Silver Elephant Mining Corp 6-K, filed Nov 17, 2020
Silver Elephant Mining Corp. (SILEF)
6-K
2020-11-17
For: 2020-11-17
View Original
Added on
July 04, 2026
About this 6-K
Silver Elephant Mining Corp filed this 6-K on November 17, 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 November
2020
Commission
File Number 000-55985
|
SILVER ELEPHANT MINING CORP.
|
|
(Translation
of registrant’s name into English)
|
|
Suite 1610 – 409 Granville Street
Vancouver, British Columbia, Canada V6C 1T2
|
|
(Address
of principal executive offices)
|
Indicate
by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F
|
Form
20-F
|
☒
|
Form
40-F
|
☐
|
Indicate
by check mark if the registrant is submitting the Form 6-K in paper
as permitted by Regulation S-T Rule 101(b)(1):
☐
|
|
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.
|
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): ☐
|
|
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.
|
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.
|
|
SILVER ELEPHANT MINING CORP.
|
|
|
/s/
Brigitte
McArthur
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Date:
November 17, 2020
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Brigitte
McArthur
Corporate
Secretary
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INDEX TO EXHIBITS
(Formerly
Prophecy Development Corp.)
Condensed Interim Consolidated Financial Statements
For the three and nine months ended September 30, 2020 and
2019
(Expressed in Canadian Dollars)
Unaudited
– Prepared by Management
RESPONSIBILITY FOR CONDENSED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS
The
accompanying condensed interim consolidated financial statements of
Silver Elephant Mining Corp. and all information in this financial
report are the responsibility of the Board of Directors and
Management. The condensed interim consolidated financial statements
have been prepared in accordance with International Financial
Reporting Standards (“IFRS”) as issued by the
International Accounting Standards Board (“IASB”),
including International Accounting Standard (“IAS”) 34
– Interim Financial Reporting and, where appropriate, include
management’s best estimates and judgments. Management
maintains a system of internal control designed to provide
reasonable assurance that assets are safeguarded from loss or
unauthorized use, and that financial information is timely and
reliable. However, any system of internal control over financial
reporting, no matter how well designed and implemented, has
inherent limitations and may not prevent or detect all
misstatements. The Board of Directors is responsible for ensuring
that management fulfills its responsibilities for financial
reporting and is ultimately responsible for reviewing and approving
the condensed interim consolidated financial statements. The Board
of Directors carries out this responsibility principally through
its Audit Committee. The Board of Directors appoints the Audit
Committee, and all of its members are independent directors. The
Audit Committee meets periodically with Management and the auditors
to review internal controls, audit results, accounting principles
and related matters. The Board of Directors approves the condensed
interim consolidated financial statements on recommendation from
the Audit Committee.
|
"John
Lee"
John
Lee, Chief Executive Officer
|
“Irina Plavutska”
Irina Plavutska, Chief Financial Officer
|
November
16, 2020
TABLE OF CONTENTS
|
Condensed Interim
Consolidated Statements of Financial Position
|
4
|
|
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
|
6
|
|
Condensed Interim
Consolidated Statements of Cash Flows
|
7
|
|
|
|
|
1.
DESCRIPTION OF BUSINESS AND NATURE OF
OPERATIONS
|
8
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|
2.
BASIS OF PRESENTATION
|
8
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|
3.
SEGMENTED INFORMATION
|
9
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|
4.
CASH AND CASH EQUIVALENTS
|
10
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|
5.
RIGHT-OF-USE ASSET
|
10
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|
6.
EQUIPMENT
|
10
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|
7.
MINERAL PROPERTIES
|
12
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|
8.
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
|
17
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|
9.
LEASE LIABILITY
|
18
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|
10.
SHARE CAPITAL
|
18
|
|
11.
FAIR VALUE MEASUREMENTS AND FINANCIAL
INSTRUMENTS
|
22
|
|
12.
FINANCIAL RISK MANAGEMENT
DISCLOSURES
|
24
|
|
13.
RELATED PARTY
DISCLOSURES
|
24
|
|
14.
KEY MANAGEMENT PERSONNEL
COMPENSATION
|
25
|
|
15.
SUPPLEMENTAL CASH FLOW
INFORMATION
|
26
|
|
16.
CONTINGENCIES
|
26
|
|
17.
EVENTS AFTER THE REPORTING
DATE
|
27
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SILVER ELEPHANT MINING CORP.
(formerly
Prophecy Development Corp.)
(Expressed
in Canadian Dollars) (Unaudited)
|
As at
|
|
September
30,
|
December
31,
|
|
|
Notes
|
2020
|
2019
|
|
Assets
|
|
|
|
|
Current
assets
|
|
|
|
|
Cash
|
4
|
$1,019,743
|
$3,017,704
|
|
Receivables
|
|
390,746
|
246,671
|
|
Prepaid
expenses
|
|
102,976
|
135,767
|
|
|
|
1,513,465
|
3,400,142
|
|
Non-current
assets
|
|
|
|
|
Restricted cash
equivalents
|
4
|
34,500
|
34,500
|
|
Reclamation
deposits
|
|
21,055
|
21,055
|
|
Right-of-use
asset
|
5
|
26,328
|
50,023
|
|
Equipment
|
6
|
156,529
|
159,484
|
|
Mineral
properties
|
7
|
30,069,131
|
23,782,884
|
|
|
|
$31,821,008
|
$27,448,088
|
|
Liabilities
and Equity (Deficiency)
|
|
|
|
|
Current
liabilities
|
|
|
|
|
Accounts payable
and accrued liabilities
|
8
|
$1,393,179
|
$2,420,392
|
|
Lease
liability
|
9
|
28,975
|
32,285
|
|
|
|
1,422,154
|
2,452,677
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|
Non-current
liabilities
|
|
|
|
|
Provision for
closure and reclamation
|
|
375,549
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266,790
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|
Lease
liability
|
9
|
-
|
20,533
|
|
|
|
1,797,703
|
2,740,000
|
|
Equity
(Deficiency)
|
|
|
|
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Share
capital
|
10
|
188,247,292
|
181,129,012
|
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Reserves
|
10
|
24,622,499
|
24,058,336
|
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Deficit
|
|
(182,846,486)
|
(180,479,260)
|
|
|
|
30,023,305
|
24,708,088
|
|
|
|
$31,821,008
|
$27,448,088
|
|
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
|
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
(formerly
Prophecy Development Corp.)
Condensed
Interim Consolidated Statements of Operations and Comprehensive
Loss
(Expressed in
Canadian Dollars) (Unaudited)
|
|
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
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||
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Notes
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2020
|
2019
|
2020
|
2019
|
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General
and Administrative Expenses
|
|
|
|
|
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Advertising and
promotion
|
|
$273,976
|
$211,770
|
$356,854
|
$556,626
|
|
Consulting and
management fees
|
13
|
52,500
|
49,000
|
492,500
|
166,052
|
|
Depreciation and
accretion
|
|
10,182
|
11,140
|
31,199
|
34,183
|
|
Director
fees
|
13
|
21,500
|
38,643
|
84,900
|
78,043
|
|
Insurance
|
|
24,871
|
23,989
|
74,287
|
69,853
|
|
Office and
administration
|
|
34,075
|
36,734
|
104,875
|
93,204
|
|
Professional
fees
|
|
50,350
|
86,506
|
218,347
|
182,151
|
|
Salaries and
benefits
|
|
109,204
|
97,477
|
421,573
|
661,790
|
|
Share-based
payments
|
10
|
251,368
|
64,480
|
594,393
|
232,602
|
|
Stock exchange and
shareholder services
|
|
20,053
|
43,996
|
122,510
|
93,092
|
|
Travel and
accommodation
|
|
5,253
|
51,740
|
82,766
|
162,870
|
|
|
|
(853,332)
|
(715,475)
|
(2,584,204)
|
(2,330,466)
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|
Other
Items
|
|
|
|
|
|
|
Costs in excess of
recovered coal
|
|
(121,414)
|
(87,574)
|
(256,819)
|
(150,938)
|
|
Debt settlement
gain
|
|
-
|
-
|
-
|
7,952,700
|
|
Foreign exchange
gain/(loss)
|
|
(62,586)
|
109,180
|
473,797
|
287,984
|
|
Impairment of
mineral property
|
|
-
|
(325,399)
|
-
|
(721,378)
|
|
|
|
(184,000)
|
(303,793)
|
216,978
|
7,368,368
|
|
Net
Gain/(Loss) for Period
|
|
(1,037,332)
|
(1,019,268)
|
(2,367,226)
|
5,037,902
|
|
Comprehensive
Gain/(Loss) for Period
|
|
$(1,037,332)
|
$(1,019,268)
|
$(2,367,226)
|
$5,037,902
|
|
Gain/(Loss) Per Common Share, basic and
diluted
|
|
$(0.01)
|
$(0.01)
|
$(0.02)
|
$0.05
|
|
Weighted Average Number of Common Shares
Outstanding, basic and diluted
|
|
135,641,900
|
98,302,908
|
132,643,496
|
94,849,243
|
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)
|
|
Number of Shares
|
Share Capital
|
Reserves
|
Deficit
|
Total
Equity(Deficiency)
|
|
Balance, December 31, 2018
|
95,316,127
|
$173,819,546
|
$23,413,830
|
$(197,993,114)
|
$(759,738)
|
|
Private placements,
net of share issue costs
|
13,000,000
|
$2,479,791
|
-
|
-
|
2,479,791
|
|
Finders
shares
|
525,000
|
105,000
|
-
|
-
|
105,000
|
|
Share-based
payments
|
-
|
-
|
333,353
|
-
|
333,353
|
|
Bonus
shares
|
500,000
|
115,000
|
-
|
-
|
115,000
|
|
Share compensation
for services
|
175,000
|
59,500
|
-
|
-
|
59,500
|
|
Exercise of stock
options
|
440,000
|
220,221
|
(103,071)
|
-
|
117,150
|
|
Exercise of
warrants
|
651,430
|
279,050
|
(28,478)
|
-
|
250,572
|
|
Gain for
period
|
-
|
-
|
-
|
5,037,902
|
5,037,902
|
|
Balance, September 30, 2019
|
110,607,557
|
$177,078,108
|
$23,615,634
|
$(192,955,212)
|
$7,738,530
|
|
Balance, December 31, 2019
|
121,299,508
|
$181,129,012
|
$24,058,336
|
$(180,479,260)
|
$24,708,088
|
|
Private placement,
net of share issue costs
|
15,200,000
|
$1,976,000
|
$-
|
$-
|
$1,976,000
|
|
Share issue
costs
|
-
|
(3,250)
|
-
|
-
|
(3,250)
|
|
Finders
units
|
156,900
|
(24,000)
|
24,000
|
-
|
-
|
|
Bonus
shares
|
1,601,000
|
640,400
|
-
|
-
|
640,400
|
|
Exercise of stock
options
|
758,750
|
358,913
|
(173,474)
|
-
|
185,439
|
|
Exercise of
warrants
|
9,596,990
|
2,170,217
|
-
|
-
|
2,170,217
|
|
Shares issued for
property acquisition
|
4,000,000
|
2,000,000
|
-
|
-
|
2,000,000
|
|
Share-based
payments
|
-
|
-
|
713,637
|
-
|
713,637
|
|
Loss for
period
|
-
|
-
|
-
|
(2,367,226)
|
(2,367,226)
|
|
Balance, September 30, 2020
|
152,613,148
|
$188,247,292
|
$24,622,499
|
$(182,846,486)
|
$30,023,305
|
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)
|
|
Nine Months Ended
September 30,
|
|
|
|
2020
|
2019
|
|
|
|
|
|
Operating
Activities
|
|
|
|
Net loss for
period
|
$(2,367,226)
|
$5,037,902
|
|
Adjustments to
reconcile net loss to net cash flows:
|
|
|
|
Depreciation and
accretion
|
31,199
|
37,723
|
|
Debt settlement
gain
|
-
|
(7,952,700)
|
|
Share-based
payments
|
594,393
|
232,602
|
|
Share compensation
for services
|
720,900
|
279,500
|
|
Unrealized foreign
exchange (gain)/loss
|
-
|
(169,218)
|
|
Impairment of
mineral property
|
-
|
721,378
|
|
|
(1,020,734)
|
(1,812,813)
|
|
Working capital
adjustments
|
|
|
|
Receivables
|
(144,075)
|
30,440
|
|
Prepaid expenses
and reclamation deposits
|
32,791
|
(171,113)
|
|
Accounts payable
and accrued liabilities
|
(589,537)
|
89,921
|
|
|
(700,821)
|
(50,752)
|
|
Cash
Used in Operating Activities
|
(1,721,555)
|
(1,863,565)
|
|
|
|
|
|
Investing
Activities
|
|
|
|
Sale/(Purchase) of
property and equipment, net
|
19,704
|
(76,803)
|
|
Mineral property
expenditures
|
(4,516,243)
|
(4,200,957)
|
|
Cash
Used in Investing Activities
|
(4,496,539)
|
(4,277,760)
|
|
|
|
|
|
Financing
Activities
|
|
|
|
Proceeds from share
issuance, net of share issue costs
|
1,927,250
|
2,479,791
|
|
Proceeds from
exercise of stock options
|
185,439
|
117,150
|
|
Proceeds from
exercise of warrants
|
2,135,217
|
250,572
|
|
Lease
payments
|
(27,773)
|
(26,466)
|
|
Cash
Provided by Financing Activities
|
4,220,133
|
2,821,047
|
|
Net Decrease in
Cash and Cash equivalents
|
(1,997,961)
|
(3,320,279)
|
|
Cash and cash
equivalents- beginning of period
|
3,017,704
|
5,304,097
|
|
Cash and cash
equivalents - end of period
|
$1,019,743
|
$1,983,818
|
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 and nine months ended September 30, 2020 and
2019
(Expressed
in Canadian Dollars) (Unaudited)
Silver
Elephant Mining Corp. (formerly Prophecy Development Corp.) (the
“Company”) is
incorporated under the laws of the province of British Columbia,
Canada. The common shares
without par value in the capital of
the Company (the “Common
Shares”) are listed for
trading on the Toronto Stock Exchange (the
“TSX”) under the symbol “ELEF” and
on the Frankfurt Stock Exchange under the symbol
“1P2N” and are quoted on the OTCQX® Best Market under the
symbol “SILEF”.
The
Company is an exploration stage company. The Company holds an interest in the Pulacayo
Paca silver-zinc-lead property located in Bolivia and an
100% interest in two vanadium projects in North America, being 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. In 2020, the Company
acquired the Bisoni vanadium project in Nevada, USA and the
Sunawayo silver-zinc-lead and El Triunfo gold-silver-zinc
properties in Bolivia. 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 $182.8 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.
(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 Board of Directors on
November 16, 2020.
8
SILVER ELEPHANT MINING CORP.
(formerly
Prophecy Development Corp.)
Notes
to the Condensed Interim Consolidated Financial
Statements
For the
three and nine months ended September 30, 2020 and
2019
(Expressed
in Canadian Dollars) (Unaudited)
(b)
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.
(c)
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.
The
Company operates in one operating segment, being the acquisition,
exploration and development of mineral properties. Geographic
segmentation of the Company’s assets is as
follows:
|
|
September 30, 2020
|
||||
|
|
Canada
|
USA
|
Mongolia
|
Bolivia
|
Total
|
|
Reclamation
deposits
|
$-
|
$-
|
$21,055
|
$-
|
$21,055
|
|
Equipment
|
10,253
|
82,712
|
$3,966
|
59,598
|
156,529
|
|
Mineral
properties
|
-
|
12,728,998
|
-
|
17,340,133
|
30,069,131
|
|
|
$10,253
|
$12,811,710
|
$25,021
|
$17,399,731
|
$30,246,715
|
|
|
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 and nine months ended September 30, 2020 and
2019
(Expressed
in Canadian Dollars) (Unaudited)
Cash
and cash equivalents of the Company 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.
|
|
September 30,
2020
|
December 31,
2019
|
|
Cash
|
$1,019,743
|
$3,017,704
|
|
Restricted
cash equivalents
|
34,500
|
34,500
|
|
|
$1,054,243
|
$3,052,204
|
Restricted Cash Equivalents
As at
September 30, 2020, a guaranteed investment certificate of $34,500
(2019 - $34,500) has been pledged as collateral for the
Company’s credit card.
The
right-of -use asset of the Company consists of a corporate office
lease. 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 September 30, 2020:
|
Initial
recognition, January 1, 2019
|
$81,617
|
|
Additions
|
-
|
|
Depreciation
|
(31,594)
|
|
Balance
at December 31, 2019
|
$50,023
|
|
Depreciation
|
(23,695)
|
|
Balance
at September 30, 2020
|
$26,328
|
The
impaired value of $Nil for deferred development costs at Ulaan Ovoo
property at September 30, 2020 (December 31, 2019 - $Nil) remains
unchanged.
The
following table summarized information regarding the
Company’s equipment as at September 30, 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 and nine months ended September 30, 2020 and
2019
(Expressed
in Canadian Dollars) (Unaudited)
6.
EQUIPMENT
(cont’d…)
|
|
Computer
Equipment
|
Furniture &
Equipment
|
Vehicles
|
Mining
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
|
$14,655
|
$159,484
|
|
|
|
|
|
|
|
|
Cost
|
|
|
|
|
|
|
Balance,
December 31, 2019
|
$103,254
|
$278,845
|
$219,606
|
$24,476
|
$626,181
|
|
Additions/(Disposals)
|
(1,326)
|
-
|
34,789
|
-
|
33,463
|
|
Balance,
September 30, 2020
|
$101,928
|
$278,845
|
$254,395
|
$24,476
|
$659,644
|
|
Accumulated depreciation
|
|
|
|
|
|
|
Balance,
December 31, 2019
|
$98,803
|
$245,869
|
$114,642
|
$7,383
|
$466,697
|
|
Disposals
|
(1,327)
|
-
|
(12,431)
|
-
|
(13,758)
|
|
Depreciation
for period
|
680
|
8,462
|
38,596
|
2,438
|
50,176
|
|
Balance,
September 30, 2020
|
$99,483
|
$254,331
|
$140,807
|
$9,821
|
$503,115
|
|
Carrying amount at September 30, 2020
|
$2,445
|
$24,514
|
$113,588
|
$14,655
|
$156,529
|
11
SILVER ELEPHANT MINING CORP.
(formerly
Prophecy Development Corp.)
Notes
to the Condensed Interim Consolidated Financial
Statements
For the
three and nine months ended September 30, 2020 and
2019
(Expressed
in Canadian Dollars) (Unaudited)
|
|
Pulacayo
|
Gibellini
|
Bisoni
|
Sunawayo
|
Triunfo
|
Chandgana
Tal
|
Khavtgai
Uul
|
Total
|
|
Balance, December 31, 2017
|
$12,809,550
|
$490,356
|
$-
|
$-
|
$-
|
$-
|
$-
|
$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
|
51,112
|
1,509,587
|
-
|
-
|
-
|
-
|
-
|
1,560,699
|
|
Personnel,
camp and general
|
847,538
|
831,023
|
-
|
-
|
-
|
20,590
|
3,741
|
1,702,892
|
|
|
898,650
|
2,727,759
|
-
|
-
|
-
|
21,861
|
264,909
|
3,913,179
|
|
Impairment
|
(13,708,200)
|
-
|
-
|
-
|
-
|
(21,861)
|
(264,909)
|
(13,994,970)
|
|
Balance, December 31, 2018
|
$-
|
$3,643,720
|
$-
|
$-
|
$-
|
$-
|
$-
|
$3,643,720
|
|
Additions:
|
|
|
|
|
|
|
|
|
|
Acquisition
cost
|
$-
|
$-
|
$-
|
$-
|
$-
|
$-
|
$-
|
$-
|
|
Deferred
exploration costs:
|
|
|
|
|
|
|
|
|
|
Licenses, tax,
and permits
|
6,239
|
286,158
|
-
|
-
|
-
|
-
|
-
|
292,397
|
|
Geological and
consulting
|
964,716
|
3,200,773
|
-
|
-
|
-
|
-
|
-
|
4,165,489
|
|
Personnel,
camp and general
|
503,071
|
1,470,007
|
-
|
-
|
-
|
-
|
-
|
1,973,078
|
|
|
1,474,026
|
4,956,939
|
-
|
-
|
-
|
-
|
-
|
6,430,965
|
|
Impairment
Recovery
|
13,708,200
|
-
|
-
|
-
|
-
|
-
|
-
|
13,708,200
|
|
Balance, December 31, 2019
|
$15,182,226
|
$8,600,659
|
$-
|
$-
|
$-
|
$-
|
$-
|
$23,782,885
|
|
Additions:
|
|
|
|
|
|
|
|
|
|
Acquisition
cost
|
$-
|
$16,489
|
$2,224,216
|
$408,963
|
$135,676
|
$-
|
$-
|
$2,785,344
|
|
Deferred
exploration costs:
|
|
|
|
|
|
|
|
|
|
Licenses, tax,
and permits
|
-
|
169,096
|
46,671
|
-
|
-
|
-
|
-
|
215,768
|
|
Geological and
consulting
|
1,101,666
|
687,546
|
-
|
-
|
235,805
|
-
|
-
|
2,025,017
|
|
Personnel,
camp and general
|
275,798
|
984,320
|
-
|
-
|
-
|
-
|
-
|
1,260,118
|
|
|
1,377,464
|
1,840,963
|
46,671
|
-
|
235,805
|
-
|
-
|
3,500,903
|
|
Balance, September 30, 2020
|
$16,559,690
|
$10,458,110
|
$2,270,887
|
$408,963
|
$371,481
|
$-
|
$-
|
$30,069,131
|
12
SILVER ELEPHANT MINING CORP.
(formerly
Prophecy Development Corp.)
Notes
to the Condensed Interim Consolidated Financial
Statements
For the
three and nine months ended September 30, 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 386 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 were acquired on June 22, 2017, through
leasehold assignments from the claimant and then-holder of the
Gibellini mineral claims (the “Gibellini Lessor”) and includes an
area of approximately 771 acres. Under the Gibellini mineral lease
agreement (the “Gibellini
MLA”), the Company leased this core group of claims,
which originally constituted the entire Gibellini Project, by,
among other things, agreeing to pay to the Gibellini Lessor annual
advance royalty payments. These payments are tied, based on an
agreed formula not to exceed US$120,000 per year, to the average
vanadium pentoxide price of the prior year (each an "Advance Royalty Payment"). Upon
commencement of production, the obligation to make Advance Royalty
Payments will cease and the Company will instead maintain its
acquisition through lease of the Gibellini group of claims by
paying to the Gibellini Lessor, a 2.5% net smelter return royalty
(the “Gibellini NSR
Payments”) until a total of US$3 million is paid.
Thereafter, the Gibellini NSR will be reduced to 2% over the
remaining life of the mine (and referred to thereafter, as
“Production Royalty
Payments”). Upon commencement of production, any
Advance Royalty Payments that have been made will be deducted as
credits against the Gibellini NSR Payments or Production Royalty
Payments, as applicable. The lease is for a term of 10 years,
expiring on June 22, 2027, 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 Gibellini
MLA, which ends on June 22, 2027, 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) (the "Transferred
Claims") to the
Company in exchange for US$1,000,000, which will be deemed an
Advance Royalty Payment (the
“Transfer
Payment”). A credit of
US$99,027 in favour of the Company towards the Transfer Payment was
paid upon the execution of the amendment, with a remaining balance
of US$900,973 on 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 Payment obligation and Production Royalty Payments
will not be affected, reduced or relieved by the transfer of
title.
