,
which in turn, held Apogee Silver Ltd.’s (“Apogee”) joint venture interest in
the Pulacayo Project) and Apogee Minerals Bolivia S.A. Pursuant to
the terms of the Agreement, the Company agreed to assume all
liabilities of these former Apogee subsidiaries, including legal
and tax liabilities associated with the Pulacayo Project.
During Apogee’s financial year ended June 30, 2014, it
received notice from the Servicio de Impuestos Nacionales, the
national tax authority in Bolivia, that ASC Bolivia LDC Sucursal
Bolivia, now the Company’s wholly-owned subsidiary, owed
approximately Bs42,000,000 in taxes, interest and penalties
relating to a historical tax liability in an amount originally
assessed at approximately $760,000 in 2004, prior to Apogee
acquiring the subsidiary in 2011.
Apogee
disputed the assessment and disclosed to the Company that it
believed the notice was improperly issued. The Company
continued to dispute the assessment and hired local legal counsel
to pursue an appeal of the tax authority’s assessment on both
substantive and procedural grounds. The Company received a positive
Resolution issued by the Bolivian Constitutional Court that
among other things, declared null and void the
previous
Resolution
of the Bolivian Supreme Court issued in 2011 (that imposed the tax
liability on ASC Bolivia LDC Sucursal Bolivia) and sent the matter
back to the Supreme court to consider and issue a new
resolution.
24
SILVER ELEPHANT MINING CORP.
(formerly
Prophecy Development Corp.)
Notes
to the Condensed Interim Consolidated Financial
Statements
For the
three months ended March 31, 2020 and 2019
(Expressed
in Canadian Dollars) (Unaudited)
16.
CONTINGENCIES
(cont’d...)
ASC tax claim (cont’d...)
On November 18, 2019 the Company received Resolution No. 195/2018
issued by the Supreme Court of Bolivia which declared the tax claim
brought by Bolivia’s General Revenue Authority against the
Company’s Bolivian subsidiary as not
proven.
The Resolution is final and binding. Hence neither the Company nor
the Company’s Bolivian subsidiaries owe any outstanding back
taxes to the Bolivian General Revenue Authority.
During
the year ended December 31, 2019, the Company and legal counsel
reassessed the status of tax rulings and determined that the
probability of a re-issuance of a tax claim against the Company in
connection with the above was remote. As a result, the Company has
written off the tax liability and recorded a debt settlement gain
in the amount of $7,952,700 on its consolidated statements of
operations and comprehensive loss.
Red Hill tax claim
During
the year ended December 31, 2014, the Company’s wholly-owned
subsidiary, Red Hill Mongolia LLC (“Red Hill”) was issued a letter
from the Sukhbaatar District Tax Division notifying it of the
results of the Sukhbaatar District Tax Division’s VAT
inspection of Red Hill’s 2009-2013 tax imposition and
payments that resulted in validating VAT credits of only
MNT235,718,533 from Red Hill’s claimed VAT credit of
MNT2,654,175,507. Red Hill disagreed with the Sukhbaatar District
Tax Division’s findings as the tax assessment appeared to the
Company to be unfounded. The Company disputed the Sukhbaatar
District Tax Division’s assessment and submitted a complaint
to the Capital City Tax Tribunal. On March 24, 2015, the
Capital City Tax Tribunal resolved to refer the matter back to the
Sukhbaatar District Tax Division for revision and separation of the
action between confirmation of Red Hill’s VAT credit, and the
imposition of the penalty/deduction for the tax assessment. Due to
the uncertainty of realizing the VAT balance, the Company has
recorded an impairment charge for the full VAT balance in the year
ended December 31, 2015.
In
June 2019, the Company received a
positive resolution issued from the City tax tribunal regarding the
Company’s VAT dispute with the Mongolia tax office. The
resolution, which is binding and final, affirmed Red Hill’s
outstanding VAT credit of 1.169 billion MNT resulted from past
mining equipment purchases.
The VAT credit can be used to offset Red Hill’s taxes and
royalty payments; or be refunded in cash by Mongolia’s
Ministry of Finance within 12 to 24 months processing time.
Due to the credit risk associated with the VAT credit, the Company
has provided a full valuation provision against the
balance.
17.
EVENTS
AFTER THE REPORTING DATE
The
following events occurred subsequent to March 31,
2020:
On May
1, 2020, the Company closed the first tranche of the non-brokered
private placement (the “Placement”) announced on April 15,
2020. The first tranche raised gross proceeds of $1,330,940 through
the issuance of 10,238,000 units (the “Units”) of the
Company of $0.13 per Unit. Each Unit is comprised of one Share and
one Share purchase warrant (the “Warrants”). Each
Warrant entitles the holder to purchase an additional Share of the
Company at an exercise price of $0.16 for a period of three years
from the closing of the first tranche of the Placement. The Company
paid $3,250 in cash and issued 156,900 Units as finder’s fee.
The Placement proceeds are expected to be used for the
Company’s mineral project development and for general working
capital purposes.
25
Exhibit 99.2
(Formerly
“Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the three months ended March 31, 2020
(Expressed
in Canadian Dollars, except where indicated)
SILVER ELEPHANT MINING CORP.
(formerly
“Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the three months ended March 31, 2020
(Expressed
in Canadian Dollars, except where indicated)
TABLE OF CONTENTS
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1
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INTRODUCTION
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3
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2
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
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4
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3
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FIRST QUARTER HIGHLIGHTS AND SIGNIFICANT EVENTS
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6
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4
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PROPERTY SUMMARY
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8
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5
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SUMMARY OF QUARTERLY RESULTS
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40
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6
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DISCUSSION OF OPERATIONS
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40
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7
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PROPOSED TRANSACTIONS
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41
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8
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LIQUIDITY AND CAPITAL RESOURCES
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42
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9
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CONTINGENCIES
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44
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10
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RELATED PARTY DISCLOSURES
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45
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11
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CRITICAL ACCOUNTING POLICIES AND ESTIMATES
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45
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12
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FINANCIAL INSTRUMENTS AND RELATED RISKS
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48
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13
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RISKS AND UNCERTAINTIES
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50
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14
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DISCLOSURE CONTROLS AND PROCEDURES
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51
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15
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CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
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51
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16
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DISCLOSURE OF OUTSTANDING SHARE DATA
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52
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17
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OFF-BALANCE SHEET ARRANGEMENTS
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52
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2
SILVER ELEPHANT MINING CORP.
(formerly
“Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the three months ended March 31, 2020
(Expressed
in Canadian Dollars, except where indicated)
1.
INTRODUCTION
This
Management’s Discussion and Analysis (“MD&A”) of Silver Elephant
Mining Corp. (formerly “Prophecy
Development Corp.”) and its subsidiaries (the
“Company”) was
prepared by management as at May 15, 2020 and was reviewed,
approved, and authorized
for
issue by the Company’s Audit Committee. The following
discussion of performance, financial condition and future prospects
should be read in conjunction with the unaudited condensed interim
consolidated financial statements of the Company and notes thereto
for the three months ended March 31, 2020 prepared in accordance
with International Financial Reporting Standards
(“IFRS”),
applicable to the preparation of interim financial statements,
including International Accounting Standard (“IAS”) 34 Interim Financial
Reporting, as issued by the International Accounting Standards
Board. This MD&A should be read also in conjunction with both
the audited annual consolidated financial statements for the year
ended December 31, 2019 (prepared in accordance with IFRS)
(“Annual
Financial Statements”) and the related annual MD&A
(“Annual
MD&A”) dated March 30, 2020, and the 2019 Annual
Report (“Form
20-F”), all of which are available under the
Company’s SEDAR profile at www.sedar.com.
The information provided herein supplements but does not form part
of the financial statements. Financial information is expressed
in Canadian Dollars, unless stated otherwise. Readers are cautioned
that this MD&A contains “forward-looking
statements” and that actual events may vary from
management’s expectations. Readers are encouraged to read the
cautionary note contained herein regarding such forward-looking
statements. Information on
risks associated with investing in the Company’s securities
as well as information about mineral resources and reserves under
National Instrument 43-101 – Standards of Disclosure for
Mineral Projects (“NI 43-101”) are contained in the Company’s most
recently filed Form 20-F which is available on the Company’s
website at www.silverelef.com and
on SEDAR at www.sedar.com and
on Edgar at www.sec.gov.
The Company amalgamated under the laws of the Province of British
Columbia, Canada. The Company’s Common Shares (the
“Shares”, and each, a “Share”) are listed for trading on the Toronto
Stock Exchange (the “TSX”) under the symbol “ELEF”, the
OTCQX under the symbol “SILEF” and the Frankfurt
Stock Exchange under the symbol “1P2N”.
The
Company is an exploration stage company specializing in mine
permitting, construction, and operations. The Company holds a
mining joint venture interest in the Pulacayo Paca silver-lead-zinc
property located in Bolivia (the “Pulacayo Project”). The Company
also has a 100% interest in two vanadium projects in North America
including the Gibellini vanadium project which is comprised of the
Gibellini and Louie Hill vanadium deposits and associated claims
located in the State of Nevada, USA (the “Gibellini Project”) and the Titan
vanadium-titanium-iron project comprised of the Titan
vanadium-titanium-iron deposit and related claims located in the
Province of Ontario, Canada (the “Titan Project). The Company also own a
100% interest in three coal properties in Mongolia which are the
Ulaan Ovoo property, the Khavtgai Uul property and the Chandgana
Tal property. In addition, the Company also has the land use right
and construction license for the Chandgana power plant
project.
The
Company’s business strategy focus is to develop the Pulacayo
Project and make the Company’s Gibellini Project the first
operating primary vanadium mine in North America. The vanadium
resources are part of a portfolio of projects the Company is
building, through their diversity of locations, commodities and
products, reducing the Company’s exposure to adverse
regulation and political climates and changes in specific commodity
prices.
A
diverse portfolio of projects from which a variety of minerals are
mined and sold provides multiple opportunities to maintain revenue
and is one facet of the Company’s efforts to attain the
Company’s ultimate objective of stable positive cash
flow.
3
SILVER ELEPHANT MINING CORP.
(formerly
“Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the three months ended March 31, 2020
(Expressed
in Canadian Dollars, except where indicated)
General Corporate Information:
|
At
March 31, 2020 and May 15, 2020, the Company had : (i) 122,299,508
and 133,310,408 Shares issued and outstanding respectively; (ii)
9,442,500 and 12,382,500 stock options for Shares outstanding
respectively; (iii) 26,666,597 and 37,061,497 Share purchase
warrants for Shares outstanding respectively.
|
Transfer Agent and Registrar
Computershare
Investor Services Inc.
3rd Floor, 510 Burrard
Street,
Vancouver, BC,
Canada, V6C 3B9
Tel: +1
(604) 661-9400
|
|
|
|
|
Investor and Contact Information
All
financial reports, news releases and corporate information can be
accessed by visiting the Company’s website at:
www.silverelef.com
Investor &
Media requests and queries:
Email:
ir@silverelef.com
|
Head Office and Registered Office
Suite
1610 - 409 Granville Street,
Vancouver, BC,
Canada, V6C 1T2
Tel: +1
(604) 569-3661
|
Directors and Officers
As at
the date of this MD&A, The Company’s directors and
officers were as follows:
|
Directors
|
Officers
|
|
John
Lee, Executive Chairman
|
Michael
Doolin, Chief Executive Officer & Chief Operating
Officer
|
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Greg
Hall
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Irina
Plavutska, Chief Financial Officer
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|
Masa
Igata
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Ronald
Espell, Vice-President, Environment and Sustainability
|
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Marc
Leduc
|
Danniel
Oosterman, Vice-President, Exploration
|
|
Ronald
Clayton
|
Joaquin
Merino-Marquez, Vice-President, South American
Operations
|
|
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Brigitte
McArthur, Corporate Secretary
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Audit Committee
|
Corporate Governance and Compensation Committee
|
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Greg
Hall (Chair)
|
Greg
Hall (Chair)
|
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Masa
Igata
|
Masa
Igata
|
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Marc
Leduc
|
Marc
Leduc
|
Qualified Persons
Danniel
Oosterman, B.Sc.(Hons), P.Geo., is a “qualified person”
as defined under NI 43-101. Mr. Oosterman serves as the
Company’s Vice-President, Exploration and qualified person.
He is not considered independent of the Company given the large
extent that his professional time is dedicated solely to the
Company. Mr. Oosterman has reviewed and approved the technical and
scientific disclosure regarding the mineral properties of the
Company contained in this MD&A.
2.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This MD&A contains” forward-looking information”
and “forward-looking statements” within the meaning of
applicable Canadian securities legislation concerning anticipated
developments in the Company’s continuing and future
operations in the United States, Canada, Bolivia and Mongolia, and
the adequacy of the Company’s financial resources and
financial projections. Such forward-looking statements include but
are not limited to statements regarding the permitting,
feasibility, plans for development of the Gibellini Project;
development of the Titan Project; development of the Pulacayo
project; development and production of electricity from the
Company’s Chandgana power plant, including finalizing of any
power purchase agreement; the likelihood of securing project
financing; estimated future coal production at the Chandgana
project; and coal production at the Ulaan Ovoo coal property and
the Chandgana project, and other information concerning possible or
assumed future results of operations of the Company. See in
particular, Section 4 – Property Summary.
4
SILVER ELEPHANT MINING CORP.
(formerly
“Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the three months ended March 31, 2020
(Expressed
in Canadian Dollars, except where indicated)
Forward-looking statements in this document are frequently
identified by words such as “expects”,
“anticipates”, “intends”,
“plans”, “believes”,
“estimates”, “potentially” or similar
expressions, or statements that events, conditions or results
“will”, “may”, “would”,
“could”, “should” occur or are “to
be” achieved, and statements related to matters which are not
historical facts. Information concerning management’s
expectations regarding the Company’s future growth, results
of operations, performance, business prospects and opportunities
may also be deemed to be forward-looking statements, as such
information constitutes predictions based on certain factors,
estimates and assumptions subject to significant business,
economic, competitive and other uncertainties and contingencies,
and involve known and unknown risks which may cause the actual
results, performance, or achievements to be different from future
results, performance, or achievements contained in such
forward-looking statements made by the Company.
In making the forward-looking statements in this MD&A, the
Company has made several assumptions that it believes are
appropriate, including, but not limited to assumptions that: all
required third party contractual, regulatory and governmental
approvals will be obtained for the development, construction and
production of the Company’s properties and the Chandgana
power plant; there being no significant disruptions affecting
operations, whether due to labour disruptions or other causes;
currency exchange rates being approximately consistent with current
levels; certain price assumptions for vanadium, silver, other
metals and coal, prices for and availability of fuel, parts and
equipment and other key supplies remain consistent with current
levels; production forecasts meeting expectations; the accuracy of
the Company’s current mineral resource estimates; labour and
materials costs increasing on a basis consistent with the
Company’s current expectations; and any additional required
financing will be available on reasonable terms; market
developments and trends in global supply and demand for vanadium,
silver, other metals, coal and energy meeting expectations. The
Company cannot assure you that any of these assumptions will prove
to be correct.
Numerous factors could cause the Company’s actual results to
differ materially from those expressed or implied in the
forward-looking statements, including the following risks and
uncertainties, which are discussed in greater detail under the
heading “Risks and Uncertainties” in this MD&A and
“Risk Factors” in the Company’s most recent AR as
filed under
the Company’s SEDAR profile at www.SEDAR.com and
posted on the Company’s website: the Company’s history of net losses
and lack of foreseeable positive cash flow; exploration,
development and production risks, including risks related to the
development of the Company’s mineral properties; the Company
not having a history of profitable mineral production; commencing
mine development without a feasibility study; the uncertainty of
mineral resource and mineral reserve estimates; the capital and
operating costs required to bring the Company’s projects into
production and the resulting economic returns from its projects;
foreign operations and political conditions, including the legal
and political risks of operating in Bolivia and Mongolia, which are
developing countries and being subject to their local laws; the
availability and timeliness of various government approvals,
permits and licenses; the feasibility, funding and development of
the Company’s projects; protecting title to the
Company’s mineral properties; environmental risks; the
competitive nature of the mining business; lack of infrastructure;
the Company’s reliance on key personnel; uninsured risks;
commodity price fluctuations; reliance on contractors; the
Company’s need for substantial additional funding and the
risk of not securing such funding on reasonable terms or at all;
foreign exchange risk; anti-corruption legislation; recent global
financial conditions; the payment of dividends; the inability of
insurance to cover all potential risks associated with mining
operations; conflicts of interest; reliance on information systems
with exposure to cyber-security risks, and global outbreaks,
including the COVID-19 pandemic; the impact of COVID-19
on our workforce, suppliers and other essential resources and what
effect those impacts, if they occur, would have on our
business.
Factors that could cause actual results to differ materially from
those in forward-looking statements include potential impacts of
COVID-19 on the Company’s operations, ability to obtain
required third party approvals, market prices, exploitation and
exploration results, continued availability of capital and
financing and general economic, market or business
conditions
In light of the risks and uncertainties inherent in all
forward-looking statements, the inclusion or incorporation by
reference of forward-looking statements in this MD&A should not
be considered as a representation by the Company or any other
person that the Company’s objectives or plans will be
achieved.
5
SILVER ELEPHANT MINING CORP.
(formerly
“Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the three months ended March 31, 2020
(Expressed
in Canadian Dollars, except where indicated)
These factors should be considered carefully, and readers should
not place undue reliance on the Company’s forward-looking
statements. The Company believes that the expectations reflected in
the forward-looking statements contained in this MD&A and the
documents incorporated by reference herein are reasonable, but no
assurance can be given that these expectations will prove to be
correct. In addition, although the Company has attempted to
identify important factors that could cause actual actions, events
or results to differ materially from those described in
forward-looking statements, there may be other factors that cause
actions, events or results not to be as anticipated, estimated or
intended. The Company undertakes no obligation to publicly update
any future revisions to forward-looking statements to reflect
events or circumstances after the date of this MD&A or to
reflect the occurrence of unanticipated events, except as expressly
required by law.
3.
FIRST QUARTER HIGHLIGHTS AND SIGNIFICANT EVENTS
●
On January 6, 2020
Silver Elephant Mining Corp., a wholly owned subsidiary of the
Company, changed its name to Illumina Silver Mining
Corp.
●
On January 8, 2020,
the Company announced the following:
●
a special meeting
(the “Special Meeting”) of the shareholders to be held
on March 16, 2020 to seek shareholder approval the
following:
●
changing the name
of The Company Development Corp. to Silver Elephant Mining Corp.
(the "Name Change");
●
to consolidate the
Company’s issued and outstanding shares at a ratio between
one (1) new Common Share for every five (5) to ten (10) old Common
Shares (the “2020 Consolidation”).
●
The effective date
of the Name Change and the 2020 Consolidation would be determined
at a later date by the Board of the Company;
●
proposed new symbol
of “ELEF” for the trading of the Company’s Common
Shares on the Toronto Stock Exchange (“TSX”);
and
●
ratification of
1,275,000 stock options previously granted to certain directors,
officers, employees and consultants of the Company on July 29, 2019
pursuant to the terms of the Company’s Share-Based
Compensation Plan.
●
the engagement of
Ken Cotiamco to provide investor relations and shareholder
communications services effective January 6, 2020. The Company
further announced that Ken Cotiamco entered into a consulting
agreement whereby Ken Cotiamco would receive from the Company
renumeration of $4,000 per month for a term of three months, which
could be extended and also pursuant to the consulting agreement the
Company granted 100,000 incentive stock options at a price of $0.41
per Share for a term of five years expiring on January 6,
2025;
●
pursuant to the
Company’s Share-Based Compensation Plan, the issuance of an
aggregate of 1,601,000 Shares (subject to a minimum hold period of
four months plus one date from the date of issuance) as 2019 bonus
payments to certain directors, officers, employees and consultants
of the Company;
●
that further to the
Company’s news release dated December 18, 2019, the Company
had completed the first of 3 holes of the planned 17 drill holes at
the Pulacayo Project; and
●
the Company had
mobilized a second drilling rig to the Pulacayo Project and expects
to complete the proposed 5,000 meter drill program in February 2020
with full assay results by March 2020;
●
the Company
announced the first step-out diamond
drilling results from the Pulacayo property. Borehole PUD 267
intercepted 10 meters of mineralization grading 147 g/t silver,
9.8% zinc, and 2.0% lead (539 g/t AgEq) within 35.5 meter
mineralization grading 230 g/t AgEq starting 31.5 meters
downhole;
●
the Company
released the results of its first
2,598 meters of drilling which focused on the western portion of
the Pulacayo property;
●
the
Company announced a commencement district exploration program at
the Pulacayo Project. The exploration team will be conducting
geological mapping, with relevant sampling and possible trenching
on the property. Induced polarization geophysics will be conducted
in tandem with the field program, with 106 line-kilometers of
survey having been outlined. The program is expected to be
completed by June 2020, when the results will have been evaluated.
The intention is to then generate drilling targets in the
district.
6
SILVER ELEPHANT MINING CORP.