On June
22, 2020, the Company paid US$50,000 (2019 – US$120,000) of
the Advance Royalty Payment to the Gibellini Lessor.
During
Q3 2020, the Company expanded the land position at the Gibellini
Project, by staking a total of 32 new claims immediately adjacent
to the Gibellini Project.
VC Exploration Group
The Company entered into a lease agreement to acquire 10 unpatented
lode claims totaling approximately 207 gross acres (the
“Former Louie Hill Claims”)
from their holders (the “Former Louie Hill Lessors”) on July 10,
2017 (the “Louie Hill
MLA”). The Former Louie Hill Claims
were located approximately 1600 feet south of the Gibellini
group of claims. The Former Louie Hill 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 (the
“Current Louie Hill Claims”).
13
SILVER ELEPHANT MINING CORP.
(formerly
Prophecy Development Corp.)
Notes
to the Condensed Interim Consolidated Financial
Statements
For the
three and nine months ended September 30, 2020 and
2019
(Expressed
in Canadian Dollars) (Unaudited)
7.
MINERAL PROPERTIES
(cont’d...)
Gibellini Project, Nevada, United States
(cont’d…)
On October 22, 2018, the Company entered into a royalty agreement
(the “Royalty
Agreement”)
with the Former Louie Hill Lessors that replaced, on substantially
similar terms, the Louie Hill MLA. The Royalty Agreement
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 the 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 of each
year 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
2.5% net smelter return royalty (the “Louie Hill NSR”) payable on vanadium
pentoxide produced from the area of the Former Louie Hill Claims
contained within the Current Louie Hill Claims. The Company may purchase
three-fifths of the Louie Hill NSR at any time for US$1,000,000,
leaving the total Louie Hill NSR payable by the Company at 1.0% for
the remaining life of the mine. Any Louie Hill Advance Royalty
Payments that have been made at the time of Commercial Production
will be deducted as credits against future payments under the Louie
Hill NSR. The payments under the Royalty Agreement will continue
for an indefinite period and will be payable 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 July
7, 2020, the Company paid US$12,500 (2019 – US$28,000),
comprising the Louie Hill Advance Royalty Payment to the Former
Louie Hill Lessors.
On
February 15, 2018, the Company acquired an additional 105 unpatented lode mining claims
located adjacent to its existing Gibellini Project
in Nevada, USA through the
acquisition of VC Exploration (US) Inc, ("VC
Exploration") by
paying a total of $335,661 in cash and issuing the equivalent of
500,000 Common Share purchase warrants (valued at
$89,944) to
arm’s-length, private parties. Each warrant entitles the
holder upon exercise, to acquire one Common Share at a price of
$0.50 per Common 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.
14
SILVER ELEPHANT MINING CORP.
(formerly
Prophecy Development Corp.)
Notes
to the Condensed Interim Consolidated Financial
Statements
For the
three and nine months ended September 30, 2020 and
2019
(Expressed
in Canadian Dollars) (Unaudited)
7.
MINERAL PROPERTIES
(cont’d...)
Bisoni Project, Nevada, United States
On September 18, 2020, the Company’s wholly owned
subsidiary,
Nevada Vanadium
LLC (“Nevada
Vanadium”),
completed the acquisition
of the Bisoni vanadium project (the "Bisoni
Project") situated
immediately southwest of the Gibellini Project pursuant to an asset
purchase agreement (the “Bisoni
APA”) dated
August 18, 2020, with Cellcube Energy Storage Systems Inc.
(“Cellcube”).
The Bisoni
Project is comprised of 201 lode mining claims.
As consideration for the acquisition of the Bisoni Project under
the Bisoni APA, the Company issued 4 million Common Shares
(the “Bisoni APA
Shares”) and paid $200,000 cash to Cellcube. The
Bisoni APA Shares are subject to a statutory four month hold period
expiring on January 19, 2021. Additionally, subject to TSX
approval, if, on or before December 31, 2023, the price of European
vanadium pentoxide on the Metal Bulletin (or an equivalent
publication) exceeds US$12 a pound for 30 consecutive days, the
Company will issue to Cellcube additional Common Shares with a
value of $500,000 calculated based upon the 5 day volume weighted
average price of the Common Shares immediately following the
satisfaction of the vanadium pentoxide pricing
condition.
Pulacayo Paca Property, Bolivia
The
Company holds an interest in the Pulacayo Paca silver-lead-zinc
project in Bolivia (the "Pulacayo
Project").
The
Pulacayo Project mining rights are recognized by two legally
independent contractual arrangements, one covering all, except the
Apuradita deposit, from a mining production contract (the
"Pulacayo MPC") between the
Company and the Corporación Minera de Bolivia ("COMIBOL"), a Bolivian state mining
company, and the original holder of the rights, executed on October
3, 2019. The Pulacayo MPC grants the Company the 100% exclusive
right to develop and mine at the Pulacayo and Paca concessions for
up to 30 years against certain royalty payments. In connection with
the Apuradita deposit, its rights are covered by a second
contractual arrangement, with the Bolivian Jurisdictional Mining
Authority, acting for the Government of Bolivia, which is in
process of formalization, as a mean of recognition of the acquired
rights to what was originally the mining concession. Until such
time as the contract is formalized, all mining rights, as
recognized in the Bolivian Mining Law 535, can be exercised by the
holder of the ex-concession.
Pursuant to the Pulacayo MPC, ASC Bolivia LDC Sucursal Bolivia
(“ASC”),
a subsidiary of the Company, has committed to pay monthly
rent of US$1,000 to COMIBOL and US$1,500 monthly rent to the
Pulacayo Ltda. Mining Cooperative until the Pulacayo Project starts
commercial production.
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;
●
the Company
completed a positive final settlement of Bolivian tax dispute (note
16).
15
SILVER ELEPHANT MINING CORP.
(formerly
Prophecy Development Corp.)
Notes
to the Condensed Interim Consolidated Financial
Statements
For the
three and nine months ended September 30, 2020 and
2019
(Expressed
in Canadian Dollars) (Unaudited)
7.
MINERAL PROPERTIES
(cont’d...)
Pulacayo Paca Property, Bolivia
(cont’d...)
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.
Triunfo Project, Bolivia
On July
13, 2020, the Company announced that it had entered into an
agreement (the “Triunfo
Agreement”) with a private party (the “Triunfo Vendor”) for the
right to conduct mining exploration activities (the
“Exploration
Right”) within the El Triunfo gold-silver-lead-zinc
project in La Paz District, Bolivia (the “Triunfo Project”) and the right,
at the Company’s election, to purchase the Triunfo Project
for US$1,000,000 (the “Purchase Right”, and together with the
Exploration Right, the “Triunfo Rights”). The Purchase Right can
be exercised at any time after the Triunfo Vendor completes the
required Bolivian administrative procedures for the Triunfo Project
until July 13, 2025 or such further period as the parties may
agree. To secure the Triunfo Rights, the Company paid the Triunfo
Vendor US$100,000 upon execution of the Triunfo Agreement. Until
the Company exercises its Purchase Right, beginning in 2021 the
Company must pay the Triunfo Vendor US$50,000 on June 15 of each
year to maintain the Triunfo Rights. The Company may elect to
terminate the Triunfo Agreement at any time. If the Company
exercises the Purchase Right, the Triunfo Vendor will maintain up
to a 5% interest of the profits, net of taxes and royalties,
derived from the sale of concentrate produced from the Triunfo
Project (the “Residual
Interest”).
If the Company exercises the Purchase
Right, the Company may reduce some or all of the Residual Interest
at any time by making a lump sum payment of up to
US$300,000.
Sunawayo Project, Bolivia
On September 7, 2020, the Company announced that it had entered
into a binding sales and purchase agreement (the
“Sunawayo SPA”)
with a private party (the “Sunawayo
Vendor”) to
acquire the Sunawayo silver-lead mining project (the
“Sunawayo
Project”). Subject
to the provisions of the Sunawayo SPA, the Sunawayo Vendor agreed
to irrevocably transfer the mining rights of the Sunawayo Project
to the Company for consideration of US$6,500,000, which payment
consists of US$300,000 paid on execution of the Sunawayo SPA, with
the remaining US$6,200,000 to be paid in cash over a one-year
period in twelve equal monthly installments, starting March 1,
2021.
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.
16
SILVER ELEPHANT MINING CORP.
(formerly
Prophecy Development Corp.)
Notes
to the Condensed Interim Consolidated Financial
Statements
For the
three and nine months ended September 30, 2020 and
2019
(Expressed
in Canadian Dollars) (Unaudited)
7.
MINERAL PROPERTIES
(cont’d...)
Previously Impaired Properties
(cont’d...)
Chandgana Properties, Mongolia
(cont’d...)
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 nine months ended September 30, 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.
Titan Property, Ontario, Canada
The
Company has a 100% interest in the Titan property, a
vanadium-titanium-iron project located in Ontario, Canada. In
January 2010, the Company entered into an option agreement (the
"Titan Agreement") with
Randsburg International Gold Corp. (“Randsburg”) whereby the Company
had the right to acquire an 80% interest in the Titan property by
paying Randsburg an aggregate of $500,000 (paid), and by incurring
exploration expenditures of $200,000 by December 31, 2010. Pursuant
to the Titan Agreement, Randsburg has the option to sell the
remaining 20% interest in the Titan property to the Company for
$150,000 cash or 400,000 Common Shares.
At
December 31, 2014, due to market conditions, the Company impaired
the value of the property to $nil. On February 10, 2017, the
Company negotiated with Randsburg to acquire the remaining 20%
title interest of Randsburg in the Titan project by issuing to Randsburg 20,000 Common
Shares at a value of $4.81 per Common Share.
Therefore, the Company recorded an impairment loss of $96,200 on
the acquisition of the remaining title interest in the Titan
property which was reflected on the consolidated statement of
operations and comprehensive loss during the year ended December
31, 2017. As there were no benchmark or market changes from January
1, 2015, to September 30, 2020, the impaired value of $nil for
Titan property remains unchanged.
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.
|
|
September 30,
2020
|
December 31,
2019
|
|
Trade
accounts payable
|
$1,318,179
|
$2,420,392
|
|
Accrued
liabilities
|
75,000
|
-
|
|
Lease
liability
|
28,975
|
32,285
|
|
|
$1,422,154
|
$2,452,677
|
17
SILVER ELEPHANT MINING CORP.
(formerly
Prophecy Development Corp.)
Notes
to the Condensed Interim Consolidated Financial
Statements
For the
three and nine months ended September 30, 2020 and
2019
(Expressed
in Canadian Dollars) (Unaudited)
As at
September 30, 2020, the Company recorded $28,975 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.
|
Initial
recognition, 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 period
|
(27,773)
|
|
Non-cash
changes:
|
|
|
Accretion
expenses for period
|
3,930
|
|
Balance
at September 30, 2020
|
28,975
|
(a)
Authorized
The
authorized shares capital of the Company consists of an unlimited
number of Common Shares. At September 30,
2020, the Company had 152,613,148 (December 31, 2019 –
121,299,508) Common Shares issued and outstanding.
(b)
Equity
issuances
On May
1, 2020 and on May 20, 2020, the Company closed two tranches of a
non-brokered private placement (the "May 2020 Private Placement") for aggregate gross
proceeds of $1,930,500 and share compensation for services of
$45,500 through the issuance of 15,200,000 units of the Company
(each, a "Unit") at a price
of $0.13 per Unit. Each Unit is comprised of one Common Share and
one Common Share purchase warrant (each, a “Warrant”). Each Warrant entitles
the holder to purchase one Common Share at an exercise price of
$0.16 for a period of three years from the date of issuance. The
Company paid $3,250 in cash and issued 156,900 Units as
finder’s fees in connection with the May 2020 Private
Placement. The Units issued as a finder's fee have been valued at
$24,000 based on the offering price of the Units under the May 2020
Private Placement. The Company has recorded the fair value of the
finder’s units as share issuance costs.
During
the nine months ended September 30, 2020, the Company issued
1,601,000 Common Shares with a value of $640,400 as a bonus payment
to certain directors, officers, employees, and consultants of the
Company.
During
the nine months ended September 30, 2020, the Company issued
758,750 Common Shares on the exercise of stock options for total
proceeds of $185,439.
During
the nine months ended September 30, 2020, the Company issued
9,596,990 Common Shares on the exercise of warrants for total
proceeds of $2,135,217 and Common Share compensation for services
of $35,000.
On
September 18, 2020, the Company issued 4,000,000 Common Shares at a
value of $0.50 per Common Share in relation with purchase of Bisoni
Project in Nevada, USA.
18
SILVER ELEPHANT MINING CORP.
(formerly
Prophecy Development Corp.)
Notes
to the Condensed Interim Consolidated Financial
Statements
For the
three and nine months ended September 30, 2020 and
2019
(Expressed
in Canadian Dollars) (Unaudited)
10. SHARE CAPITAL (cont’d…)
(b)
Equity issuances
(cont’d…)
On
September 6, 2019, the Company closed a non-brokered private
placement for gross proceeds of $2,600,000 through the issuance of
13,000,0000 Common Shares at a price of $0.20 per Common Share. The
Company paid $15,209 and issued 525,000 Common Shares as a
finder’s fee, which Common Shares were 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.
During
the nine months ended September 30, 2019, the Company issued
500,000 sign-on bonus Common Shares with a fair value of $0.23 per
Common Share to an officer valued at $115,000.
During
the nine months ended September 30, 2019, the Company issued
440,000 and 651,430 Common Shares on the exercise of stock options
and warrants respectively for total proceeds of
$367,722.
On
September 26, 2019, the Company issued 175,000 Common Shares valued
at $59,500 for consulting services.
(c)
Equity-based
compensation plan
The
following is a summary of the changes in Company’s stock
options from December 31, 2018 to September 30, 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
|
3,820,000
|
$0.28
|
|
Expired
|
(90,000)
|
$0.50
|
|
Cancelled
|
(1,520,000)
|
$0.29
|
|
Exercised
|
(758,750)
|
$0.24
|
|
Outstanding,
September 30, 2020
|
11,028,750
|
$0.30
|
19
SILVER ELEPHANT MINING CORP.
(formerly
Prophecy Development Corp.)
Notes
to the Condensed Interim Consolidated Financial
Statements
For the
three and nine months ended September 30, 2020 and
2019
(Expressed
in Canadian Dollars) (Unaudited)
10. SHARE CAPITAL (cont’d…)
(c)
Equity-based
compensation plan (cont’d…)
As
of September 30, 2020, the following Company’s stock options
were outstanding:
|
|
Options
Outstanding
|
Exercisable
|
Unvested
|
||
|
|
|
|
|
|
|
|
Exercise
Price
|
Expiry
Date
|
September 30,
2020
|
December 31,
2019
|
September 30,
2020
|
September 30,
2020
|
|
$0.50
|
August
17, 2025
|
720,000
|
-
|
-
|
720,000
|
|
$0.22
|
May
4, 2025
|
2,300,000
|
-
|
575,000
|
1,725,000
|
|
$0.33
|
November
15, 2024
|
100,000
|
100,000
|
50,000
|
50,000
|
|
$0.50
|
November
1, 2024
|
1,287,500
|
1,610,000
|
643,750
|
643,750
|
|
$0.20
|
July
29, 2024
|
1,475,000
|
1,565,000
|
921,875
|
553,125
|
|
$0.00
|
April
1, 2024
|
312,500
|
500,000
|
234,375
|
78,125
|
|
$0.33
|
October
17, 2023
|
626,250
|
705,000
|
547,969
|
78,281
|
|
$0.22
|
July
23, 2023
|
-
|
400,000
|
-
|
-
|
|
$0.31
|
May
1, 2023
|
-
|
150,000
|
-
|
-
|
|
$0.28
|
April
6, 2023
|
612,500
|
862,500
|
612,500
|
-
|
|
$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
|
-
|
-
|
|
$0.50
|
April
7, 2020
|
-
|
60,000
|
-
|
-
|
|
|
11,028,750
|
9,577,500
|
7,180,469
|
3,848,281
|
|
Share-based
payment expenses resulting from stock options are amortized over
the corresponding vesting period. The nine months ended September
30, 2020, included $594,393 (same period 2019 - $232,602) in
share-based payment costs related to stock options expensed as
general and administrative expenses and $119,244 (same period 2019
– $100,752) 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, further to the voluntary forfeiture of stock options held
by certain directors, officers, and employees with expiry dates on
April 7, 2020, June 22, 2020, and November 14, 2023, at exercise
prices ranging from $0.50 to $0.65, the Company granted 1,275,000
new stock options to such individuals with an expiry date of July
29, 2024 at an exercise price of $0.20 per Common Share subject to
a two-year vesting schedule whereby 12.5% per quarter following the
date of grant. As at December 31, 2019, the re-issuing of these
options had been approved by the TSX, but they had not been
approved by the holders of the Common Shares; consequently, these
options were not valued. See Note 27 to the Annual Financial
Statements.
20
SILVER ELEPHANT MINING CORP.
(formerly
Prophecy Development Corp.)
Notes
to the Condensed Interim Consolidated Financial
Statements
For the
three and nine months ended September 30, 2020 and
2019
(Expressed
in Canadian Dollars) (Unaudited)
10. SHARE CAPITAL (cont’d…)
(d)
Common share
purchase warrants
The
following is a summary of the changes in the Company’s common
share purchase warrants from December 31, 2018 to September 30,
2020.
|
|
Number of
Warrants
|
Weighted Average Exercise
Price
|
|
Outstanding,
December 31, 2018
|
27,318,027
|
$0.15
|
|
Exercised
|
(651,430)
|
$0.38
|
|
Outstanding,
December 31, 2019
|
26,666,597
|
$0.15
|
|
Issued
|
15,356,900
|
$0.16
|
|
Expired
|
(2,550,770)
|
$0.52
|
|
Exercised
|
(9,596,990)
|
$0.21
|
|
Outstanding,
September 30, 2020
|
29,875,737
|
$0.22
|
At
September 30, 2020, there were 29,875,737 (December 31, 2019
– 26,666,597) warrants outstanding with a weighted-average
exercise price of $0.22 (December 31, 2019 - $0.44), as
follows:
|
|
|
Number of
warrants
|
|
|
Exercise
Price
|
Expiry
Date
|
at
September 30, 2020
|
at December
31, 2019
|
|
$0.16
|
May
20, 2023
|
4,962,000
|
-
|
|
$0.16
|
May
1, 2023
|
7,144,900
|
-
|
|
$0.26
|
June
13, 2022
|
521,590
|
596,590
|
|
$0.26
|
April
12, 2022
|
1,032,500
|
1,032,500
|
|
$0.26
|
January
13, 2022
|
499,990
|
499,990
|
|
$0.26
|
August
29, 2021
|
1,013,670
|
1,013,670
|
|
$0.26
|
August
13, 2021
|
198,237
|
198,237
|
|
$0.26
|
July
6, 2021
|
3,863,180
|
3,863,180
|
|
$0.26
|
June
2, 2021
|
7,500,000
|
7,500,000
|
|
$0.26
|
February
15, 2021
|
250,000
|
500,000
|
|
$0.26
|
January
25, 2021
|
650,000
|
650,000
|
|
$0.26
|
December
18, 2020
|
192,400
|
211,250
|
|
$0.26
|
November
13, 2020
|
625,000
|
625,000
|
|
$0.26
|
October
16, 2020
|
1,422,270
|
2,533,020
|
|
$0.26
|
September
30, 2020
|
-
|
1,112,000
|
|
$0.26
|
September
20, 2020
|
-
|
3,983,490
|
|
$0.26
|
June
24, 2020
|
-
|
1,147,670
|
|
$0.26
|
May
22, 2020
|
-
|
1,200,000
|
|
|
29,875,737
|
26,666,597
|
|
On July 7, 2020, the Company amended the exercise price of
24,318,927 previously issued
common share purchase warrants of the Company to $0.26
(the “Amendment”).
The Amendment has been approved by the TSX and approved at the Company’s
Annual General and Special Meeting of Shareholders held on July 7,
2020. All other terms of the amended warrants are unchanged from
the original warrants and remain in full effect. The Amendment
decreased the fair value of the warrants by $206,185 over the
original fair value. Consequently, the Company has not recorded any
change in the historical fair value charged to the
deficit.
21
SILVER ELEPHANT MINING CORP.
(formerly
Prophecy Development Corp.)
Notes
to the Condensed Interim Consolidated Financial
Statements
For the
three and nine months ended September 30, 2020 and
2019
(Expressed
in Canadian Dollars) (Unaudited)
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. 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
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 the Company’s financial assets measured at fair value
by level within the fair value hierarchy.
|
|
Level
1
|
Level
2
|
Level
3
|
Total
|
|
Financial
assets
|
|
|
|
|
|
Cash
September 30, 2020
|
$1,019,743
|
$-
|
$-
|
$1,019,743
|
|
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:
22
SILVER ELEPHANT MINING CORP.
(formerly
Prophecy Development Corp.)
Notes
to the Condensed Interim Consolidated Financial
Statements
For the
three and nine months ended September 30, 2020 and
2019
(Expressed
in Canadian Dollars) (Unaudited)
11.
FINANCIAL
RISK MANAGEMENT DISCLOSURES (cont’d…)
Categories of financial instruments
|
|
September 30,
2020
|
December 31,
2019
|
|
Fair
value through profit or loss
|
|
|
|
Cash
|
$1,019,743
|
$3,017,704
|
|
Amortized
cost
|
|
|
|
Receivables
|
$390,746
|
$246,671
|
|
Restricted
cash equivalents
|
$34,500
|
$34,500
|
|
|
$1,444,989
|
$3,298,875
|
|
Amortized
cost
|
|
|
|
Accounts
payable
|
$1,393,179
|
$2,420,392
|
|
Lease
liability
|
$28,975
|
$52,818
|
|
|
$1,422,154
|
$2,420,392
|
(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
September 30, 2020, the Company had a cash balance of $1,019,743
(as at December 31, 2019 – $3,017,704). As at September
30, 2020, the Company had accounts payable and accrued liabilities
of $1,422,154 (as at 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 September 30, 2020.
23
SILVER ELEPHANT MINING CORP.
(formerly
Prophecy Development Corp.)
Notes
to the Condensed Interim Consolidated Financial
Statements
For the
three and nine months ended September 30, 2020 and
2019
(Expressed
in Canadian Dollars) (Unaudited)
12.
FINANCIAL RISK MANAGEMENT
DISCLOSURES
(c)
Market risk
(cont’d…)
(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 United States dollars, Mongolian tugrik, and Bolivian boliviano
into its functional and reporting currency, the Canadian dollar.
Based on the above, net exposures as at September 30, 2020, with
other variables unchanged, a 10% (as at December 31, 2019 –
10%) strengthening (weakening) of the Canadian dollar against the
Mongolian tugrik would impact net loss with other variables
unchanged by $25,000. A 10% strengthening (weakening) of the
Canadian dollar against the Bolivian boliviano would impact net
loss with other variables unchanged by $48,000. A 10% strengthening
(weakening) of the US dollar against the Canadian dollar would
impact net loss with other variables unchanged by $10,000. 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.
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.
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 September 30,
|
Nine
Months Ended September 30,
|
||
|
Related parties
|
2020
|
2019
|
2020
|
2019
|
|
Directors
and officers
|
$657,041
|
$376,852
|
$1,298,076
|
$1,312,135
|
|
Linx
Partners Ltd.
|
210,000
|
98,000
|
635,000
|
266,000
|
|
MaKevCo
Consulting Inc.
|
11,800
|
5,500
|
23,300
|
15,900
|
|
Sophir
Asia Ltd.
|
10,300
|
4,900
|
21,200
|
14,700
|
|
|
$889,141
|
$485,252
|
$1,977,576
|
$1,608,735
|
24
SILVER ELEPHANT MINING CORP.
(formerly
Prophecy Development Corp.)
Notes
to the Condensed Interim Consolidated Financial
Statements
For the
three and nine months ended September 30, 2020 and
2019
(Expressed
in Canadian Dollars) (Unaudited)
13.
RELATED PARTY DISCLOSURES
(cont’d…)
A
summary of the transactions by nature among the related parties is
as follows:
|
|
Three
Months Ended September 30,
|
Nine
Months Ended September 30,
|
||
|
Related parties
|
2020
|
2019
|
2020
|
2019
|
|
Consulting
and management fees
|
$105,000
|
$48,948
|
$317,500
|
$166,000
|
|
Directors'
fees
|
41,700
|
38,643
|
84,900
|
78,043
|
|
Mineral
properties
|
548,941
|
312,662
|
1,202,526
|
863,387
|
|
Salaries
|
193,501
|
84,999
|
372,650
|
501,305
|
|
|
$889,142
|
$485,252
|
$1,977,576
|
$1,608,735
|
As at
September 30, 2020, amounts due to related parties was $Nil
(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.
|
|
Three
Months Ended September 30,
|
Nine
Months Ended September 30,
|
||
|
Key Management Personnel
|
2020
|
2019
|
2020
|
2019
|
|
Salaries
and short term benefits
|
$210,739
|
$106,649
|
$417,052
|
$560,132
|
|
Directors'
fees
|
41,700
|
38,643
|
84,900
|
78,043
|
|
Share-based
payments
|
169,208
|
91,689
|
880,415
|
314,992
|
|
|
$421,647
|
$236,981
|
$1,382,367
|
$953,167
|
25
SILVER ELEPHANT MINING CORP.
(formerly
Prophecy Development Corp.)
Notes
to the Condensed Interim Consolidated Financial
Statements
For the
three and nine months ended September 30, 2020 and
2019
(Expressed
in Canadian Dollars) (Unaudited)
|
|
Nine months ended
September 30
|
|
|
|
2020
|
2019
|
|
Supplementary
information
|
|
|
|
Non-Cash Financing
and Investing Activities
|
|
|
|
Shares
issued on acquisition of mineral property
|
$2,000,000
|
$-
|
|
Bonus
shares
|
$640,400
|
$115,000
|
|
Shares
for services
|
$80,500
|
$115,001
|
|
Shares
issued to settle debt
|
$-
|
$164,500
|
|
Finders
units
|
$24,000
|
$-
|
|
Depreciation
included in mineral property
|
$73,240
|
$3,833
|
|
Equipment
expenditures included in accounts payable
|
$457,018
|
$472,213
|
|
Mineral property
expenditures included in accounts payable
|
$830,317
|
$987,828
|
|
Share-based
payments capitalized in mineral properties
|
$119,244
|
$100,752
|
|
Reclassification of
contributed surplus on exercise of options
|
$173,474
|
$103,071
|
|
Reclassification of
contributed surplus on exercise of warrants
|
$-
|
$28,478
|
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”) then joint venture
interest in the Pulacayo Project) and Apogee Minerals Bolivia S.A.
Pursuant to the terms of the Definitive Agreement dated November 3,
2014 between the Company and Apogee, 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 42,000,000 Bolivian boliviano 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 the previous Resolution of the Bolivian Supreme
Court issued in 2011, that imposed the tax liability on ASC Bolivia
LDC Sucursal Bolivia, null and void and sent the matter back to the
Supreme Court of Bolivia 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 the national tax authority in
Bolivia against the
Company’s Bolivian subsidiary as not proven. This
Resolution is final and binding, hence neither the Company nor the
Company’s Bolivian subsidiaries owe any outstanding back
taxes to the national tax authority in
Bolivia.
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.
26
SILVER ELEPHANT MINING CORP.
(formerly
Prophecy Development Corp.)
Notes
to the Condensed Interim Consolidated Financial
Statements
For the
three and nine months ended September 30, 2020 and
2019
(Expressed
in Canadian Dollars) (Unaudited)
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 in Mongolia, notifying it
of the results of the Sukhbaatar District Tax Division’s
value added tax ("VAT")
inspection of Red Hill’s 2009-2013 tax imposition and
payments that resulted in validating VAT credits of only
235,718,533 Mongolian tugrik from
Red Hill’s claimed VAT credit of 2,654,175,507 Mongolian
tugrik. 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 Capital 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 Mongolian tugrik 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. Due to the
credit risk associated with the VAT credit, the Company has
provided a full valuation provision against the
balance.
The
following events occurred subsequent to September 30,
2020:
●
The Company
announced that it has entered into an
agreement (the “Underwriting
Agreement”) with Mackie
Research Capital Corporation as lead underwriter and sole
bookrunner (the “Lead
Underwriter”), on behalf
of a syndicate of underwriters, including Canaccord Genuity Corp.
and Sprott Capital Partners LP (collectively with the Lead
Underwriter, the “Underwriters”),
pursuant to which the Underwriters have agreed to purchase, on a
bought‐deal
basis, 20,000,000 Common Shares (the “Offered
Shares”) of the Company
at a price of C$0.40 per Offered Share for gross proceeds of
C$8,000,000 (the “Offering”).
Pursuant to the Underwriting Agreement, the
Company granted the Underwriters an option (the “Over-Allotment
Option”) to increase the
size of the Offering by up to 3,000,000 Common Shares at any time
up to 30 days following the closing of the Offering. Pursuant to
the terms and conditions of the Underwriting Agreement, the Company
has agreed to pay a cash commission to the Underwriters equal to 6%
of the gross proceeds of the Offering (the "Underwriters'
Commission"). In addition to
the Underwriters' Commission, the Company will issue to the
Underwriters such number of compensation options (the
"Compensation
Options") as is equal to 6% of
the aggregate number of Offered Shares issued pursuant to the
Offering, including any Offered Shares sold pursuant to the
Over-Allotment Option. Each Compensation Option is exercisable for
the purchase of one Common Share at any time prior to the date that
is 12 months after the closing date of the Offering at a price of
$0.40 per Common Share.
The
Offering is expected to close on or about the date that is five
business days following the issuance of the receipt for the final
short form prospectus of the Company qualifying the distribution of
the Common Shares issuable pursuant to the Offering, and is subject
to a number of conditions, including receipt of all necessary
securities regulatory approvals and the approval of the
TSX.
●
2,207,0801 Common Share purchase warrants and 475,000 stock
options were exercised for total proceeds of
$633,216.
______________
1 As at the date hereof, 195,000 Common Shares are in the process of being
issued pursuant to the exercise of an equivalent number of Common
Share purchase warrants of the Company. Share purchase warrants
does not exclude the 195,000 exercised Common Share purchase
warrants, which would have expired on November 13, 2020, if not so
exercised.
27
Exhibit 99.2
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the nine months ended September 30, 2020
(Expressed
in Canadian dollars, except where indicated)
SILVER ELEPHANT MINING CORP.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the nine months ended September 30, 2020
(Expressed
in Canadian dollars, except where indicated)
TABLE OF CONTENTS
|
1
|
INTRODUCTION
|
3
|
|
2
|
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
|
5
|
|
3
|
THIRD QUARTER HIGHLIGHTS AND SIGNIFICANT EVENTS
|
6
|
|
4
|
PROPERTY SUMMARY
|
9
|
|
5
|
SUMMARY OF QUARTERLY RESULTS
|
43
|
|
6
|
DISCUSSION OF OPERATIONS
|
44
|
|
7
|
PROPOSED TRANSACTIONS
|
46
|
|
8
|
LIQUIDITY AND CAPITAL RESOURCES
|
46
|
|
9
|
CONTINGENCIES
|
49
|
|
10
|
RELATED PARTY DISCLOSURES
|
50
|
|
11
|
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
|
51
|
|
12
|
FINANCIAL INSTRUMENTS AND RELATED RISKS
|
54
|
|
13
|
RISKS AND UNCERTAINTIES
|
56
|
|
14
|
DISCLOSURE CONTROLS AND PROCEDURES
|
57
|
|
15
|
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
|
58
|
|
16
|
DISCLOSURE OF OUTSTANDING SHARE DATA
|
58
|
|
17
|
OFF-BALANCE SHEET ARRANGEMENTS
|
58
|
2
SILVER ELEPHANT MINING CORP.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the nine months ended September 30, 2020
(Expressed
in Canadian dollars, except where indicated)
This
Management’s Discussion and Analysis (this
“MD&A”) of
Silver Elephant Mining Corp. (formerly
Prophecy Development Corp.) and its subsidiaries (the
“Company” or
“Silver
Elephant”) was prepared by management as at November
16, 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 nine months ended September 30, 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 in conjunction with the audited
annual consolidated financial statements for the year ended
December 31, 2019, which were prepared in accordance with IFRS (the
“Annual
Financial Statements”), and the related annual
Management’s Discussion and Analysis (the “Annual MD&A”) dated March 30,
2020, as well as the Company's Annual Report on Form 20-F, dated
March 30, 2020 (the “2019
Annual Report”), 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. All references to "$" or "dollars" in this MD&A
refer to Canadian dollars. References to "US$" or "USD" in this
MD&A refer to United States dollars. 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 under National
Instrument 43-101 – Standards
of Disclosure for Mineral Projects (“NI 43-101”)
are contained in the 2019 Annual Report which is available
under the Company’s SEDAR profile at
www.sedar.com.
Description of Business
The
Company amalgamated under the laws of the Province of British
Columbia, Canada. The Company’s Common Shares (the
"Common Shares”, and
each, a “Common
Share”) are listed for trading on the Toronto Stock
Exchange (the “TSX”) under the symbol
“ELEF” and on the Frankfurt Stock Exchange under the
symbol “1P2N” and are quoted on the OTCQX under the
symbol “SILEF”.
The
Company is an exploration stage company specializing in mine
permitting, construction, and operations. The Company's principal
projects are the Pulacayo Paca silver-lead-zinc project in Bolivia
(the "Pulacayo Project") and
the Gibellini vanadium deposits and associated claims located in
the State of Nevada, USA.
The
Pulacayo Project comprises seven mining areas covering an area of
approximately 3,550 hectares of contiguous areas centered on the
historical Pulacayo mine and town site. The Pulacayo Project is
located 18 kilometers east of the town of Uyuni in the Department
of Potosí, in southwestern Bolivia. It is located 460
kilometers south-southeast of the national capital of La Paz and
150 kilometers southwest of the City of Potosí, which is the
administrative capital of the department. The Pulacayo Project is
fully permitted with secured social licenses for
mining.
The
Pulacayo Project mining rights are recognized by two legally
independent contractual arrangements, one covering all, except the
Apuradita deposit, from a mining production contract (the
"Pulacayo MPC") between the
Company and the Corporación Minera de Bolivia ("COMIBOL"), a Bolivian state mining
company, and the original holder of the rights, executed on October
3, 2019. The Pulacayo MPC grants the Company the 100% exclusive
right to develop and mine at the Pulacayo and Paca concessions for
up to 30 years against certain royalty payments. It is comparable
to a mining license in Canada or the United States. In connection
with the Apuradita deposit, its rights are covered by a second
contractual arrangement, with the Bolivian Jurisdictional Mining
Authority, acting for the Government of Bolivia, which is in
process of formalization, as a mean of recognition of the acquired
rights to what was originally the mining concession. Until such
time as the contract is formalized, all mining rights, as
recognized in the Bolivian Mining Law 535, can be exercised by the
holder of the ex-concession.
3
SILVER ELEPHANT MINING CORP.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the nine months ended September 30, 2020
(Expressed
in Canadian dollars, except where indicated)
The
Company also has a 100% interest in two vanadium projects in North
America. The Gibellini project 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 is comprised of the Titan
vanadium-titanium-iron deposit and related claims located in the
Province of Ontario, Canada (the “Titan Project). The Company is
permitting the Gibellini Project and aims to be the first primary
vanadium producer in the USA by 2023.
The
Company also owns 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.
General Corporate Information:
|
At
September 30, 2020 and November 16, 2020, the Company had: (i)
152,613,148 and 155,295,2281 Common Shares issued
and outstanding,
respectively; (ii) 11,028,750 and 10,272,500 stock options, each
exercisable for the purchase of one Common Share,
outstanding,
respectively; (iii) 29,875,737 and 27,459,6671 Common Share
purchase warrants, each exercisable for the purchase of one Common
Share, 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 (Chief Executive Officer and Executive Chairman)
|
Ronald
Espell, Vice-President, Environment and Sustainability
Danniel
Oosterman, Vice-President, Exploration
|
|
Greg
Hall
|
Joaquin
Merino-Marquez, Vice-President, South American
Operations
|
|
Masa
Igata
|
Irina
Plavutska, Chief Financial Officer
|
|
Marc
Leduc
David
Smith
|
Brigitte
McArthur, Corporate Secretary
|
|
|
|
|
Audit Committee
|
Corporate Governance and Compensation Committee
|
|
Greg
Hall (Chair)
|
Greg
Hall (Chair)
|
|
Masa
Igata
|
Masa
Igata
|
|
Marc
Leduc
|
Marc
Leduc
|
Qualified Persons
Danniel
Oosterman, B.Sc.(Hons), P.Geo., is a “qualified person”
within the meaning of NI 43-101 (a "Qualified Person"). 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.
[1] As at the date hereof, 195,000 Common Shares are
in the process of being issued pursuant to the exercise of an
equivalent number of Common Share purchase warrants of the Company.
The number of issued and outstanding Common Shares does not include
the 195,000 Common Shares issuable and the number of issued and
outstanding Common Share purchase warrants does not exclude the
195,000 exercised Common Share purchase warrants, which would have
expired on November 13, 2020, if not so
exercised.
4
SILVER ELEPHANT MINING CORP.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the nine months ended September 30, 2020
(Expressed
in Canadian dollars, except where indicated)
2.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this MD&A constitute
"forward-looking statements" within the meaning of United States
securities laws and "forward-looking information" within the
meaning of Canadian securities laws and are intended to be covered
by the safe harbors provided by such regulations (such
forward-looking statements and forward-looking information are
collectively referred to herein as "forward-looking statements").
These forward looking statements concerns matters 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.
Forward-looking statements in this MD&A are frequently, but not
always, identified by words such as "expects", "anticipates",
"intends", "believes", "estimates", "potentially" or similar
expressions, or statements that events, conditions or results
"will", "may", "would", "could" or "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 the forward- looking statements. Such
forward-looking statements include but are not limited to
statements regarding the Company's planned and future exploration
and/or development of the Pulacayo Project, the Gibellini Project
and the Titan Project; permitting and feasibility of the Gibellini
Project; the volatility of the novel coronavirus ("COVID-19") outbreak as a global
pandemic; political instability and social unrest in Bolivia and
other jurisdictions where the Company operates; the Revised
Pulacayo Technical Report (as defined herin), including the
anticipated filing thereof; the Company's goals regarding
exploration, and development of, and production from its projects,
and regarding raising capital and conducting further exploration
and developments of its properties; the Company's future business
plans; the Company's future financial and operating performance;
the future price of silver, lead, zinc, vanadium and other metals;
expectations regarding any environmental issues that may affect
planned or future exploration and development programs and the
potential impact of complying with existing and proposed
environmental laws and regulations; the ability to obtain or
maintain any required permits, licenses or other necessary
approvals for the exploration or development of the Company's
projects; government regulation of mineral exploration and
development operations in Bolivia and other relevant jurisdictions;
the Company's reliance on key management personnel, advisors and
consultants; the volatility of global financial markets; the timing
and amount of estimated future operating and exploration
expenditures; the costs and timing of the development of new
deposits; the continuation of the Company as a going concern; the
likelihood of securing project financing; the impacts of changes in
the legal and regulatory environment in which the Company operates;
the timing and possible outcome of any pending litigation and
regulatory matters; and other information concerning possible or
assumed future results of the Company's operations, including
development and production of electricity from the Company’s
Chandgana power plant, including finalizing of any power purchase
agreement; estimated future coal production at the Chandgana Tal,
Ulaan Ovoo and Khavtgai Uul coal properties, and other information
concerning possible or assumed future results of operations of the
Company. Refer to Section 4 – Property Summary.
Statements relating to mineral resources are deemed to be
forward-looking statements, as they involve the implied assessment,
based on certain estimates and assumptions, that the mineral
resources described exist in the quantities predicted or estimated
and may be profitably produced in the future. Estimated values of
future net revenue do not represent fair market value. There is no
certainty that it will be commercially viable to produce any
portion of the mineral resources.
Forward-looking statements are not guarantees of future performance
and are based upon a number of estimates and assumptions of
management at the date the statements are made including, among
other things, the following: timely receipt of regulatory and
governmental approvals (including licenses and permits) for the
development, construction and production of the Company's
properties and projects; there being no significant disruptions
affecting operations, whether due to labour disruptions, COVID 19
or other causes; currency exchange rates being approximately
consistent with current levels; certain price assumptions for
silver, lead, zinc, vanadium and other metals; prices for and
availability of fuel and electricity; parts and equipment and other
key supplies remaining consistent with current levels and prices;
production forecasts meeting expectations; the accuracy of the
Company's current mineral resource estimates and of any
metallurgical testing completed to date; labour and materials costs
increasing on a basis consistent with the Company's current
expectations; any additional required financing being available on
reasonable terms; market developments and trends in global supply
and demand for silver, lead, zinc, vanadium and other metals
meeting expectations; favourable operating conditions; political
stability; access to necessary financing; stability of labour
markets and in market conditions in general; and estimates of costs
and expenditures to complete the Company's programs. The Company
has no assurance that any of these assumptions will prove to be
correct.
5
SILVER ELEPHANT MINING CORP.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the nine months ended September 30, 2020
(Expressed
in Canadian dollars, except where indicated)
Many of these assumptions are inherently subject to significant
business, social, economic, political, regulatory, competitive and
other risks and uncertainties, contingencies, and other factors
that are not within the control of the Company and could thus cause
actual performance, achievements, actions, events, results or
conditions to be materially different from those projected in the
forward-looking statements. Furthermore, such forward-looking
statements involve known and unknown risks, uncertainties and other
factors which may cause the actual results, performance or
achievements of the Company to be materially different from those
reflected in the forward-looking statements, whether expressed or
implied. Such factors include, among others, the following: the
Company is an exploration stage company; the cost, timing and
amount of estimated future capital, operating exploration,
acquisition, development and reclamation activities; the volatility
of the market price of the Common Shares; judgment of management
when exercising discretion in the use of proceeds from offerings of
securities; sales of a significant number of Common Shares in the
public markets, or the perception of such sales, could depress the
market price of the Common Shares; potential dilution with the
issuance of additional Common Shares; none of the properties in
which the Company has a material interest have mineral reserves;
estimates of mineral resources are based on interpretation and
assumptions and are inherently imprecise; the Company has not
received any material revenue or net profit to date; exploration,
development and production risks; no history of profitable mineral
production; actual capital costs, operating costs, production and
economic returns may differ significantly from those the Company
has anticipated; foreign operations and political condition risks
and uncertainties; legal and political risk; amendments to local
laws; the ability to obtain, maintain or renew underlying licenses
and permits; title to mineral properties; environmental risks;
competitive conditions in the mineral exploration and mining
business; availability of adequate infrastructure; the ability of
the Company to retain its key management and employees and the
impact of shortages of skilled personnel and contractors; limits of
insurance coverage and uninsurable risk; reliance on third party
contractors; the availability of additional financing on reasonable
terms or at all; foreign exchange risk; impact of anti-corruption
legislation; recent global financial conditions; changes to the
Company's dividend policy; conflicts of interest; cyber security
risks; litigation and regulatory proceedings; the obligations which
the Company must satisfy in order to maintain its interests in its
properties; the influence of third-party stakeholders; the
Company's relationships with the communities in which it operates;
human error; the speculative nature of mineral exploration and
development in general, including the risk of diminishing
quantities or grades of mineralization; and other risks and the
factors discussed under the heading "Key Information - Risk
Factors" in the 2019 Annual Report and in analogous disclosure in
other disclosure documents of the Company
The foregoing list is not exhaustive and additional factors may
affect any of the Company's forward looking statements. Although
the Company has attempted to identify important factors that could
cause actual performance, achievements, actions, events, results or
conditions to differ materially from those described in
forward-looking statements, there may be other factors that cause
performance, achievements, actions, events, results or conditions
to differ from those anticipated, estimated or
intended.
The forward-looking statements contained herein are made as of the
date of this MD&A and the Company disclaims any obligation to
update or revise any forward-looking statements, whether as a
result of new information, future events or results or otherwise,
except as required by applicable law. There can be no assurance
that forward-looking statements will prove to be accurate, as
actual results and future events could differ materially from those
anticipated in such statements. Accordingly, readers should not
place undue reliance on forward-looking statements. All
forward-looking statements attributable to the Company are
expressly qualified by these cautionary statements.
3.
THIRD QUARTER HIGHLIGHTS AND SIGNIFICANT EVENTS
|
●
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On July 7, 2020, the Company reported that all proposed
resolutions were approved at the Company’s Annual General and
Special Meeting of shareholders held on July 7, 2020. The Company
had previously received conditional approval from the TSX to amend
the exercise price of an aggregate of 24,318,927 previously issued
Common Share purchase warrants (the “Original
Warrants”) of the Company to an
exercise price of $0.26 per Common Share (the “Amendment”)
pending shareholder approval of the Amendment. Pursuant to the
passing of the ordinary resolution approving the Amendment, the
Original Warrants were cancelled and replaced with amended Common
Share purchase warrants with an exercise price of $0.26 per Common
Share (the “Amended
Warrants”), which the Amendment
becoming effective as of July 17, 2020. All other terms of the
Amended Warrants were unchanged from the Original
Warrants.
|
6
SILVER ELEPHANT MINING CORP.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the nine months ended September 30, 2020
(Expressed
in Canadian dollars, except where indicated)
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●
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On July
13, 2020, the Company announced that it had entered into an
agreement (the “Triunfo
Agreement”) with a private party (the “Triunfo Vendor”) for the
right to conduct mining exploration activities (the
“Exploration
Right”) within the El Triunfo gold-silver-lead-zinc
project in La Paz District, Bolivia (the “Triunfo Project”) and the
right, at the Company’s election, to purchase the Triunfo
Project for US$1,000,000 (the “Purchase Right”, and together with the
Exploration Right, the “Triunfo Rights”). The Purchase Right can
be exercised at any time after the Triunfo Vendor completes the
required Bolivian administrative procedures for the Triunfo
Project, expected to occur no later than March 2021, until July 13,
2025 or such further period as the parties may agree. To secure the
Triunfo Rights, the Company paid the Triunfo Vendor US$100,000 upon
execution of the Triunfo Agreement. Until the Company exercises its
Purchase Right, beginning in 2021 the Company must pay the Triunfo
Vendor US$50,000 on July 13 of each year to maintain the Triunfo
Rights. The Company may elect to terminate the Triunfo Agreement at
any time. If the Company exercises the Purchase Right, the Triunfo
Vendor will maintain up to a 5% interest of the profits, net of
taxes and royalties, derived from the sale of concentrate produced
from the Triunfo Project (the “Residual Interest”). If the Company exercises the Purchase Right, the
Company may reduce some or all of the Residual Interest at any time
by making a lump sum payment of up to
US$300,000.
|
●
On July 16, 2020, the Company announced that the
Notice of Intent (the “NOI”) to prepare an Environmental Impact
Statement (the “EIS”) for the Gibellini Project was published
on July 14, 2020, in the Federal Register. The NOI formally
commenced the 12-month timeline to complete the National
Environmental Policy Act (“NEPA”) review and the EIS preparation by the
U.S. Department of the Interior Bureau of Land Management (the
“BLM”).