(formerly
“Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the three months ended March 31, 2020
(Expressed
in Canadian Dollars, except where indicated)
●
On March 16, 2020,
the Company held its Special Meeting of Shareholders. The Company
received shareholder approval of the following:
➢
changing its name
to Silver Elephant Mining Corp.;
➢
consolidation of
the Company’s issued and outstanding shares at a ratio
between one (1) new Common Share for every five (5) to ten (10) old
Common Shares (the “2020 Consolidation”). The effective
date of the Name Change and the 2020 Consolidation would be
determined at a later date by the Board of the Company;
and
➢
ratification of
1,275,000 stock options previously granted to certain directors,
officers, employees and consultants of the Company on July 29, 2019
pursuant to the terms of the Company’s Share-Based
Compensation Plan.
●
On March16, 2020,
the Company amended its Articles and changed its name to
“Silver Elephant Mining Corp.”
●
On March 19, 2020,
the Company changed its’ symbol on the TSX from PCY to
“ELEF”.
●
On March 23, 2020,
the Company changed its’ symbol on the OTCQX from PRPCF to
“SILEF”.
●
In
March 2020 the World Health Organization declared coronavirus
COVID-19 a global pandemic. This contagious disease outbreak, which
has continued to spread, and any related adverse public health
developments, has adversely affected workforces, economies, and
financial markets globally, potentially leading to an economic
downturn. It is not possible for the Company to predict the
duration or magnitude of the adverse results of the outbreak and
its effects on the Company’s business or results of
operations at this time.
The
Company is implementing extensive preventative measures across its
offices and operations in order to safeguard the health of its
employees, while continuing to operate safely and responsibly
maintain employment and economic activity. All Silver Elephant
Mining Corp. corporate offices have been closed and remote work
implemented for all employees able to do so. Other measures being
put into place at the Company’s operations
include:
●
Reducing
or eliminating in person meetings and other large
gatherings;
●
Enhanced
cleaning and disinfecting protocols, including frequent
disinfecting of employee work areas;
●
Promoting
personal preventative measures, such as frequent
handwashing;
●
Screening
all contractors and external visitors to site for risk factors and
symptoms;
●
Increasing
social distancing practices at site, such as cancelling large group
meetings; changing meetings from in-person to electronic,
e.g.;
●
Requiring
employees who show symptoms or are in close contact with someone
with symptoms to stay home from work;
●
Requiring
employees returning from travel outside of Canada to self-isolate;
and
●
Reducing
the number of on-site staff as much as possible; implementing work
from home where feasible.
Subsequent to period end
On May
1, 2020, the Company closed the first tranche of the non-brokered
private placement (the “Placement”) announced on April 15,
2020. The first tranche raised gross proceeds of $1,330,940 through
the issuance of 10,238,000 units (the “Units”) of the
Company of $0.13 per Unit. Each Unit is comprised of one Share and
one Share purchase warrant (the “Warrants”). Each
Warrant entitles the holder to purchase an additional Share of the
Company at an exercise price of $0.16 for a period of three years
from the closing of the first tranche of the Placement. The Company
paid $3,250 in cash and issued 156,900 Units as finder’s fee.
The Placement proceeds are expected to be used for the
Company’s mineral project development and for general working
capital purposes.
For
further information please view the Company’s 2020 news
releases under the Company’s SEDAR profile at www.sedar.com.
7
SILVER ELEPHANT MINING CORP.
(formerly
“Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the three months ended March 31, 2020
(Expressed
in Canadian Dollars, except where indicated)
4.
PROPERTY SUMMARY
Gibellini Project, Nevada, USA
The
Company’s principal asset is its interest in the Gibellini
Project. The Company holds a 100% interest in the properties by way
of a lease agreement and staked claims. Claims are in the name of
the Company’s indirect, wholly-owned Nevada subsidiaries, VC
Exploration (US), Inc. (“VC
Exploration”) and Nevada Vanadium, LLC
(“Nevada
Vanadium”).
The Gibellini Project consists of a total of 354 unpatented lode
mining claims that include: the Gibellini group of 40 claims, the
VC Exploration group of 105 claims, and the Company group of 209
claims. The Gibellini group of claims is referred to by the Company
as a “project”. All the claims are located in
Eureka County, Nevada, approximately 25 miles south of the town of
Eureka and are easily accessed from US Highway 50 to a paved road
that becomes a graded, gravel road.
 |
|
The
Gibellini Project is situated on the south flank of the Fish Creek
Range in the Fish Creek Mining District, about 25 miles south of
Eureka, Nevada and is accessed by dirt road extending westward from
State Route 379.
The
Gibellini group of claims were acquired on June 22, 2017, through
lease from the claimant and current holder of the Gibellini mineral
claims (the “Gibellini
Lessor”) and includes an area of approximately 771
acres. Under the Gibellini mineral lease agreement dated June 22,
2017 (the “Gibellini
MLA”), The Company leased the Gibellini group of
claims which originally constituted the Gibellini Project by among
other things, agreeing to pay to the Gibellini Lessor, annual
advance royalty payments which will be tied, based on an agreed
formula (not to exceed USD$120,000 per year), to the average
vanadium pentoxide price of the prior year. Upon commencement of
production, The Company will maintain its acquisition through lease
of the Gibellini group of claims by paying to the Gibellini Lessor,
a 2.5% NSR until a total of USD$3 million is paid. Thereafter, the
NSR will be reduced to 2% over the remaining life of the mine (and
referred to thereafter, as “Production Royalty Payments”). All
advance royalty payments made, will be deducted as credits against
future Production Royalty Payments. The lease is for a term
of 10 years, which can be extended for an additional 10 years at
the Company’s option.
|
On
April 19, 2018, the Gibellini MLA was amended to grant the Company
the option, at any time during the term of the agreement, to
require the Gibellini Lessor to transfer their title over all of
the leased mining claims (excluding four claims which will be
retained by the Gibellini Lessor and which contain minimal
resource) to the Company in exchange for USD1,000,000, to be paid
as an advance royalty payment.
On July 10, 2017, the Company acquired (through lease) from the
holders (the “Former Louie Hill Lessors”) 10 unpatented lode claims totaling
approximately 207 gross acres that comprised the Louie Hill group
of claims located approximately 500 meters south of the
Gibellini group of claims. These claims were subsequently abandoned
by the Former Louie Hill Lessors, and on March 11 and 12, 2018, the
Company staked the area within and under 17 new claims totaling
approximately 340 gross acres which now collectively comprise the
expanded Louie Hill group of claims.
8
SILVER ELEPHANT MINING CORP.
(formerly
“Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the three months ended March 31, 2020
(Expressed
in Canadian Dollars, except where indicated)
On
October 22, 2018, the Company entered into a royalty agreement (the
“Royalty
Agreement”) with the Former Louie Hill Lessors to
replace on substantially similar terms, the former Louie Hill
Mineral Lease Agreement dated July 10, 2017, wherein the Company
will pay an advance royalty and a net smelter royalty on vanadium
pentoxide produced from the area of the 10 unpatented lode claims
originally acquired through lease from the Former Louie Hill
Lessors that is now contained within 17 lode claims since staked by
the Company’s subsidiaries. The annual advance royalty
payments will be tied, based on an agreed formula (the total amount
not to exceed USD$28,000 per year), to the average vanadium
pentoxide price for the prior year.
Upon
commencement of production, the Company will pay to the Former
Louie Hill Lessors, a 2.5% NSR of which, 1.5% of the NSR may be
purchased at any time by the Company for USD$1 million, leaving the
total NSR to be reduced to 1% over the remaining life of the mine
(and referred to thereafter, as “Production Royalty Payments”). All
advance royalty payments made, will be deducted as credits against
future Production Royalty Payments. The Royalty Agreement shall be
for an indefinite period and shall be valid and in full force and
effect for as long as the Company, its subsidiaries, or any of
their permitted successors or assigns holds a valid and enforceable
mining concession over the area.
On December 5, 2017, the Company announced that it had
significantly expanded the land position at the Gibellini Project,
by staking a total of 198 new claims immediately adjacent to the
Gibellini Project covering 4091 acres that are sufficient to enable
future vanadium mining, processing and extraction.
On
February 15, 2018, the Company indirectly acquired
an additional 105 unpatented lode
mining claims located adjacent to its existing Gibellini
Project in Nevada,
USA through the indirect acquisition of VC Exploration (US) Inc, by
paying a total of $335,661 in cash and issuing the equivalent of
500,000 Share purchase warrants to arm’s-length,
private parties.
The
Gibellini Project is situated entirely on public lands that are
administered by the BLM. No easements or rights of way are required
for access over public lands. Rights-of-way would need to be
acquired for future infrastructure requirements, such as pipelines
and powerlines.
On November 20, 2017, the Company received an independent technical
report titled “Gibellini Vanadium Project Nevada, USA NI
43-101 Technical Report” with an effective date of November
10, 2017 (the ”Gibellini
Report”) prepared by
Wood The Gibellini Report was filed with Canadian securities
regulatory authorities on SEDAR (available at www.sedar.com).
On June
25, 2018, the Company released the “Gibellini Vanadium
Project, Eureka County, Nevada, NI 43-101 Technical Report on
Preliminary Economic Assessment” (the “PEA”), with an effective date of
May 29, 2018 and signed June 25, 2018 authored by Independent
Qualified Persons Kirk Hanson, P.E.; Edward J.C. Orbock III, RM
SME; Edwin Peralta, P.E.; and Dr. Lynton Gormely, P. Eng. of Wood
and is in accordance with NI 43-101. The PEA was filed with
Canadian securities regulatory authorities on SEDAR (available at
www.sedar.com).
Gibellini Deposit
On May 29, 2018, the Company received an independent technical
report providing an updated the resource on the Gibellini project.
The report is titled “Gibellini Vanadium Project Eureka
County, Nevada, NI 43-101 Technical Report on Preliminary Economic
Assessment” prepared by Mr. Kirk Hanson, P.E., Technical
Director, Open Pit Mining; Mr. Edward J.C. Orbock III, RM SME,
Principal Geologist and US Manager of Consulting; Mr. Edwin
Peralta, P.E., Senior Mining Engineer; and Mr. Lynton Gormely,
P.Eng., Consultant Metallurgist of Wood. The report has an
effective date of May 29, 2018.
The PEA replaces the technical report entitled “Gibellini
Vanadium Project, Nevada, USA, NI 43-101 Technical Report”,
effective November 10, 2017 and filed November 20, 2017. The PEA is
preliminary in nature and includes inferred mineral resources that
are too speculative geologically to have economic considerations
applied to them that would enable them to be categorized as mineral
reserves. There is no certainty that the PEA results will be
realized. Mineral resources are not mineral reserves and do not
have demonstrated economic viability.
9
SILVER ELEPHANT MINING CORP.
(formerly
“Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the three months ended March 31, 2020
(Expressed
in Canadian Dollars, except where indicated)
The PEA disclosed an estimated 7.94 million tons at a weighted
average grade of 0.314% vanadium pentoxide
(“V2O5”)
in the Measured category and 15.02 million tons at a weighted
average grade of 0.271% V2O5 in
the Indicated category leading to a total combined Measured and
Indicated Mineral Resource of 22.95 million tons at a weighted
average grade of 0.286% V2O5.
Total contained metal content of the Measured and Indicated Mineral
Resources is 131.34 million pounds V2O5.
The Inferred Mineral Resource estimate is 14.97 million tons at a
weighted average grade of 0.175% V2O5.
The total contained metal content of the Inferred Mineral Resource
estimate is 52.30 million pounds V2O5.
The table below contains a summary of the Gibellini deposit
resource estimate:
Table 1: Mineral Resource Statement, Gibellini
|
Confidence
Category
|
Domain
|
Cut-offV2O5 (%)
|
Tons(Mt)
|
GradeV2O5(%)
|
ContainedV2O5 (Mlb)
|
|
Measured
|
Oxide
|
0.101
|
3.96
|
0.251
|
19.87
|
|
Transition
|
0.086
|
3.98
|
0.377
|
29.98
|
|
|
Indicated
|
Oxide
|
0.101
|
7.83
|
0.222
|
34.76
|
|
Transition
|
0.086
|
7.19
|
0.325
|
46.73
|
|
|
Total Measured and Indicated
|
|
|
22.95
|
0.286
|
131.34
|
|
Inferred
|
Oxide
|
0.101
|
0.16
|
0.170
|
0.55
|
|
Transition
|
0.086
|
0.01
|
0.180
|
0.03
|
|
|
Reduced
|
0.116
|
14.80
|
0.175
|
51.72
|
|
|
Total Inferred
|
|
|
14.97
|
0.175
|
52.30
|
Notes to accompany Mineral Resource table for
Gibellini:
1.
The
Qualified Person for the estimate is Mr. E.J.C. Orbock III, RM SME,
a Wood Group of companies
employee. The Mineral Resources have an effective date of May 29,
2018.
2.
Mineral Resources that are not Mineral Reserves do not have
demonstrated economic viability.
3.
Mineral Resources are reported at various cut-off grades for oxide,
transition, and reduced material.
4.
Mineral
Resources are reported within a conceptual pit shell that uses the
following assumptions: Mineral Resource V2O5
price:
$14.64/lb; mining cost: $2.21/ton mined; process cost: $13.62/ton;
general and administrative (“G&A”)
cost: $0.99/ton processed; metallurgical recovery assumptions of
60% for oxide material, 70% for transition material and 52% for
reduced material; tonnage factors of 16.86 ft3/ton for oxide
material, 16.35 ft3/ton for transition material and 14.18 ft3/ton
for reduced material; royalty: 2.5% net smelter return (NSR);
shipping and conversion costs: $0.37/lb. An overall 40º pit
slope angle assumption was used.
5.
Rounding as required by reporting guidelines may result in apparent
summation differences between tons, grade and contained metal
content. Tonnage and grade measurements are in US units. Grades are
reported in percentages.
Louie Hill Deposit
The Louie Hill deposit lies approximately 1,600 ft south of the
Gibellini deposit.
The Gibellini Technical Report provides an Inferred Mineral
Resource of 7.52 million tons at a weighted average grade of 0.276%
vanadium pentoxide (V2O5).
The oxidation domains were not modeled. The total contained metal
content of the estimate is 41.49 million pounds
V2O5.
The table below summarizes the Louie Hill deposit resource
estimate:
10
SILVER ELEPHANT MINING CORP.
(formerly
“Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the three months ended March 31, 2020
(Expressed
in Canadian Dollars, except where indicated)
Table 2: Mineral Resources Statement, Louie Hill
|
Confidence
Category
|
Cut-offV2O5 (%)
|
Tons(Mt)
|
GradeV2O5 (%)
|
ContainedV2O5 (Mlb)
|
|
Inferred
|
0.101
|
7.52
|
0.276
|
41.49
|
Notes to accompany Mineral Resource table for Louie
Hill:
1.
The Qualified Person for the estimate is Mr. E.J.C. Orbock III, RM
SME, a Wood Group of companies employee. The Mineral Resources have
an effective date of May 29, 2018. The resource model was prepared
by Mr. Mark Hertel, RM SME.
2.
Mineral Resources that are not Mineral Reserves do not have
demonstrated economic viability.
3.
Oxidation state was not modeled.
4.
Mineral
Resources are reported within a conceptual pit shell that uses the
following assumptions: Mineral Resource V2O5
price:
$14.64/lb; mining cost: $2.21/ton mined; process cost: $13.62/ton;
general and administrative (G&A) cost: $0.99/ton processed;
metallurgical recovery assumptions of 60% for mineralized material;
tonnage factors of 16.86 ft3/ton for mineralized material, royalty:
2.5% net smelter return (NSR); shipping and conversion costs:
$0.37/lb. For the purposes of the resource estimate, an overall
40º slope angle assumption was used.
5.
Rounding as required by reporting guidelines may result in apparent
summation differences between tons, grade and contained metal
content. Tonnage and grade measurements are in US units. Grades are
reported in percentages.
A total of 280 drill holes (about 51,265 ft) have been completed on
the Gibellini Project since 1946, comprising 16 core holes (4,046
ft), 169 rotary drill holes (25,077 ft; note not all drill holes
have footages recorded) and 95 reverse circulation holes (22,142
ft).
The vanadium-hosted argillite unit ranges from 175 to over 300 ft
thick and overlies gray mudstone and black shales. The argillite
has been oxidized to various hues of yellow and orange to a depth
of 100 ft and is believed to have been part an overall homogenous
black shale unit. Alteration (oxidation) of the rocks is classified
as one of three oxide codes: oxidized, transitional, and
reduced.
No significant work has been conducted on the Gibellini Project
since 2011 with some minor prospecting completed in October of
2018. The Company has not completed trenching or drilling
activities since the Gibellini Project acquisition.
The power supply for the Gibellini Project site is assumed to be at
24.9 kV and supplied from a planned substation to be located near
Fish Creek Ranch. This substation would tap and step-down the 69kV
supply carried by the line to the nearby Pan Mine to 24.9kV and
place it on a line to the Gibellini Project. Negotiations with the
power utility, Mt. Wheeler Power will need to be undertaken to
secure any future power supply contract and transmission line to
the site.
On May 9, 2018, the Company submitted its Management’s plan
of operations (the “MPO”) to the BLM and the Reclamation Permit
Application to the BMRR. On July 8t,
2019 the Company announced it submitted an enhanced mining Plan of
Operations that is designed to meet the needs set out by
Secretarial Order 3355.
The MPO was prepared by SRK Consulting (U.S.) Inc. with over 1,100
pages of detailed development plans for the open pit mining
operations and processing facilities to extract and recover
vanadium from the Gibellini Project with stated average mine
production during the seven-year mine life of 15.7 million tons of
ore material containing 120.5 million pounds of vanadium. The
primary facilities include the: pit, waste rock disposal facility,
mine office, auxiliary facilities such as water and power, crushing
facilities and stockpile, heap leach pad, process facility, water
ponds, borrow areas, and mine and access roads.
A map of the proposed facilities is available
at www.silverelef.com.
11
SILVER ELEPHANT MINING CORP.
(formerly
“Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the three months ended March 31, 2020
(Expressed
in Canadian Dollars, except where indicated)
In addition, the MPO includes the following designs along with
associated environmental baseline studies:
1.
Quality
Assurance Plan
2.
Storm
Water Management Plan
3.
Adaptive
Waste Rock Management Plan
4.
Monitoring
Plan
5.
Noxious
Weed Management Plan
6.
Spill
Contingency Plan
7.
Feasibility
Study Level Pit Slope Design
8.
.Heap
Leach and Waste Rock Dump Facility Stability Report
9.
Geochemical
Characterization Report
10.
Water
Management Plan
11.
Closure
and Reclamation Plan
12.
Transportation
Plan
13.
Standardized
Reclamation Cost Estimate
The baseline studies supplementing the MPO were completed by the
previous operator between 2010 and 2012, and included studies of
biological resources, cultural resources, surface water resources,
ground water resources, and waste rock geochemical
characterization.
In August 2018, the Company engaged NewFields, an environmental,
engineering, and construction management consulting firm to
advance EIS preparation for the Gibellini Project.
NewFields completed the Gibellini heap leach pad and waste dump
designs (over 40 pages) as part of an overall basic engineering
design lead by Scotia International of Nevada, Inc. in 2014.
NewFields’ familiarity with the project should help to
expedite permitting efforts at Gibellini.
PEA
On May
29, 2018, the Company received results of a PEA for the Gibellini
Project. The PEA reported an after tax cumulative cash flow of
$601.5 million, an internal rate of return of 50.8%, a net present
value of $338.3 million at a 7% discount rate and a 1.72 years
payback on investment from start-up assuming an average vanadium
pentoxide price of $12.73 per pound. As of May 29, 2018, the price
of vanadium pentoxide is $14.20 per pound according
to www.asianmetal.com. The PEA was
prepared by Wood and is based on the NI 43-101 compliant resource
calculations reported above.
Table 3: Highlights of the PEA (after tax)
All dollar values are expressed in US dollars unless otherwise
noted
|
Internal rate of
return
|
50.8%
|
|
Net
present value (“NPV”)
|
$338.3
million at 7% discount rate
|
|
Payback
period
|
1.72
years
|
|
Average
annual production
|
9.65
million lbs V2O5
|
|
Average
V2O5 selling
price
|
$12.73
per lb
|
|
Operating cash
cost
|
$4.77
per lb V2O5
|
|
All-in
sustaining costs*
|
$6.28
per lb V2O5
|
|
Breakeven
price**
|
$7.76
per lb V2O5
|
|
Initial
capital cost including 25% contingency
|
$116.76
million
|
|
Average
grade
|
0.26%
V2O5
|
|
Strip
ratio
|
0.17
waste to leach material
|
|
Mining
operating rate
|
3.4
million tons (leach material and waste) per year
|
|
Average
V2O5 recovery
through Direct Heap Leaching
|
62%
|
|
Life of
mine
|
13.5
years
|
*includes
selling costs, royalties, operating cash cost, reclamation,
exploration and sustaining capital costs.
**includes
selling costs, royalties, operating cash costs, taxes (local,
state, and federal), working capital, and sustaining and capital
costs.
12
SILVER ELEPHANT MINING CORP.
(formerly
“Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the three months ended March 31, 2020
(Expressed
in Canadian Dollars, except where indicated)
The PEA
is preliminary in nature and includes inferred mineral resources
that are considered too speculative geologically to have the
economic considerations applied to them that would enable them to
be categorized as mineral reserves, and there is no certainty that
the PEA will be realized. Mineral resources are not mineral
reserves and do not have demonstrated economic
viability.