●
On July 20, 2020, the Company announced it had
engaged Mercator Geological Services Limited (“Mercator”)
to prepare an updated NI 43-101 compliant technical report for
the Pulacayo Project.
|
●
|
On July 20, 2020, the Company also announced the departure of Michael Doolin, the
Company’s interim Chief Executive Officer and Chief Operating
Officer. John Lee was subsequently appointed as Chief Executive
Officer of the Company.
|
●
On August 3, 2020, the Company announced the
appointment of David Smith as an Independent Director and
the resignation of Ronald Clayton from the Company's board
of directors (the "Board").
●
On August 11, 2020,
the Company announced diamond infill drilling results from the
Pulacayo Project which demonstrated broad continuity of
mineralization and grade starting from near-surface, consistent
with historic Hochschild mining records, which indicated high grade
mineralization with increasing depth to more than 1,000 meters from
surface.
●
On August 19, 2020, the Company announced that it
had received its first chip sampling results on the Triunfo
Project. A total of 103 chip
samples were collected from outcrops at surface and from
underground adits and tunnels accessing the main east-west
mineralized trend. The width of the samples varies from 1.0 to
5.3m, exhibiting an average width of 2.5m.
37 Triunfo samples assayed up to 8.3 g/t AuEg. These results confirmed the Triunfo Project
exhibits near-surface Au-Ag-Pb-Zn
mineralization.
●
On September 7, 2020, the Company
announced that it had entered into a binding sales and purchase
agreement (the “Sunawayo SPA”)
with a private party (the “Sunawayo
Vendor”) to
acquire the Sunawayo silver-lead mining project (the
“Sunawayo
Project”)
located immediately adjacent to the Malku Khota silver project in
Bolivia. Subject to the provisions of the Sunawayo SPA, the
Sunawayo Vendor agreed to irrevocably transfer the mining rights of
the Sunawayo Project to the Company for consideration of
US$6,500,000, which payment consists of US$300,000 paid on
execution of the Sunawayo SPA, with the remaining US$6,200,000 to
be paid in cash over a one-year period in twelve equal monthly
installments, starting March 1, 2021.
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●
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On September 18, 2020, the Company’s wholly owned subsidiary Nevada Vanadium
LLC (“Nevada
Vanadium”)
completed the acquisition of the Bisoni vanadium project (the
"Bisoni
Project") situated
immediately southwest of the Gibellini Project pursuant to an Asset
Purchase Agreement (the “Bisoni
APA”) dated
August 18, 2020, with Cellcube Energy Storage Systems Inc.
(“Cellcube”).The
Bisoni Project is comprised of 201 lode mining claims, along a 13.8
kilometer strike that covers an area of 16.5 square kilometers
(1,656 hectares), easily
accessed by a graded gravel road extending south from US Highway
50, and is about 25 miles south of the town of Eureka,
Nevada.
|
As consideration for the acquisition of
the Bisoni Project under the Bisoni APA, the Company issued
4 million Common Shares (the “Bisoni APA Shares”) and paid
$200,000 cash to Cellcube. The Bisoni APA Shares are subject to a
statutory four month hold period expiring on January 19, 2021.
Additionally, subject to TSX approval, if, on or before December
31, 2023, the price of European vanadium pentoxide on the Metal
Bulletin (or an equivalent publication) exceeds US$12 a pound for
30 consecutive days, the Company will issue to Cellcube additional
Common Shares with a value of $500,000, calculated based upon the 5
day volume weighted average price of the Common Shares immediately
following the satisfaction of the vanadium pentoxide pricing
condition.
7
SILVER ELEPHANT MINING CORP.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the nine months ended September 30, 2020
(Expressed
in Canadian dollars, except where indicated)
●
On September 28, 2020, the Company
announced that all of the initial
forty-eight chip and grab samples collected from surface outcrops
and adits at the Sunawayo Project returned anomalous Ag-Pb assayed
values. Ten of the assayed samples contain either over 100g/t
silver or 10% lead or both. The results exceeded the
Company’s expectations and are an early indication of the
potential for mineral discoveries at Sunawayo. The Company is
mobilizing to start geological and structural mapping to ascertain
the primary controls and trends for mineralization at Sunawayo.
This work will lay the foundation for defining drill targets by
year’s end.
●
During
the quarter ended September 30, 2020, 9,596,990 Common Share
purchase warrants and 758,750 stock options were exercised for
total proceeds of $2,320,656.
Subsequent to period end
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●
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On October 13, 2020, the Company announced the results of an NI
43-101 compliant mineral resource estimate for the Pulacayo Project
prepared by Mercator. This mineral resource estimate has an
effective date of October 13, 2020, and includes an indicated
mineral resource of 106.7 million oz of silver, 1,384.7 million
pounds of zinc, and 693.9 million pounds of lead, and an inferred
mineral resource of 13.1 million oz of silver, 122.8 million pounds
of zinc and 61.9 million pounds of lead. On October 26, 2020, the
Company filed an NI 43-101 compliant technical report titled
"Mineral
Resource Estimate Technical Report for the Pulacayo Project,
Potosí Department, Antonnio Quijarro Province,
Bolivia" prepared by Matthew
Harrington, P. Geo, Michael Cullen, P. Geo, and Osvaldo Arce, P.
Geo, of Mercator, with an effective date of October 13, 2020 and a
report date of October 23, 2020 (the "Pulacayo
Technical Report") with Canadian
securities regulatory authorities. The Pulacayo Technical Report is
available under the Company’s SEDAR profile at www.sedar.com
and is discussed in more detail below, under the heading
"Property
Summary – Pulacayo Project, Bolivia". The Company is in
the process of finalizing a revised version of the Pulacayo
Technical Report (the "Revised Pulacayo Technical Report"), due to
subsequent revisions to a number of sections of the Pulacayo
Technical Report by the authors thereof; however, the Revised
Pulacayo Technical Report will not contain any changes to the
mineral resource estimates, the interpretation and conclusions, or
the recommendations from those set out in the Pulacayo Technical
Report. The Revised Pulacayo Technical Report will be filed by the
Company with Canadian securities regulatory authorities in
connection with the filing of the final short form prospectus of
the Company in relation to the Offering (as defined
herein).
|
●
On
October 14, 2020, the Company announced a new zone at the Paca
deposit at the Pulacayo Project. Core samples results are expected
in late November 2020.
●
On October 20, 2020, the Company announced
that it had entered into an agreement
with Mackie Research Capital Corporation as lead underwriter and
sole bookrunner (the “Lead
Underwriter”), on behalf
of a syndicate of underwriters, including Canaccord Genuity Corp.
and Sprott Capital Partners LP (collectively with the Lead
Underwriter, the “Underwriters”),
pursuant to which the Underwriters agreed to purchase, on a
bought‐deal
basis, 15,000,000 Common Shares of the Company at a price of C$0.40
per Common Share for aggregate gross proceeds of C$6,000,000
(the “Offering”).
The Company also granted the Underwriters an
option to increase the size of
the Offering by up to an additional number of Common Shares that in
aggregate would be equal to 15% of the total number of Common
Shares to be issued under the Offering, at any time up to 30 days
following the closing of the Offering. The net proceeds from the
sale of the Common Shares will be used for the exploration,
development and/or improvement of the Company’s mine
properties and for working capital purposes.
The
Offering is expected to close on or about the date that is five
business days following the issuance of the receipt for the final
short form prospectus of the Company qualifying the distribution of
the Common Shares issuable pursuant to the Offering, and is subject
to a number of conditions, including receipt of all necessary
securities regulatory approvals and the approval of the
TSX.
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●
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On October 21, 2020, the Company announced that it had entered into
an amended agreement with the Lead Underwriter to increase the size
of the Offering to 20,000,000 Common Share at a price of $0.40 per
Common Share for aggregate gross proceeds of $8,000,000. The other
details of the Offering remained unchanged.
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|
●
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Subsequent to the period end and as at the date of this
MD&A, 2,207,080 Common
Share purchase warrants (excluding 195,000 Common Share purchase
warrants that are in the process of being exercised as at the date
hereof) and 475,000 stock
options were exercised, each for the issuance of one Common Share,
for total gross proceeds of $633,216.
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8
SILVER ELEPHANT MINING CORP.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the nine months ended September 30, 2020
(Expressed
in Canadian dollars, except where indicated)
For
further information please view the Company’s 2020 news
releases available under the Company’s SEDAR profile at
www.sedar.com.
4.
PROPERTY SUMMARY
DEFINITIONS AND INTERPRETATIONS
This
MD&A contains a number of technical terms relating to
exploration and resource development that may be unfamiliar to a
general reader. The following definitions are provided for
reference and clarification, and reflect their common use and
understanding in the mining industry:
“deposit”
means a mineral deposit which is a mineralized mass that may be
economically valuable, but whose characteristics may require more
detailed information. Mineral resources are calculated from
geological data collected from deposits, however, deposits do not
necessarily reflect the presence of mineral resources.
“mineral
resource” means a concentration or occurrence of
natural, solid, inorganic, or fossilized organic material in or on
the Earth’s crust in such form and quantity and of such a
grade or quality that it has reasonable prospects for economic
extraction. The location, quantity, grade, geological
characteristics, and continuity of a mineral resource are known,
estimated, or interpreted from specific geological evidence and
knowledge. Mineral resources are sub-divided, in order of
increasing geological confidence, into Inferred,
Indicated,
and Measured
categories. Note that the
confidence level in Inferred Mineral Resources is insufficient to
allow the application of technical and economic parameters or to
enable an evaluation of economic viability worthy of public
disclosure. Regardless of category, a mineral resource is
estimated through application of the guidelines of the Canadian
Institute of Mining, Metallurgy and Petroleum Standards for Mineral
Resources and Reserves: Definitions and Guidelines, as amended in
2014. A “historic” mineral resource estimate refers to
a mineral resource estimate of the quantity, grade, or metal or
mineral content of a deposit that the Company has not verified as
current, and which was prepared before the Company acquired or
entered into an agreement to acquire, an interest in the property
that contains the deposit.
“project”,
as used in the context of the Pulacayo Project, the
Gibellini Project, the
Triunfo Project, the Sunawayo Project and the Titan Project defined
in this MD&A, refers to a mineral project which, pursuant to NI
43-101, means any exploration, development or production activity,
including a royalty or similar interest in these activities with
respect to base metals, precious metals or industrial metals as it
applies to the Company.
“property”
refers to land concessions for which the Company holds mineral
rights to conduct its activities.
“Qualified
Person” means, pursuant to NI 43-101, an individual
who is an engineer or geoscientist with at least five years
experience in mineral exploration, mine development or operation,
or mineral project assessment. This individual is a member or
licensee in good standing of a professional association and has to
have relevant experience of the subject matter of the mineral
project and the technical report.
PULACAYO PROJECT, BOLIVIA
The
scientific and technical information in this section of this
MD&A that specifically relates to the current Pulacayo Project
mineral resource estimates for the Pulacayo and Paca deposits has
been extracted or summarized from the Pulacayo Technical Report.
Additional information presented below that pertains to the
Pulacayo Project but does not specifically appear in the Pulacayo
Technical Report has been provided by the Company. The Pulacayo
Technical Report is available under the Company’s SEDAR
profile at www.sedar.com.
The
Company filed the Pulacayo Technical Report on October 26, 2020.
The Company is in the process of finalizing the Revised Pulacayo
Technical Report due to subsequent revisions to a number of
sections of the Pulacayo Technical Report by the authors thereof;
however, the Revised Pulacayo Technical Report will not contain any
changes to the mineral resource estimates, the interpretation and
conclusions, or the recommendations from those set out in the
Pulacayo Technical Report. The Revised Pulacayo Technical Report
will be filed by the Company with Canadian securities regulatory
authorities in connection with the filing of the final short form
prospectus of the Company in relation to the Offering.
The
Pulacayo Project consists of many licenses within which are located
the Pulacayo and Paca mineral deposits, several areas of potential
mineralization and historic tailings piles.
The
Pulacayo Project mining rights are recognized by two legally
independent contractual arrangements, one covering all, except the
Apuradita mining concession, from the Pulacayo MPC between the
Company and COMIBOL, a Bolivian state mining company, and the
original holder of the rights, executed on October 3, 2019. The
Pulacayo MPC grants the Company the 100% exclusive right to develop
and mine at the Pulacayo and Paca mineral deposits for up to 30
years against certain royalty payments. It is comparable to a
mining license in Canada or the United States.
9
SILVER ELEPHANT MINING CORP.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the nine months ended September 30, 2020
(Expressed
in Canadian dollars, except where indicated)
In
connection with the Apuradita mining concession, its rights are
covered by a second contractual arrangement, with the Bolivian
Jurisdictional Mining Authority, acting for the State, which is in
process of formalization, as a mean of recognition of the acquired
rights to what was originally the mining concession. Until such
time as the contract is formalized, all mining rights, as
recognized in the Bolivian Mining Law 535, can be exercised by the
holder of the ex-concession.
The
Pulacayo Project comprises seven mining areas covering an area of
approximately 3,560 hectares of contiguous areas centered on the
historical Pulacayo mine and town site. The Pulacayo Project is
located 18 kilometers east of the town of Uyuni in the Department
of Potosí, in southwestern Bolivia. It is located 460
kilometers south-southeast of the national capital of La Paz and
150 kilometers southwest of the City of Potosí, which is the
administrative capital of the department. The Pulacayo Project is
fully permitted with secured social licenses for
mining.
Mineral Resources and Reserves
The
Pulacayo Technical Report describes mineral resources estimated
following the guidelines of the Canadian Institute of Mining,
Metallurgy and Petroleum Standards for Mineral Resources and
Reserves: Definitions and Guidelines, as amended in 2014 (the
“CIM Standards, 2014”). Two mineral resource
estimates were disclosed according to the requirements of
NI 43-101 for the Pulacayo Project, one for the Pulacayo
deposit and one for the Paca deposit (the “Pulacayo MRE” and “Paca MRE”, respectively, and
collectively referred to herein as the “Mineral Resource Estimate”).
The
Mineral Resource Estimate has an effective date of October 13,
2020, and includes an indicated mineral resource of 106.7 million
oz of silver, 1,384.7 million pounds of zinc, and 693.9 million
pounds of lead, and an inferred mineral resource of 13.1 million oz
of silver, 122.8 million pounds of zinc and 61.9 million pounds of
lead. The Company’s wholly owned Bolivian subsidiary, Apogee
Mineral Bolivia S.A. has invested over US$30 million at the
Pulacayo Project since 2006.
The
Mineral Resource Estimate was prepared by Mercator under the
supervision of Matthew Harrington, P. Geo., who is an independent
Qualified Person as defined under NI 43-101. A contained metal
summary based on the Mineral Resource Estimate for the Pulacayo
Project is reported below:
Pulacayo Project Mineral Resource Estimate Summary of Total
Contained Metal -
Effective October 13, 2020**
|
Zone
|
Category
|
Rounded Tonnes
|
Ag Moz
|
Zn Mlbs
|
Pb Mlbs
|
*AgEq Moz
|
|
Open
Pit Constrained
|
Indicated
|
47,380,000
|
101.0
|
1,365.0
|
687.5
|
202.0
|
|
Inferred
|
4,165,000
|
8.0
|
80.3
|
53.5
|
14.3
|
|
|
Out-of-Pit
|
Indicated
|
660,000
|
5.7
|
19.6
|
6.4
|
6.5
|
|
Inferred
|
900,000
|
5.2
|
42.4
|
8.3
|
7.4
|
|
|
Total:
|
Indicated
|
48,040,000
|
106.7
|
1,384.7
|
693.9
|
208.5
|
|
Inferred
|
5,065,000
|
13.1
|
122.8
|
61.9
|
21.7
|
**Notes:
1.
The Mineral Resource Estimate was prepared in accordance with
NI 43-101, the CIM Definition Standards (2014) and CIM MRMR
Best Practice Guidelines (2019).
2.
*Ag Eq. = silver equivalent (recovered) = (Ag
g/t*89.2%)+((Pb%*(US$0.95/lb. Pb/14.583 Troy oz./lb./US$17 per Troy
oz. Ag)*(10,000*91.9%))+((Zn%*(US$1.16/lb. Zn/14.583 Troy
oz./lb./US$17 per Troy oz. Ag)*(10,000*82.9%)). Sulphide zone metal
recoveries of 89.2% for Ag, 91.9% for Pb, and 82.9% for Zn were
used in the silver equivalent (recovered) equation and reflect
metallurgical testing results disclosed previously for the Pulacayo
deposit. A metal recovery of 80% Ag was used for oxide zone mineral
resources.
10
SILVER ELEPHANT MINING CORP.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the nine months ended September 30, 2020
(Expressed
in Canadian dollars, except where indicated)
3.
Metal prices of US$17/oz Ag, US$0.95/lb Pb, and US$1.16 Zn apply. A
currency exchange rate of CDN$1.00 to US$0.75 applies.
4.
Pit-constrained mineral resources are defined for each deposit
within optimized pit shells with average pit slope angles of
45⁰. The Pulacayo MRE was optimized at a 12.3:1 strip ratio
and the Paca MRE was optimized with at a 4.3: strip
ratio.
5.
Base-case sulfide zone pit
optimization parameters include: mining at US$2.00 per tonne;
combined processing and general and
administrative (“G&A”)
at US$12.50 per tonne processed;
haulage at US$0.50 per tonne processed for the Pulacayo deposit and
US$2.00 per tonne processed for the Paca
deposit.
6.
Base-case oxide zone pit optimization parameters include: mining at
US$2.00 per tonne; combined processing and G&A at US$23.50 per
tonne processed; haulage at US$0.50 per tonne processed for the
Pulacayo deposit and US$2.00 per tonne processed for the Paca
deposit.
7.
Pit-constrained sulphide zone mineral resources are reported at a
cut-off grade of 30 g/t ag eq. within the optimized pit shells and
pit-constrained oxide zone mineral resources are reported at a
cut-off grade of 50 g/t Ag within the optimized pit shells. Cut-off
grades reflect total operating costs used in pit optimization and
are considered to define reasonable prospects for eventual economic
extraction by open pit mining methods.
8.
Out of pit mineral resources are external to the optimized pit
shells and are reported at a cut-off grade of 100 g/t Ag Eq. They
are considered to have reasonable prospects for eventual economic
extraction using conventional underground methods such as long hole
stoping based on a mining cost of $35 per tonne and processing and
G&A cost of $20 per tonne processed.
9.
“Total” mineral resources for the Pulacayo MRE is the
tonnage-weighted average summation of pit-constrained and
out-of-pit Pulacayo deposit mineral resources.
10.
“Total” mineral resources for the Mineral Resource
Estimate is the tonnage-weighted average summation of the total
Pulacayo MRE and Paca MRE.
11.
Mineral resources were estimated using ordinary Kriging methods
applied to 1 m downhole assay composites capped at 2,300 g/t Ag,
13% Pb and 15% Zn.
12.
Bulk density was interpolated using ordinary Kriging methods for
Pulacayo MRE. An average bulk density of 2.32 g/cm3 or 2.24 g/cm3
was applied to Paca MRE, based on grade domain solid
models.
13.
Mineral resources may be materially affected by environmental,
permitting, legal, title, taxation, sociopolitical, marketing, or
other relevant issues.
14.
Mineral resource tonnages have been rounded to the nearest 5,000;
totals may vary due to rounding.
The
Mineral Resource Estimate is based on estimates of pit-constrained
and out of pit mineral resources, details of which are presented in
the following two tables for the Pulacayo and Paca deposits,
respectively. The Pulacayo MRE incorporate 73,016 metres of diamond
drilling (244 surface and 42 underground drill holes). The Paca MRE
incorporates results of 104 diamond drill holes and 6 reverse
circulation drill holes totaling 19,916 meters completed between
2002 and 2020. Geovia Surpac ® Version 2020 was used to create
the Pulacayo Project block models, associated geological and grade
solids, and to interpolate silver-zinc-lead grade. Geovia Whittle
pit optimization software and the PseudoFlow algorithm were applied
for pit shell optimization purposes.
Pulacayo Deposit Combined Pit-Constrained and Out-of-Pit Mineral
Resource Estimate –
Effective Date October 13, 2020**
|
Cut -off Grade
|
Zone
|
Category
|
Rounded Tonnes
|
Ag g/t
|
Zn %
|
Pb %
|
Ag Moz
|
Zn Mlbs
|
Pb Mlbs
|
*AgEq
Moz
|
*AgEq g/t
|
|
50 Ag
g/t
|
Oxide
In-Pit
|
Indicated
|
1,090,000
|
125
|
|
|
4.4
|
|
|
|
|
|
Inferred
|
25,000
|
60
|
|
|
0.0
|
|
|
|
|
||
|
30
*AgEq g/t
|
Sulfide
In-Pit
|
Indicated
|
24,600,000
|
76
|
1.63
|
0.70
|
60.1
|
884.0
|
379.6
|
123.4
|
156
|
|
Inferred
|
745,000
|
82
|
1.79
|
0.61
|
2.0
|
29.4
|
10.0
|
3.9
|
164
|
||
|
100
*AgEq g/t
|
Sulfide
Out-of-Pit
|
Indicated
|
660,000
|
268
|
1.35
|
0.44
|
5.7
|
19.6
|
6.4
|
6.5
|
307
|
|
Inferred
|
900,000
|
179
|
2.14
|
0.42
|
5.2
|
42.4
|
8.3
|
7.4
|
257
|
||
|
Total:
|
Indicated
|
26,350,000
|
|
|
|
70.2
|
903.7
|
386.0
|
133.4
|
|
|
|
Inferred
|
1,670,000
|
|
|
|
7.2
|
71.8
|
18.4
|
11.4
|
|
||
11
SILVER ELEPHANT MINING CORP.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the nine months ended September 30, 2020
(Expressed
in Canadian dollars, except where indicated)
Paca Deposit Pit-Constrained Mineral Resource Estimate
–
Effective Date October 13, 2020**
|
Cut -off Grade
|
Zone
|
Category
|
Rounded Tonnes
|
Ag g/t
|
Zn %
|
Pb %
|
Ag Moz
|
Zn Mlbs
|
Pb Mlbs
|
*AgEq Moz
|
*AgEq g/t
|
|
50 Ag
g/t
|
Oxide
In-Pit
|
Indicated
|
1,095,000
|
185
|
|
|
6.5
|
|
|
|
|
|
Inferred
|
345,000
|
131
|
|
|
1.5
|
|
|
|
|
||
|
30
*AgEq g/t
|
Sulfide
In-Pit
|
Indicated
|
20,595,000
|
46
|
1.07
|
0.67
|
30.5
|
485.8
|
304.2
|
70.2
|
106
|
|
Inferred
|
3,050,000
|
46
|
0.76
|
0.65
|
4.5
|
51.1
|
43.7
|
9.2
|
94
|
||
|
Total:
|
Indicated
|
21,690,000
|
|
|
|
37
|
485.8
|
304.2
|
70.2
|
|
|
|
Inferred
|
3,395,000
|
|
|
|
6
|
51.1
|
43.7
|
9.2
|
|
||
**See detailed notes on the Mineral Resource Estimate parameters
under preceding Table titled “Pulacayo Project Mineral
Resource Estimate Summary of Total Contained Metal - Effective Date
October 13, 2020”
Pulacayo Deposit Sensitivity Analysis from October 13th, 2020 Mineral
Resource Estimate
The
sensitivity analysis is shown in the following tables showing
various pit-constrained grade-tonnage scenarios for the Pulacayo
deposit based on a range of cut-off grades for the sulphide and
oxide zones.
Pulacayo Deposit Pit-Constrained Cut-Off Grade Sensitivity Report
for Oxide Zone
|
Cut -off Grade
|
Category
|
Rounded Tonnes
|
Ag g/t
|
Zn %
|
Pb %
|
Ag Moz
|
Zn Mlbs
|
Pb Mlbs
|
*AgEq Moz
|
AgEq g/t
|
|
30 Ag
g/t
|
Indicated
|
1,760,000
|
92
|
|
|
5.2
|
|
|
|
|
|
Inferred
|
35,000
|
55
|
|
|
0.1
|
|
|
|
|
|
|
45 Ag
g/t
|
Indicated
|
1,220,000
|
116
|
|
|
4.6
|
|
|
|
|
|
Inferred
|
30,000
|
58
|
|
|
0.1
|
|
|
|
|
|
|
90 Ag
g/t
|
Indicated
|
615,000
|
171
|
|
|
3.4
|
|
|
|
|
|
Inferred
|
|
|
|
|
0
|
|
|
|
|
|
|
200 Ag
g/t
|
Indicated
|
185,000
|
250
|
|
|
1.5
|
|
|
|
|
|
Inferred
|
|
|
|
|
0
|
|
|
|
|
Note: Cut-off grade for pit-constrained oxide mineral resources is
50 g/t Ag.
Pulacayo Deposit Pit-Constrained Cut-Off Grade Sensitivity Report
for Sulfide Zone
|
Cut -off Grade
|
Category
|
Rounded Tonnes
|
Ag g/t
|
Zn %
|
Pb %
|
Ag Moz
|
|
Pb Mlbs
|
*AgEq Moz
|
AgEq g/t
|
|
30 AgEq g/t
|
Indicated
|
24,600,000
|
76
|
1.63
|
0.7
|
60.1
|
|
379.6
|
123.4
|
156
|
|
Inferred
|
745,000
|
82
|
1.79
|
0.61
|
2
|
29.4
|
10
|
3.9
|
164
|
|
|
45 AgEq
g/t
|
Indicated
|
23,715,000
|
78
|
1.67
|
0.72
|
59.5
|
|
376.4
|
122
|
160
|
|
Inferred
|
735,000
|
83
|
1.81
|
0.61
|
2
|
29.3
|
9.9
|
3.9
|
166
|
|
|
90 AgEq
g/t
|
Indicated
|
13,700,000
|
121
|
2.17
|
0.99
|
53.3
|
|
299
|
100
|
227
|
|
Inferred
|
290,000
|
154
|
3.62
|
0.97
|
1.4
|
23.1
|
6.2
|
2.9
|
312
|
|
|
200
AgEq g/t
|
Indicated
|
5,385,000
|
249
|
2.75
|
1.54
|
43.1
|
|
182.8
|
66.3
|
383
|
|
Inferred
|
180,000
|
230
|
4.57
|
1.22
|
1.3
|
18.1
|
4.8
|
2.5
|
426
|
|
|
400
AgEq g/t
|
Indicated
|
1,860,000
|
387
|
3.62
|
2.25
|
23.1
|
|
92.3
|
33.8
|
565
|
|
Inferred
|
105,000
|
297
|
5.29
|
1.46
|
1
|
12.2
|
3.4
|
1.8
|
521
|
Note: Mineral resource estimate
cut-off grade bolded.
12
SILVER ELEPHANT MINING CORP.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the nine months ended September 30, 2020
(Expressed
in Canadian dollars, except where indicated)
The
following table shows sensitivity analysis for the Pulacayo deposit
for out-of-pit grade tonnage scenarios:
Pulacayo Deposit Out-of-Pit Cut-Off Grade Sensitivity Report for
Sulfide Zone
|
Cut -off Grade
|
Category
|
Rounded Tonnes
|
Ag g/t
|
Zn %
|
Pb %
|
Ag Moz
|
Zn Mlbs
|
Pb Mlbs
|
*AgEq Moz
|
AgEq g/t
|
|
100 AgEq g/t
|
Indicated
|
660,000
|
268
|
1.35
|
0.44
|
5.7
|
19.6
|
6.4
|
6.5
|
307
|
|
Inferred
|
900,000
|
179
|
2.14
|
0.42
|
5.2
|
42.4
|
8.3
|
7.4
|
257
|
|
|
150
AgEq g/t
|
Indicated
|
530,000
|
321
|
1.3
|
0.49
|
5.5
|
15.2
|
5.7
|
6
|
354
|
|
Inferred
|
680,000
|
220
|
2.25
|
0.46
|
4.8
|
33.7
|
6.9
|
6.6
|
300
|
|
|
200
AgEq g/t
|
Indicated
|
435,000
|
359
|
1.41
|
0.53
|
5
|
13.5
|
5.1
|
5.5
|
394
|
|
Inferred
|
505,000
|
260
|
2.37
|
0.54
|
4.2
|
26.4
|
6
|
5.6
|
343
|
|
|
250
AgEq g/t
|
Indicated
|
350,000
|
397
|
1.53
|
0.59
|
4.5
|
11.8
|
4.6
|
4.9
|
435
|
|
Inferred
|
375,000
|
309
|
2.14
|
0.64
|
3.7
|
17.7
|
5.3
|
4.6
|
381
|
|
|
300 Ag
Eq g/t
|
Indicated
|
290,000
|
429
|
1.63
|
0.64
|
4
|
10.4
|
4.1
|
4.4
|
468
|
|
Inferred
|
310,000
|
327
|
2.23
|
0.72
|
3.3
|
15.2
|
4.9
|
4
|
403
|
|
|
350 Ag
Eq g/t
|
Indicated
|
230,000
|
462
|
1.74
|
0.7
|
3.4
|
8.8
|
3.5
|
3.7
|
504
|
|
Inferred
|
225,000
|
358
|
2.18
|
0.85
|
2.6
|
10.8
|
4.2
|
3.1
|
434
|
|
|
400 Ag
Eq g/t
|
Indicated
|
180,000
|
490
|
1.93
|
0.74
|
2.8
|
7.7
|
2.9
|
3.1
|
538
|
|
Inferred
|
165,000
|
384
|
2.01
|
0.99
|
2
|
7.3
|
3.6
|
2.4
|
455
|
Note: Mineral resource estimate cut-off grade bolded.
Paca Deposit Sensitivity Analysis from
October 13th,
2020 MRE
The
Paca deposit is located 7 kilometers north of the Pulacayo deposit.
Sensitivity analysis shown in the following two tables illustrates
various pit-constrained grade-tonnage scenarios at the Paca deposit
based on a range of cut-off grades.
Paca Deposit Pit-Constrained Cut-Off Grade Sensitivity Report for
Oxide Zone
|
Cut -off Grade
|
Category
|
Rounded Tonnes
|
Ag g/t
|
Zn %
|
Pb %
|
Ag Moz
|
Zn Mlbs
|
Pb Mlbs
|
*AgEq Moz
|
AgEq g/t
|
|
30 Ag
g/t
|
Indicated
|
1,805,000
|
128
|
|
|
7.4
|
|
|
|
|
|
Inferred
|
500,000
|
102
|
|
|
1.6
|
|
|
|
|
|
|
45 Ag
g/t
|
Indicated
|
1,225,000
|
170
|
|
|
6.7
|
|
|
|
|
|
Inferred
|
375,000
|
124
|
|
|
1.5
|
|
|
|
|
|
|
90 Ag
g/t
|
Indicated
|
800,000
|
231
|
|
|
5.9
|
|
|
|
|
|
Inferred
|
235,000
|
159
|
|
|
1.2
|
|
|
|
|
|
|
200 Ag
g/t
|
Indicated
|
420,000
|
311
|
|
|
4.2
|
|
|
|
|
|
Inferred
|
55,000
|
285
|
|
|
0.5
|
|
|
|
|
|
|
400 Ag
g/t
|
Indicated
|
80,000
|
493
|
|
|
1.3
|
|
|
|
|
|
Inferred
|
5,000
|
459
|
|
|
0.1
|
|
|
|
|
Note: Cut-off grade for pit-constrained oxide mineral resources is
50 g/t Ag.
13
SILVER ELEPHANT MINING CORP.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the nine months ended September 30, 2020
(Expressed
in Canadian dollars, except where indicated)
Paca Deposit Pit-Constrained Cut-Off Grade Sensitivity Report for
Sulfide Zone
|
Cut -off Grade
|
Category
|
Rounded Tonnes
|
Ag g/t
|
Zn %
|
Pb %
|
Ag Moz
|
Zn Mlbs
|
Pb Mlbs
|
*AgEq Moz
|
AgEq g/t
|
|
30 AgEq g/t
|
Indicated
|
20,595,000
|
46
|
1.07
|
0.67
|
30.5
|
485.8
|
304.2
|
70.2
|
106
|
|
Inferred
|
3,050,000
|
46
|
0.76
|
0.65
|
4.5
|
51.1
|
43.7
|
9.2
|
94
|
|
|
45 AgEq
g/t
|
Indicated
|
19,315,000
|
48
|
1.11
|
0.69
|
29.8
|
472.7
|
293.8
|
68.3
|
110
|
|
Inferred
|
2,650,000
|
51
|
0.81
|
0.7
|
4.4
|
47.3
|
40.9
|
8.7
|
102
|
|
|
90 AgEq
g/t
|
Indicated
|
8,600,000
|
87
|
1.38
|
0.95
|
24.1
|
261.6
|
180.1
|
45.4
|
164
|
|
Inferred
|
950,000
|
114
|
0.94
|
0.95
|
3.5
|
19.7
|
19.9
|
5.2
|
171
|
|
|
200
AgEq g/t
|
Indicated
|
1,810,000
|
256
|
1.22
|
1.22
|
14.9
|
48.7
|
48.7
|
18.5
|
318
|
|
Inferred
|
190,000
|
338
|
0.61
|
0.98
|
2.1
|
2.6
|
4.1
|
2.2
|
360
|
|
|
400
AgEq g/t
|
Indicated
|
300,000
|
490
|
1.38
|
1.47
|
4.7
|
9.1
|
9.7
|
5.2
|
542
|
|
Inferred
|
50,000
|
545
|
0.39
|
0.82
|
0.9
|
0.4
|
0.9
|
0.9
|
530
|
Note: Mineral resource estimate cut-off grade bolded.
Recent Activities & Updates
2017
During
the year ended December 31, 2017, the Company updated mining
scenarios and budgets, negotiated to resolve legacy financial
obligations, and engaged in deliberations to obtain permission to
restart operations at the Pulacayo Project. The Company has
worked with government officials to
obtain assurances that its investments in exploration and its work
toward a production profile at the Pulacayo Project are financially
safe and legally protected. Such efforts included a meeting
with Bolivia’s Minister of
Mining and Metallurgy, César Navarro, and other mine operators in
Bolivia.
2018
During
the year ended December 31, 2018, the Company determined there were
several indicators of potential impairment of the carrying value of
the Pulacayo Project, including the shift at the time of the
Company’s primary focus to the Gibellini Project. While
management believed and continues to believe that the Pulacayo
Project is a property of merit and warrants continued development,
a write down in accordance with IFRS 6 Exploration for and Evaluation of
Mineral Resources and IAS
36, Impairment of Assets of $13,708,200 of previously
capitalized deferred exploration costs to $nil and an impairment
charge of $335,181 on the mining equipment at the Pulacayo Project
has been recognized. This non-cash accounting charge does not
impact the Company’s financial liquidity, or any future
operations and management believes the adjustment to the book value
of this long-lived asset more accurately reflects the
Company’s current market capitalization.
14
SILVER ELEPHANT MINING CORP.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the nine months ended September 30, 2020
(Expressed
in Canadian dollars, except where indicated)
2019
In
September of 2019 the Company initiated its first drilling program
at the Paca deposit area. The program was completed in October of
2019, and consisted of 7 drill holes. The complete detailed composited drill
intersections of mineralization are tabulated in the following
table:
|
Hole
|
From(m)
|
To (m)
|
Length
|
Ag (g/t)
|
Zn %
|
Pb %
|
AgEq
|
|
(m)
|
|||||||
|
PND107
|
|||||||
|
Interval:
|
55
|
109
|
54
|
151
|
1.01
|
1.17
|
238
|
|
including …
|
70
|
77
|
7
|
178
|
0.97
|
1.37
|
271
|
|
and …
|
70
|
109
|
39
|
180
|
1.2
|
1.34
|
283
|
|
and …
|
87
|
109
|
22
|
240
|
1.23
|
1.65
|
355
|
|
PND108
|
|||||||
|
|
15
|
65
|
50
|
135
|
0.4
|
1.42
|
208
|
|
including …
|
33
|
57
|
24
|
200
|
0.6
|
2.12
|
307
|
|
and …
|
33
|
43
|
10
|
257
|
0.41
|
1.49
|
333
|
|
Interval:
|
94
|
96
|
2
|
160
|
0.94
|
0.52
|
220
|
|
PND109
|
|||||||
|
Interval:
|
15
|
43
|
28
|
242
|
0.27
|
0.69
|
281
|
|
including …
|
20
|
29
|
9
|
391
|
0.26
|
1.1
|
445
|
|
and …
|
24
|
26
|
2
|
1223
|
0.42
|
3.2
|
1365
|
|
and …
|
37
|
43
|
6
|
282
|
0.31
|
0.52
|
315
|
|
|
75
|
173
|
98
|
15
|
2.47
|
1.28
|
168
|
|
including …
|
93
|
94
|
1
|
167
|
3.64
|
1.24
|
367
|
|
PND110
|
|||||||
|
Interval:
|
9
|
182
|
173
|
95
|
1.63
|
1.4
|
273
|
|
including…
|
9
|
98
|
89
|
279
|
1.28
|
1.17
|
378
|
|
and…
|
9
|
28
|
19
|
718
|
0.05
|
0.74
|
749
|
|
and…
|
9
|
12
|
3
|
145
|
0.07
|
0.9
|
183
|
|
and…
|
16
|
28
|
12
|
1085
|
0.04
|
0.71
|
1115
|
|
and…
|
44
|
180
|
138
|
87
|
1.59
|
2.01
|
233
|
|
and…
|
44
|
46.5
|
2.5
|
111
|
0.61
|
1.09
|
179
|
|
and…
|
44
|
98
|
54
|
98
|
2.03
|
1.52
|
343
|
|
and…
|
52
|
54
|
2
|
115
|
1.61
|
1.33
|
234
|
|
and…
|
60
|
82
|
22
|
328
|
1.98
|
1.43
|
466
|
|
and…
|
61
|
65
|
4
|
1248
|
1.93
|
2.88
|
1441
|
|
and…
|
86
|
94
|
8
|
270
|
2.83
|
2.74
|
495
|
|
and…
|
97
|
98
|
1
|
155
|
3.26
|
3.03
|
409
|
15
SILVER ELEPHANT MINING CORP.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the nine months ended September 30, 2020
(Expressed
in Canadian dollars, except where indicated)
|
PND111
|
|||||||
|
Interval:
|
0
|
2.4
|
2.4
|
110
|
0.16
|
0.58
|
139
|
|
PND112
|
|||||||
|
Interval:
|
12
|
28
|
16
|
154
|
0.08
|
0.39
|
173
|
|
including…
|
21
|
22
|
1
|
890
|
0.05
|
0.31
|
904
|
|
Interval:
|
33
|
36
|
3
|
120
|
0.07
|
2.4
|
216
|
|
Interval:
|
43
|
44.6
|
1.6
|
100
|
0.23
|
1.58
|
171
|
|
PND113
|
|||||||
|
Interval:
|
3
|
28
|
25
|
196
|
0.04
|
0.29
|
209
|
|
including…
|
3
|
17
|
14
|
185
|
0.04
|
0.38
|
202
|
|
and…
|
21
|
28
|
7
|
310
|
0.04
|
0.19
|
320
|
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 equivalents reported are calculated above
do not assume metallurgical recoveries and were calculated using
AgEg. (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). Metal
prices used in this silver equivalent calculation are US$16.50/Troy
oz. Ag, US$0.94/lb. Pb and US$1.00/lb. Zn.
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 Project may no longer exist or may have decreased. The
Company noted the following indications that the impairment may no
longer exist:
●
the Company signed
the Pulacayo MPC granting the Company the 100% exclusive right to
develop and mine at the Pulacayo Project;
●
the
Company shifted its exploration focus to develop the Pulacayo
Project in the during the year ended December 31,
2019;
● the Company re-initiated active exploration and
drilling programs on the Pulacayo Project; and
● a tax dispute in
Bolivia was settled in the Company’s favour.
As the
Company identified these indications that the impairment may no
longer exist, the Company completed an assessment to determine the
recoverable amount of the Pulacayo Project. 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 Project. This 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.
16
SILVER ELEPHANT MINING CORP.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the nine months ended September 30, 2020
(Expressed
in Canadian dollars, except where indicated)
2020
Drilling that began at the Pulacayo deposit in December of 2019 was
completed in February of 2020. The Company announced its first set of results on
January 21, 2020, from borehole PUD 267 which 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.
On March 6, 2020, the Company released additional results from its
first 2,598 meters of drilling, which focused on the western
portion of the Pulacayo Project and on August 11, 2020, the
Company announced further diamond infill drilling results from the
Pulacayo Project. Complete results of all first phase 2020 drilling
are tabulated below:
|
Hole ID
|
From (m)
|
To (m)
|
Interval (m)
|
Ag (g/t)
|
Zn (%)
|
Pb (%)
|
AgEq
|
|
PUD267*
|
31.5
|
67
|
35.5
|
54.3
|
4.31
|
0.92
|
229.6
|
|
including…
|
117
|
123
|
6
|
47.8
|
1.11
|
0.25
|
89.7
|
|
PUD268
|
21
|
23
|
2
|
20
|
1.34
|
0.77
|
92.6
|
|
PUD274
|
75
|
77
|
2
|
93.5
|
|
0.42
|
98.8
|
|
PUD274
|
82
|
83
|
1
|
83
|
|
0.09
|
77.4
|
|
PUD283
|
248
|
350
|
102
|
145
|
2.56
|
1.05
|
255
|
|
including..
|
248
|
282
|
34
|
9
|
1.05
|
0.22
|
52
|
|
and…
|
282
|
297
|
15
|
35
|
2.99
|
0.4
|
148
|
|
and…
|
297
|
310
|
13
|
157
|
5.15
|
1.47
|
370
|
|
and…
|
310
|
317
|
7
|
225
|
3.74
|
1.15
|
371
|
|
and…
|
317
|
322
|
5
|
1565
|
3.85
|
8.25
|
1825
|
|
and…
|
322
|
329
|
7
|
134
|
1.73
|
1.18
|
222
|
|
and…
|
329
|
350
|
21
|
76
|
2.65
|
0.82
|
188
|
|
PUD284
|
30.5
|
204.2
|
173.7
|
15
|
0.67
|
0.28
|
46
|
|
including…
|
30.5
|
55
|
24.5
|
3
|
2.45
|
0.1
|
20
|
|
and…
|
55
|
65
|
10
|
113
|
2.11
|
1.93
|
243
|
|
and…
|
65
|
79
|
14
|
13
|
1.2
|
0.44
|
69
|
|
and…
|
79
|
101
|
22
|
4
|
0.36
|
0.11
|
20
|
|
and…
|
101
|
204.2
|
103.2
|
10
|
0.59
|
0.18
|
36
|
|
PUD284
|
206.3
|
273
|
66.7
|
112
|
1.94
|
0.46
|
182
|
|
Interval:
|
206.3
|
240
|
33.7
|
46
|
2.12
|
0.41
|
129
|
|
Interval:
|
240
|
256
|
16
|
79
|
2.7
|
0.72
|
189
|
|
Interval:
|
256
|
273
|
17
|
274
|
1.13
|
0.33
|
295
|
|
PUD284
|
282
|
318
|
36
|
26
|
1.01
|
0.34
|
70
|
|
including…
|
282
|
288
|
6
|
13
|
0.94
|
0.27
|
54
|
|
and…
|
288
|
300
|
12
|
60
|
1.48
|
0.61
|
127
|
|
and…
|
300
|
318
|
18
|
7
|
0.72
|
0.18
|
38
|
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. 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 by Universidad Tecnica de Oruro (UTO), in Oruro
and La Paz, Bolivia as well as at Maelgwyn Mineral Services Africa
(MMSA) in Roodeporrt, South Africa.
17
SILVER ELEPHANT MINING CORP.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the nine months ended September 30, 2020
(Expressed
in Canadian dollars, except where indicated)
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 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.
2020 Outlook
During
the nine months ended September 30, 2020, the Company incurred
total costs of $1,377,464 (nine months ended September 30, 2019 -
$721,381) for the Pulacayo Project, including $1,101,666 (nine
months ended September 30, 2019 - $301,216) for geological and
engineering services, and $275,798 (nine months ended September 30,
2019 - $420,165) for personnel, legal, general and administrative
expenses.
The Company also reports that the national COVID-19 quarantine in
Bolivia was lifted in late-June of 2020. The Company has resumed
its work schedule and commenced an exploration program at the
Pulacayo Project consisting of geological mapping of the property.
Work will continue as planned, however the Company will follow the
guidance of federal and local authorities in Bolivia with regards
to COVID-19.
Regional Exploration Potential
Numerous
prospective targets which exhibit mineralization expression on the
surface have been identified around and between the Pulacayo and
Paca deposits. The Company has already commenced activities to
explore these areas.
The
Company’s objectives in the remainder of 2020 and 2021 are to continue to
identify exploration targets at the Pulacayo Project and to test
those targets that meet the criteria for drilling with an aim to
make new discoveries, The Company anticipates taking six to eight
months to achieve this goal, and will use this information to
update the Mineral Resource Estimate.
18
SILVER ELEPHANT MINING CORP.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the nine months ended September 30, 2020
(Expressed
in Canadian dollars, except where indicated)
Sunawayo Project, Bolivia
 |
On
September 8, 2020, the Company announced that it has entered into
the Sunawayo SPA, a binding sales and purchase agreement with the
Sounawayo Vendor to acquire the Sunawayo Project, a silver-lead
mining project located immediately adjacent to the Malku Khota
silver project in Bolivia.
The Sunawayo Project is patented land which the Company has secured
rights to explore through the Sunawayo SPA, whereas Malku Khota is
unpatented land administered by COMIBOL. In January of 2020, the
Company applied for a mining production contract with COMIBOL that
would give it the rights to mine and explore Malku Khota. The
application was received by COMIBOL and is currently under review.
While the Company is engaging with COMIBOL to advance this process,
the Company has not been provided with any timelines for any
eventual approval.
The purchase agreement of the Sunawayo Project includes a fully
permitted 100 ton-per-day open-pit mining operation that produces
lead concentrate. The Sunawayo Project has a strike of 17
kilometers which covers 59.5 square kilometers of prospective area.