Sensitivity Analysis
The
tables below show the sensitivity analysis to the vanadium
pentoxide price, grade, and to the PEA capital cost and operating
costs. This sensitivity analysis indicates strong project economics
even in very challenging conditions, and that the project is well
positioned to benefit from the current rising vanadium price
environment. A 20% increase in the vanadium price relative to the
base case translates to a USD$491.3 million after-tax NPV at a 7%
discount rate.
Table 4: Sensitivity Analysis
All dollar values are expressed in US dollars unless otherwise
noted
|
V2O5 price
change
|
V2O5 price
USD$/lb
|
After-taxIRR
|
After-tax
NPVUSD$M @ 7%
|
After-taxcashflowUSD$M
|
|
30%
|
16.55
|
69%
|
568.0
|
996.0
|
|
20%
|
15.28
|
63%
|
491.3
|
864.4
|
|
10%
|
14.00
|
57%
|
415.2
|
733.2
|
|
Base
price
|
12.73
|
51%
|
338.3
|
600.4
|
|
-10%
|
11.46
|
44%
|
261.0
|
467.2
|
|
-20%
|
10.18
|
36%
|
183.1
|
333.2
|
|
-30%
|
8.91
|
26%
|
103.9
|
196.9
|
|
V2O5 gradechange
|
V2O5grade
|
After-taxIRR
|
After-tax
NPVUSD$M @ 7%
|
After-taxcashflowUSD$M
|
|
30%
|
0.34%
|
68%
|
554.4
|
972.8
|
|
20%
|
0.31%
|
63%
|
482.4
|
849.0
|
|
10%
|
0.28%
|
57%
|
410.7
|
725.4
|
|
Base
grade
|
0.26%
|
51%
|
338.3
|
600.4
|
|
-10%
|
0.23%
|
44%
|
265.6
|
475.0
|
|
-20%
|
0.21%
|
37%
|
192.2
|
348.9
|
|
-30%
|
0.18%
|
28%
|
118.3
|
221.6
|
|
Capexchange
|
CapexUSD$M
|
After-taxIRR
|
After-tax
NPVUSD$M @ 7%
|
After-taxcashflowUSD$M
|
|
30%
|
151.8
|
40%
|
307.2
|
564.3
|
|
20%
|
140.1
|
43%
|
317.6
|
576.3
|
|
10%
|
128.4
|
47%
|
328.0
|
588.4
|
|
Base
Capex
|
116.8
|
51%
|
338.3
|
600.4
|
|
-10%
|
105.1
|
55%
|
348.6
|
612.5
|
|
-20%
|
93.4
|
61%
|
358.9
|
624.6
|
|
-30%
|
81.7
|
67%
|
369.3
|
636.8
|
13
SILVER ELEPHANT MINING CORP.
(formerly
“Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the three months ended March 31, 2020
(Expressed
in Canadian Dollars, except where indicated)
|
Opexchange
|
OpexUSD$M
|
After-taxIRR
|
After-tax
NPVUSD$M @ 7%
|
After-taxcashflowUSD$M
|
|
30%
|
6.20
|
45%
|
257.9
|
450.2
|
|
20%
|
5.72
|
47%
|
284.8
|
500.3
|
|
10%
|
5.25
|
49%
|
311.6
|
550.4
|
|
Base
Capex
|
4.77
|
51%
|
338.3
|
600.4
|
|
-10%
|
4.29
|
53%
|
364.8
|
650.0
|
|
-20%
|
3.82
|
55%
|
390.7
|
698.4
|
|
-30%
|
3.34
|
56%
|
416.0
|
745.4
|
Mining & Processing
Mining
at the Gibellini and Louie Hill projects is planned to be a
conventional open pit mine utilizing a truck and shovel fleet
comprised of 100-ton trucks and front end loaders. Average mine
production during the 13.5 year mine life is 3.4 million tons of
leach material (3 million tons) and waste (0.4 million tonnes) per
year at a strip ratio of 0.17. Mining is to be completed through
contract, with the Company’s mining staff overseeing the
contracted mining operation and performing the mine engineering and
survey work.
Table 5
|
|
Oxide‘000
tons
|
Transition‘000
tons
|
Reduced‘000
tons
|
Grade%
V2O5
|
Metal
containedV2O5 (Mlb)
|
Metal
ProducedV2O5 (Mlb)
|
|
YR
1
|
2,600
|
400
|
—
|
0.291
|
17.440
|
10.633
|
|
YR
2
|
2,400
|
600
|
—
|
0.278
|
16.690
|
10.480
|
|
YR
3
|
1,760
|
1,240
|
—
|
0.310
|
18.580
|
12.067
|
|
YR
4
|
650
|
2,350
|
—
|
0.372
|
22.320
|
15.217
|
|
YR
5
|
310
|
2,680
|
10
|
0.366
|
21.950
|
15.185
|
|
YR
6
|
2,240
|
750
|
10
|
0.315
|
18.920
|
11.928
|
|
YR
7
|
3,000
|
—
|
—
|
0.316
|
18.980
|
11.394
|
|
YR
8
|
1,910
|
700
|
380
|
0.189
|
11.310
|
7.085
|
|
YR
9
|
690
|
1,220
|
1,090
|
0.216
|
12.940
|
8.023
|
|
YR
10
|
110
|
370
|
2,520
|
0.208
|
12.480
|
6.898
|
|
YR
11
|
450
|
360
|
2,180
|
0.182
|
10.910
|
6.103
|
|
YR
12
|
50
|
140
|
2,820
|
0.166
|
9.980
|
5.349
|
|
YR
13
|
390
|
10
|
2,600
|
0.183
|
10.970
|
5.839
|
|
YR
14
|
1,710
|
—
|
—
|
0.195
|
6.670
|
4.096
|
|
Totals:
|
18,290
|
10,830
|
11,590
|
0.258
|
210.15
|
130.297
|
14
SILVER ELEPHANT MINING CORP.
(formerly
“Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the three months ended March 31, 2020
(Expressed
in Canadian Dollars, except where indicated)
The
processing method envisioned for the Gibellini Project will be to
feed leach material from the mine via loader to a hopper that feeds
the crushing plant. The leach material will then be fed to an
agglomerator where sulfuric acid, flocculent and water will be
added to achieve adequate agglomeration. The agglomerated leach
material will be transported to a stacker on the leach pad, which
will stack the material to a height of 15 feet. Once the material
is stacked, solution will be added to the leach heap at a rate of
0.0025 gallons per minute per square foot. The solution will be
collected in a pond and this pregnant leach solution will be sent
to the process building for metal recovery where it will go through
solvent extraction and stripping processes to produce the vanadium
pentoxide.
Vanadium Recoveries and Metallurgical Testing
Approximately
130.3 million pounds of V2O5 is expected
to be produced from Gibellini and Louie Hill leaching operations at
an average recovery of 62% (oxide: 60%, transition: 70% and
reduced: 52%). The heap leaching is performed at ambient
temperature and atmospheric pressure without pre-roasting or other
beneficiation process. The pregnant leach solution is continuously
collected with leach material undergoing, on average, a 150-day
heap-leaching cycle. Table 6 below summarizes the projected
metallurgical recoveries used in the PEA for the three defined
oxidation-type domains.
Table 6
|
Mill
Feed Material Type
|
Direct
Leaching Recovery
|
|
Oxide
|
60%
|
|
Transition
|
70%
|
|
Reduced
|
52%
|
The
direct heap leach vanadium recovery estimates used in the PEA were
based on extensive metallurgical testing work performed by SGS
Lakefield Research Laboratories, Dawson Minerals Laboratories, and
McClelland Laboratories. Samples were selected from a range of
depths within the deposit, representative of the various types and
styles of mineralization. Samples were obtained to ensure that
tests were performed on sufficient sample mass. The end results
demonstrated low acid consumption (less than 100 lb acid
consumption per ton leached) and high recovery through direct
leaching. Notable test results included the following:
Acid Heap Leach Testing of a Gibellini Bulk Sample, McClelland
Laboratories, September 4, 2013
A
series of trenches were excavated and approximately 18 tons of
material were sent to McClelland Laboratories for pilot testing.
The material was air dried and stage crushed to 2” where a
column sample was cut for 12” columns and then the leach
material was crushed to – ½”. A head sample was
taken and material for bench marking columns, and a bottle roll
test was also taken. The results of the pilot plant testing are
shown in Table 7:
15
SILVER ELEPHANT MINING CORP.
(formerly
“Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the three months ended March 31, 2020
(Expressed
in Canadian Dollars, except where indicated)
Table 7
|
Crush
Size 100%Passing
|
Test
Type
|
Time
(Days)
|
Head
Grade%V*
|
%
VanadiumRecovery
|
AcidConsumptionlbs/st
|
|
50 mm
(2”)
|
Column,
open circuit
|
123
|
0.299
|
76.6%
|
88
|
|
12.5 mm
(1/2”)
|
Column,
open circuit
|
123
|
0.313
|
80.2%
|
72
|
|
12.5 mm
(1/2”)
|
Column,
closed circuit
|
199
|
0.284
|
68.3%
|
84
|
|
12.5 mm
(1/2”)
|
Column,
closed circuit
|
Column,
closed circuit
|
0.313
|
74.0%
|
96
|
|
12.5 mm
(1/2”)
|
Bottle
Roll
|
4
|
0.286
|
67.1%
|
74
|
|
1.7 mm
(-10m)
|
Bottle
Roll
|
4
|
0.286
|
66.3%
|
66
|
|
-75µ
|
Bottle
Roll
|
4
|
0.279
|
67.6%
|
62
|
|
-75µ
|
Bottle
Roll
|
30
|
0.298
|
74.2%
|
54
|
*to convert V to
V2O5, multiply V by
1.7852.
Solvent Extraction (SX) Test Work
The
design parameters from this test work are:
● SX Extraction pH
Range 1.8 to 2.0
● Di-2-Ethyl Hexyl
Phosphoric Acid Concentration 0.45 M (~17.3% by weight)
Cytec
● 923 Concentration
0.13 M (~5.4% by weight)
● The Organic Diluent
is Orform SX-12 (high purity kerosene)
● SO2 addition of
1.0 to 1.5 g/l
● Strip Solution
Sulfuric Acid Concentration 225 to 250 g/l SX
● Extraction
Efficiency ~97%
● SX Strip Efficiency
~98%
Pilot Scale Solvent Extraction Testing on Vanadium Bearing
Solutions from Two Gibellini Project Column Leach Tests, McClelland
Laboratories, September 16, 2013
Solvent
extraction (“SX”) processing was conducted to
recover vanadium from sulfuric acid pregnant leach solution
(“PLS”)
generated during pilot column testing on bulk leach samples from
the Gibellini project. Laboratory scale testing was conducted on
select solutions generated during the pilot SX processing, to
optimize the SX processing conditions. Additional laboratory scale
testing was conducted on the loaded strip solution generated during
the pilot SX testing, to evaluate methods for upgrading and
purifying it to levels that may be required for sale of a final
vanadium bearing product.
The
final pregnant strip solution was 6.1% vanadium, 250 g/l sulfuric
acid with approximately 2% Fe and Al. The solution was suitable for
oxidation using sodium chlorate to convert the V+4 to V+5 which was
then precipitated using ammonia to make ammonium metavanadate
(“AMV”). To make
a vanadium product for the steel industry, this AMV is calcined
(ammonia driven off) and heated to above 700°C (the fusion
temperature of V2O5). This fused
V2O5 would then
be cooled on a casting wheel, pulverized and packaged.
Additionally, using ion exchange resins in conjunction with solvent
extraction, strip solution was produced which met or exceeded
specifications of electrolyte for vanadium flow
batteries.
16
SILVER ELEPHANT MINING CORP.
(formerly
“Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the three months ended March 31, 2020
(Expressed
in Canadian Dollars, except where indicated)
In
August of 2018, the Company received metallurgical results from its
technology partner, NWME from samples collected during a site visit
in March of 2018. Tests were performed at it’s laboratory
testing facilities located in Xi’an, China. NWME utilized a
SX processing method to recover vanadium from sulfuric acid PLS
generated by bottle roll and column test acid leaching on Gibellini
samples. The solution was reduced and then precipitated using
ammonia to make AMV. The AMV was calcined and heated then cooled
and pulverized. A vanadium pentoxide with 98.56 % purity content
was produced. The assay for this work is shown below:
Table
8
|
V2O5 %
|
SI %
|
Fe %
|
P %
|
S %
|
As %
|
Na2O %
|
K2O %
|
Al %
|
U %
|
|
98.56
|
0.0078
|
0.88
|
0.058
|
0.47
|
0.0026
|
0.43
|
0.052
|
0.22
|
0.0001
|
Uranium
content is less than 0.0001% which does not affect the
marketability of the product.
The PLS
was produced with very low deleterious elements which enabled using
an efficient SX process. The PLS V2O5 concentration was 1.15 gram
per liter and the Pregnant Strip Solution V2O5 concentration was
39.61 grams per liter.
Capital and Operating Costs
The
projected capital costs for the Gibellini vanadium project over a 1
½ year construction period and mine life average operating
costs are summarized in Tables 9 and 10 below. The capital cost
includes 25% contingency or USD23.4 million.
17
SILVER ELEPHANT MINING CORP.
(formerly
“Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the three months ended March 31, 2020
(Expressed
in Canadian Dollars, except where indicated)
Table 9: Pre-Production Capital Cost
All dollar values are expressed in US dollars unless otherwise
noted
|
Cost
Description
|
Total(USD$000s)
|
|
Open Pit Mine
|
|
|
Open
pit mine development
|
1,412
|
|
Gibellini
incremental WRSF
|
212
|
|
Mobile
equipment
|
111
|
|
Infrastructure-On Site
|
|
|
Site
prep
|
2,431
|
|
Roads
|
1,391
|
|
Water
supply
|
2,007
|
|
Sanitary
system
|
61
|
|
Electrical –
on site
|
2,052
|
|
Communications
|
165
|
|
Contact
water ponds
|
174
|
|
Non-process
facilities – buildings
|
7,583
|
|
Process Facilities
|
|
|
Mill
feed handling
|
15,380
|
|
Heap
leach system
|
20,037
|
|
Process
plant
|
14,441
|
|
Off-Site Infrastructure
|
|
|
Water
system
|
4,495
|
|
Electrical supply
system
|
3,227
|
|
First
fills
|
860
|
|
Subtotal Total Direct Cost
|
76,039
|
|
Construction
indirect costs
|
4,254
|
|
Sales
tax / OH&P
|
4,236
|
|
EPCM
|
8,879
|
|
Total
Before Contingency
|
93,409
|
|
Contingency
(25%)
|
23,352
|
|
Total
Project Cost
|
116,761
|
18
SILVER ELEPHANT MINING CORP.
(formerly
“Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the three months ended March 31, 2020
(Expressed
in Canadian Dollars, except where indicated)
Table 10: Operating Costs
|
Total
Cash Operating Cost
|
USD$
per Ton Leached
|
USD$
per lb of V2O5
Produced
|
|
G&A
|
0.99
|
0.31
|
|
Mining
Cost
|
2.72
|
0.85
|
|
Total
Processing Cost
|
11.54
|
3.61
|
|
Total
|
15.26
|
4.77
|
(All dollar values are
expressed in US dollars unless otherwise noted)
The
cash operating costs in the first half of the project covering
years 1-7 is USD$3.59 per lb of V2O5 produced and
for the years 8-14 is USD$7.12 per lb of V2O5 produced,
resulting in the weighted average cash cost of USD$4.77 per lb of
V2O5 produced.
The cash operating cost is lower in the first half of the project
due to processing higher grade material.
Permitting
Vanadium
has been listed as one of 23 metals critical to the US economy by
the U.S Geological Survey since December 2017. There are currently
no active primary vanadium mines in North America. As a result of direction from Secretary of the
Interior Order No. 3355 (Streamlining National Environmental Policy
Reviews and Implementation of Executive Order 13807) the Company
anticipates the Gibellini EIS will not be more than 150 pages
(excluding appendices) and the BLM to complete the Gibellini final
EIS within one year from the issuance of the
NOI
On June
19, 2019, the Company announced the appointment of a third party
NEPA contractor and SWCA Environmental Consultants to work under
the direction of the BLM per the provisions of a Memorandum of
Understanding between SWCA Environmental Consultants, BLM and the
Company to prepare the EIS for the and assist the BLM in the
maintenance of the administrative record.
The
Gibellini EIS will be one of the first mining EIS’s done
under Secretarial Order 3355 (“SO 3355”) that mandates the Final
EIS cannot exceed 150 pages in length and must be completed within
one year of the publication date of the NOI for the EIS in the
Federal Register. A project schedule has been developed with the
BLM that targets the first quarter of 2020 for the NOI to be
published and the EIS formally started.
Appointment
of the EIS contractor allows the contractor to participate in the
review of the Enhanced Baseline Reports, the Mine Plan of
Operations and all relevant data and project information that will
serve as the foundation for the NEPA review. This early start by
the BLM EIS contractor will ensure a streamlined EIS process once
the formal NEPA process begins after the publication of the NOI in
the Federal Register.
On July
8, 2019, the Company announced that it submitted an enhanced mining
Plan of Operations (“POO”) in June 2019 to the BLM and
Reclamation Permit Application to the BMRR. This enhanced POO
conforms to requirements that are aimed to satisfy timelines set
out by Federal Secretarial Order 3355, which is a key difference
from this POO and the POO that was submitted in 2018 (see
Company’s news release dated May 9, 2019,The POO which was submitted on schedule and
prepared under budget, incorporated data and information from a
number of consulting companies that are working on the project.
Having submitted all the requisite environmental baseline studies,
the Company’s POO submission is the last major step before
the publication of the NOI which will initiate the EIS process
under the Secretary of Interior Order No. 3355 (Streamlining
National Environmental Policy Reviews and Implementation of
Executive Order 13807; see the Company’s press release dated
March 28, 2018). The streamlined EIS process from NOI to the record
of decision (“ROD”) is one year. Upon receipt of a
positive ROD and issuance of Nevada State permits, the Company
plans to start mine construction in 2021 subject to project
financing completion and begin vanadium production by Q4
2022.
19
SILVER ELEPHANT MINING CORP.
(formerly
“Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the three months ended March 31, 2020
(Expressed
in Canadian Dollars, except where indicated)
This POO details the development plans for the open pit mining
operations and processing facilities to extract and recover
vanadium from the Gibellini Project with stated average mine
production during the seven-year mine life of 15.7 million tons of
materialized resource containing 120.5 million pounds of vanadium.
The POO also includes an exploration plan to fully define all the
additional mineralized target areas within the Project claim block.
The primary facilities include the: pit, waste rock disposal
facility, mine office, auxiliary facilities such as water and
power, crushing facilities and stockpile, heap leach pad, process
facility, water ponds, borrow areas, and mine and access
roads.
Engineering Procurement Construction Management:
On August 15, 2018, the Company issued a request for proposal
(the “RFP”) for EPCM from qualified bidders. In
December 2018 the Company selected M3 Engineering &
Technology Corporation (“M3”)
of Tucson, Arizona to provide engineering, procurement,
construction and management services (EPCM) for its Gibellini
Vanadium Project in response to its Request for Proposal. M3 was
selected for its specific experience in heap leach engineering, and
construction expertise in arid environments such as Nevada and
Arizona.
The EPCM consists of three phases:
●
Phase
1 includes updating and simplifying previous basic engineering
designs from producing delicate vanadium battery electrolyte to
producing standard vanadium pentoxide off take product. The other
parts of the design such as mine design, waste dump design, road
design, borrow pit design, buildings and infrastructure designs
will not be substantially changed.
●
Phase
2 will consist of procurement of the required equipment, services
and developing the detailed engineering design required to build
the project facilities.
●
Phase
3 will outline construction management services to build the
facilities to accomplish the actual work.
The Company expects Phase 1 of the EPCM to be completed in 2020;
Phase 2, to be completed in 2021; Phase 3, to commence in 2021,
completed in 2022 and the Gibellini Project wet commissioning
expected to be in 2022.
To try
to minimize technical and implementation risk, the Company is
working closely with its chosen technology partner, NWME, to fine
tune metallurgy, process design and engineering, and ensure maximum
vanadium recovery and high-grade vanadium pentoxide commercial
product on site. NWME owns and is currently operating the
world’s largest black-shale vanadium mine in China with an
environmentally friendly, hydrometallurgical leach processing
technology without the need of a pre-roasting step (see the
Company’s news release dated March 12, 2018 for more
details.
NWME
conducted a Gibellini site visit in March 2018 and analyzed
Gibellini samples in its laboratories. The results of this work are
discussed in the following section.
Test Results
Samples collected by NWME’s technical team during their visit
to the Project’s site in February 2018 were analyzed at
NWME’s facility in Xi’an, China. Approximately 250 kg
of material was submitted for analysis. The results are described
herein.
98.6% V2O5
Produced on the
1st
Run with Simple
Conventional Flowsheet
NWME
used SX processing method to recover vanadium from sulfuric acid
PLS generated by bottle roll and column test acid leaching on
Gibellini samples. The solution was reduced and then precipitated
using ammonia to make AMV. The AMV was calcined and heated then
cooled and pulverized. A
vanadium pentoxide with 98.56 % purity content was produced. The
assay for this work is shown in Table 11 below:
20
SILVER ELEPHANT MINING CORP.