The Sunawayo Project has ready access to water and power and is
located 165 kilometers by road from Bolivia’s 5th largest
city, Oruro.
|
Forty-eight samples, spanning 11 kilometers, were taken at the
Sunawayo Project, where visible mineralization were observed during
a recent site visit conducted in August 2020 by Company geologists
who collected the samples during their visit.
Four priority targets were identified during this site visit:
Caballo Uma, Pujiuni, Mine Area, and Malku Khota
border.
|
Sample ID
|
Area
|
Type
|
Ag (g/t)
|
Pb %
|
Zn %
|
AgEq (g/t)
|
|
93323
|
Caballo Uma
|
CHIP
|
397
|
2.63
|
0.67
|
475
|
|
93329
|
Caballo Uma
|
CHIP
|
293
|
4.26
|
2.04
|
448
|
|
93327
|
Caballo Uma
|
GRAB
|
289
|
1.92
|
0.44
|
344
|
|
93324
|
Caballo Uma
|
GRAB
|
288
|
0.27
|
0.01
|
294
|
|
93303
|
Caballo Uma
|
CHIP
|
169
|
12.55
|
0.26
|
452
|
|
93321
|
Caballo Uma
|
GRAB
|
158
|
20
|
0.01
|
597
|
|
93337
|
Pijiuni
|
CHIP
|
477
|
>20
|
0.02
|
916
|
|
93334
|
Pijiuni
|
CHIP
|
37
|
4.28
|
0.03
|
132
|
|
93336
|
Pijiuni
|
CHIP
|
35
|
0.59
|
0.13
|
52
|
|
93347
|
Mine Area
|
GRAB
|
3
|
>20
|
0.01
|
442
|
|
93346
|
Mine Area
|
GRAB
|
1
|
14.2
|
0.25
|
320
|
|
93310
|
MK Border
|
GRAB
|
8
|
0.05
|
0.17
|
14
|
|
93309
|
MK Border
|
GRAB
|
8
|
0.01
|
0.1
|
11
|
19
SILVER ELEPHANT MINING CORP.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the nine months ended September 30, 2020
(Expressed
in Canadian dollars, except where indicated)
Silver equivalent calculation uses a silver price of $25.00/oz, a
zinc price of $1.10/lb., a lead price of $0.80/lb. (all USD), and
assumes a 100% metallurgical recovery. Silver equivalent values can
be calculated using the following formula: AgEq = Ag g/t + (Zn % x
30.1644 ) + (Pb % x 21.9377). Samples indicating >20% Pb are
calculated using 20% Pb
Summary of the Acquisition of the Sunawayo Project
Subject to the provisions of the Sunawayo SPA, the Sunawayo Vendor
agreed to transfer the mining rights of the Sunawayo Project to the
Company upon the Company paying it US$6,500,000. That payment
consists of US$300,000 that was paid to the Sunawayo Vendor upon
execution of the Sunawayo SPA with the remaining US$6,200,000 to be
paid in cash over a one-year period in twelve equal monthly
installments, starting March 1, 2021.
As with the Pulacayo Project, the Company’s objectives for
the remainder of 2020 and 2021 are to identify exploration targets
and to test those targets that meet the criteria for drilling with
an aim to make new discoveries. More specifically, the
Company’s goal is to explore near the southeast border of the
Sunawayo Project, in and around the existing open pit mine, and
along the 8 kilometer Malku Khota lithological trend within
sandstone units. The Company anticipates it will take three to four
months to achieve this goal. The Company will continue to
simultaneously advance a mining production contract application
with COMIBOL for the rights to mine and explore the adjacent Malku
Khota project. This application process is anticipated to last six
to twelve months.
Triunfo Project, Bolivia
On July 13, 2020 the Company executed the Triunfo Agreement
with the Triunfo Vendor. The Triunfo
Agreement provides the Company with the Triunfo Rights (consisting
of the Exploration Right and the Purchase Right) with respect to
the Triunfo Project. The Purchase Right can be exercised at any
time after the Triunfo Vendor completes the required Bolivian
administrative procedures for the Triunfo Project (expected to
occur no later than March 2021) until July 13, 2025, or such
further period as the parties may agree. To secure the Triunfo
Rights, the Company paid the Triunfo Vendor US$100,000 upon
execution of the Triunfo Agreement. Until the Company exercises its
Purchase Right, beginning in 2021 the Company must pay the Triunfo
Vendor US$50,000 on July 13 of each year to maintain the Triunfo
Rights. The Company may elect to terminate the Triunfo Agreement at
any time. If the Company exercises the Purchase Right, the Triunfo
Vendor will maintain the Residual Interest. Upon exercise of the
Purchase Right, the Company may make a lump sum payment to the
Triunfo Vendor at any time to reduce some or all of the Residual
Interest as follows:
●
the
Residual Interest may be extinguished for US$300,000;
●
the
Residual Interest may be reduced to 4% for US$250,000;
●
the
Residual Interest may be reduced to 3% for US$200,000;
●
the
Residual Interest may be reduced to 2% for US$150,000;
or
●
the
Residual Interest may be reduced to 1% for US$100,000.
Triunfo Project Summary
The Triunfo Project area covers approximately 256 hectares located
in the La Paz Department, which is located about 75 kilometers to
the east of the city of La Paz, Bolivia. The Triunfo Project has
access to power and water and is accessible by road year-round. The
Triunfo Vendor maintains a positive relationship with the local
community. Exploration was conducted in 2005 through 2007 by
Solitario Resources, which made 3 drill holes, all of which
intercepted mineralization. Only 20% of the Triunfo Project was
explored by Solitario.
The mineralization is characterized by pyrite, arsenopyrite,
galena, and sphalerite and carries gold, silver, and zinc and lead
in various proportions. Mineralization outcrops at the surface and
continues for at least 750 meters in three discrete blocks, known
as A, B, and C. The mineralized blocks have widths varying from 20
meters to 150 meters and are locally displaced for several meters
by north-east trending faults.
20
SILVER ELEPHANT MINING CORP.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the nine months ended September 30, 2020
(Expressed
in Canadian dollars, except where indicated)
In the past decade, some artisanal mining has been developed where
gold mineralization has been identified. Those areas have been
principally mined for gold.
The Triunfo Project contains polymetallic vein-style mineralization
hosted in metasediments of the Silurian and Devonian periods. The
metasediments were intruded by nearby plutonic batholiths which are
likely related to the mineralizing event. This style of
mineralization is well documented in Bolivia. Examples include
Cerro Rico and Porco, located in and around Potosi.
Several dozen chip samples were taken from the surface and tunnels
at Triunfo in late-May 2020. The sampling returned significant
results from both blocks.
The following table shows the assay results, equal to and over 1.0
g/t Au Equivalent which represent over 36% of the samples (37 /
103).
El Triunfo Chip Channel Results Returning 1g/t AuEq* or
greater
|
ID
|
BLOCK
|
Type
|
WIDTH
|
Au
|
Ag
|
Pb
|
Zn
|
AuEq
|
AgEq
|
|
(m)
|
(g/t)
|
(g/t)
|
(%)
|
(%)
|
(g/t)
|
(g/t)
|
|||
|
46506
|
A
|
chip channel
|
3.9
|
2
|
113
|
3.46
|
0.12
|
8
|
814
|
|
46505
|
A
|
chip channel
|
2
|
4
|
29
|
1.34
|
0.06
|
8
|
806
|
|
46504
|
A
|
chip channel
|
2.1
|
1
|
69
|
2.52
|
1.82
|
6
|
547
|
|
46503
|
A
|
chip channel
|
2.2
|
1
|
64
|
1.93
|
0.13
|
5
|
465
|
|
46502
|
A
|
chip channel
|
3.8
|
1
|
55
|
2.34
|
1.08
|
4
|
415
|
|
46501
|
A
|
chip channel
|
2.3
|
0
|
75
|
2.61
|
1.29
|
4
|
406
|
|
46299
|
A
|
chip channel
|
2.8
|
2
|
25
|
0
|
0.02
|
4
|
385
|
|
46298
|
A
|
chip channel
|
2.3
|
1
|
35
|
1.42
|
1.76
|
4
|
366
|
|
46297
|
A
|
chip channel
|
2
|
2
|
40
|
0
|
0.01
|
4
|
358
|
|
46296
|
A
|
chip channel
|
2.4
|
1
|
96
|
0
|
0.01
|
3
|
304
|
|
46295
|
A
|
chip channel
|
2.1
|
2
|
6
|
0
|
0
|
3
|
293
|
|
46294
|
A
|
chip channel
|
3
|
0
|
46
|
2.88
|
0.14
|
3
|
289
|
|
46293
|
A
|
chip channel
|
1.3
|
1
|
15
|
0.34
|
0.03
|
3
|
284
|
|
46292
|
A
|
chip channel
|
2.6
|
1
|
75
|
0
|
0.04
|
3
|
270
|
|
46291
|
A
|
chip channel
|
2
|
0
|
42
|
1.88
|
0.45
|
3
|
265
|
|
46290
|
A
|
chip channel
|
2
|
0
|
47
|
1.76
|
0.1
|
3
|
251
|
|
46289
|
A
|
chip channel
|
1
|
1
|
31
|
0.54
|
0.02
|
2
|
238
|
|
46288
|
A
|
chip channel
|
1.7
|
0
|
20
|
0.53
|
2.23
|
2
|
218
|
|
46287
|
A
|
chip channel
|
1
|
1
|
30
|
0.35
|
0.11
|
2
|
210
|
|
46286
|
A
|
chip channel
|
3.4
|
1
|
14
|
0
|
0
|
2
|
209
|
|
46285
|
A
|
chip channel
|
3
|
1
|
5
|
0
|
0
|
2
|
207
|
|
46284
|
A
|
chip channel
|
2
|
0
|
25
|
1.02
|
0.37
|
2
|
206
|
|
46283
|
A
|
chip channel
|
2.2
|
1
|
6
|
0
|
0
|
2
|
178
|
|
46282
|
A
|
chip channel
|
1.3
|
1
|
2
|
0
|
0
|
2
|
175
|
|
46281
|
A
|
chip channel
|
1.5
|
0
|
42
|
0
|
0.01
|
2
|
168
|
|
46279
|
A
|
chip channel
|
2.4
|
1
|
14
|
0
|
0
|
2
|
164
|
|
46278
|
A
|
chip channel
|
2
|
0
|
17
|
0.59
|
0.41
|
2
|
151
|
|
46277
|
A
|
chip channel
|
2.1
|
1
|
26
|
0
|
0
|
2
|
149
|
|
46276
|
A
|
chip channel
|
2
|
0
|
16
|
0.54
|
0.23
|
1
|
126
|
|
46275
|
A
|
chip channel
|
2
|
0
|
6
|
0.25
|
0.23
|
1
|
126
|
|
46274
|
A
|
chip channel
|
4
|
1
|
2
|
0
|
0
|
1
|
118
|
|
46273
|
A
|
chip channel
|
2.3
|
1
|
4
|
0
|
0
|
1
|
114
|
|
46272
|
A
|
chip channel
|
2.9
|
1
|
4
|
0
|
0.01
|
1
|
109
|
|
46271
|
A
|
chip channel
|
2
|
0
|
11
|
0.3
|
0.36
|
1
|
102
|
|
46270
|
A
|
chip channel
|
2.4
|
0
|
9
|
0.02
|
0.02
|
1
|
97
|
|
46269
|
A
|
chip channel
|
2.5
|
0
|
23
|
0.25
|
0.46
|
1
|
95
|
21
SILVER ELEPHANT MINING CORP.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the nine months ended September 30, 2020
(Expressed
in Canadian dollars, except where indicated)
(*) Gold equivalent calculation uses a gold price of $1,795, a zinc
price of $0.93, a lead price of $0.80, and a silver price of $18.30
(all USD), and assumes a 100% metallurgical recovery. Gold
equivalent values can be calculated using the following formula:
AuEq = Au g/t + (Ag g/t x 0.0102) + (Zn % x 0.3551) + (Pb % x
0.3055). Silver equivalent
calculation uses a silver price of $25.00/oz, a zinc price of
$1.10/lb., a lead price of $0.80/lb. (all USD), and assumes a 100%
metallurgical recovery. Silver equivalent values can be calculated
using the following formula: AgEq = Ag g/t + (Zn % x 30.1644 ) +
(Pb % x 21.9377).
Denser sets of veins and veinlets hosted by shales and quartzites
appear to correlate with higher grades. The strike lengths of these
mineralized trends have been recognized as continuing along several
hundreds of meters at surface.
As with the Pulacayo Project and Sunawayo Project, the
Company’s objectives for the remainder of 2020 and 2021 is to
identify exploration targets and to test those targets that meet
the criteria for drilling with an aim to make new discoveries. More
specifically, the Company’s initial drill program entails 5
holes for up to 1,000 meters that may be expanded. The drilling
will step out to the east and west of historic drill hole TR001 on
Block B.
District geological mapping and geophysics is also planned, as the
host and accessory mineral properties associated with the
mineralization at El Triunfo can be detected by geophysical imaging
methods such as induced polarization (IP).
The
mineralization is characterized by multiple veins (up to 1.0m wide)
and veinlets. They are emplaced along fractures and faults that
have developed on the flanks of an east-west trending
anticlinal-synclinal sequence. Mineralization is also noted to
occur in the sedimentary planes between slate layers. The slate
layers can manifest as stockwork-style mineralization which tends
to be elongated parallel to the anticlinal axis.
22
SILVER ELEPHANT MINING CORP.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the nine months ended September 30, 2020
(Expressed
in Canadian dollars, except where indicated)
Gibellini Project, Nevada, USA
One of
the Company’s principal assets 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 555 unpatented lode
mining claims that includes: the Gibellini group of 40 claims, the
VC Exploration group of 105 claims, the Bisoni group of 201 claims
and the Company group of 209 claims which includes the Current
Louie Hill Claims (as defined herein). The Gibellini, VC
Exploration and Company group of claims are located in Eureka
County, Nevada, as well as 28 of the Bisoni group of claims, with
the remaining 173 claims extending southwest into Nye County,
Nevada. They are located 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 east 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
leasehold assignments from the claimant and then-holder of the
Gibellini mineral claims (the “Gibellini Lessor”) and includes an
area of approximately 771 acres. Under the Gibellini mineral lease
agreement (the “Gibellini
MLA”), the Company leased this core group of claims,
which originally constituted the entire Gibellini Project, by,
among other things, agreeing to pay to the Gibellini Lessor annual
advance royalty payments. These payments are tied, based on an
agreed formula not to exceed US$120,000 per year, to the average
vanadium pentoxide price of the prior year (each an "Advance Royalty Payment"). Upon
commencement of production, the obligation to make Advance Royalty
Payments will cease and the Company will instead maintain its
acquisition through lease of the Gibellini group of claims by
paying to the Gibellini Lessor, a 2.5% net smelter return royalty
(the “Gibellini
NSR Payments”) until a
total of US$3 million is paid. Thereafter, the Gibellini NSR will
be reduced to 2% over the remaining life of the mine (and referred
to thereafter, as “Production
Royalty Payments”). Upon commencement of production,
any Advance Royalty Payments that have been made will be deducted
as credits against the Gibellini NSR Payments or Production Royalty
Payments, as applicable. The lease is for a term of 10 years,
expiring on June 22, 2027, 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 Gibellini MLA, which
ends on June 22, 2027, 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, which will be deemed an Advance Royalty
Payment.
23
SILVER ELEPHANT MINING CORP.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the nine months ended September 30, 2020
(Expressed
in Canadian dollars, except where indicated)
The Company also entered into a lease agreement to acquire 10
unpatented lode claims totaling approximately 207 gross acres (the
“Former Louie Hill Claims”)
from their holders (the “Former Louie Hill Lessors”) on July 10,
2017 (the “Louie Hill
MLA”). The Former Louie Hill Claims
were located approximately 1600 feet south of the Gibellini
group of claims. The Former Louie Hill 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 (the
“Current Louie Hill Claims”).
On
October 22, 2018, the Company entered into a royalty agreement (the
“Royalty
Agreement”) with the Former Louie Hill Lessors that
replaced, on substantially similar terms, the Louie Hill MLA. The
Royalty Agreement provides for payment by the Company to the Former
Louie Hill Lessors of both advance royalty payments and net smelter
return royalty payments. As with the Gibellini MLA, the advance
royalty payments are calculated based on an agreed formula relative
to the average vanadium pentoxide price for the prior year, for a
total amount not to exceed US$28,000 per year (the
“Louie Hill Advance Royalty Payments”). Upon commencement of
production, the obligation to make Louie Hill Advance Royalty
Payments will be replaced by a 2.5% net smelter return royalty (the
“Louie Hill NSR”) payable on vanadium
pentoxide produced from the area of the Former Louie Hill Claims
contained within the Current Louie Hill Claims.
The
Company may purchase three-fifths of the Louie Hill NSR at any time
for US$1 million, leaving the total Louie Hill NSR payable by the
Company at 1.0% for the remaining life of the mine. Any Louie Hill
Advance Royalty Payments that have been made at the time of the
commencement of production will be deducted as credits against
future payments under the Louie Hill NSR. The payments under the
Royalty Agreement will continue for an indefinite period and will
be payable 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 claim group covering 4091 acres that are sufficient to
enable future vanadium mining, processing and
extraction.
On November 20, 2017, the Company filed an independent technical
report titled “Gibellini
Project Nevada, USA NI 43-101 Technical
Report” with an
effective date of November 10, 2017
(the ”2017
Gibellini Report”) prepared by
the Wood Group. The 2017 Gibellini Report was filed with
Canadian securities regulatory authorities and is available under
the Company’s SEDAR profile at www.sedar.com.
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 Common Share purchase warrants to
arm’s-length, private parties.
On June
25, 2018, the Company filed a technical report titled
“Gibellini 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 Group (the
“2018 Gibellini
PEA”). The
2018 Gibellini PEA has an effective date of May 29, 2018 and
is available under the Company’s SEDAR profile at
www.sedar.com. Each of the authors of the 2018 Gibellini PEA are
"independent" Qualified Persons within the meaning of NI
43-101.
On August 24, 2020, the Company announced it had commenced the
acquisition of the Bisoni Project from CellCube.
As consideration for the
acquisition of the Bisoni Project under the Bisoni APA, the Company
issued the Bisoni APA Shares and paid $200,000 cash to
Cellcube. The Bisoni APA Shares are subject to a statutory four
month hold period expiring on January 19, 2021. Additionally,
subject to TSX approval, if, on or before December 31, 2023, the
price of European vanadium pentoxide on the Metal Bulletin (or an
equivalent publication) exceeds US$12 a pound for 30 consecutive
days, the Company will issue to Cellcube additional Common Shares
with a value of $500,000, calculated based upon the 5 day volume
weighted average price of the Common Shares immediately following
the satisfaction of the vanadium pentoxide pricing condition.
The acquisition of the Bisoni Project
was completed on September 18th, 2020. The expanded Bisoni group of
claims is located within the same formation and lithologic units as
the Gibellini group of claims. The general geology in this area is
considered to be similar to the Gibellini group of
claims.
24
SILVER ELEPHANT MINING CORP.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the nine months ended September 30, 2020
(Expressed
in Canadian dollars, except where indicated)
In the three months ended September 30, 2020, the Company expanded
the land position at the Gibellini Project, by staking a total 32
new claims adjacent to the project.
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.
Gibellini Deposit Mineral Resource Estimate and 2018 Gibellini
PEA
On June 25, 2018, the Company filed the 2018 Gibellini PEA, which
provides an updated mineral resource estimate for the Gibellini
Project.
The 2018 Gibellini PEA replaces the 2017 Gibellini Report. The 2018
Gibellini 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
2018 Gibellini PEA results will be realized. Mineral resources are
not mineral reserves and do not have demonstrated economic
viability.
The 2018 Gibellini 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 mineral
resource estimate (the "Gibellini
Deposit Mineral Resource Estimate"), which is derived
from the 2018 Gibellini PEA:
Gibellini Deposit Mineral Resource Estimate***
|
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:
1.
The
Qualified Person for the Gibellini Deposit Mineral Resource
Estimate is Mr. E.J.C. Orbock III, RM SME, an employee of the
Wood Group of companies. The
Gibellini Deposit Mineral Resource Estimate has 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;
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.
25
SILVER ELEPHANT MINING CORP.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the nine months ended September 30, 2020
(Expressed
in Canadian dollars, except where indicated)
Louie Hill Deposit
The Louie Hill deposit lies approximately 1,600 ft south of the
Gibellini deposit.
The 2018 Gibellini PEA 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 mineral resource
estimate (the "Louie
Hill Deposit Mineral Resource Estimate"):
Louie Hill Deposit Mineral Resource Estimate***
|
Confidence
Category
|
Cut-offV2O5 (%)
|
Tons(Mt)
|
GradeV2O5 (%)
|
ContainedV2O5 (Mlb)
|
|
Inferred
|
0.101
|
7.52
|
0.276
|
41.49
|
***Notes:
1.
The Qualified Person for the Louie Hill Deposit Mineral Resource
Estimate is Mr. E.J.C. Orbock III, RM SME, an employee of the a
Wood Group of companies . The Louie Hill Deposit Mineral Resource
Estimate has 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;
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 Louie Hill Deposit Mineral 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 2015, with some minor prospecting completed in October of
2018. The Company has not completed trenching or drilling
activities since its acquisition of the Gibellini
Project.
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.
In conformance with BLM permitting requirements and Secretarial
Order 3355, the Company submitted a package of enhanced baseline
reports (the "Enhanced Baseline
Reports") on March 22, 2019.
Following the BLM review of the baseline reports, the Company
submitted the Gibellini Mine Plan of Operations
(the “Gibellini MPO”) to the Battle Mountain District office of
the BLM and the Reclamation Permit application to the State of
Nevada Division of Environmental Protection Bureau of Mining
Regulation and Reclamation on June 28, 2019.
26
SILVER ELEPHANT MINING CORP.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the nine months ended September 30, 2020
(Expressed
in Canadian dollars, except where indicated)
The Enhanced Baseline Reports were completed using data primarily
collected by the previous operator between 2010 and 2012, and
included studies of biological resources, air resources, cultural
resources, surface water resources, ground water resources, noise,
wild horses, paleontological resources, geological resources,
socioeconomic and environmental justice, soil resources, visual
resources, wetlands and riparian resources, and geochemical
characterization for ore and overburden. The baseline data was
updated with data collection completed in 2019 that validated the
previous data. The reports included a review of potential
environmental impacts and proposed environmental protection
measures to avoid or minimize these impacts. The Gibellini MPO was
then prepared by integrating the information developed in the
baseline reports to guide the Gibellini Project design to avoid or
minimize potential environmental impacts.
The Gibellini MPO includes over 1,100 pages of detailed development
plans for the Gibellini Project exploration activities, open pit
mining operations and processing facilities to extract and recover
vanadium from the Gibellini deposit 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.
In addition, the Gibellini MPO includes the following management
plans and engineering 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. closure
plan;
10. water
management plan;
11. interim
closure plan;
12. transportation
plan;
13. radiation
protection plan;
14. climate
data and surface water hydrology;
15. seismic
hazard analyses; and
16. engineering
design criteria.
In August 2018, NewFields completed the Gibellini heap leach pad
and waste dump designs as part of an overall basic engineering
design led by M3 Engineering and Technology Corp
On October 31, 2019, the water pollution control permit and air
permit applications were submitted to the Nevada Division of
Environmental Protection (“NDEP “) incorporating the
Newfields and M3 Engineering design packages. The draft air permit
was posted for public comment on July 13, 2020.