(formerly
“Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the three months ended March 31, 2020
(Expressed
in Canadian Dollars, except where indicated)
Table 11: Gibellini Vanadium Pentoxide
Assay
|
V2O %
|
SI %
|
Fe %
|
P %
|
S %
|
As %
|
Na2O %
|
K2O %
|
Al %
|
U %
|
|
98.56
|
0.0078
|
0.88
|
0.058
|
0.47
|
0.0026
|
0.43
|
0.052
|
0.22
|
0.0001
|
Uranium
content is less than 0.0001% which does not affect the
marketability of the product.
The PLS
was produced with very low deleterious elements which enabled using
an efficient SX process. The PLS V2O5 concentration was
1.15 gram per liter and the Pregnant Strip Solution V2O5 concentration was
39.61 grams per liter.
Overall Vanadium Recovery of Over 60% and Low Acid
Consumption
PLS was produced from both bottle roll and column tests. Sulfuric
acid was added to the feed material with the bottle rolling for 1
hour, then the open bottle was allowed to cure for 24 hours and
water was added to the bottle to attain the desired density (40%).
Initial samples were taken at 6 hours, 12 hours, 24 hours, 36
hours, 48 hours and then once a day until the bottle roll was
completed.
In column tests, sulfuric acid was added to the feed material and
the material was allowed to cure for 24 hours before initiating the
leaching. Leaching was conducted by applying 108 grams per liter
acid solution over the material. PLS was collected every 24 hours
and samples were taken for vanadium analysis. All the tests were
performed at room temperature and at atmospheric pressure. The
results of the tests are given in Table 12:
Table 12
|
Test
|
Leach Time
|
Vanadium Recovery %
|
Sulfuric Acid Consumed kg/t
|
|
Column
Test
|
21
days
|
70.74
|
100
|
|
Bottle Roll Test -
investigate the effect of the curing method and increase of
sulfuric acid addition on the vanadium recovery
|
50
hours
|
62.8
|
150
|
|
Bottle Roll Test -
investigate addition of NWME prepared leaching agent on the
vanadium recovery
|
144
hours
|
66.5
|
100
|
|
Bottle Roll Test -
investigate the leaching of coarse feed (2mm) on the vanadium
recovery
|
216
hours
|
63.7
|
100
|
The results of the bottle roll and column leach tests performed by
NWME largely validate the results of previous tests performed by
McClelland Laboratories on Gibellini bulk sample in 2013 (18
tons of material).
The NWME test samples were not agglomerated and were on short leach
time of 21 days for column tests and 5 days for bottle roll tests.
The Company studied both the NWME test and McClleland test in
detail and believe the results were consistent, whereby 70%
recovery can be achieved with longer leach cycle (over 100 days
McClelland Laboratories vs 21 days NWME) and less acid consumption
(50 kg of acid per tonne of material McClelland Laboratories vs 100
kg of acid per tonne of material NWME).
A summary of acid heap leach tests of a Gibellini bulk
sample, completed at McClelland Laboratories, September 4, 2013 is
tabulated in Table 13 below:
21
SILVER ELEPHANT MINING CORP.
(formerly
“Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the three months ended March 31, 2020
(Expressed
in Canadian Dollars, except where indicated)
Table 13
|
Size
|
Test Type
|
Time (Days)
|
Vanadium Recovery %
|
Head Grade % V2O5
|
Sulfuric Acid Consumed kg/t
|
|
50 mm
(2”)
|
Column, open
circuit
|
123
|
76.6
|
0.53
|
39.9
|
|
12.5 mm
(1/2”)
|
Column, open
circuit
|
123
|
80.2
|
0.56
|
32.7
|
|
12.5 mm
(1/2”)
|
Column, closed
circuit
|
230
|
68.3
|
0.51
|
38.1
|
|
12.5 mm
(1/2”)
|
Column, closed
circuit
|
198
|
74.0
|
0.56
|
43.5
|
|
12.5 mm
(1/2”)
|
Bottle
Roll
|
4
|
67.1
|
0.51
|
33.6
|
|
1.7 mm
(-10m)
|
Bottle
Roll
|
4
|
66.3
|
0.51
|
29.9
|
|
-75µ
|
Bottle
Roll
|
4
|
67.6
|
0.50
|
28.1
|
|
-75µ
|
Bottle
Roll
|
30
|
74.2
|
0.53
|
24.5
|
Representative Feed Grade with Benign Test Conditions that Can be
Replicated in Commercial Setting
The leaching bottle roll and column tests were performed at room
temperature and at atmospheric pressure based on Gibellini’s
representative grade from grab sampling method across the width of
the mineralization at various locations of the Project. These
samples are characterized in Table 14:
Table 14
|
Sample Number
|
Sample ID
|
Weight kg
|
Head Grade V2O5 (%)
|
|
1
|
18-L6-28
|
17.0
|
0.665
|
|
2
|
18-L6-29
|
17.0
|
0.885
|
|
3
|
18-L6-30
|
12.5
|
0.370
|
|
4
|
18-L6-31
|
18.0
|
0.210
|
|
5
|
18-L6-32
|
13.5
|
0.420
|
|
6
|
18-L6-33
|
22.5
|
0.280
|
|
7
|
18-L6-34
|
19.0
|
0.315
|
|
8
|
18-L6-35
|
20.0
|
0.185
|
|
9
|
18-L6-36
|
18.0
|
0.165
|
|
10
|
18-L6-37
|
20.0
|
0.195
|
|
Total
|
|
177.5
|
|
For the purpose of metallurgical testing, the samples were mixed to
produce a composite material with the average grade of 0.30%
V2O5 which is representative of Gibellini
resource grade. The composite material was ground to -75 lm feed.
The Company believes the test conditions can easily be replicated
in a commercial heap leach setting with low technical and
implementation risk.
Unique Vanadium Mineralogy in Achieving Remarkable Recovery at Room
Temperature and Atmospheric Pressure
22
SILVER ELEPHANT MINING CORP.
(formerly
“Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the three months ended March 31, 2020
(Expressed
in Canadian Dollars, except where indicated)
NWME performed detailed mineralogical analysis which included
microscope identification using a Carl Zeiss Axioskop, XRD analysis
on Bruker D8-A25 XRD, multi-element analysis, electron probe X-ray
microanalysis on JEOL JXA 8230, scanning electron microscopy/energy
dispersive X-ray spectroscopy analysis on Mineral Liberation
Analizer 650 and V element phase analysis. This mineralogical
analysis confirmed that the Gibellini resource has a high
percentage of independent vanadium minerals
(“IVM”)
such as kazakhstanite, shubnelite, sherwoodite, bokite, which can
be leached easily at room temperature and atmospheric pressure
within a short time frame.
NWME noted the unique nature of the Gibellini samples with over 45%
IVM versus numerous other typical black shale deposits which they
have encountered containing less than 10% IVM.
All of the test work carried out on the material from the Gibellini
Project indicate that there is a two-stage leaching phenomenon in
Gibellini ore - approximately 50% of the vanadium leaches in the
first 96 hours (independent vanadium minerals), and the remaining
leaching approximately 15 to 20% occurs over a longer time
horizon.
Heap leaching is the lowest-cost recovery method compared to
roasting, and pressured container VAC leaching; whereby capital
costs can compound to multiple times greater for the same
throughput. Gibellini’s high IVM content is a key competitive
differentiator which places the deposit in the top tier of black
shale deposits in terms of pre-production capital cost required
based on NWME’s research. The mineralogical results of the
Gibellini ore as characterized by NWME’s test work is shown
in Table 15:
Table 15
|
Mineral composition
|
Mineral content %
|
V content in minerals %
|
V distribution %
|
|
|
Independent
vanadium minerals
45.2% of vanadium
content
|
Kazakhstanite
|
0.15
|
40.91
|
19.77
|
|
Shubnelite
|
0.13
|
27.86
|
11.67
|
|
|
Sherwoodite
|
0.08
|
34.54
|
8.90
|
|
|
Bokite
|
0.03
|
36.51
|
3.53
|
|
|
Melanovanadite
|
0.01
|
41.27
|
1.33
|
|
|
Vanadium-bearing
layered aluminosilicate minerals
20.8% of vanadium
content
|
Sericite
|
8.59
|
0.57
|
14.63
|
|
Illite
|
5.58
|
0.28
|
5.03
|
|
|
Chlorite
|
0.81
|
0.44
|
1.14
|
|
|
Nacrite-palygorskite
|
0.70
|
-
|
-
|
|
|
Vanadium-bearing
layered iron oxide, sulfate 34% of vanadium
content
|
Limonite
|
1.76
|
5.48
|
31.07
|
|
Strengite
|
0.64
|
0.49
|
1.01
|
|
|
Jarosite
|
0.48
|
1.24
|
1.92
|
|
|
Gangue
|
Quartz
|
75.88
|
-
|
-
|
|
Apatite
|
2.83
|
-
|
-
|
|
|
Potassium
feldspar
|
0.73
|
-
|
-
|
|
|
Dolomite
|
0.66
|
-
|
-
|
|
|
Carbonaceous
|
0.45
|
-
|
-
|
|
|
Rutile
|
0.25
|
-
|
-
|
|
|
Barite
|
0.04
|
-
|
-
|
|
|
Pyrite
|
0.20
|
-
|
-
|
|
|
Total
|
100.00
|
|
100.00
|
|
23
SILVER ELEPHANT MINING CORP.
(formerly
“Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the three months ended March 31, 2020
(Expressed
in Canadian Dollars, except where indicated)
Low Carbonate Content Results in Exceptional Low Acid
Consumption
NWME detailed mineralogical analysis which included microscope
identification using a Carl Zeiss Axioskop, XRD analysis on Bruker
D8-A25 XRD, multi-element analysis, electron probe X-ray
microanalysis on JEOL JXA 8230, scanning electron microscopy/energy
dispersive X-ray spectroscopy analysis on Mineral Liberation
Analyzer 650 and V element phase analysis, confirmed the extremely
low carbonaceous content of Gibellini’s oxide and transition
samples. This explains the low acid consumption (less than 50 kg
per tonne) compared to other average black shale deposits of 200 kg
to 300 kg per tonne based on extensive NWME data compilation. Given
acid cost accounts for approximately 50% of the Project’s
operating expenses, Gibellini’s low carbon content is a key
competitive differentiator which places it in the top tier of black
shale deposits in terms of processing cost based on NWME’s
findings.
The following table is a generalized comparison of
Gibellini’s deposit to a composite of typical black shale
vanadium deposits:
Table 16
|
|
Gibellini Vanadium Deposit
|
Black Shale Series Vanadium Deposits
|
|
Host
Rock
|
Silica
State
|
Carbon Siliceous
Rocks with Mudstone
|
|
The Mineral
Composition
|
High Silica, Low
Aluminium and Low Carbonaceous. SiO2-78.40%; Al2O3 - 4.13%;
T(C) -
0.47%
|
High Silica, High
Aluminum and High Carbonaceous. SiO2-62-93%; Al2O3 > 7%;
T(C) >
10%
|
The next step for NWME will be to investigate the application of
NWME’s proprietary technology to Gibellini mineral to produce
a high purity vanadium pentoxide product with 99.5%
V2O5 content. During the
Company’s team visit to NWME’s processing facilities in
China in June 2018, NWME commented that its own black-shale
vanadium mine produces exclusively 99.5% V2O5 which commands a 15 to
25% pricing premium (compared to benchmark 98% purity) to supply to
the vanadium battery, chemical, and aerospace
industries. The Company delivered
the representative samples from the Project with a total weight of
approximately 1 tonne to NWME in China and the test has begun. The
Company expects to receive the results from the second phase of
metallurgical testing by NWME in the second half of
2019.
On
March 26, 2019, the Company announced vanadium assay results from
its Fall 2018 exploration reconnaissance program on the Gibellini
Project. The 155 assays are taken from three prospective
exploration areas all within 5km to existing Gibellini vanadium
NI43-101 compliant resource pit outline. Surface grab samples assay
as high as 2% vanadium pentoxide (V2O5) and 75 samples (48% of
total 155) have V2O5 grades greater than the Gibellini
deposit’s cut-off grade of 0.101% V2O5 at $12.5/lb V2O5; V2O5
currently trades at approximately $16/lb.
The
high vanadium assay results along the 5-kilometer
northeast-southwest trend which line-up the Northeast Prospect,
through Gibellini Hill, Louie Hill, Middle Earth Prospect, and Big
Sky Prospect providing an indication of potential and possibly
significant future expansion of vanadium mineralization along this
corridor.
Detailed
maps are available at www.silverelef.com.
Big Sky Prospect (300m by 50m)
The Big
Sky prospect occurs 3.1 km southwest of the Gibellini Hill measured
and indicated resource and 1.8 km southwest of Louie Hill inferred
resource. A total of 62 samples were taken, of which 40%
(n=25) returned assays
greater than Gibellini cut-off grade. Sixteen (16) samples returned
assays >0.200 V2O5. The distribution of samples occurs along a
300 meter exposure of the Woodruff Formation. Assays showing
>0.200 V2O5 are shown in Table 17.
24
SILVER ELEPHANT MINING CORP.
(formerly
“Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the three months ended March 31, 2020
(Expressed
in Canadian Dollars, except where indicated)
Table 17. V2O5% grab sample assay results at Big Sky
prospect for samples with >0.200%
|
SAMPLE
ID
|
Prospect
|
V2O5
%
|
|
301910
|
Big
Sky
|
0.261
|
|
301913
|
Big
Sky
|
0.223
|
|
301915
|
Big
Sky
|
0.346
|
|
301916
|
Big
Sky
|
0.400
|
|
301918
|
Big
Sky
|
0.712
|
|
301920
|
Big
Sky
|
0.264
|
|
301926
|
Big
Sky
|
0.580
|
|
301927
|
Big
Sky
|
2.008
|
|
301928
|
Big
Sky
|
0.848
|
|
301944
|
Big
Sky
|
0.264
|
|
301946
|
Big
Sky
|
0.280
|
|
301947
|
Big
Sky
|
0.218
|
|
301950
|
Big
Sky
|
0.261
|
|
302050
|
Big
Sky
|
0.214
|
|
302054
|
Big
Sky
|
0.787
|
|
302055
|
Big
Sky
|
1.982
|
Middle Earth Prospect (200m by 70m)
The
Middle Earth prospect occurs 1.7 km southeast of the Gibellini Hill
deposit and 300 meters south of the Louie Hill deposit. A total of
50 samples were collected of which 68% (n=34) returned assays >0.101% V2O5
or the Gibellini cut-off grade. Twenty-seven (27) samples returned
assays >0.200 V2O5. The samples are distributed over 3 road cuts
of exposed Woodruff Formation making up a 200 meter by 70-meter
areal footprint. Assays showing >0.200 V2O5 are shown in Table
18.
25
SILVER ELEPHANT MINING CORP.
(formerly
“Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the three months ended March 31, 2020
(Expressed
in Canadian Dollars, except where indicated)
Table 18. V2O5% grab sample assay results at Middle Earth
prospect for samples with >0.200%
|
SAMPLE
ID
|
Prospect
|
V2O5
%
|
|
301951
|
Middle
Earth
|
0.350
|
|
301952
|
Middle
Earth
|
0.482
|
|
301968
|
Middle
Earth
|
0.628
|
|
301969
|
Middle
Earth
|
0.605
|
|
301970
|
Middle
Earth
|
0.634
|
|
301972
|
Middle
Earth
|
0.252
|
|
301973
|
Middle
Earth
|
0.687
|
|
301974
|
Middle
Earth
|
0.470
|
|
301975
|
Middle
Earth
|
0.612
|
|
301976
|
Middle
Earth
|
0.637
|
|
301978
|
Middle
Earth
|
0.559
|
|
301979
|
Middle
Earth
|
0.557
|
|
301980
|
Middle
Earth
|
0.259
|
|
301981
|
Middle
Earth
|
0.405
|
|
301983
|
Middle
Earth
|
0.255
|
|
301984
|
Middle
Earth
|
0.303
|
|
301985
|
Middle
Earth
|
0.434
|
|
301987
|
Middle
Earth
|
0.291
|
|
301988
|
Middle
Earth
|
1.294
|
|
301989
|
Middle
Earth
|
0.261
|
|
301991
|
Middle
Earth
|
0.314
|
|
301992
|
Middle
Earth
|
0.457
|
|
301993
|
Middle
Earth
|
0.380
|
|
301995
|
Middle
Earth
|
0.302
|
|
301998
|
Middle
Earth
|
0.539
|
|
301999
|
Middle
Earth
|
0.618
|
|
302000
|
Middle
Earth
|
0.532
|
Northeast Trench Prospect (500m by 300m)
The
Northeast Trench prospect occurs 1.2 km northeast of the Gibellini
Hill deposit and 2.5 km northeast of the Louie Hill deposit. A
total of 43 samples were collected of which 37% (n=16) returned assays >0.101% V2O5
or the Gibellini cut-off grade. Three (3) samples returned assays
>0.200 V2O5. The samples are distributed through road cuts
(“trenches”) and dry gulches of exposed Woodruff
Formation making up a 500 meter by 350-meter areal footprint. The
exposure at the Northeast Trench is greatly obscured by colluvium
material however the extent where it is exposed might indicate a
large volume of Woodruff Formation yet to be explored. Assays
showing >0.200 V2O5 are shown in Table 19.
Table 19. V2O5% grab sample assay results at Northeast
Trench prospect for samples with >0.200%
|
SAMPLE
ID
|
Prospect
|
V2O5
%
|
|
302004
|
NE
Trench
|
0.239
|
|
302005
|
NE
Trench
|
0.380
|
|
302016
|
NE
Trench
|
0.303
|
26
SILVER ELEPHANT MINING CORP.
(formerly
“Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the three months ended March 31, 2020
(Expressed
in Canadian Dollars, except where indicated)
Water supply
On
August 20, 2018, the Company secured water supply for the
Gibellini Project construction and operation. The Company signed a
10-year Agreement with the owner of a private ranch, located
approximately 14.5 km from the Gibellini Project. The Agreement can
be extended for any number of additional 7-year terms, not to
exceed (with the primary term) a total of 99 years.
Per the
terms of the Agreement, the lessor granted to the Company the
rights to 805 acre-feet (approximately 262.4 million gallons) of
water per year for the Gibellini Project, at a minimum flow rate of
500 gallons per minute (“gpm”) from its year-round springs
surface water stream. The water flow rate was measured at the ranch
springs in 1965, in 1981, from December 2011 to September 2013, and
most recently, in 2017. The water flow rate ranges from 1,000 to
3,900 gpm with an average flow rate of 2,690 gpm, which exceeds the
project’s maximum water operational requirement of 420 gpm
based on the process engineering design prepared by Scotia
International of Nevada, Inc. as a part of engineering,
procurement, construction and management work done in
2014.license.
The
Gibellini Project completed water-related baseline studies
including the drilling of water-test wells, water source data
collection, characterization, flow rate testing and modeling. Due
to the fact that the Agreement provides a source of water from
surface springs located on a private ranch and baseline studies
related to it have been completed, the Company expects to
significantly expedite the permitting process by eliminating the
need to appropriate water rights from the Nevada Division of Water
Resources (“DWR”).
Offtake and project financing
The
Company has received unsolicited expressions of interest from
various potential investment sources and is currently engaged in
discussions with potential cornerstone investors, vanadium product
off-takers and banks on potential equity, debt and prepaid off-take
financing possibilities. The Company expects to report material
progress in due course.
On October 31, 2019, the Company submitted permit
applications for the Water Pollution Control Permit and the Class
II Air Quality Permit. These Nevada state permits have been
developed to provide construction level engineering that supports
the mine plan previously submitted to the BLM in the Plan of
Operations. Comments received from both the BLM and SWCA were used
as guidance in the engineering design to ensure the State and
Federal Permits are aligned and reflect the most current guidance
provided by both the NDEP and BLM.
NDEP Water Pollution Control Permit
Mining
in Nevada is regulated under the authority of the Nevada Revised
Statutes (NRS) 445A.300-NRS 445A.730 and the Nevada Administrative
Code (NAC) 445A.350-NAC 445A.447. Water Pollution Control Permits
(WPCP) are issued to an operator prior to the construction of any
mining, milling, or other beneficiation process activity.
Facilities utilizing chemicals for processing ores are required to
meet a zero-discharge performance standard such that Waters of the
State will not be degraded.
The
engineering design for heap leaching, the processing facility, and
the mine design (M3 Engineering and Newfields Companies, LLC) was
integrated into to the site Closure Plan that was also submitted as
part of the WPCP application. This design will facilitate
concurrent closure of the heap as each heap cell is finished
leaching. This will allow the Closure Plan to be initiated during
operations. At the end of active mining, the site can be closed at
minimal technical risk. This reduces the closure duration and
liability and the commensurate reclamation bond.
Air Quality Class II Permit
The
Nevada Bureau of Air Pollution Control issues air quality operating
permits to stationary and temporary mobile sources that emit
regulated pollutants to ensure that these emissions do not harm
public health or cause significant deterioration in areas that
presently have clean air. This is achieved by stipulating specific
permit conditions designed to limit the amount of pollutants that
sources may emit into the air as a regular part of their business
processes.
Any
process/activity that is an emission source requires an air quality
permit. Nevada Revised Statute (NRS) 445B.155 defines an emission
source as “any property, real or personal, which directly
emits or may emit any air contaminant.”
27
SILVER ELEPHANT MINING CORP.
(formerly
“Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the three months ended March 31, 2020
(Expressed
in Canadian Dollars, except where indicated)
The
Class II Permit for Gibellini is for facilities that emit less than
100 tons per year for any one regulated pollutant. Since the
vanadium processing will utilize a heap leach, the emissions will
be under the threshold for more complex air permits. The
engineering design incorporates stringent emission control
technology to minimize emissions. The modeled emissions from the
entire Gibellini Project are well below the National Ambient Air
Quality Standards (NAAQS).
The
Enhanced Baseline Reports (EBR’s) were extensively used in
the Project engineering design to ensure that potential
environmental impacts identified in the EBR’s would be
avoided or minimized by facility design. These engineering controls
help ensure that avoidance of potential environmental impacts is
“built into” the project from the start of the design
process. Doing so will allow Environmental Protection Measures to
be taken to minimize the risk of impacts that cannot be completely
avoided in the design and ensure up-front project planning that is
sensitive to all environmental resources.
Integration with BLM 12-month 3355 EIS Process
The
Nevada state permit applications were brought forward in the
permitting process to identify any issues resulting from NDEP
review that could affect the project design in the Plan of
Operations early. By resolving the State permitting issues prior to
the start of the EIS, it will help ensure that the 12-month
schedule mandated by the BLM Secretarial Order 3355 (S.O. 3355) can
be met and interruptions to the schedule can be
avoided.
The Company continues with its EPCM work and expects Phase 1 of the
EPCM, updating basic engineering design, to be completed by 2020;
Phase 2, equipment procurement and detailed engineering design, to
be completed in 2021; Phase 3, facilities construction, to start in
2021 and be completed in 2022 with the Gibellini Project wet
commissioning expected to be in 2022.
During
the three months ended March 31, 2020, the Company incurred total
costs of $818,230 (same period 2019 - $1,114,820) for the Gibellini
Project including for $355,529 (2019 - $779,770) for geological and
engineering services, and $462,701 (2019 - $335,050) for personnel,
legal, general and administrative expenses.
2020 Outlook
The
Company intends to spend the available funds as set forth above
based on annual budgets approved by the Board of Directors
consistent with established internal control guidelines, and
programs recommended in the Gibellini PEA. However, there may be
circumstances where, for sound business reasons, a reallocation of
the net proceeds may be necessary. The actual amount that the
Company spends in connection with each of the intended uses of
proceeds may vary significantly from the amounts specified above
and will depend on a number of factors, including those referred to
under “Risk
Factors”.
The
Company’s 2020 Gibellini objectives are:
●
Trigger EIS NOI by
end of quarter 2, 2020;
●
Develop strategy
with State of Nevada to potentially fill US Critical Mineral
Inventory;
●
Explore off-take
options for vanadium products; and
●
Complete all Nevada
permits.
Pulacayo-Paca Property, Bolivia
On
January 2, 2015, pursuant to the terms of the acquisition agreement
entered into between the Company and Apogee Silver Ltd.
(“Apogee”), the
Company acquired the Pulacayo Project in Bolivia through the
acquisition of the issued and outstanding shares of ASC Holdings Limited and ASC Bolivia LDC,
which together, hold the issued and outstanding shares of ASC
Bolivia LDC Sucursal Bolivia. ASC Bolivia LDC Sucursal Bolivia
controls the mining rights to the concessions through a separate
joint venture agreement with the Pulacayo Ltda. Mining Cooperative
who hold the mining rights through a lease agreement with state
owned Mining Corporation of Bolivia, COMIBOL.
28
SILVER ELEPHANT MINING CORP.
(formerly
“Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the three months ended March 31, 2020
(Expressed
in Canadian Dollars, except where indicated)
The
Pulacayo Project comprises seven concessions covering an area of
approximately 3,550 hectares of contiguous mining concessions
centered on the historical Pulacayo mine and town site. The
Pulacayo Project is located 18 km east of the town of Uyuni in the
Department of Potosi in southwestern Bolivia. The Project is also
located 107
km northeast of Sumitomo Corporation’s San Cristobal silver
mine, 185 km southwest of Coeur Mining, Inc.’s San Bartolome
silver mine, and 139 km north of Pan American Silver Corp.’s
San Vicente silver mine.
On October 7, 2019, the Company announced that the
Pulacayo Mining Production Contract (“MPC”)
between the Company and COMIBOL which was executed on October 3,
2019. The MPC grants the Company the 100% exclusive right to
develop and mine at the Pulacayo and Paca concessions for up to 30
years. It is comparable to a
mining license in Canada or the United States.
In November 2017, the Company received an
independent technical report with an effective date of October 20,
2017 titled “Updated Mineral Resource Estimate and Technical
Report for the Pulacayo Project” (the
“Report”). The Report was prepared by Mercator
Geological Services Limited (“Mercator”)
on the Company’s Pulacayo Project and has been filed under
the Company’s profile on the System for Electronic Document
Analysis and Retrieval (“SEDAR”)
at www.sedar.com.
The
Report describes resources estimated following the guidelines of
the CIM Definition Standards for Mineral Resources and Mineral
Reserves.
Two
mineral resource estimates were disclosed according to the
requirements NI 43-101. The first for the Pulacayo deposit and the
second for the Paca deposit.
Pulacayo Deposit
Results of the mineral resource estimate prepared
by Mercator for the Pulacayo deposit are presented below in Table
20 and filed via SEDAR at www.sedar.com.
The
Report outlined 2.08 million tonnes at a weighted average grade of
Ag 455 g/t, Pb 2.18%, Zn 3.19% (Ag Eq. 594 g/t) in the indicated
category and 0.48 million tonnes at a weighted average grade of Ag
406 g/t, Pb 2.08%, Zn 3.93% (Ag Eq. 572 g/t) in the inferred
category. The contained metal content estimated by the Company, of
the indicated category resources is 30.4 million ounces of silver,
100.0 million pounds of lead, 146.3 million pounds of zinc. The
contained metal content estimated by the Company, of the inferred
category resource is 6.3 million ounces of silver, 22.0 million
pounds of lead, and 41.6 million pounds of zinc (more resource
details in the table below).
29
SILVER ELEPHANT MINING CORP.
(formerly
“Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the three months ended March 31, 2020
(Expressed
in Canadian Dollars, except where indicated)
Table 20. Pulacayo Indicated and Inferred Mineral Resource
Statement Details
|
Pulacayo Mineral Resource Statement – Effective October 20,
2017
|
||||||
|
Ag Eq. Cut-Off (g/t)
|
Category
|
Tonnes*
|
Ag (g/t)
|
Pb (%)
|
Zn (%)
|
Ag Eq. (g/t)
|
|
400
|
Indicated
|
2,080,000
|
455
|
2.18
|
3.19
|
594
|
|
Inferred
|
480,000
|
406
|
2.08
|
3.93
|
572
|
|
Notes:
(1)
Mineral resources are estimated in conformance with the CIM
Standards referenced in NI 43-101.
(2)
Raw silver assays were capped at 1,700 g/t, raw lead assays were
capped at 15% and raw zinc assays were capped at 15%.
(3)
Silver equivalent Ag Eq. (g/t) = Ag (g/t)*89.2% + (Pb% *(US$0.94/
lb. Pb /14.583 Troy oz./lb./US$16.50 per Troy oz. Ag)*10,000*91.9%)
+ (Zn% *(US$1.00/lb. Zn/14.583 Troy oz./lb./US$16.50 per Troy oz.
Ag)*10,000*82.9%)
(4)
Metal prices used in the silver equivalent calculation are
US$16.50/Troy oz. Ag, US$0.94/lb Pb and US$1.00/lb. Zn. Metal
recoveries used in the silver equivalent equation reflect historic
metallurgical results disclosed by Apogee Silver Ltd. (Porter et
al., 2013).
(5)
Metal grades were interpolated within wire-framed,
three-dimensional silver domain solids using Geovia-Surpac Ver.
6.6.1 software and inverse distance squared interpolation methods.
Block size is 10m(X) by 10m(Z) by 2m(Y). Historic mine void space
was removed from the model prior to reporting of
resources.
(6)
Block density factors reflect three-dimensional modeling of drill
core density determinations.
(7)
Mineral resources are considered to have reasonable expectation for
economic development using underground mining methods based on the
deposit history, resource amount and metal grades, current metal
pricing and comparison to broadly comparable deposits
elsewhere.
(8)
Rounding of figures may result in apparent differences between
tonnes, grade and contained ounces.
(9)
Mineral resources that are not mineral reserves do not have
demonstrated economic viability.
(10)
Tonnes are rounded to nearest 10,000.
The contained metals estimated by the Company based on in the
October 20, 2017 resource estimate by Mercator are presented in
Table 21.
Table 21: Contained Metals
Based on October 20, 2017 Pulacayo Deposit** Mineral
Resource Estimate
|
Metal
|
Indicated Resource
|
Inferred Resource
|
|
Silver
|
30.4
million oz.
|
6.3
million oz.
|
|
Lead
|
100.0
million lbs.
|
22.0
million lbs.
|
|
Zinc
|
146.3
million lbs.
|
41.6
million lbs.
|
**Based
on the resource estimate Ag Eq. cut-off value of 400 g/t and 100%
recovery; figures are rounded to the nearest
100,000th
increment
Between 2006 and 2012, a total of 69,739 metres of diamond drilling
(226 surface and 42 underground drill holes) was conducted at
Pulacayo, results of which support the mineral resource estimate
reported in this news release. The Pulacayo site is currently
permitted for production at a milling rate of 560 tonnes per day
and no known legal, political, environmental, or other risks that
would materially affect potential future development have been
identified by the Company at the effective date of the current
(October 20, 2017) mineral resource estimate.
Approximately 85% of the resource tonnage identified at the 400 g/t
Ag Eq. cut-off value occurs within 150 meters vertical distance
from the main San Leon tunnel, which may facilitate future mineral
extraction.
30
SILVER ELEPHANT MINING CORP.
(formerly
“Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the three months ended March 31, 2020
(Expressed
in Canadian Dollars, except where indicated)
Paca Deposit
The Paca deposit is located in Bolivia approximately 7 km north of
the Pulacayo deposit.
Results of the mineral resource estimate prepared by Mercator for
the Paca deposit are presented below in Table 3. The Report
described previously and filed on SEDAR documents the resource
estimate.
The Report outlined 2.54 million tonnes at a weighted average grade
of Ag 256 g/t, Pb 1.03%, Zn 1.10% (Ag Eq. 342 g/t) in the inferred
category. The contained metal content estimated by the Company, of
the inferred category resources is 20.9 million ounces of silver,
57.7 million pounds of lead, 61.6 million pounds of zinc. (more
resource details in the table below).
Table 22. Paca Inferred Mineral
Resource Statement Details
|
Paca Mineral Resource Statement – Effective October 20,
2017
|
||||||
|
Ag Eq. Cut-Off (g/t)
|
Category
|
Tonnes*
|
Ag (g/t)
|
Pb (%)
|
Zn (%)
|
Ag Eq. (g/t)
|
|
200
|
Inferred
|
2,540,000
|
256
|
1.03
|
1.10
|
342
|
Notes
(1)
Mineral resources are estimated in conformance with the CIM
Standards referenced in NI 43-101.
(2)
Raw silver assays were capped at 1,050 g/t, raw lead assays were
capped at 5% and raw zinc assays were capped at 5%.
(3)
Silver equivalent Ag Eq. (g/t) = Ag (g/t) + (Pb% *(US$0.94/ lb. Pb
/14.583 Troy oz./lb./US$16.50 per Troy oz. Ag)*10,000) + (Zn%
*(US$1.00/lb. Zn/14.583 Troy oz./lb./US$16.50 per Troy oz.
Ag)*10,000). 100 % metal recoveries are assumed based on lack of
comprehensive metallurgical results.
(4)
Metal prices used in the silver equivalent calculation are
US$16.50/Troy oz. Ag, US$0.94/lb Pb and US$1.00/lb Zn and reflect
those used for the Pulacayo deposit mineral resource estimate
reported above.
(5)
Metal grades were interpolated within wire-framed,
three-dimensional solids using Geovia-Surpac Ver. 6.7 software and
inverse distance squared interpolation methods. Block size is 5m
(X) by 5m (Z) by 2.5m (Y). Historic mine void space was removed
from the model prior to reporting resources.
(6)
A block density factor of 2.26g/cm³ was used and reflects the
average of 799 density measurements.
(7)
Mineral resources are considered to have reasonable expectation for
economic development using combined underground and open pit
methods based on the deposit history, resource amount and metal
grades, current metal pricing and comparison to broadly comparable
deposits elsewhere.
(8)
Mineral resources that are not mineral reserves do not have
demonstrated economic viability.
(9)
Tonnes are rounded to nearest 10,000.
The contained metals estimated by the Company based on the October
20, 2017 resource estimate by Mercator are presented in Table
23.
Table 23. Contained Metals
Based on October 20, 2017 Paca Deposit** Mineral Resource
Estimate
|
Metal
|
Inferred Resource
|
|
Silver
|
20.9
million oz.
|
|
Lead
|
57.7
million lbs.
|
|
Zinc
|
61.6
million lbs.
|
**Based
on the resource estimate Ag Eq. cut-off value of 200 g/t and 100%
recovery; figures are rounded to the nearest 100,000th
increment.
The resource estimate is based on results of 97 diamond drill holes
and 1 reverse circulation drill hole totaling 18,160 meters
completed between 2002 and 2007.
31
SILVER ELEPHANT MINING CORP.
(formerly
“Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the three months ended March 31, 2020
(Expressed
in Canadian Dollars, except where indicated)
The geology of the Paca deposit includes a core zone of
feeder-style mineralization associated predominantly with
brecciated andesite, plus additional zones of shallowly dipping
mantos-style mineralization that are hosted by the surrounding
volcano-sedimentary sequence. The Paca deposit remains open at
depth and along strike.
The Paca mineralization starts from surface and the deposit may be
amenable to open-pit mining and this will be evaluated further in
the future.
The Company’s research has shown that relatively few silver
open pit deposits have been defined at resource cut-off values of
200 g/t Ag Eq. or more.
Permitting and Licensing
Pulacayo MPC between the Company and COMIBOL was executed on October 3,
2019.
The Company was notified of final government resolution approving
the MPC on September 27, 2019. The MPC grants the Company the 100%
exclusive right to develop and mine at the Pulacayo and Paca
concessions for up to 30 years. It is comparable to a mining
license in Canada or the United States.
Exploration
On
September 30, 2019, the Company announced a 5,000-meter diamond drilling at Pulacayo has
started with first set of assay results reported in November 2019.
Pictures of core samples are available on the Company’s
website at www.silverelef.com.
Phase 1 drilling is comprised
of surface drilling to expand the NI43-101 compliant Paca resource
(see the Company’s news release dated November 22, 2017) in
the northern and eastern directions where previous drill holes
encountered high grade surface intercepts, including PND-062, which
included 42 meters of 406 g/t Ag located on the edge of the
resource envelope. The Company will also evaluate upgrading the
Paca resource from an Inferred category to Measured and Indicated
categories through infill drilling. Some of the high-grade zone
extensions being explored are shown below:
Table 24
|
hole Nº
|
from – to (m)
|
int (m)
|
Ag(g/t)
|
Pb(%)
|
Zn
|
|
PND008
|
18.0
– 33.5
|
15.5
|
314
|
1.0
|
0.4
|
|
PND029
|
12.0
– 22.3
|
10.3
|
436
|
0.0
|
0.0
|
|
PND062
|
10.0
– 52.0
|
42.0
|
406
|
0.8
|
0.1
|
|
ESM2
|
0.0
– 38.0
|
38.0
|
411
|
1.4
|
1.2
|
The geology of the Paca deposit includes a core zone of
feeder-style mineralization associated predominantly with
brecciated andesite, plus additional zones of shallowly dipping
mantos-style mineralization that are hosted by the surrounding
volcano-sedimentary sequence. The Paca deposit remains open at
depth and along strike. The Paca mineralization starts from
surface, and the deposit may be amenable to open-pit mining which
will be evaluated in the future.
Phase 2 drilling commenced in
December 2019. The plan was to expand the Pulacayo resource base
along strike from 1km to 3km and at depth from 300m to 600m. There
will also be infill drilling to confirm the geological model and
test continuity of shallow high grade indicated resource blocks
that are near the San Leon tunnel and accessible through the
existing adit. Some of the high-grade zone extensions being
explored are shown in Table 25.
32
SILVER ELEPHANT MINING CORP.
(formerly
“Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the three months ended March 31, 2020
(Expressed
in Canadian Dollars, except where indicated)
Table 25
|
hole Nº
|
from – to (m)
|
int (m)
|
Ag(g/t)
|
Pb(%)
|
Zn %
|
Distancefrom adit (m)
|
|
PUD005
|
96.2
– 108.0
|
11.9
|
689
|
1.9
|
1.4
|
-67.5
|
|
PUD007
|
70.0
– 96.8
|
26.8
|
517
|
2.3
|
4.2
|
-44.5
|
|
PUD057
|
374.0
– 378.0
|
4.0
|
1,184
|
0.8
|
2.3
|
-137.5
|
|
PUD069
|
281.0
– 294.0
|
13.0
|
624
|
2.1
|
4.2
|
-46.0
|
|
PUD109
|
293.6
– 298.4
|
4.8
|
3,607
|
3.8
|
4.1
|
-30.4
|
|
PUD118
|
174.0
– 184.0
|
10.0
|
1,248
|
1.7
|
2.6
|
-93.9
|
|
PUD134
|
128.2
– 151.5
|
23.3
|
514
|
1.3
|
1.9
|
-55.7
|
|
PUD150
|
290.0
– 302.0
|
11.2
|
882
|
0.4
|
0.6
|
-75.2
|
|
PUD159
|
343.0
– 354.0
|
11.0
|
790
|
0.6
|
0.6
|
-116.6
|
|
PUD170
|
237.0
– 239.0
|
2.0
|
3,163
|
0.1
|
0.9
|
-32.5
|
On October 28, 2019, the Company announced the diamond drilling
results from Phase 1 drilling at Paca. Borehole PND 110 intersected
89 meters grading 378 g/t Ag-Equivalent (“AgEq;” 279
g/t Ag, 1.28% Zn, 1.17% Pb) starting from 9 meters downhole,
including 12 meters grading 1,085 g/t Ag starting at just 16 meters
downhole.
Phase 1 Drill highlights included:
●
PND107:
54.0 meters of 238 g/t AgEq (151 g/t Ag, 1.01% Zn, 1.17% Pb) from
55.0 to 109.0 meters;
●
PND108:
24.0 meters of 307 g/t AgEq (200 g/t Ag, 0.60% Zn, 2.12% Pb) from
33.0 to 57.0 meters;
●
PND109:
28.0 meters of 281 g/t AgEq (242 g/t Ag, 0.27% Zn, 0.69% Pb) from
15.0 to 43.0 meters;
●
PND110:
89.0 meters of 378 g/t AgEq (279 g/t Ag, 1.28% Zn, 1.17% Pb) from
9.0 to 98.0 meters;
●
PND112:
1.0 meters of 904 g/t AgEq (890 g/t Ag, 0.05% Zn, 0.31% Pb) from
21.0 to 22.0 meters;
●
PND
113: 25.0 meters of 209 g/t AgEq (196 g/t Ag, 0.04% Zn, 0.29% Pb)
from 3.0 to 28.0 meters.
Reported widths are intercepted core lengths and not true widths,
as relationships with intercepted structures and contacts vary.
Based on core-angle measurements, true widths are estimated at
approximately 77% of reported core lengths.
Silver equivalent (“AgEq”) calculation is based on
NI43-101 compliant 2017 resource report completed for the Paca
deposit by Mercator Geological Services (see the Company’s
news release dated November 22, 2017). Silver equivalent is
calculated as follows: Ag Eq. (g/t) = Ag (g/t) + (Pb% *(US$0.94/
lb. Pb /14.583 Troy oz./lb./US$16.50 per Troy oz. Ag)*10,000) +
(Zn% *(US$1.00/lb. Zn/14.583 Troy oz./lb./US$16.50 per Troy oz.
Ag)*10,000). 100 % metal recoveries are assumed based on lack of
comprehensive metallurgical results
PUD110 reported the highest silver width-grade intercept at the
Paca project to date, which now has over 19,000 drill meters
completed between the Company and the previous operator since 2002.
These Phase 1 drill results are anticipated to increase the overall
tonnage and upgrade the confidence level of the current NI43-101
compliant resource estimate prepared independently by Mercator in
2017 (Effective from October 20th, 2017; available on
www.SEDAR.com):
33
SILVER ELEPHANT MINING CORP.
(formerly
“Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the three months ended March 31, 2020
(Expressed
in Canadian Dollars, except where indicated)
Table 26. Paca
Inferred Mineral Resource Statement Details
|
Paca Mineral Resource Statement – Effective October 20,
2017
|
||||||
|
Ag Eq. Cut-Off (g/t)
|
Category
|
Tonnes*
|
Ag (g/t)
|
Pb (%)
|
Zn (%)
|
Ag Eq. (g/t)
|
|
200
|
Inferred
|
2,540,000
|
256
|
1.03
|
1.10
|
342
|
|
Contained Metals(million oz,lb,lb)
|
|
|
20.9
|
57.7
|
61.6
|
|
Notes:
(1)
Mineral resources are estimated
in conformance with the CIM Standards referenced in NI
43-101.