2018 Gibellini PEA
On May
29, 2018, the Company received results of the 2018 Gibellini PEA
for the Gibellini Project. The 2018 Gibellini 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 was $14.20 per
pound according to www.asianmetal.com. The 2018
Gibellini PEA was prepared by Amec Foster Wheeler E&C Services
Inc, part of the Wood Group, and is based on the NI 43-101
compliant resource calculations reported above.
27
SILVER ELEPHANT MINING CORP.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the nine months ended September 30, 2020
(Expressed
in Canadian dollars, except where indicated)
Highlights of the 2018 Gibellini PEA (after tax)
|
Internal rate of
return
|
50.8%
|
|
Net
present value (“NPV”)
|
US$338.3 million at
7% discount rate
|
|
Payback
period
|
1.72
years
|
|
Average
annual production
|
9.65
million lbs V2O5
|
|
Average
V2O5 selling
price
|
US$12.73 per
lb
|
|
Operating cash
cost
|
US$4.77
per lb V2O5
|
|
All-in
sustaining costs*
|
US$6.28
per lb V2O5
|
|
Breakeven
price**
|
US$7.76
per lb V2O5
|
|
Initial
capital cost including 25% contingency
|
US$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.
The
2018 Gibellini 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 2018 Gibellini 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 2018 Gibellini 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 US$491.3 million
after-tax NPV at a 7% discount rate.
28
SILVER ELEPHANT MINING CORP.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the nine months ended September 30, 2020
(Expressed
in Canadian dollars, except where indicated)
Sensitivity Analysis
|
V2O5 price
change
|
V2O5 price
US$/lb
|
After-tax
IRR
|
After-tax
NPV
US$M
@ 7%
|
After-tax
cashflow
US$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 grade
change
|
V2O5
grade
|
After-tax
IRR
|
After-tax
NPV
US$M
@ 7%
|
After-tax
cashflow
US$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
|
|
Capex
change
|
Capex
US$M
|
After-tax
IRR
|
After-tax
NPV
US$M
@ 7%
|
After-tax
cashflow
US$M
|
|
30%
|
151.8
|
40%
|
307.2
|
564.3
|
|
20%
|
140.1
|
43%
|
317.6
|
576.3
|
|
10%
|
128.4
|
47%
|
328.0
|
588.4
|
|
Base
Capex
|
116.8
|
51%
|
338.3
|
600.4
|
|
-10%
|
105.1
|
55%
|
348.6
|
612.5
|
|
-20%
|
93.4
|
61%
|
358.9
|
624.6
|
|
-30%
|
81.7
|
67%
|
369.3
|
636.8
|
29
SILVER ELEPHANT MINING CORP.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the nine months ended September 30, 2020
(Expressed
in Canadian dollars, except where indicated)
|
Opex
change
|
Opex
US$M
|
After-tax
IRR
|
After-tax
NPV
US$M
@ 7%
|
After-tax
cashflow
US$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 deposits 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 either
in-house or through contract, with the Company’s mining staff
overseeing the contracted mining operation and performing the mine
engineering and survey work if contract mining is
selected.
|
|
Oxide‘000
tons
|
Transition‘000
tons
|
Reduced‘000
tons
|
Grade%
V2O5
|
Metal
contained V2O5 (Mlb)
|
Metal
Produced V2O5 (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
|
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 and a secondary yellowcake uranium.
30
SILVER ELEPHANT MINING CORP.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the nine months ended September 30, 2020
(Expressed
in Canadian dollars, except where indicated)
Vanadium Recoveries and Metallurgical Testing
Approximately
130.3 million pounds of V2O5 and 336,000
pounds of uranium is expected to be produced from the
Gibellini Project heap leaching operations at an average vanadium
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. The
table below summarizes the projected metallurgical recoveries used
in the 2018 Gibellini PEA for the three defined oxidation-type
domains.
|
Mill
Feed Material Type
|
Direct
Leaching Recovery
|
|
Oxide
|
60%
|
|
Transition
|
70%
|
|
Reduced
|
52%
|
The
direct heap leach vanadium recovery estimates used in the 2018
Gibellini PEA were based on extensive metallurgical testing work
performed by SGS Lakefield Research Laboratories, Dawson Minerals
Laboratories, and McClelland Laboratories ("McClelland"). 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 a 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,
September 4, 2013
A
series of trenches were excavated and approximately 18 tons of
material were sent to McClelland for pilot testing.
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, 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.
In
August of 2018, the Company received metallurgical results from its
technology partner, Northwest Non-Ferrous Metals Mining and Geology
Group Co., Ltd, (‘NWME”) from samples collected
during a site visit in March of 2018. Tests were performed at its
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.
31
SILVER ELEPHANT MINING CORP.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the nine months ended September 30, 2020
(Expressed
in Canadian dollars, except where indicated)
The
assay for this work is shown below:
|
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 Project over a one and a
half year construction period and mine life average operating costs
are summarized in the two tables below. The capital cost includes
25% contingency or USD23.4 million.
Pre-Production Capital Cost
|
Cost
Description
|
Total(US$000s)
|
|
Open Pit Mine
|
|
|
Open
pit mine development
|
1,412
|
|
Gibellini
incremental WRSF
|
212
|
|
Mobile
equipment
|
111
|
|
Infrastructure-On Site
|
|
|
Site
prep
|
2,431
|
|
Roads
|
1,391
|
|
Water
supply
|
2,007
|
|
Sanitary
system
|
61
|
|
Electrical –
on site
|
2,052
|
|
Communications
|
165
|
|
Contact
water ponds
|
174
|
|
Non-process
facilities – buildings
|
7,583
|
|
Process Facilities
|
|
|
Mill
feed handling
|
15,380
|
|
Heap
leach system
|
20,037
|
|
Process
plant
|
14,441
|
|
Off-Site Infrastructure
|
|
|
Water
system
|
4,495
|
|
Electrical supply
system
|
3,227
|
|
First
fills
|
860
|
|
Subtotal Total Direct Cost
|
76,039
|
|
Construction
indirect costs
|
4,254
|
|
Sales
tax / OH&P
|
4,236
|
|
EPCM
|
8,879
|
|
Total
Before Contingency
|
93,409
|
|
Contingency
(25%)
|
23,352
|
|
Total
Project Cost
|
116,761
|
32
SILVER ELEPHANT MINING CORP.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the nine months ended September 30, 2020
(Expressed
in Canadian dollars, except where indicated)
Operating Costs
|
Total
Cash Operating Cost
|
US$ per
Ton Leached
|
US$ 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
|
The
cash operating costs in the first half of the project covering
years 1-7 is US$3.59 per lb of V2O5 produced and
for the years 8-14 is US$7.12 per lb of V2O5 produced,
resulting in the weighted average cash cost of US$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.
Engineering Procurement Construction Management:
On August 15, 2018, the Company issued a request for proposal
(the “RFP”) for engineering, procurement,
construction and management services ("EPCM") from
qualified bidders. In December of 2018, the Company selected
M3 Engineering & Technology Corporation (“M3”) of Tucson, Arizona to provide
EPCM for the Gibellini Project in response to the RFP. 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 as well 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, and to
date this schedule has not been impacted by the COVID-19 pandemic.
Phase 2 is anticipated to be completed in 2021, Phase 3 to be
completed in 2022 and the Gibellini Project wet commissioning is
expected to occur in 2023. These timelines remain provisional and
will be revised as necessary should they materially
change.
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 site visit of the Gibellini Project in March 2018 and
analyzed samples from the Gibellini Project 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 Gibellini 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 below.
98.6% V2O5
Produced on the
1st
Run with Simple
Conventional Flowsheet
33
SILVER ELEPHANT MINING CORP.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the nine months ended September 30, 2020
(Expressed
in Canadian dollars, except where indicated)
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 below:
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 below:
|
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 on the 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 McClelland test in
detail and believe the results were consistent, whereby 70%
recovery can be achieved with longer leach cycle (over 100 days
McClelland vs 21 days NWME) and less acid consumption (50 kg of
acid per tonne of material McClelland vs 100 kg of acid per tonne
of material NWME).
34
SILVER ELEPHANT MINING CORP.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the nine months ended September 30, 2020
(Expressed
in Canadian dollars, except where indicated)
A summary of acid heap leach tests of a Gibellini bulk
sample, completed at McClelland, September 4, 2013 is tabulated
below:
|
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 below:
|
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.
Vanadium Mineralogy in Achieves Recovery at Room Temperature and
Atmospheric Pressure
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.
35
SILVER ELEPHANT MINING CORP.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the nine months ended September 30, 2020
(Expressed
in Canadian dollars, except where indicated)
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 below:
|
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
|
|
Low Carbonate Content Results in 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.
36
SILVER ELEPHANT MINING CORP.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the nine months ended September 30, 2020
(Expressed
in Canadian dollars, except where indicated)
The following table is a generalized comparison of
Gibellini’s deposit to a composite of typical black shale
vanadium deposits:
|
|
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%
|
On
March 26, 2019, the Company announced via news release available on
SEDAR 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 5
kilometers to existing Gibellini vanadium NI 43-101 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.
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.
Big Sky Prospect (300m by 50m)
The Big
Sky prospect occurs 3.1 kilometers southwest of the Gibellini Hill
measured and indicated resource and 1.8 kilometers southwest of the
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 below.
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
|
37
SILVER ELEPHANT MINING CORP.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the nine months ended September 30, 2020
(Expressed
in Canadian dollars, except where indicated)
Middle Earth Prospect (200m by 70m)
The
Middle Earth prospect occurs 1.7 kilometers 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 the following table.
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 kilometers northeast of the
Gibellini Hill deposit and 2.5 kilometers 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 the following
table.
38
SILVER ELEPHANT MINING CORP.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the nine months ended September 30, 2020
(Expressed
in Canadian dollars, except where indicated)
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
|
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 (the "Water
Supply Agreement") with the owner of a private ranch,
located approximately 14.5 kilometers from the Gibellini Project.
The Water Supply Agreement can be extended for any number of
additional 7-year terms, not to exceed (with the primary term) a
total of 99 years.
Under
the terms of the Water Supply 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 Water Supply 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.
Bisoni-McKay Claims and Historical Deposit
On
August 24, 2020 the Company announced it had commenced the
acquisition of the Bisoni-McKay Project from CellCube. This
transaction was successfully completed and announced on September
18, 2020. The Bisoni group of claims is host to a historic resource
known as the Bisoni-McKay deposit. The resource was calculated in
2016 by Edwin Ulmer and Edwin H. Bentzen III. A summary of the
historic resource is tabulated below:
|
Bisoni-McKay
Deposit Historic Category
|
V2O5
Mt
|
V2O5
Grade %
|
Mlbs
Contained V2O5
|
|
Indicated
|
11.88
|
0.397
|
94.41
|
|
Inferred
|
7.05
|
0.427
|
60.12
|
The
historic resource calculation adopted a 0.2% V2O5 cutoff grade. A
Qualified Person has not done sufficient work to classify the
historical estimate as current mineral resources or mineral
reserves. The Company is not treating the historical estimate as
current mineral resources or mineral reserves.
39
SILVER ELEPHANT MINING CORP.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the nine months ended September 30, 2020
(Expressed
in Canadian dollars, except where indicated)
The
Bisoni Project was drilled in the 1970s by Hecla, and more recently
by Stina Resources (now Cellcube) in 2004, 2005, and 2007. Historic
2005 drill result highlights include:
●
BMK 05-01 –
98.5 meters grading 0.46% V2O5 from surface, including 36.0 meters
grading 0.76% V2O5
●
BMK 05-02 –
98.1 meters grading 0.53% V2O5 from near surface, including 40.2
meters grading 0.88% V2O5
●
BMK 05-03 –
105.2 meters of 0.49% V2O5.
Compiled
historic results are tabulated below:
|
From (m)
|
To (m)
|
Downhole Interval
|
Approx true width
|
V(ppm)
|
V2O5(ppm)
|
V2O5 (%)
|
|
Hole
No. DDH BMK 05-01
|
Total
depth 98.5m
|
|||||
|
0.0
|
22.9
|
22.9
|
79.2
|
1,395
|
2,491
|
0.25
|
|
22.9
|
62.5
|
39.6
|
1,693
|
3,023
|
0.3
|
|
|
62.5
|
98.5
|
36.0
|
4,623
|
7,610
|
0.76
|
|
|
0.0
|
98.5
|
98.5
|
2,563
|
4,575
|
0.46
|
|
|
Hole
No. DDH BMK 05-02
|
Total
depth: 105.0m
|
|||||
|
7.0
|
36.3
|
29.3
|
n/a
|
1,630
|
2,909
|
0.29
|
|
36.3
|
64.9
|
28.7
|
1,635
|
2,919
|
0.29
|
|
|
64.9
|
105.2
|
40.2
|
4,944
|
8,825
|
0.88
|
|
|
7.0
|
105.2
|
98.1
|
2990
|
5337
|
0.53
|
|
|
Hole
No. DDH BMK 05-03
|
Total
depth: 105.2m
|
|||||
|
4.0
|
25.3
|
21.3
|
n/a
|
1,501
|
2,680
|
0.27
|
|
25.3
|
69.2
|
43.9
|
2,771
|
4,952
|
0.5
|
|
|
69.2
|
130.5
|
62.3
|
2,761
|
4,929
|
0.49
|
|
|
25.3
|
130.5
|
105.2
|
2,766
|
4,938
|
0.49
|
|
These
drill results are “historic” as defined by
NI 43-101 and have not been independently verified. Truth
widths are unknown except where indicated.
The
host rocks carrying vanadium mineralization at both the Gibellini
Project and Bisoni Project belong to the same Gibellini facies of
the Woodruff Shale Formation.
There
exist several highly prospective exploration targets in between and
around the Gibellini and Bisoni McKay deposits (the two are 14
kilometers apart) along the northeast – southwest corridor
such as the Big Sky prospect, the Middle Earth prospect and the
North East prospect (from Gibellini Project) and BMK and BR zones
(from the Bisoni Project) all with outcropping surface vanadium
mineralization that could potentially ultimately lead to additional
vanadium mineral discoveries.
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 on potential equity, debt and prepaid off-take financing
possibilities. The Company expects to report material progress in
due course.
40
SILVER ELEPHANT MINING CORP.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the nine months ended September 30, 2020
(Expressed
in Canadian dollars, except where indicated)
Permitting
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 the BLM 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.”
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 Environmental Impact Statement
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.
On July 14, 2020, the NOI to prepare the EIS was published in the
Federal Register. The NOI formally commences the 12-month timeline
to complete the National Environmental Policy Act review and EIS
preparation by the BLM. The NEPA process is designed to help public
officials complete permitting decisions that are protective of the
environment and includes a public engagement process.
41
SILVER ELEPHANT MINING CORP.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the nine months ended September 30, 2020
(Expressed
in Canadian dollars, except where indicated)
A news release dated July 16, 2020 from the BLM Mount Lewis Office
stated the following: “If approved, this
project would provide hundreds of jobs and will contribute to the
nation’s domestic source of critical minerals,” said
Doug Furtado, Battle Mountain District Manager. “The
Gibellini mine would also be the first vanadium mine in the U.S.
and, in accordance with Secretarial Order 3355, we anticipate
having a record of decision in 12 months.
As there is currently no primary domestic production of vanadium,
the United States is dependent on foreign sources of vanadium; this
creates a strategic vulnerability for both the economy and military
to adverse government action or other events that can disrupt the
supply of this key mineral.”
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
2022 and be completed in 2023 with the Gibellini Project wet
commissioning expected to be in 2023.
During
the nine months ended September 30, 2020, the Company incurred
total costs of $1,840,963 (nine months ended September 30, 2019 -
$3,504,245) for the Gibellini Project including for $16,489 (nine
months ended September 30, 2019 - $Nil) for acquisition of new
claims, $687,546 (nine months ended September 30, 2019 -
$2,110,761) for geological and engineering services, $984,320 (nine
months ended September 30, 2019 - $1,112,892) for personnel, legal,
general and administrative expenses, and $169,096 (nine months
ended September 30, 2019 - $280,592) for royalties, fees and
taxes.
2020-2021 Outlook
The
Company intends to continue with the permitting process in order to
obtain necessary permits and authorizations prior to conducting
Project-related activities to ensure compliance with all applicable
regulatory requirements. The permits the Company expects to recieve
are presented in the following table:
Required Permits and Regulatory Authorizations for Gibellini
Project
|
Permits and Authorizations
|
Regulatory Agency
|
|
Plan of
Operations/Record of Decision
|
Bureau
of Land Management
|
|
Explosives
Permit
|
U.S.
Department of the Treasury, Bureau of Alcohol, Tobacco, and
Firearms
|
|
Surface
Disturbance Permit and Class II Air Quality Operating
Permit
|
Nevada
Department of Conservation and Natural Resources, Division of
Environmental Protection, Bureau of Air Quality
|
|
Water
Pollution Control Permit
|
Nevada
Department of Conservation and Natural Resources, Division of
Environmental Protection, Bureau of Mining Regulation and
Reclamation
|
|
Mining
Reclamation Permit
|
Nevada
Department of Conservation and Natural Resources, Division of
Environmental Protection, Bureau of Mining Regulation and
Reclamation
|
|
Industrial
Artificial Pond Permit
|
Nevada
Department of Conservation and Natural Resources, Nevada Department
of Wildlife (NDOW)
|
|
Class
III Waiver Landfill Permit
|
Nevada
Department of Conservation and Natural Resources, Division of
Environmental Protection, Bureau of Solid Waste
|
|
General
Discharge Permit (Stormwater)
|
Nevada
Department of Conservation and Natural Resources, Division of
Environmental Protection, Bureau of Water Pollution
Control
|
|
Hazardous
Materials Storage Permit
|
State
of Nevada, Fire Marshall Division
|
|
Hazardous
Waste Identification Number
|
United
States Environmental Protection Agency
|
|
Septic
Treatment Permit
Sewage
Disposal System Permit
|
Nevada
Department of Conservation and Natural Resources, Division of
Environmental Protection, Bureau of Water Pollution
Control
|
|
Potable
Water System Permit
|
Nevada
Department of Conservation and Natural Resources, Division of
Environmental Protection, Bureau of Safe Drinking
Water
|
|
Radioactive
Materials License
|
Nevada
Department of Health and Human Services, Nevada State Health
Division, Radiological Health Section
|
|
Dam
Safety Permit
|
State
of Nevada Division of Water Resources
|
|
Local Permits
|
|
|
County
Road Use and Maintenance Permit/Agreement
|
Eureka
County Building Planning Department
|
42
SILVER ELEPHANT MINING CORP.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the nine months ended September 30, 2020
(Expressed
in Canadian dollars, except where indicated)
Expected
costs associated with this process fall under General and
Administrative costs for the Company. The Company does not
anticipate that there will be any deficiencies or other factors
that will delay or prevent receipt of these permits.
The
Company’s 2020-2021 Gibellini objectives are to
:
●
develop a strategy
with State of Nevada to potentially fill the United States Critical
Mineral Inventory by reaching out to State and Federal bureaus to
begin discussions on how the Gibellini Project may help meet
domestic requirements for the national vanadium
stockpile;
●
explore off-take
options for vanadium products; and
●
complete the
permitting process and receive the Nevada permits described in the
table above.
Ulaan Ovoo Coal, Property
For
more information about the Chandgana coal properties and power
plant project, please refer to the relevant sections of the 2019
Annual Report.
Chandgana Coal, Properties
For
more information about the Chandgana coal properties and power
plant project, please refer to the relevant sections of the 2019
Annual Report.
Titan Project, Property
For
more information about the Titan Project, please refer to the
relevant sections of the 2019 Annual Report.
5.
SUMMARY OF QUARTERLY RESULTS
To
date, COVID-19 has not significantly impacted the Company’s
operations. Silver Elephant has
implemented 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.
The
following table summarizes selected consolidated financial
information prepared in accordance with IFRS for the eight most
recently completed quarters:
|
|
2020
|
2020
|
2020
|
2019
|
|
|
Q3
|
Q2
|
Q1
|
Q4
|
|
|
|
|
|
|
|
Operating
expense
|
$(853,332)
|
$(592,874)
|
$(1,137,998)
|
$(1,175,096)
|
|
Net
gain/(loss)
|
(1,037,332)
|
(389,770)
|
(940,124)
|
12,475,952
|
|
Net
loss per share, basic and diluted
|
$(0.01)
|
$(0.01)
|
$(0.01)
|
$0.11
|
|
Comprehensive
gain/(loss )
|
(1,037,332)
|
(389,770)
|
(940,124)
|
12,475,952
|
|
Comprehensive
gain/(loss)per share, basic and diluted
|
$(0.01)
|
$(0.01)
|
$(0.01)
|
$0.11
|
|
|
2019
|
2019
|
2019
|
2018
|
|
|
Q3
|
Q2
|
Q1
|
Q4
|
|
|
|
|
|
|
|
Operating
expense
|
$(715,475)
|
$(820,893)
|
$(794,098)
|
$(1,318,475)
|
|
Net
loss
|
(1,019,268)
|
6,966,029
|
(908,859)
|
(16,044,665)
|
|
Net
loss per share, basic and diluted
|
$(0.01)
|
$0.07
|
$(0.01)
|
$(0.20)
|
|
Comprehensive
loss
|
(1,019,268)
|
6,966,029
|
(908,859)
|
(15,975,825)
|
|
Comprehensive
loss per share, basic and diluted
|
$(0.01)
|
$0.07
|
$(0.01)
|
$(0.20)
|
43
SILVER ELEPHANT MINING CORP.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the nine months ended September 30, 2020
(Expressed
in Canadian dollars, except where indicated)
The
fluctuation on quarterly net loss is primarily due to Common
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
“Property Summary” section of this
MD&A.
Nine Months Ended September 30, 2020 and 2019
|
Operating Expenses
|
Nine Months Ended September 30,
|
|
|
|
2020
|
2019
|
|
Advertising
and promotion
|
$356,854
|
$556,626
|
|
Consulting
and management fees
|
492,500
|
166,052
|
|
General
and administrative expenses
|
839,344
|
1,030,165
|
|
Professional
fees
|
218,347
|
182,151
|
|
Share-based
payments
|
594,393
|
232,602
|
|
Travel
and accommodation
|
82,766
|
162,870
|
|
|
$2,584,204
|
$2,330,466
|
The
Company had an operating loss of $2,584,204 for the nine months
ended September 30, 2020, compared with an operating loss of
$2,330,446 for the same period in 2019.
In late
January 2020, in response to the reported spread of COVID-19 the
Company implemented measures, including travel restrictions, remote
work, and supplemental health care, for the Company’s
Canadian head office staff, as well as our Bolivian, Mongolian, and
US-based staff. These measures had no material impact on the
Company’s costs, nor did COVID-19 cause any significant
disruptions to the Company’s operations.
Of note
for the nine months ended September 30, 2020, are the following
items:
●
advertising and
promotion expenses decreased by $199,772 from $556,626 in the nine
months ended September 30, 2019, to $356,854 in the nine months
ended September 30, 2020, due to decreased promotional activities
and restricted travels during the COVID-19 pandemic;
●
Consulting and
management fees increased by $326,488 from $166,052 in the nine
months ended September 30, 2019, to $492,500 in the nine months
ended September 30, 2020, due to the issuance of a bonus in the
amount of $324,000 to management/consultants of the Company, which
was paid by the issuance of Common Shares at a deemed price of
$0.40 per share;
●
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 $190,821 from $1,030,165 in the nine
months ended September 30, 2019, to $839,344 in the nine months ended
September 30, 2020. The decrease is a result of cost cutting
initiatives across the Company;
●
professional fees
increased by $36,196, from $182,151 in the nine months ended
September 30, 2019, to $218,347 in the nine months ended September
30, 2020, due to increased legal fees associated with property
acquisitions;
44
SILVER ELEPHANT MINING CORP.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the nine months ended September 30, 2020
(Expressed
in Canadian dollars, except where indicated)
●
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 options.