(2)
Raw silver assays were capped
at 1,050 g/t, raw lead assays were capped at 5% and raw zinc assays
were capped at 5%.
(3)
Silver equivalent Ag Eq. (g/t)
= Ag (g/t) + (Pb% *(US$0.94/ lb. Pb /14.583 Troy oz./lb./US$16.50
per Troy oz.Ag)*10,000) + (Zn% *(US$1.00/lb. Zn/14.583 Troy
oz./lb./US$16.50 per Troy oz. Ag)*10,000). 100 % metal recoveries
are assumed based on lack of comprehensive metallurgical
results.
(4)
Metal prices used in the silver
equivalent calculation are US$16.50/Troy oz. Ag, US$0.94/lb Pb and
US$1.00/lb Zn and reflect those used for the Pulacayo deposit
mineral resource estimate reported above.
(5)
Metal grades were interpolated
within wire-framed, three-dimensional solids using Geovia-Surpac
Ver. 6.7 software and inverse distance squared interpolation
methods. Block size is 5m (X) by 5m (Z) by 2.5m (Y). Historic mine
void space was removed from the model prior to reporting
resources.
(6)
A block density factor of
2.26g/cm³ was used and reflects the average of 799 density
measurements.
(7)
Mineral resources are
considered to have reasonable expectation for economic development
using combined underground and open pit methods based on the
deposit history, resource amount and metal grades, current metal
pricing and comparison to broadly comparable deposits
elsewhere.
(8)
Mineral resources that are not
mineral reserves do not have demonstrated economic
viability.
(9)
Tonnes are rounded to nearest
10,000.
(10)
Contained Metals Based on
October 20, 2017 Paca Deposit Mineral Resource
Estimate.
(11)
Based on the resource estimate
Ag Eq. cut-off value of 200 g/t and 100% recovery; figures are
rounded to the nearest 100,000th increment.
(12)
The resource estimate is based
on results of 97 diamond drill holes and 1 reverse circulation
drill hole totaling 18,160 meters completed between 2002 and
2007.
On
December 18, 2019, the Company announced that phase
two drilling which is a 5,000-meter program that will consist
mainly of wide step-out drilling up to 1.5km west (Western Block)
of the current 43-101 Pulacayo resource, has started the Pulacayo
Project. That current Pulacayo resource covers 1.4 km in strike and
represents only a small portion of the Tajo vein system which is
over 3 km in strike and open to least 1,000 meters at depth,
according to historical records of underground
mining.
The complete detailed composited drill intersections of
mineralization are tabulated as below:
34
SILVER ELEPHANT MINING CORP.
(formerly
“Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the three months ended March 31, 2020
(Expressed
in Canadian Dollars, except where indicated)
Table 27
|
Hole
|
From(m)
|
To (m)
|
Length(m)
|
Ag (g/t)
|
Zn %
|
Pb %
|
AgEq
|
|
PND107
|
|
||||||
|
|
55.0
|
109.0
|
54.0
|
151
|
1.01
|
1.17
|
238
|
|
incl
…
|
70.0
|
77.0
|
7.0
|
178
|
0.97
|
1.37
|
271
|
|
and
…
|
70.0
|
109.0
|
39.0
|
180
|
1.20
|
1.34
|
283
|
|
and
…
|
87.0
|
109.0
|
22.0
|
240
|
1.23
|
1.65
|
355
|
|
PND108
|
|
||||||
|
|
15.0
|
65.0
|
50.0
|
135
|
0.40
|
1.42
|
208
|
|
incl
…
|
33.0
|
57.0
|
24.0
|
200
|
0.60
|
2.12
|
307
|
|
and
…
|
33.0
|
43.0
|
10.0
|
257
|
0.41
|
1.49
|
333
|
|
|
94.0
|
96.0
|
2.0
|
160
|
0.94
|
0.52
|
220
|
|
PND109
|
|
||||||
|
|
15.0
|
43.0
|
28.0
|
242
|
0.27
|
0.69
|
281
|
|
incl
…
|
20.0
|
29.0
|
9.0
|
391
|
0.26
|
1.10
|
445
|
|
and
…
|
24.0
|
26.0
|
2.0
|
1223
|
0.42
|
3.20
|
1365
|
|
and
…
|
37.0
|
43.0
|
6.0
|
282
|
0.31
|
0.52
|
315
|
|
|
75.0
|
173.0
|
98.0
|
15
|
2.47
|
1.28
|
168
|
|
incl
…
|
93.0
|
94.0
|
1.0
|
167
|
3.64
|
1.24
|
367
|
|
PND110
|
|
||||||
|
|
9.0
|
182.0
|
173.0
|
95
|
1.63
|
1.40
|
273
|
|
incl…
|
9.0
|
98.0
|
89.0
|
279
|
1.28
|
1.17
|
378
|
|
and…
|
9.0
|
28.0
|
19.0
|
718
|
0.05
|
0.74
|
749
|
|
and…
|
9.0
|
12.0
|
3.0
|
145
|
0.07
|
0.90
|
183
|
|
and…
|
16.0
|
28.0
|
12.0
|
1085
|
0.04
|
0.71
|
1115
|
|
and…
|
44.0
|
180.0
|
138.0
|
87
|
1.59
|
2.01
|
233
|
|
and…
|
44.0
|
46.5
|
2.5
|
111
|
0.61
|
1.09
|
179
|
|
and…
|
44.0
|
98.0
|
54.0
|
98.0
|
2.03
|
1.52
|
343
|
|
and…
|
52.0
|
54.0
|
2.0
|
115
|
1.61
|
1.33
|
234
|
|
and…
|
60.0
|
82.0
|
22.0
|
328
|
1.98
|
1.43
|
466
|
|
and…
|
61.0
|
65.0
|
4.0
|
1248
|
1.93
|
2.88
|
1441
|
|
and…
|
86.0
|
94.0
|
8.0
|
270
|
2.83
|
2.74
|
495
|
|
and…
|
97.0
|
98.0
|
1.0
|
155
|
3.26
|
3.03
|
409
|
|
PND111
|
|
||||||
|
|
0.0
|
2.4
|
2.4
|
110
|
0.16
|
0.58
|
139
|
|
PND112
|
|
||||||
|
|
12.0
|
28.0
|
16.0
|
154
|
0.08
|
0.39
|
173
|
|
incl…
|
21.0
|
22.0
|
1.0
|
890
|
0.05
|
0.31
|
904
|
|
|
33.0
|
36.0
|
3.0
|
120
|
0.07
|
2.40
|
216
|
|
|
43.0
|
44.6
|
1.6
|
100
|
0.23
|
1.58
|
171
|
|
PND113
|
|
||||||
|
|
3.0
|
28.0
|
25.0
|
196
|
0.04
|
0.29
|
209
|
|
incl…
|
3.0
|
17.0
|
14.0
|
185
|
0.04
|
0.38
|
202
|
|
and…
|
21.0
|
28.0
|
7.0
|
310
|
0.04
|
0.19
|
320
|
35
SILVER ELEPHANT MINING CORP.
(formerly
“Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the three months ended March 31, 2020
(Expressed
in Canadian Dollars, except where indicated)
Reported widths are intercepted core lengths and not true widths,
as relationships with intercepted structures and contacts vary.
Based on core-angle measurements, true widths are estimated at
approximately 77% of reported core lengths.
The Company adopts industry recognized best practices in its
implementation of QA/QC methods. A geochemical standard control
sample and one blank sample is inserted into the sample stream
every 20th sample. Duplicates are taken at every 40th sample.
Standards and duplicates including lab duplicates and standards and
are analyzed using Thompson-Howarth plots. Samples are shipped to
ALS Global Laboratories in Ururo, Bolivia for preparation, and then
shipped to ALS Global laboratories for analysis in Lima, Peru.
Samples were analyzed using Intermediate Level Four Acid Digestion.
Silver overlimits (“ore grade”) are analyzed using fire
assay with a gravimetric finish. ALS Laboratories sample management
system meets all requirements of International Standards ISO/IEC
17025:2017 and ISO 9001:2015. All ALS geochemical hub laboratories
are accredited to ISO/IEC 17025:2017 for specific analytical
procedures.
All samples are taken from HQ-diameter core which split in half by
a diamond-blade masonry saw. One-half of the core is submitted for
laboratory analysis and the other half is preserved on the
Company’s secured core facility for reference. All core is
geotechnically analyzed, photographed and then logged by geologists
prior to sampling.
During
the three months ended March 31, 2020, the Company incurred total
costs of $639,368 (same period 2019 - $898,650) for the Pulacayo
Project including for $564,955 (2019 - $779,770) for geological and
engineering services, and $74,413 (2019 - $335,050) for personnel,
legal, general and administrative expenses.
During
the year ended December 31, 2019, the Company assessed whether
there was any indication that the previously recognized impairment
loss in connection with the Pulacayo Paca property may no longer exist or may have decreased. The
Company noted the following indications that the impairment may no
longer exist:
●
The Company signed
a mining production contract granting the Company the 100%
exclusive right to develop and mine at the Pulacayo Paca
property;
● The
Company renewed its exploration focus to develop the Pulacayo Paca
property in the current year;
● The Company re-initiated active exploration and
drilling program on the property;
● Completed a
positive final settlement of Bolivian tax dispute.
As the
Company identified indications that the impairment may no longer
exist, the Company completed an assessment to determine the
recoverable amount of the Pulacayo Paca property.
In
order to estimate the fair-value of the property the Company
engaged a third-party valuation consultant and also utilized level
3 inputs on the fair value hierarchy to estimate the recoverable
amount based on the property’s fair value less costs of
disposal determined with reference to dollars per unit of metal
in-situ.
With
reference to metal in-situ, the Company applied US$0.79 per ounce
of silver resource to its 36.8 million ounces of silver resources
and US$0.0136 per pound of zinc or lead in resource to its 303
million pounds of zinc and lead.
The
Company also considered data derived from properties similar to the
Pulacayo Paca Property. The data consisted of property transactions
and market valuations of companies holding comparable properties,
adjusted to reflect the possible impact of factors such as
location, political jurisdiction, commodity, geology,
mineralization, stage of exploration, resources, infrastructure and
property size.
As the
recoverable amount estimated with respect to the above was $31.4
million an impairment recovery of $13,708,200 was recorded during
the year ended December 31, 2019.
2020
In January 2020, the Company has completed the first 3 holes of the planned 17
drill holes at the Pulacayo Project. These step-out drill holes are
located 25-, 50- and 115 meters west of the existing Pulacayo
resource model. The Company has also mobilized a second drilling
rig to Pulacayo and expects to complete the proposed 5,000 meter
drill program in February with full assay results available by
March 2020. The remainder step out drill holes are collared up to
2km west from the existing resource model.
36
SILVER ELEPHANT MINING CORP.
(formerly
“Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the three months ended March 31, 2020
(Expressed
in Canadian Dollars, except where indicated)
On January 21, 2020, the Company announced the first step-out
diamond drilling results. Borehole PUD 267 intercepted 10 meters of
mineralization grading 147 g/t silver, 9.8% zinc, and 2.0% lead
(539 g/t AgEq) within 35.5 meter mineralization grading 230 g/t
AgEq starting 31.5 meters downhole.
PUD 267 marks the Company’s first Pulacayo drill hole of the
2020 drilling campaign and the first drilling to be conducted on
the property since 2012. A total of 268 historic Pulacayo drill
holes were completed between 2008 and 2012 by the previous
operator. The results of PUD 267 comes on the back of the success
of the Company’s first drill campaign at Paca (7km north of
Pulacayo), where PND 110 intersected highest-ever grade at Paca of
12 meters of mineralization grading 1,085g/t silver, starting 16
meters downhole (see the Company’s news release dated October
28, 2019). These near-surface, high-grade intersections contribute
positively to a potential district-style project economic
assessment with consideration of open-pit mining scenarios. There
are several other targets controlled by the Company within the
district that are yet to be drilled but highly promising (e.g.,
Pacamayo, Al Abra, and Pero).
PUD 267 intercepted the Tajo vein system 83 meters west from PUD
041 which intersected 20 meters of mineralization grading 15.1g/t
Ag, 2.43%Zn, 0.76% Pb at a similar depth to the mineralization
encountered at PUD 267. PUD 041 (drilled in 2008) represents the
westernmost drillhole that comprises the Company’s 2017
NI43-101 compliant Pulacayo resource (“Eastern Block”).
These results confirm that the Tajo vein system extends westward
and occurs near-surface, with a probable thickening component for a
minimum 83-meter extension to the west of the Eastern
Block.
The Eastern Block spans 1.4 km in strike, roughly 300 meters of
vertical section and contains 30.4 million indicated silver oz and
6.4 million inferred silver oz estimated in the independent NI
43-101 report by Mercator of October 2017 (see the Company’s
news release dated November 22, 2017).
PUD 267 was planned based on a vertical projection of
Pulacayo’s historic underground workings which followed the
Tajo vein system. These workings exist between 400 meters and 1,000
meters from the surface with mined grades of 10% to 25% Zn and
300g/t to 800g/t Ag (according to Hochschild mining records from
1914 to 1960). The results of PUD 267 reveal strong potential for
existing mineralization from near-surface in the intervening depths
to the workings approximately 400 meters below.
On March 6th,
2020, the Company released the results of its first 2,598 meters of
drilling which focused on the western portion of the Pulacayo
property.
Complete composited drill intersections of mineralization (in
meters) for this portion of the program are tabulated
below:
Table 28
|
Hole ID
|
From (m)
|
To (m)
|
Interval (m)
|
Ag (g/t)
|
Zn (%)
|
Pb (%)
|
AgEq
|
Target
|
|
PUD267*
|
31.5
|
67
|
35.5
|
54.3
|
4.31
|
0.92
|
229.6
|
West
|
|
|
117
|
123
|
6.0
|
47.8
|
1.11
|
0.25
|
89.7
|
West
|
|
PUD268
|
21
|
23
|
2
|
20
|
1.34
|
0.77
|
92.6
|
West
|
|
PUD274
|
75
|
77
|
2
|
93.5
|
|
0.42
|
98.8
|
East
|
|
PUD274
|
82
|
83
|
1
|
83
|
|
0.09
|
77.4
|
East
|
Reported widths are intercepted core lengths and not true widths,
as relationships with intercepted structures and contacts vary.
Based on core-angle measurements, true widths are estimated at
approximately 61% of reported core lengths.
37
SILVER ELEPHANT MINING CORP.
(formerly
“Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the three months ended March 31, 2020
(Expressed
in Canadian Dollars, except where indicated)
Silver equivalent is calculated as follows: Ag Eq. (g/t) = Ag
(g/t)*89.2% + (Pb% *(US$0.94/ lb. Pb /14.583 Troy oz/lb./US$16.50
per Troy oz. Ag)*10,000*91.9%) + (Zn% *(US$1.00/lb. Zn/14.583 Troy
oz/lb./US$16.50 per Troy oz. Ag)*10,000*82.9). This calculation
incorporates metallurgical recoveries from test work completed for
Pulacayo in 2013.
Table 29 Header information for
Drillhole
|
Hole ID
|
Azimuth
|
Dip
|
Depth (m)
|
Easting
|
Northing
|
AMSL
|
|
PUD267
|
180
|
-45
|
180
|
739823.4
|
7744735
|
4336
|
|
PUD268
|
180
|
-45
|
192
|
739866
|
7744723
|
4366
|
|
PUD269
|
180
|
-45
|
210
|
739750
|
7744727
|
4321
|
|
PUD270
|
0
|
-45
|
201
|
739626
|
7744618
|
4284
|
|
PUD271
|
180
|
-45
|
156
|
739670
|
7744655
|
4293
|
|
PUD272
|
180
|
-45
|
300
|
739540
|
7744860
|
4329
|
|
PUD273
|
180
|
-45
|
201
|
739343
|
7744869
|
4385
|
|
PUD274
|
200
|
-65
|
95
|
741031
|
7744391
|
4237
|
|
PUD275
|
180
|
-45
|
161
|
739481
|
7744625
|
4357
|
|
PUD276
|
0
|
-45
|
201
|
739467
|
7744416
|
4267
|
|
PUD277
|
21
|
-55
|
72
|
741196
|
7744229
|
4181
|
|
PUD278
|
0
|
-45
|
120
|
739170
|
7744599
|
4317
|
|
PUD279
|
180
|
-45
|
130
|
737933
|
7744679
|
4346
|
|
PUD280
|
0
|
-45
|
113
|
739024
|
7744538
|
4344
|
|
PUD281
|
0
|
-45
|
180
|
739661
|
7745113
|
4396
|
|
PUD282
|
0
|
-45
|
86.4
|
739180
|
7744380
|
4296
|
Complete drill map and result cross sections can be accessed
at www.silverelef.com/company-presentation and
https://www.silverelef.com/projects/pulacayo-silver-lead-zinc/.
2020 Outlook
The Company’s objectives in 2020 is to drill and expand the
Pulacayo silver resource base which open to the west and at depth,
as well as drill district-scale targets (Paca, Al Abra, Pero,
Pacamayo) and to increase investor awareness.
38
SILVER ELEPHANT MINING CORP.
(formerly
“Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the three months ended March 31, 2020
(Expressed
in Canadian Dollars, except where indicated)
The Company’s goals for 2020 include:
●
Refurbish
portions of the existing mine workings
●
Expand
the Pulacayo resource footprint
●
Phase
I drill program
●
Test
surface targets adjacent to existing workings
●
Test
depth of mineralization with initial deep fan
●
Compile
a production profile for Pulacayo
●
Expand
the Paca resource footprint
●
Phase
II drill program
●
Test
extent of manto/conglomerate formation
●
Update
Pulacayo/Paca Technical Report
●
Geological
mapping of the district.
Ulaan Ovoo Coal, Property
On October 16, 2018, the Company announced that it had executed a
lease agreement (the “Lease”) with an arms-length private Mongolian
company (the “Lessee”) whereby the Lessee plans to perform
mining operations at the Company’s Ulaan Ovoo coal mine and
will pay the Company USD$2.00 (the “Production
Royalty”) for every tonne
of coal shipped from the Ulaan Ovoo site
premises. The Lessee has paid the Company USD$100,000 in
cash, as a non-refundable advance royalty payment and is preparing,
at its own and sole expense, to restart and operate the Ulaan Ovoo
mine with its own equipment, supplies, housing and crew. The Lessee
will pay all government taxes and royalties related to its proposed
mining operation.
The Lease is valid for 3 years with an annual advance royalty
payment (“ARP”) for the first year of $100,000 (paid),
and USD$150,000 and USD$200,000 due on the 1st and 2nd anniversary
of the Lease, respectively. The ARP can be credited towards the
USD$2.00 per tonne Production Royalty payments to be made to the
Company as the Lessee starts to sell Ulaan Ovoo coal.
The 3-year Lease can be extended upon
mutual agreement.
The Ulaan Ovoo mine was commissioned in March 2019, however the
operation was stopped in April and May due to the late approval of
2019 environmental plan. The approval was issued in June
2019.
Chandgana Coal, Properties
For
more information about the Chandgana coal properties and power
plant project, please refer to the relevant sections of the
Company’s Annual Report on Form 20-F for the year ended
December 31, 2019.
The Company has successfully converted its Chandgana Khavtgai
(Khavtgai Uul) coal exploration license to a mining license.
For the Chandgana Tal project, the Company intends to discuss the
need to update the detailed environmental impact assessment and
mining feasibility study with the relevant ministries and complete
the requirements to maintain the licenses.
39
SILVER ELEPHANT MINING CORP.
(formerly
“Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the three months ended March 31, 2020
(Expressed
in Canadian Dollars, except where indicated)
5.
SUMMARY OF QUARTERLY RESULTS
The
following table summarizes selected consolidated financial
information for the eight most recently completed
quarters:
|
|
2020
|
2019
|
2019
|
2019
|
|
|
Q1
|
Q4
|
Q3
|
Q2
|
|
|
|
|
|
|
|
Operating
expense
|
$(1,137,998)
|
$(1,175,096)
|
$(715,475)
|
$(820,893)
|
|
Net
gain/(loss)
|
(940,124)
|
12,475,952
|
(1,019,268)
|
6,966,029
|
|
Net
loss per share, basic and diluted
|
$(0.01)
|
$0.11
|
$(0.01)
|
$0.07
|
|
Comprehensive
gain/(loss )
|
(940,124)
|
12,475,952
|
(1,019,268)
|
6,966,029
|
|
Comprehensive
gain/(loss)per share, basic and diluted
|
$(0.01)
|
$0.11
|
$(0.01)
|
$0.07
|
|
|
2019
|
2018
|
2018
|
2018
|
|
|
Q1
|
Q4
|
Q3
|
Q2
|
|
|
|
|
|
|
|
Operating
expense
|
$(794,098)
|
$(1,318,475)
|
$(636,172)
|
$(780,818)
|
|
Net
loss
|
(908,859)
|
(16,044,665)
|
(634,337)
|
(916,247)
|
|
Net
loss per share, basic and diluted
|
$(0.01)
|
$(0.20)
|
$(0.01)
|
$(0.01)
|
|
Comprehensive
loss
|
(908,859)
|
(15,975,825)
|
(610,797)
|
(966,787)
|
|
Comprehensive
loss per share, basic and diluted
|
$(0.01)
|
$(0.20)
|
$(0.01)
|
$(0.01)
|
The
fluctuation on quarterly net loss is primarily due to Share-based
compensation expenses recognized as stock options granted to
directors, officers, employees and consultants of the Company are
earned, advertising and promotion expenses, the impairment losses
recognized on resource properties, and debt
settlements.
6.
DISCUSSION OF OPERATIONS
The
reader is encouraged to refer to Note 6 of the Company’s
Annual Financial Statements for the year ended December 31, 2019
for the Company’s IFRS accounting policies. For discussion on
each project, the reader is encouraged to refer to the
“Business Overview” section of this
MD&A.
Three Months Ended March 31, 2020 and 2019 (Q1 2020 and Q1
2019)
|
Operating Expenses
|
Three Months Ended March,
|
|
|
|
2020
|
2019
|
|
Advertising
and promotion
|
$50,625
|
$134,048
|
|
Consulting
and management fees
|
387,500
|
58,552
|
|
General
and administrative expenses
|
350,916
|
413,281
|
|
Professional
fees
|
90,245
|
58,330
|
|
Share-based
payments
|
203,191
|
51,085
|
|
Travel
and accommodation
|
55,521
|
78,802
|
|
|
$1,137,998
|
$794,098
|
The
Company had an operating loss of $1,137,998 for Q1 2020, compared
with an operating loss of $794,098 for Q1 2019. In late January
2020, the Company initiated measures, including travel
restrictions, remote work, and supplemental health care for our
Bolivian, Mongolian, and USA staff in response to the reported
spread of COVID-19 virus. Theses measures include our Canadian head
office staff following Canadian federal and provincial Government
advice.
40
SILVER ELEPHANT MINING CORP.
(formerly
“Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the three months ended March 31, 2020
(Expressed
in Canadian Dollars, except where indicated)
Of note
are the following items:
The
Company had an operating loss of $1,137,998 for Q1 2020, compared
to a loss of $794,098 for Q1 2019. In late January 2020, the
Company initiated measures, including travel restrictions, remote
work, and supplemental health care for our Bolivian, Mongolian, and
USA staff in response to the reported spread of COVID-19
virus. Theses measures included our Canadian head office
staff. The Company followed the Canadian Federal and
Provincial Government Workplace Policies and Procedures Guidelines
which was established to address the COVID-19 pandemic
response.
Of note
for Q1 2020 are the following items:
●
advertising and
promotion expenses decreased in Q1 2020 compared to Q1 2019 by
$83,423 due to restricted travels and promotional meetings during
the COVID-19 pandemic;
●
Consulting and
management fees increased by $328,948 from $58,552 in Q1 2019 to
$387,500 in Q1 2020 due to the issuance of a share bonus granted in
the amount of $324,000 to management of the Company;
●
general and
administrative fees consisted of general office expenses and
administrative services related to maintaining the Company’s
exchange listings and complying with securities regulations and
also included insurance, salaries and directors’ fees.
General and administrative expenses decreased by $62,365 from
$413,281 in Q1 2019 to $350,919 in Q1 2020. The decrease is a
result of cost cutting initiatives across the Company;
●
professional fees
increased by $31,915, from $58,300 in Q1 2019 to $90,245 in Q2 2019
due to additional legal and audit fees incurred during Q1
2020;
●
share-based
payments costs are non-cash charges which reflect the estimated
value of stock options granted. The Company uses the fair value
method of accounting for stock options granted to directors,
officers, employees and consultants whereby the fair value of all
stock options granted is recorded as a charge to operations over
the period from the grant date to the vesting date of the option.
The fair value of common share options granted is estimated on the
date of grant using the Black-Scholes option pricing model.
Share-based payments increased in Q1 2020 by $152,106 compared to
Q1 2019. The increase was primarily related to the increase
in the number of options earned during the Q1 2020 period compared
to the Q1 2019 period; and
●
travel and
accommodation expenses decreased by $23,281 from $78,802 in Q1 2019
to $55,521 in Q1 2020 due to decreased property site visits and
travels to promote the Company.
For the
three months ended March 31, 2020, the Company’s “Other
Items” amounted to a loss of $197,874 compared to a loss of
$114,761 in Q1 2019.
|
Other Items
|
Three Months Ended March,
|
|
|
|
2020
|
2019
|
|
Costs
in excess of recovered coal
|
$118,803
|
$21,002
|
|
Foreign
exchange (gain)/loss
|
(316,677)
|
(19,549)
|
|
Impairment
of mineral property
|
-
|
113,308
|
|
|
$(197,874)
|
$114,761
|
7.
PROPOSED TRANSACTIONS
As at
the date of this MD&A there are no proposed transactions where
the Board of Directors or senior management believes that
confirmation of the decision by the Board is probable or with which
the Board and senior management have decided to
proceed.
41
SILVER ELEPHANT MINING CORP.
(formerly
“Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the three months ended March 31, 2020
(Expressed
in Canadian Dollars, except where indicated)
8.
LIQUIDITY AND CAPITAL RESOURCES
Working Capital
The
Company utilizes existing cash received from prior issuances of
equity instruments to provide liquidity to the Company and finance
exploration projects.
At
March 31, 2020, the Company had cash flow of $930,856 representing
a decrease of $2,086,848 from $3,017,704 held at December 31, 2019.
The Company’s working capital at March 31, 2020 was a deficit
of $596,118 compared to a working capital of $947,465 at December
31, 2019.
On May
1, 2020, the Company closed the first tranche of the non-brokered
private placement (the “Placement”) announced on April 15,
2020. The first tranche raised gross proceeds of $1,330,940 through
the issuance of 10,238,000 units (the “Units”) of the
Company of $0.13 per Unit. Each Unit is comprised of one Share and
one Share purchase warrant (the “Warrants”). Each
Warrant entitles the holder to purchase an additional Share of the
Company at an exercise price of $0.16 for a period of three years
from the closing of the first tranche of the Placement. The Company
paid $3,250 in cash and issued 156,900 Units as finder’s fee.
The Placement proceeds are expected to be used for the
Company’s mineral project development and for general working
capital purposes.
The Company expects to close the second and final tranche of $
645,000 of the fully subscribed Placement in May 2020.
As at
this MD&A date, the Company has cash flow of $1.9 million and
the Company’s working capital is $0.5 million.
The
Company believes it has sufficient capital to meet its cash needs
for the next 12 months, including the costs of compliance with
continuing reporting requirements.
The
Company’s cash flow highlights for the three months ended
March 31, 2020, are presented in the table below.
Cash Flow Highlights
|
|
Three Months Ended March 31,
|
|
|
|
2020
|
2019
|
|
Cash
Used in Operating Activities
|
$(484,191)
|
$(923,503)
|
|
Cash
Used in Investing Activities
|
(1,596,511)
|
(719,476)
|
|
Cash
Used in Financing Activities
|
(6,146)
|
(8,929)
|
|
Net
Decrease in Cash and Cash equivalents
|
(2,086,848)
|
(1,651,908)
|
|
Cash
and cash equivalents- beginning of period
|
3,017,704
|
5,304,097
|
|
Cash
and cash equivalents - end of period
|
$930,856
|
$3,652,189
|
Operating activities: During the three months ended March
31, 2020, cash used in
operating activities was $484,191 compared to $923,503 cash used
during Q1 2019. The decreased outflows in Q1 2020 related to
decreased activities of the Company due to COVID-19
pandemic.
Investing activities:
During the three months ended March 31, 2020, the Company used
$1,596,511 in investing activities (2019 - $719,476). During Q1
2020, the Company spent $15,810 (2019 - $Nil) on purchase of
equipment and $1,580,701 (2019 - $719,476) on the Pulacayo and
Gibellini Projects exploration activities.
Financing activities:
During the three months ended March 31, 2020, the Company received
$3,000 on exercise of stock options and paid $9,146 (2019 - $8,929)
for corporate office lease.
42
SILVER ELEPHANT MINING CORP.
(formerly
“Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the three months ended March 31, 2020
(Expressed
in Canadian Dollars, except where indicated)
Capital Resources
As an
exploration and development company, The Company has no regular
cash in-flow from operations, and the level of operations is
principally a function of availability of capital resources. The
Company’s capital resources are largely determined by the
strength of the junior resource markets and by the status of the
Company’s projects in relation to these markets, and its
ability to compete for investor support of its projects. See
Section “Risk
Factors” set out in the Company’s AR. To date,
the principal sources of funding have been equity and debt
financing. Many factors influence the Company’s ability to
raise funds, and there is no assurance that the Company will be
successful in obtaining adequate financing and at favourable terms
for these or other purposes including general working capital
purposes.
For the
foreseeable future, as existing properties are explored, evaluated
and developed, the Company will continue to seek capital through
the issuance of equity, strategic alliances or joint ventures, and
debt, of which the Company currently has none.
The
Company expects to continue requiring cash for operations and
exploration and evaluation activities as expenditures are incurred
while no revenues are generated. Therefore, its continuance as a
going concern is dependent upon its ability to obtain adequate
financing to fund future exploration, evaluation and development of
the Gibellini Project and the potential construction of a mine, in
order to reach profitable levels of operation. The Company has
managed its working capital by controlling its spending on its
properties and operations. Due to the ongoing planned advancement
of project milestones for the Gibellini Project and for the
Pulacayo Project, the Company will continue to incur costs
associated with exploration, evaluation and development activities,
while no revenues are being generated.
The
condensed interim consolidated financial statements for the three
months ended March 31, 2020 have been prepared under the assumption
that the Company is a going concern, which contemplates the
realization of assets and the payment of liabilities in the
ordinary course of business.
In March 2020 the World Health Organization declared coronavirus
COVID-19 a global pandemic. This contagious disease outbreak, which
has continued to spread, and any related adverse public health
developments, has adversely affected workforces, economies, and
financial markets globally, potentially leading to an economic
downturn. It is not possible for the Company to predict the
duration or magnitude of the adverse results of the outbreak and
its effects on the Company’s business or results of
operations at this time.
Contractual Commitments
The
Company’s commitments related to mineral properties are
disclosed in Note 13 to the Annual Financial Statements. The
Company has no commitments for capital expenditures. The
Company’s other commitments include a corporate office
lease:
|
|
2020
|
2021
|
2022
|
Total
|
|
|
|
|
|
|
|
Office Lease
Obligations
|
$36,343
|
$24,574
|
$9,540
|
$70,457
|
|
|
$36,343
|
$24,574
|
$9,540
|
$70,457
|
Capital Risk Management
The
Company considers its capital structure to consist of Share
capital, stock options and Share purchase warrants. The Company
manages its capital structure and makes adjustments to it, based on
the funds available to the Company, in order to support the
exploration and development of its projects and to pursue and
support growth opportunities. The Board of Directors does not
establish quantitative returns on capital criteria for management.
The Company is not subject to externally imposed capital
requirements. There has been no change in the Company’s
approach to capital management during the three months ended March
31, 2020.
43
SILVER ELEPHANT MINING CORP.
(formerly
“Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the three months ended March 31, 2020
(Expressed
in Canadian Dollars, except where indicated)
Management
is aware that market conditions, driven primarily by vanadium,
silver, other metal and coal prices, may limit the Company’s
ability to raise additional funds. These factors, and others, are
considered when shaping the Company’s capital management
strategy.
9.
CONTINGENCIES
ASC tax claim
On
January 2, 2015, the Company acquired ASC Holdings Limited and ASC
Bolivia LDC (which together, hold ASC Bolivia LDC Sucursal Bolivia,
which in turn, held Apogee Silver Ltd.’s (“Apogee”) joint venture interest in
the Pulacayo Project) and Apogee Minerals Bolivia S.A. Pursuant to
the terms of the Agreement, the Company agreed to assume all
liabilities of these former Apogee subsidiaries, including legal
and tax liabilities associated with the Pulacayo Project.
During Apogee’s financial year ended June 30, 2014, it
received notice from the Servicio de Impuestos Nacionales, the
national tax authority in Bolivia, that ASC Bolivia LDC Sucursal
Bolivia, now the Company’s wholly-owned subsidiary, owed
approximately Bs42,000,000 in taxes, interest and penalties
relating to a historical tax liability in an amount originally
assessed at approximately $760,000 in 2004, prior to Apogee
acquiring the subsidiary in 2011.
Apogee
disputed the assessment and disclosed to the Company that it
believed the notice was improperly issued. The Company
continued to dispute the assessment and hired local legal counsel
to pursue an appeal of the tax authority’s assessment on both
substantive and procedural grounds. The Company received a positive
Resolution issued by the Bolivian Constitutional Court that
among other things, declared null and void the
previous
Resolution
of the Bolivian Supreme Court issued in 2011 (that imposed the tax
liability on ASC Bolivia LDC Sucursal Bolivia) and sent the matter
back to the Supreme court to consider and issue a new
resolution.
On November 18, 2019 the Company received Resolution No. 195/2018
issued by the Supreme Court of Bolivia which declared the tax claim
brought by Bolivia’s General Revenue Authority against the
Company’s Bolivian subsidiary as not
proven.
The Resolution is final and binding. Hence neither the Company nor
the Company’s Bolivian subsidiaries owe any outstanding back
taxes to the Bolivian General Revenue Authority.
During
the year ended December 31, 2019, the Company and legal counsel
reassessed the status of tax rulings and determined that the
probability of a re-issuance of a tax claim against the Company in
connection with the above was remote. As a result, the Company has
written off the tax liability and recorded a debt settlement gain
in the amount of $7,952,700 on its consolidated statements of
operations and comprehensive loss.
Red Hill tax claim
During
the year ended December 31, 2014, the Company’s wholly-owned
subsidiary, Red Hill Mongolia LLC (“Red Hill”) was issued a letter
from the Sukhbaatar District Tax Division notifying it of the
results of the Sukhbaatar District Tax Division’s VAT
inspection of Red Hill’s 2009-2013 tax imposition and
payments that resulted in validating VAT credits of only
MNT235,718,533 from Red Hill’s claimed VAT credit of
MNT2,654,175,507. Red Hill disagreed with the Sukhbaatar District
Tax Division’s findings as the tax assessment appeared to the
Company to be unfounded. The Company disputed the Sukhbaatar
District Tax Division’s assessment and submitted a complaint
to the Capital City Tax Tribunal. On March 24, 2015, the
Capital City Tax Tribunal resolved to refer the matter back to the
Sukhbaatar District Tax Division for revision and separation of the
action between confirmation of Red Hill’s VAT credit, and the
imposition of the penalty/deduction for the tax assessment. Due to
the uncertainty of realizing the VAT balance, the Company has
recorded an impairment charge for the full VAT balance in the year
ended December 31, 2015.
In
June 2019, the Company received a
positive resolution issued from the City tax tribunal regarding the
Company’s VAT dispute with the Mongolia tax office. The
resolution, which is binding and final, affirmed Red Hill’s
outstanding VAT credit of 1.169 billion MNT resulted from past
mining equipment purchases.
The VAT credit can be used to offset Red Hill’s taxes and
royalty payments; or be refunded in cash by Mongolia’s
Ministry of Finance within 12 to 24 months processing time.
Due to the credit risk associated with the VAT credit, the Company
has provided a full valuation provision against the
balance.
44
SILVER ELEPHANT MINING CORP.
(formerly
“Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the three months ended March 31, 2020
(Expressed
in Canadian Dollars, except where indicated)
10.
RELATED PARTY DISCLOSURES
The
Company had related party transactions with the following
companies, related by way of directors and key management
personnel:
●
Linx Partners Ltd.,
a private company controlled by John Lee, Director, CEO and
Executive Chairman of the Company, provides management and
consulting services to the Company.
●
MaKevCo Consulting
Inc., a private company 50% owned by Greg Hall, Director of the
Company, provides consulting services to the Company.
●
Sophir Asia Ltd., a
private company controlled by Masa Igata, Director of the Company,
provides consulting services to the Company
A
summary of amounts paid or accrued to related parties is as
follows:
|
|
Three Months Ended March 31,
|
|
|
Related
parties
|
2020
|
2019
|
|
Directors
and officers
|
$641,035
|
$467,463
|
|
Linx
Partners Ltd.
|
105,000
|
84,000
|
|
MaKevCo
Consulting Inc.
|
11,500
|
5,700
|
|
Sophir
Asia Ltd.
|
10,900
|
5,400
|
|
|
$768,435
|
$562,563
|
A
summary of the transactions by nature among the related parties is
as follows:
|
|
Three Months Ended March 31,
|
|
|
Related
parties
|
2020
|
2019
|
|
Consulting
and management fees
|
$52,500
|
$106,950
|
|
Directors'
fees
|
43,200
|
22,500
|
|
Mineral
properties
|
493,585
|
175,910
|
|
Salaries
|
179,149
|
257,203
|
|
|
$768,435
|
$562,563
|
As at
March 31, 2019, amounts due to related parties totaled $37,813
(December 31, 2019 – $30,533).
Key
management personnel are those persons having authority and
responsibility for planning, directing and controlling the
activities of the Company, including directors of the Company. The
amounts due to related parties is summarized below:
|
|
Three Months Ended March 31,
|
|
|
Key
Management Personnel
|
2020
|
2018
|
|
Salaries
and short term benefits
|
$206,313
|
$289,919
|
|
Directors'
fees
|
43,200
|
22,500
|
|
Share-based
payments
|
138,410
|
121,096
|
|
|
$387,924
|
$433,515
|
11.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company’s consolidated financial statements are prepared
in accordance with IFRS as issued by the International Accounting
Standards Board. The Company followed the same accounting policies
and methods of computation in the Annual Financial Statements for
the three months ended March 31, 2020. The significant accounting policies applied, and
recent accounting pronouncements are described in Notes 4 and 6 to
the Annual Financial Statements.
45
SILVER ELEPHANT MINING CORP.
(formerly
“Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the three months ended March 31, 2020
(Expressed
in Canadian Dollars, except where indicated)
In preparing the condensed consolidated interim financial
statements in accordance with IFRS, management is required to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements, and the
reported amounts of revenues and expenses during the reporting
period. Areas requiring the use of estimates include the rates of
amortization for property and equipment, the useful life and
recoverability of long-lived assets, the recoverability of accounts
receivable, determination of environmental obligation provision for
closure and reclamation, accounts payable and accrued liabilities,
the assumptions used in the determination of the fair value of
financial instruments and share-based payments, and the
determination of the recoverability of deferred income tax
assets bases
its estimates and assumptions on current and various other factors
that it believes to be reasonable under the circumstances.
Management believes the estimates are reasonable; however, actual
results could differ from those estimates and could impact future
results of operations and cash flows.
Significant Accounting Judgments and Estimates
The
Company bases its estimates and assumptions on current and various
other factors that it believes to be reasonable under the
circumstances. Management believes the estimates are reasonable;
however, actual results could differ from those estimates and could
impact future results of operations and cash flows. The areas which
require management to make significant judgements, estimates and
assumptions in determining carrying values include, but are not
limited to:
The
significant judgments that the Company’s management has made
in the process of applying the Company’s accounting policies,
apart from those involving estimation uncertainties (Note 5 to the
Annual Financial Statements ), that have the most significant
effect on the amounts recognized in the Annual Financial Statements
include, but are not limited to:
(a)
Functional currency
determination
The
functional currency for each of the Company’s subsidiaries is
the currency of the primary economic environment and the Company
reconsiders the functional currency of its entities if there is a
change in events and conditions which determined the primary
economic environment. Management has determined the functional
currency of all entities to be the Canadian dollar.
(b)
Economic
recoverability and probability of future economic benefits of
exploration, evaluation and development costs
Management has
determined that exploratory drilling, evaluation, development and
related costs incurred which have been capitalized are economically
recoverable. Management uses several criteria in its assessments of
economic recoverability and probability of future economic benefit
including geologic and metallurgic information, history of
conversion of mineral deposits to proven and probable reserves,
scoping, prefeasibility and feasibility studies, assessable
facilities, existing permits and life of mine plans.
Management has
determined that during the year ended December 31, 2019, none of
the Company’s silver and vanadium projects have reached
technical feasibility and commercial viability and therefore remain
within Mineral Properties on the Statement of Financial
Position.
(c)
Impairment
(recovery) assessment of deferred exploration
interests
The
Company considers both external and internal sources of information
in assessing whether there are any indications that mineral
property interests are impaired. External sources of information
the Company considers include changes in the market, economic and
legal environment in which the Company operates that are not within
its control and affect the recoverable amount of mineral property
interest. Internal sources of information the Company considers
include the manner in which mineral properties and plant and
equipment are being used or are expected to be used and indications
of economic performance of the assets.
46
SILVER ELEPHANT MINING CORP.