The fair value of options granted is estimated on the date of grant
using the Black-Scholes option pricing model. Share-based payments
increased in the nine months ended September 30, 2020, by
$361,791compared to the nine months ended September 30, 2020. The
increase was primarily related to the increase in the number of
options earned during the nine months ended September 30, 2020,
compared to the nine months ended September 30, 2019;
and
●
travel and
accommodation expenses decreased by $80,104 from $162,870 in the
nine months ended September 30, 2019, to $82,766 in the nine months
ended September 30, 2020, due to decreased property site visits and
restricted travels during the COVID-19 pandemic.
For the
nine months ended September 30, 2020, the Company’s
“Other Items” amounted to a gain of $216,978 compared
to a gain of $7,368,368 in the nine months ended September 30,
2019.
During
the nine months ended September 30, 2019, the Company wrote off the
Bolivian tax liability after receiving
a Resolution 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 Company recorded a debt settlement gain in the
amount of $7,952,700 on its consolidated statements of operations
and comprehensive loss.
|
Other Items
|
Nine Months Ended September 30,
|
|
|
|
2020
|
2019
|
|
Costs
in excess of recovered coal
|
$256,819
|
$150,938
|
|
Debt
settlement gain
|
-
|
(7,952,700)
|
|
Foreign
exchange (gain)/loss
|
(473,797)
|
(287,984)
|
|
Impairment
of mineral property
|
-
|
721,378
|
|
|
$(216,978)
|
$(7,368,368)
|
Three Months Ended September 30, 2020 and 2019
|
Operating Expenses
|
Three Months Ended September 30,
|
|
|
|
2020
|
2019
|
|
Advertising
and promotion
|
$273,976
|
$211,770
|
|
Consulting
and management fees
|
52,500
|
49,000
|
|
General
and administrative expenses
|
219,885
|
251,979
|
|
Professional
fees
|
50,350
|
86,506
|
|
Share-based
payments
|
251,368
|
64,480
|
|
Travel
and accommodation
|
5,253
|
51,740
|
|
|
$853,332
|
$715,475
|
The
Company had an operating loss of $853,332 for the three months
ended September 30, 2020, compared with an operating loss of
$715,475 for the three months ended September 30,
2019.
Of note
are the following items:
●
advertising and
promotion expenses increased by $62,206 from $211,770 in the three
months ended September 30, 2019, to $273,976 in the three months
ended September 30, 2020, due to increased on-line promotion
efforts to raise market awareness to raise equity
financing;
●
consulting and
management fees in the three months ended September 30, 2020,
remain close to fees incurred in the three months ended September
30, 2019;
45
SILVER ELEPHANT MINING CORP.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the nine months ended September 30, 2020
(Expressed
in Canadian dollars, except where indicated)
●
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 $32,094 from
$251,979 in the three months ended September 30, 2019, to $219,885
in the three months ended September 30, 2020. The decrease was a
result of cost cutting initiatives across the Company;
●
professional fees
decreased by $36,156, from $86,506 in the three months ended
September 30, 2019, to $50,350 in the three months ended September
30, 2020;
●
share-based
payments increased in the three months ended September 30, 2020, by
$186,888 compared to the three months ended September 30, 2019. The
increase was related to the increase in the number of options
earned during the three months ended September 30, 2020, compared
to the three months ended September 30, 2019;
●
travel and
accommodation expenses decreased by $46,487 from $51,740 in the
three months ended September 30, 2019, to $5,253 in the three
months ended September 30, 2020, due to decreased property site
visits and restricted travels during the COVID-19
pandemic.
For the
three months ended September 30, 2020, the Company’s
“Other Items” amounted to a loss of $184,000 compared
to a loss of $303,793 in the three months ended September 30,
2019.
|
Other Items
|
Three Months Ended September 30,
|
|
|
|
2020
|
2019
|
|
Costs
in excess of recovered coal
|
$121,414
|
$87,574
|
|
Debt
settlement gain
|
-
|
-
|
|
Foreign
exchange (gain)/loss
|
62,586
|
(109,180)
|
|
Impairment
of mineral property
|
-
|
325,399
|
|
|
$184,000
|
$303,793
|
7.
PROPOSED TRANSACTIONS
As at
the date of this MD&A, there are no proposed transactions where
the Board 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.
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
September 30, 2020, the Company had cash flow of $1,019,743,
representing a decrease of $1,997,961 from $3,017,704 as at
December 31, 2019. The Company’s working capital at September
30, 2020, was $91,311 compared to working capital of $947,465 at
December 31, 2019.
On May
1, 2020 and on May 20, 2020, the Company closed two tranches of a
non-brokered private placement (the "May 2020 Private Placement") for aggregate gross
proceeds of $1,930,500 and share compensation for services of
$45,500, through the issuance of 15,200,000 units of the Company
(each, a "Unit") at a price
of $0.13 per Unit. Each Unit is comprised of one Common Share and
one Common Share purchase warrant (each, a “Warrant”). Each Warrant entitles
the holder to purchase one Common Share at an exercise price of
$0.16 for a period of three years from the date of issuance. The
Company paid $3,250 in cash and issued 156,900 Units as
finder’s fees in connection with the May 2020 Private
Placement.
46
SILVER ELEPHANT MINING CORP.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the nine months ended September 30, 2020
(Expressed
in Canadian dollars, except where indicated)
The net
proceeds of the May 2020 Private Placement were expected to be used
for the Company’s mineral project development and for general
working capital purposes. The following table compares the
estimated use of net proceeds from the May 2020 Private Placement
and the actual use of proceeds as of September 30,
2020.
|
Description
of expenditure
|
Originally
proposed use of proceeds
|
Actual
use of proceeds, as of September 30, 2020
|
|
Development of
mineral properties
|
$1,676,838
|
$1,720,546
|
|
General and
administrative expenses
|
295,912
|
252,204
|
|
|
$1,972,750
|
$1,972,750
|
As of
September 30, 2020, the net proceeds from the May 2020 Private
Placement were fully applied.
During the three months ended
September 30, 2020, 9,596,990 Common Share purchase warrants and
758,750 stock options were exercised for aggregate proceeds of
$2,320,656 Subsequent to the period end, and as at the date of this
MD&A, 2,207,080 Common Share purchase warrants (excluding
195,000 Common Share purchase warrants that are in the process of
being exercised as at the date hereof) and 475,000
stock options were exercised for aggregate proceeds of
$633,216.
On October 26, 2020, the Company entered into an underwriting
agreement with the Underwriters pursuant to which the Underwriters
agreed to buy, on a bought deal basis, 20 million Common Shares at
a price of $0.40 per share for gross proceeds of $8 million. The
Company granted the Underwriters an option, exercisable in whole or
in part, in the sole discretion of the Underwriters, at any time
for a period of 30 days after the closing of the Offering, to
purchase up to an additional 3 million Common Shares at a price of
$0.40 per share to cover over allotments, if any, and for market
stabilization purposes. The Offering is expected to close on or
about the date that is five business days following the issuance of
the receipt for the final short form prospectus of the Company
qualifying the distribution of the Common Shares issuable pursuant
to the Offering, and is subject to a number of conditions,
including receipt of all necessary securities regulatory approvals
and the approval of the TSX.
As at
the date of this MD&A, the Company has cash flow of $0.8
million and the Company’s working capital deficit is $0.1
million.
The
Company’s cash flow highlights for the nine months ended
September 30, 2020, are presented in the table below.
Cash Flow Highlights
|
|
Nine Months Ended September 30,
|
|
|
|
2020
|
2019
|
|
Cash
Used in Operating Activities
|
$(1,721,555)
|
$(1,863,565)
|
|
Cash
Used in Investing Activities
|
(4,496,539)
|
(4,277,760)
|
|
Cash
Provided by Financing Activities
|
4,220,133
|
2,821,047
|
|
Net
Decrease in Cash and Cash equivalents
|
(1,997,961)
|
(3,320,279)
|
|
Cash
and cash equivalents- beginning of period
|
3,017,704
|
5,304,097
|
|
Cash
and cash equivalents - end of period
|
$1,019,743
|
$1,983,818
|
47
SILVER ELEPHANT MINING CORP.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the nine months ended September 30, 2020
(Expressed
in Canadian dollars, except where indicated)
Operating activities: During the nine months ended September
30, 2020, cash used in
operating activities was $1,721,555 compared to $1,863,565 during
the nine months ended September 30, 2019. The decreased outflows in
2020 period related to decreased activities of the Company due to
the COVID-19 pandemic.
Investing activities:
During the nine months ended September 30, 2020, the Company used
$4,496,539 in investing activities (nine months ended September 30,
2019 - $4,277,760). During the nine months ended September 30,
2020, the Company spent $4,516,243 (nine months ended September 30,
2019 - $4,200,957) on the Pulacayo and Gibellini Projects
exploration activities and $19,704 (nine months ended September 30,
2019 - $76,803) on purchase of equipment.
Financing activities:
During the nine months ended September 30, 2020, a total of
$4,220,133 was provided by financing activities (nine months ended
September 30, 2019 – $2,821,047) including net proceeds from
the May 2020 Private Placement of $1,927,250 (nine months ended
September 30, 2019 - $Nil), $185,439 from exercise of stock options
(nine months ended September 30, 2019 - $117,150), $2,135,217 from
exercise of warrants (nine months ended September 30, 2019 -
$250,572). The Company spent $27,773 (nine months ended September
30, 2019 - $26,466) for corporate office lease
payments.
Capital Resources
As an
exploration 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 the disclosure under the
heading “Key
Information - Risk
Factors” in the 2019 Annual Report. 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 with favourable terms, or at all, 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 operations based on annual budgets
approved by the Company's board of directors, consistent with
established internal control guidelines, and programs recommended
in the Pulacayo Technical Report. The Company has managed its
working capital by controlling its spending on its properties and
operations. Due to the ongoing planned advancement of Pulacayo
Project milestones, the Company will continue to incur costs
associated with exploration, evaluation and development activities,
while no revenues are being generated. In response to the COVID-19
pandemic, exploration in Bolivia may be impacted by government
restrictions on the Company’s operations. Potential stoppages
on exploration activities could result in additional costs, project
delays, cost overruns, and operational restart costs. The total
amount of funds that the Company needs to carry out its proposed
operations may increase from these and other consequences of the
COVID-19 pandemic. 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
condensed interim consolidated financial statements for the nine
months ended September 30, 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.
48
SILVER ELEPHANT MINING CORP.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the nine months ended September 30, 2020
(Expressed
in Canadian dollars, except where indicated)
Contractual Commitments
The
Company’s commitments related to mineral properties are
disclosed in Note 14 to the Annual Financial Statements and Note 7
to the condensed interim consolidated financial statements for the
nine months ended September 30, 2020. 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
|
$9,390
|
$19,585
|
$-
|
$28,975
|
|
|
$9,390
|
$19,585
|
$-
|
$28,975
|
Capital Risk Management
The
Company considers its capital structure to consist of Common
Shares, stock options and Common 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 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 nine months ended September 30,
2020.
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.
The
Company’s business could be adversely impacted by the effects
of the COVID-19 coronavirus. The extent to which COVID-19 may
impact the Company’s business, including its operations and
the market for its securities, will depend on future developments
which cannot be predicted, and include the duration, severity and
scope of the outbreak and the actions taken to contain or treat the
outbreak.
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”) then joint venture
interest in the Pulacayo Project) and Apogee Minerals Bolivia S.A.
Pursuant to the terms of the Definitive Agreement dated November 3,
2014 between the Company and Apogee, 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 42,000,000 Bolivian boliviano 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 the previous Resolution of the Bolivian Supreme
Court issued in 2011, that imposed the tax liability on ASC Bolivia
LDC Sucursal Bolivia, null and void and sent the matter back to the
Supreme Court of Bolivia 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 the national tax authority in Bolivia
against the Company’s Bolivian
subsidiary as not proven. This Resolution is final and
binding, hence neither the Company nor the Company’s Bolivian
subsidiaries owe any outstanding back taxes to the national
tax authority in Bolivia.
49
SILVER ELEPHANT MINING CORP.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the nine months ended September 30, 2020
(Expressed
in Canadian dollars, except where indicated)
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 in Mongolia, notifying it
of the results of the Sukhbaatar District Tax Division’s
value added tax ("VAT")
inspection of Red Hill’s 2009-2013 tax imposition and
payments that resulted in validating VAT credits of only
235,718,533 Mongolian tugrik from Red Hill’s
claimed VAT credit of 2,654,175,507 Mongolian tugrik. 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 Capital 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 Mongolian tugrik 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. Due to the
credit risk associated with the VAT credit, the Company has
provided a full valuation provision against the
balance.
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, Chief Executive
Officer 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, a director of the
Company, provides consulting services to the Company.
●
Sophir Asia Ltd., a
private company controlled by Masa Igata, a 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 September 30,
|
Nine Months Ended September 30,
|
||
|
Related parties
|
2020
|
2019
|
2020
|
2019
|
|
Directors
and officers
|
$657,041
|
$376,852
|
$1,298,076
|
$1,312,135
|
|
Linx
Partners Ltd.
|
210,000
|
98,000
|
635,000
|
266,000
|
|
MaKevCo
Consulting Inc.
|
11,800
|
5,500
|
23,300
|
15,900
|
|
Sophir
Asia Ltd.
|
10,300
|
4,900
|
21,200
|
14,700
|
|
|
$889,141
|
$485,252
|
$1,977,576
|
$1,608,735
|
50
SILVER ELEPHANT MINING CORP.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the nine months ended September 30, 2020
(Expressed
in Canadian dollars, except where indicated)
A
summary of the transactions by nature among the related parties is
as follows:
|
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
||
|
Related parties
|
2020
|
2019
|
2020
|
2019
|
|
Consulting
and management fees
|
$105,000
|
$48,948
|
$317,500
|
$166,000
|
|
Directors'
fees
|
41,700
|
38,643
|
84,900
|
78,043
|
|
Mineral
properties
|
548,941
|
312,662
|
1,202,526
|
863,387
|
|
Salaries
|
193,501
|
84,999
|
372,650
|
501,305
|
|
|
$889,142
|
$485,252
|
$1,977,576
|
$1,608,735
|
As at
September 30, 2019, amounts due to related parties totaled $Nil (as
at 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 September 30,
|
Nine Months Ended September 30,
|
||
|
Key Management Personnel
|
2020
|
2019
|
2020
|
2019
|
|
Salaries
and short term benefits
|
$210,739
|
$106,649
|
$417,052
|
$560,132
|
|
Directors'
fees
|
41,700
|
38,643
|
84,900
|
78,043
|
|
Share-based
payments
|
169,208
|
91,689
|
880,415
|
314,992
|
|
|
$421,647
|
$236,981
|
$1,382,367
|
$953,167
|
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 as it used in the Annual Financial
Statements for the nine months ended September 30,
2020. The significant accounting
policies applied, and recent accounting pronouncements are
described in Notes 4 and 6 to the Annual Financial
Statements.
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:
51
SILVER ELEPHANT MINING CORP.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the nine months ended September 30, 2020
(Expressed
in Canadian dollars, except where indicated)
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 nine months ended September 30,
2020, 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.
(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.
52
SILVER ELEPHANT MINING CORP.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the nine months ended September 30, 2020
(Expressed
in Canadian dollars, except where indicated)
(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.
(j)
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 Common 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.
(k)
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.
53
SILVER ELEPHANT MINING CORP.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the nine months ended September 30, 2020
(Expressed
in Canadian dollars, except where indicated)
(l)
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 21 to the Annual Financial
Statements. Also, from time to time, the fair values of
non-financial assets and liabilities are required to be determined,
for example 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.
COVID-19
An
emerging risk is a risk not well understood at the current time and
for which the impacts on strategy and financial results are
difficult to assess or are in the process of being assessed. Since
December 31, 2019, the outbreak of COVID-19 has resulted in
governments worldwide enacting emergency measures to combat the
spread of the virus. These measures, which include the
implementation of travel bans, self-imposed quarantine periods and
social distancing, have caused material disruption to businesses
globally, resulting in an economic slowdown. Global equity markets
have experienced significant volatility and weakness. Governments
and central banks have reacted with significant monetary and fiscal
interventions designed to stabilize economic conditions. The
duration and impact of the COVID-19 outbreak is unknown at this
time, as is the efficacy of the government and central bank
interventions. It is not possible to reliably estimate the length
and severity of these developments and the impact on the financial
results and condition of the Company and its operating subsidiaries
in future periods.
COVID-19
may impact Company operations, and consequently, the nature and
amounts and disclosures in the financial statements. Some of the
specific areas impacted by COVID-19 include, but are not limited
to:
●
Going concern
assessments;
●
Evaluation of
subsequent events;
●
Impairment and
recovery of mineral assets;
●
Fair value
measurements;
●
Lease
modifications;
●
Employee
termination benefits; and
●
Financial statement
and Management Discussion & Analysis disclosures.
As at
the date of this MD&A the COVID-19 pandemic has not affected
the Company’s critical accounting policies.
12.
FINANCIAL INSTRUMENTS AND RELATED RISKS
The
Board, through its 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 nine months ended September 30, 2020.
54
SILVER ELEPHANT MINING CORP.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the nine months ended September 30, 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 September 30, 2020, the Company had a cash
balance of $1,019,743 (as at December 31, 2019 –
$3,017,704). As at September 30, 2020, the Company had accounts
payable and accrued liabilities of $1,422,154 (as at 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.
(d)
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 September 30, 2020
(e)
Foreign currency
risk
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 United States dollars, Mongolian tugrik, and Bolivian boliviano
into its functional and reporting currency, the Canadian dollar.
Based on the above, net exposures as at September 30, 2020, with
other variables unchanged, a 10% (as at December 31, 2019 –
10%) strengthening (weakening) of the Canadian dollar against the
Mongolian tugrik would impact net loss with other variables
unchanged by $25,000. A 10% strengthening (weakening) of the
Canadian dollar against the Bolivian boliviano would impact net
loss with other variables unchanged by $48,000. A 10% strengthening
(weakening) of the US dollar against the Canadian dollar would
impact net loss with other variables unchanged by $10,000. The
Company currently does not use any foreign exchange contracts to
hedge this currency risk.
(f)
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.
55
SILVER ELEPHANT MINING CORP.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the nine months ended September 30, 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 listed below are not arranged in
any particular order and are not 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 the heading “Key Information - Risk Factors”
in the 2019 Annual Report, which is available under the
Company’s SEDAR profile at www.sedar.com.
●
The COVID-19 global
pandemic and the risk of other similar outbreaks and
pandemics;
●
The Company's
history of net losses;
●
Capital costs,
operating costs, production and economic returns;
●
Exploration and
development risks;
●
The Company has no
history of profitable mineral production;
●
The risks inherent
to the estimation of mineral reserves and mineral
resources;
●
Environmental
risks;
●
Foreign operations
risks;
●
The reform of the
mining laws, including the General Mining Act of 1872 in the
U.S;
●
Government
approvals and permits;
●
Risks associated
with the Company's property and mining interests;
●
Risks associated
with the Company's mineral claims, mining leases, licenses and
permits;
●
Title
risks;
●
Risks associated
with claims from First Nations and other Aboriginal or community
groups;
●
Risks associated
with competition;
●
Inherent
risks;
●
The Company's
reliance on key personnel;
●
The volatility of
mineral prices,
●
Currency
fluctuations;
●
Global, national
and local financial conditions;
●
Risks associated
with third-party contractors;
●
Anti-bribery
legislation;
●
Uninsured
risks;
●
The Company has no
history of making dividend payments;
●
Related party
transactions;
●
Litigation and
regulatory proceedings;
●
Cyber security
risks;
●
Risks associated
with being a foreign private issuer;
●
Risks associated
with non-Canadian investors;
●
Risks associated
with the Company's operations in emerging markets; and
●
Emerging risks, as
described below.
56
SILVER ELEPHANT MINING CORP.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the nine months ended September 30, 2020
(Expressed
in Canadian dollars, except where indicated)
An
emerging risk is a risk not well understood at the current time and
for which the impacts on strategy and financial results are
difficult to assess or are in the process of being assessed. Since
December 31, 2019, the COVID-19 global pandemic, has resulted in
governments worldwide enacting emergency measures to combat the
spread of the virus. These measures, which include the
implementation of travel bans, self-imposed quarantine periods and
social distancing, have caused material disruption to businesses
globally, resulting in an economic slowdown. Global equity markets
have experienced significant volatility and weakness. Governments
and central banks have reacted with significant monetary and fiscal
interventions designed to stabilize economic conditions. The
duration and impact of the COVID-19 outbreak is unknown at this
time, as is the efficacy of the government and central bank
interventions. It is not possible to reliably estimate the length
and severity of these developments and the impact on the financial
results and condition of the Company and its operating subsidiaries
in future periods.
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 Company’s 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 nine
months September 30, 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 Executive Chairman and the 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 nine months ended September 30,
2020.
57
SILVER ELEPHANT MINING CORP.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
For the nine months ended September 30, 2020
(Expressed
in Canadian dollars, except where indicated)
15.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
During the nine months ended September 30, 2020, the
Company’s employees began working remotely due to theCOVID-19
pandemic. This has required certain processes and controls that
were previously done or documented manually to be completed and
retained in electronic form. Despite this, there were no changes to
the Company’s internal control over financial reporting
during the nine months ended September 30, 2020, that have
materially affected, or are reasonably likely to materially affect,
the Company’s internal control over financial
reporting.
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:
●
155,295,228[2]
Common Shares outstanding with recorded value of
$188,880,506;
●
10,272,500 stock options outstanding with a
weighted average exercise price of $0.31. Each option is
exercisable to purchase one Common Share at prices ranging from
$0.20 to $0.49 per share and expire between June 2021 and August
2025; and
●
27,459,667[2] Common Share
purchase warrants outstanding with a weighted average
exercise price of $0.22. Each Common Share purchase warrant is
exercisable to purchase one Common Share at prices ranging from
$0.16 to $0.26 and expire between November 2020 and May
2023.
17.
OFF-BALANCE SHEET ARRANGEMENTS
During
the nine months ended September 30, 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.
______________
2 As at the date hereof, 195,000 Common Shares are in the
process of being issued pursuant to the exercise of an equivalent
number of Common Share purchase warrants of the Company. The number
of issued and outstanding Common Shares does not include the
195,000 Common Shares issuable and the number of issued and
outstanding Common Share purchase warrants does not exclude the
195,000 exercised Common Share purchase warrants, which would have
expired on November 13, 2020, if not so
exercised.
58
Exhibit 99.3
Form
52-109F2
Certification of Interim Filings
Full Certificate
I,
John Lee, 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 September 30, 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 assurancethat
(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”.
5.3.
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 July 1, 2020
and ended on September
30,
2020 that has materially affected, or is reasonably likely
to materially affect, the issuer’s ICFR.
Date:
November 16,
2020
“John Lee”
John
Lee
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 September 30, 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”.
5.3
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 July 1, 2020
and ended on September 30,
2020 that has materially affected, or is reasonably likely
to materially affect, the issuer’s ICFR.
Date:
November 16,
2020
“Irina Plavutska”
Irina
Plavutska
Chief
Financial Officer