(formerly
“Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the three months ended March 31, 2020
(Expressed
in Canadian Dollars, except where indicated)
(d)
Deferred Tax
Liability
Judgement is
required to determine which types of arrangements are considered to
be a tax on income in contrast to an operating cost. Judgement is
also required in determining whether deferred tax liabilities are
recognised in the statement of financial position. Deferred tax
liabilities, including those arising from un-utilised tax gains,
require management to assess the likelihood that the Company will
generate sufficient taxable losses in future periods, in order to
offset recognised deferred tax liabilities. Assumptions about the
generation of future taxable losses depend on management’s
estimates of future cash flows. These estimates of future taxable
losses are based on forecast cash flows from operations (which are
impacted by production and sales volumes, commodity prices,
reserves, operating costs, closure and rehabilitation costs,
capital expenditure, and other capital management transactions) and
judgement about the application of existing tax laws in each
jurisdiction. To the extent that future cash flows and taxable
losses differ significantly from estimates, the ability of the
Company to offset the net deferred tax liabilities recorded at the
reporting date could be impacted.
(e)
Mineral
reserves
The
recoverability of the carrying value of the mineral properties is
dependent on successful development and commercial exploitation, or
alternatively, sale of the respective areas of
interest.
(f)
Depreciation
Significant
judgment is involved in the determination of useful life and
residual values for the computation of depreciation, depletion and
amortization and no assurance can be given that actual useful lives
and residual values will not differ significantly from current
assumptions.
(g)
Impairment
The carrying value of long-lived assets are
reviewed each reporting period to determine whether there is any
indication of impairment. If the carrying amount of an asset
exceeds its recoverable amount, the asset is impaired, and an
impairment loss is recognized in the consolidated statement of
operations. The assessment of fair values, including those of the
cash generating units (the smallest identifiable group of assets
that generates cash inflows that are largely independent of the
cash inflow from other assets or groups of assets)
(“CGUs”) for purposes of testing goodwill, require
the use of estimates and assumptions for recoverable production,
long-term commodity prices, discount rates, foreign exchange rates,
future capital requirements and operating performance. Changes in
any of the assumptions or estimates used in determining the fair
value of goodwill or other assets could impact the impairment
analysis.
(h)
Allowance for
doubtful accounts, and the recoverability of receivables and
prepaid expense amounts.
Significant
estimates are involved in the determination of recoverability of
receivables and no assurance can be given that actual proceeds will
not differ significantly from current estimations. Similarly,
significant estimates are involved in the determination of the
recoverability of services and/or goods related to the prepaid
expense amounts, and actual results could differ significantly from
current estimations.
(i)
Provision for
closure and reclamation
The
Company assesses its mineral properties’ rehabilitation
provision at each reporting date or when new material information
becomes available. Exploration, development and mining activities
are subject to various laws and regulations governing the
protection of the environment. In general, these laws and
regulations are continually changing, and the Company has made, and
intends to make in the future, expenditures to comply with such
laws and regulations. Accounting for reclamation obligations
requires management to make estimates of the future costs that the
Company will incur to complete the reclamation work required to
comply with existing laws and regulations at each location. Actual
costs incurred may differ from those amounts
estimated.
Also,
future changes to environmental laws and regulations could increase
the extent of reclamation and remediation work required to be
performed by the Company. Increases in future costs could
materially impact the amounts charged to operations for reclamation
and remediation. The provision represents management’s best
estimate of the present value of the future reclamation and
remediation obligation. The actual future expenditures may differ
from the amounts currently provided.
47
SILVER ELEPHANT MINING CORP.
(formerly
“Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the three months ended March 31, 2020
(Expressed
in Canadian Dollars, except where indicated)
(f)
Share-based
payments
Management uses
valuation techniques in measuring the fair value of share purchase
options granted. The fair value is determined using the Black
Scholes option pricing model which requires management to make
certain estimates, judgement, and assumptions in relation to the
expected life of the share purchase options and share purchase
warrants, expected volatility, expected risk-free rate, and
expected forfeiture rate. Changes to these assumptions could have a
material impact on the Annual Financial Statements.
(f)
Contingencies
The
assessment of contingencies involves the exercise of significant
judgment and estimates of the outcome of future events. In
assessing loss contingencies related to legal proceedings that are
pending against the Company and that may result in regulatory or
government actions that may negatively impact the Company’s
business or operations, the Company and its legal counsel evaluate
the perceived merits of the legal proceeding or unasserted claim or
action as well as the perceived merits of the nature and amount of
relief sought or expected to be sought, when determining the
amount, if any, to recognize as a contingent liability or when
assessing the impact on the carrying value of the Company’s
assets. Contingent assets are not recognized in the Annual
Financial Statements.
(g)
Fair value
measurement
The
Company measures financial instruments at fair value at each
reporting date. The fair values of financial instruments measured
at amortized cost are disclosed in Note 20. Also, from time to
time, the fair values of non-financial assets and liabilities are
required to be determined, e.g., when the entity acquires a
business, completes an asset acquisition or where an entity
measures the recoverable amount of an asset or cash-generating unit
at fair value less costs of disposal. Fair value is the price that
would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the
measurement date.
The
fair value of an asset or a liability is measured using the
assumptions that market participants would use when pricing the
asset or liability, assuming that market participants act in their
economic best interest. A fair value measurement of a non-financial
asset takes into account a market participant’s ability to
generate economic benefits by using the asset in its highest and
best use or by selling it to another market participant that would
use the asset in its highest and best use. The Company uses
valuation techniques that are appropriate in the circumstances and
for which sufficient data are available to measure fair value,
maximising the use of relevant observable inputs and minimising the
use of unobservable inputs. Changes in estimates and assumptions
about these inputs could affect the reported fair
value.
12.
FINANCIAL INSTRUMENTS AND RELATED RISKS
The
Board of Directors, through the Audit Committee is responsible for
identifying the principal risks of the Company and ensuring that
risk management systems are implemented. The Company manages its
exposure to financial risks, including liquidity risk, foreign
exchange rate risk, interest rate risk, and credit risk in
accordance with its risk management framework. The Company’s
board of directors’ reviews the Company’s policies on
an ongoing basis.
Financial
Instruments
A
description of financial instruments is included in Note 21 to the
Annual Financial Statements and Note 11 to the Company’s
unaudited condensed interim consolidated financial statements for
the three months ended March 31, 2020.
48
SILVER ELEPHANT MINING CORP.
(formerly
“Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the three months ended March 31, 2020
(Expressed
in Canadian Dollars, except where indicated)
Related
Risks
(a)
Liquidity
risk
Liquidity risk is
the risk that an entity will be unable to meet its financial
obligations as they fall due. The Company manages liquidity risk by
preparing cash flow forecasts of upcoming cash requirements. As at
March 31, 2020, the Company had a cash balance of $930,856
(December 31, 2019 – $3,017,704). As at March 31, 2020,
the Company had accounts payable and accrued liabilities of
$1,855,865 (December 31, 2019 - $2,420,392), which have
contractual maturities of 90 days or less.
(b)
Credit
risk
Credit
risk is the risk that one party to a financial instrument will fail
to discharge an obligation and cause the other party to incur a
financial loss. The Company is exposed to credit risk primarily
associated to cash and restricted cash equivalents and receivables,
net of allowances. Management believes that the credit risk
concentration with respect to these financial instruments is remote
as the balances primarily consist of amounts on deposit with a
major financial institution and amounts receivable from the
Government of Canada. The carrying amount of assets included on the
statements of financial position represents the maximum credit
exposure.
(c)
Market
risk
The
significant market risks to which the Company is exposed are
interest rate risk, foreign currency risk, and commodity and equity
price risk. The objective of market risk management is to manage
and control market risk exposures within acceptable limits, while
maximizing returns.
(i)
Interest rate
risk
Interest rate risk
is the risk that the fair value or future cash flows of a financial
instrument will fluctuate due to changes in market interest rates.
The Company’s cash and restricted cash equivalents primarily
include highly liquid investments that earn interest at market
rates that are fixed to maturity. Due to the short‐ term nature of these
financial instruments, fluctuations in market rates do not have
significant impact on the fair values of the financial instruments
as of March 31, 2020
(ii)
Foreign currency
risk
The
Company is exposed to foreign currency risk to the extent that
monetary assets and liabilities held by the Company are not
denominated in Canadian dollars. The Company has exploration and
development projects in the United States, Mongolia and Bolivia and
undertakes transactions in various foreign currencies. The Company
is therefore exposed to foreign currency risk arising from
transactions denominated in a foreign currency and the translation
of financial instruments denominated in US dollars, Mongolian
tugrik, and Bolivian boliviano into its functional and reporting
currency, the Canadian dollar.
Based
on the above, net exposures as at March 31, 2020, with other
variables unchanged, a 10% (December 31, 2018 – 10%)
strengthening (weakening) of the Canadian dollar against the
Mongolian tugrik would impact net loss with other variables
unchanged by $28,000. A 10% strengthening (weakening) of the
Canadian dollar against the Bolivian boliviano would impact net
loss with other variables unchanged by $42,000. A 10% strengthening
(weakening) of the US dollar against the Canadian dollar would
impact net loss with other variables unchanged by $32,000. The
Company currently does not use any foreign exchange contracts to
hedge this currency risk.
(iii)
Commodity and
equity price risk
Commodity price
risk is defined as the potential adverse impact on earnings and
economic value due to commodity price movements and volatilities.
Commodity prices fluctuate on a daily basis and are affected by
numerous factors beyond the Company’s control. The supply and
demand for these commodities, the level of interest rates, the rate
of inflation, investment decisions by large holders of commodities
including governmental reserves and stability of exchange rates can
all cause significant fluctuations in prices. Such external
economic factors are in turn influenced by changes in international
investment patterns and monetary systems and political
developments.
49
SILVER ELEPHANT MINING CORP.
(formerly
“Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the three months ended March 31, 2020
(Expressed
in Canadian Dollars, except where indicated)
The
Company is also exposed to price risk with regards to equity
prices. Equity price risk is defined as the potential adverse
impact on the Company’s earning due to movements in
individual equity prices or general movements in the level of the
stock market.
The
Company closely monitors commodity prices, individual equity
movements and the stock market to determine the appropriate course
of action to be taken by the Company. Fluctuations in value may be
significant.
13.
RISKS AND UNCERTAINTIES
The
Company’s business is the exploration, evaluation and
development of mining properties. Thus, the Company’s
operations are speculative due to the high-risk nature of its
business. The following list details existing and future material
risks to the Company. The risks described below are not listed in
any particular order and are not meant to be exhaustive. Additional
risks and uncertainties not currently known to the Company, or
those that it currently deems to be immaterial, may become material
and adversely affect the Company. The realization of any of these
risks may materially and adversely impact the Company’s
business, financial condition or results of operations and/or the
market price of the Company’s securities. Each of these risk
factors is discussed in more detail under “Risk
Factors” in the Company’s AR for the year ended
December 31, 2019, which is available under the Company’s
SEDAR profile at www.sedar.com.
●
Global outbreaks
including COVID-19;
●
History of net
losses;
●
Capital costs,
operating costs, production and economic returns;
●
Exploration and
development risks;
●
No history of
profitable mineral production;
●
Mineral reserves /
mineral resources;
●
Environmental
risks;
●
Foreign
operations;
●
Reform of the
General Mining Law in the U.S;
●
Government
approvals and permits;
●
Property
interests;
●
Mineral claims,
mining leases, licenses and permitting;
●
Title
risks;
●
First
Nation;
●
Competition;
●
Inherent
risks;
●
Reliance on key
personnel;
●
Volatility of
mineral prices,
●
Currency
fluctuations;
●
Global and local
financial conditions;
●
Third-party
contractors;
●
Andy-bribery
legislations;
●
Uninsured
risks;
●
No dividend
payments;
●
Related party
transactions;
●
Litigation and
regulatory proceedings;
●
Cyber
security;
●
Foreign private
issuer;
●
Non-Canadian
investors;
●
Emerging growing
company;
●
Additional
risks.
50
SILVER ELEPHANT MINING CORP.
(formerly
“Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the three months ended March 31, 2020
(Expressed
in Canadian Dollars, except where indicated)
14.
DISCLOSURE CONTROLS AND PROCEDURES
Design of Internal Controls over Financial Reporting
Disclosure
controls and procedures are designed to provide reasonable
assurance that information required to be disclosed by the Company
in its annual filings, interim filings or other reports filed or
submitted by it under securities legislation is recorded,
processed, summarized and reported within the time periods
specified in the securities legislation and include controls and
procedures designed to ensure that information required to be
disclosed by the Company in its annual filings, interim filings or
other reports filed or submitted under securities legislation is
accumulated and communicated to the Company’s management,
including its Chief Executive Officer and Chief Financial Officer,
as appropriate to allow timely decisions regarding required
disclosure.
The
Company’s disclosure committee is comprised of the Chief
Executive Officer and senior members of management. The disclosure
committee’s responsibilities include determining whether
information is material and ensuring the timely disclosure of
material information in accordance with securities laws. The board
of directors is responsible for reviewing the Company’s
disclosure policy, procedures and controls to ensure that it
addresses the Company’s principal business risks, and changes
in operations or structure, and facilitates compliance with
applicable legislative and regulatory reporting
requirements.
The Chief Executive Officer and Chief Financial Officer, after
participating with the Company’s management in evaluating the
effectiveness of the Company’s disclosure controls and
procedures have concluded that the Company’s disclosure
controls and procedures were effective during the three months
March 31, 2020.
Design of Internal Controls over Financial Reporting
The Company’s management, with the participation of the Chief
Executive Officer and Chief Financial Officer, is responsible for
establishing and maintaining adequate internal control over
financial reporting. The Company’s 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. The Company’s internal control over
financial reporting includes those policies and procedures
that:
●
pertain to the
maintenance of records that, in reasonable detail accurately and
fairly reflect the transactions, acquisition and disposition of
assets and liabilities;
●
provide reasonable
assurance that transactions are recorded as necessary to permit
preparation of the financial statements in accordance with IFRS and
that receipts and expenditures are being made only in accordance
with the authorization of management and directors of the Company;
and
●
provide reasonable
assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of assets, and incurrence of
liabilities, that could have a material effect on the financial
statements.
The Company’s management, with the participation of the Chief
Executive Officer and Chief Financial Officer, assessed the
effectiveness of the Company’s internal control over
financial reporting using the criteria set forth in the
Internal Control
– Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this assessment,
management concluded that the Company’s internal control over
financial reporting was effective during the three months ended
March 31, 2020.
15.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There were no changes to the Company’s internal control over
financial reporting during the three months ended March 31, 2020,
that have materially affected, or are reasonably likely to
materially affect, the Company’s internal control over
financial reporting.
51
SILVER ELEPHANT MINING CORP.
(formerly
“Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the three months ended March 31, 2020
(Expressed
in Canadian Dollars, except where indicated)
Limitations of controls and procedures
The Company’s management, including the Chief Executive
Officer and the Chief Financial Officer, believe that any
disclosure controls and procedures or internal controls over
financial reporting, no matter how well conceived and operated, can
provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Further, the design of a
control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered
relative to their costs. Because of the inherent limitations in all
control systems, they cannot provide absolute assurance that all
control issues and instances of fraud, if any, within the Company
have been prevented or detected. These inherent limitations include
the realities that judgements in decision-making can be faulty, and
that breakdowns can occur because of simple error or mistake.
Additionally, controls can be circumvented by the individual acts
of some persons, by collusion of two or more people, or by
unauthorized override of the control. The design of any systems of
controls also is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any
design will succeed in achieving its stated goals under all
potential future conditions. Accordingly, because of the inherent
limitations in a cost-effective control system, misstatements due
to error or fraud may occur and not be detected.
16.
DISCLOSURE OF OUTSTANDING SHARE DATA
As at
the date of this MD&A, the Company had a total of:
●
133,310,408 Shares outstanding with
recorded value of $183,102,433;
●
12,382,500 stock options outstanding with a
weighted average exercise price of $0.28. The options are
exercisable to purchase one Share at prices ranging from $0.20 to
$0.50 and expire between June 2020 and May 2025; and
●
37,061,497 Share purchase warrants
outstanding with a weighted average exercise price the equivalent
of $0.44. The Share purchase warrants are exercisable to purchase
one Share at prices ranging from the equivalent of $0.40 to $0.70
and expire between May 2020 and May 2023.
17.
OFF-BALANCE SHEET ARRANGEMENTS
During
the three months ended March 31, 2020, the Company was not a party
to any off-balance sheet arrangements that have, or are reasonably
likely to have, a current or future effect on the results of
operations, financial condition, revenues or expenses, liquidity,
capital expenditures or capital resources of the
Company.
52
Exhibit 99.3
Form
52-109F2
Certification of Interim Filings
Full Certificate
I,
Michael Doolin, Chief Executive
Officer of Silver Elephant Mining Corp., certify the
following:
1.
Review: I have
reviewed the interim financial report and interim MD&A
(together, the “interim filings”) of Silver Elephant Mining Corp. (the
“issuer”) for the interim period ended March 31, 2020.
2.
No
misrepresentations: Based on my knowledge, having exercised
reasonable diligence, the interim filings do not contain any untrue
statement of a material fact or omit to state a material fact
required to be stated or that is necessary to make a statement not
misleading in light of the circumstances under which it was made,
with respect to the period covered by the interim
filings.
3.
Fair presentation:
Based on my knowledge, having exercised reasonable diligence, the
interim financial report together with the other financial
information included in the interim filings fairly present in all
material respects the financial condition, financial performance
and cash flows of the issuer, as of the date of and for the periods
presented in the interim filings.
4.
Responsibility: The
issuer’s other certifying officer(s) and I are responsible
for establishing and maintaining disclosure controls and procedures
(DC&P) and internal control over financial reporting (ICFR), as
those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’
Annual and Interim Filings, for the issuer.
5.
Design: Subject to
the limitations, if any, described in paragraphs 5.2 and 5.3, the
issuer’s other certifying officer(s) and I have, as at the
end of the period covered by the interim filings
(a)
designed DC&P,
or caused it to be designed under our supervision, to provide
reasonable assurance that
(i)
material
information relating to the issuer is made known to us by others,
particularly during the period in which the interim filings are
being prepared; and
(ii)
information
required to be disclosed by the issuer in its annual filings,
interim filings or other reports filed or submitted by it under
securities legislation is recorded, processed, summarized and
reported within the time periods specified in securities
legislation; and
(b)
designed ICFR, or
caused it 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 the issuer’s GAAP.
5.1.
Control framework:
The control framework the issuer’s other certifying
officer(s) and I used to design the issuer’s ICFR is
“Internal Control –
Integrated Framework”.
5.2.
ICFR – material
weakness relating to design: N/A
5.3.
Limitation on scope of
design: N/A
6.
Reporting changes in
ICFR: The issuer has disclosed in its interim MD&A any
change in the issuer’s ICFR that occurred during the period
beginning on January 1, 2020
and ended on March 31, 2020
that has materially affected, or is reasonably likely to materially
affect, the issuer’s ICFR.
Date:
May 15, 2020
“Michael Doolin”
____________________________
Michael
Doolin
Chief
Executive Officer
Exhibit 99.4
Form
52-109F2
Certification of Interim Filings
Full Certificate
I,
Irina Plavutska, Chief Financial
Officer of Silver Elephant Mining Corp., certify the
following:
1.
Review: I have
reviewed the interim financial report and interim MD&A
(together, the “interim filings”) of Silver Elephant Mining Corp. (the
“issuer”) for the interim period ended March 31, 2020.
2.
No
misrepresentations: Based on my knowledge, having exercised
reasonable diligence, the interim filings do not contain any untrue
statement of a material fact or omit to state a material fact
required to be stated or that is necessary to make a statement not
misleading in light of the circumstances under which it was made,
with respect to the period covered by the interim
filings.
3.
Fair presentation:
Based on my knowledge, having exercised reasonable diligence, the
interim financial report together with the other financial
information included in the interim filings fairly present in all
material respects the financial condition, financial performance
and cash flows of the issuer, as of the date of and for the periods
presented in the interim filings.
4.
Responsibility: The
issuer’s other certifying officer(s) and I are responsible
for establishing and maintaining disclosure controls and procedures
(DC&P) and internal control over financial reporting (ICFR), as
those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’
Annual and Interim Filings, for the issuer.
5.
Design: Subject to
the limitations, if any, described in paragraphs 5.2 and 5.3, the
issuer’s other certifying officer(s) and I have, as at the
end of the period covered by the interim filings
(a)
designed DC&P,
or caused it to be designed under our supervision, to provide
reasonable assurance that
(i)
material
information relating to the issuer is made known to us by others,
particularly during the period in which the interim filings are
being prepared; and
(ii)
information
required to be disclosed by the issuer in its annual filings,
interim filings or other reports filed or submitted by it under
securities legislation is recorded, processed, summarized and
reported within the time periods specified in securities
legislation; and
(b)
designed ICFR, or
caused it 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 the issuer’s GAAP.
5.1
Control framework:
The control framework the issuer’s other certifying
officer(s) and I used to design the issuer’s ICFR is
“Internal Control –
Integrated Framework”.
5.2
ICFR – material
weakness relating to design: N/A
5.3
Limitation on scope of
design: N/A
6.
Reporting changes in
ICFR: The issuer has disclosed in its interim MD&A any
change in the issuer’s ICFR that occurred during the period
beginning on January 1, 2020
and ended on March 31, 2020
that has materially affected, or is reasonably likely to materially
affect, the issuer’s ICFR.
Date:
May 15, 2020
“Irina Plavutska”
________________________
Irina
Plavutska
Chief
Financial Officer