December 31, 2017
FILO MINING CORP.
MANAGEMENT’S DISCUSSION AND ANALYSIS
YEAR ENDED DECEMBER 31, 2017
(Amounts in Canadian Dollars unless otherwise indicated)
The following management’s discussion and analysis (“MD&A”) of Filo Mining Corp. (“Filo Mining” or the
“Company”) should be read in conjunction with the consolidated financial statements for year ended December
31, 2017 and related notes therein. The financial information in this MD&A is reported in Canadian dollars unless
otherwise indicated and is partly derived from the Company’s consolidated financial statements prepared in
accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting
Standards Board. The effective date of this MD&A is March 19, 2018. Additional information about the Company
and its business activities is available on SEDAR at www.sedar.com and the Company’s website www.filo-mining.com.
Filo Mining was incorporated on May 12, 2016 under the Canada Business Corporations Act in connection the plan of
arrangement to reorganize the business of NGEx Resources Inc. (“NGEx”), which was completed on August 16, 2016
(the “NGEx Arrangement”). Accordingly, certain comparative information as presented in this MD&A has been prepared
on a continuity of interest basis of accounting, which requires that prior to August 16, 2016, the assets, liabilities and
results of operations and cash flows of Filo Mining be on a ‘carve-out’ basis from the consolidated financial statements
and accounting records of NGEx, in accordance with the financial reporting framework specified in subsection 3.11(6)
of National Instrument 52-107, Acceptable Accounting Principles and Auditing Standards, for carve-out financial
statements. As the carve-out entity did not operate as a separate legal entity, the financial position, results of
operations and cash flows do not necessarily reflect the financial position, results of operations, and cash flows had
the carve-out entity operated as an independent entity during the comparative periods presented (see Notes 2 and 3
of the Company’s audited consolidated financial statements for the year ended December 31, 2016).
Some of the statements in this MD&A are forward-looking statements that are subject to risk factors set out in the
cautionary note contained herein.
CORE BUSINESS
Filo Mining is a mineral exploration company, focused on its 100% controlled, flagship Filo del Sol Project, which is
comprised of adjacent land holdings: the Filo del Sol Property located in San Juan Province, Argentina, and the
Tamberias Property, located in Region III, Chile. The Filo del Sol Project is located between the prolific Maricunga and
El Indio gold belts, two major mineralized trends that contain such deposits as Caspiche, La Coipa, Veladero, and El
Indio. The region is a stable mining jurisdiction and hosts a number of large-scale mining operations. The project area
is covered under the Mining Integration and Complementation Treaty between Chile and Argentina which provides
the framework for the development of cross border mining projects.
The Company’s most recent Mineral Resource estimate for the Filo del Sol Project, effective July 1, 2017, is comprised
of 373 million tonnes at 0.34% copper, 0.33 g/t gold and 9.2 g/t silver containing 2.8 billion pounds of copper, 4.0
million ounces of gold and 109.9 million ounces of silver in the Indicated category, and an Inferred Mineral Resource
estimate of 239 million tonnes at 0.27% copper, 0.33 g/t gold and 7.8 g/t silver for 1.4 billion pounds of copper, 2.5
million ounces of gold and 60.0 million ounces of silver. The Filo del Sol Project continues to hold significant exploration
potential with less than 20% of the project area explored to date.
A preliminary economic assessment (“PEA”), effective November 6, 2017, has been completed on the Filo del Sol
Project, which shows a positive preliminary economic analysis, highlighted by an after-tax net present value (“NPV”)
of US$ 705 million at a discount rate of 8%, and an internal rate of return (“IRR”) of 23%, with positive valuation
maintained across a wide range of sensitivities on key assumptions.
1
The Filo del Sol Project, the Mineral Resource estimate, and the PEA are described in a Technical Report titled
“Independent Technical Report for a Preliminary Economic Assessment on the Filo del Sol Project, Region III, Chile
and San Juan Province, Argentina” dated December 18, 2017, with an effective date of November 6, 2017 (the
“Technical Report”), which was prepared for Filo Mining by SRK Consulting (Canada) Inc (“SRK”). The Qualified
Persons, as defined under NI 43-101, responsible for the Technical Report are Fionnuala Devine, P. Geo., Merlin
Geosciences Inc., Carl E. Defilippi, RM SME, Kappes, Cassiday & Associates, Giovanni Di Prisco, PhD., P.Geo., Terra
Mineralogical Services Inc., James N. Gray, P. Geo., Advantage Geoservices Limited, Robert McCarthy, P. Eng., SRK,
Cameron Scott, P. Eng., SRK, and Neil Winkelmann, FAusIMM, SRK, all of whom are independent of Filo Mining. The
Technical Report is available for review under the Company's profile on SEDAR at www.sedar.com and on the
Company's website at www.filo-mining.com.
The Company’s strategy is to create value for its shareholders by expanding and increasing the quality of the resources
at the Filo del Sol Project and completing engineering and other studies that are required to prepare the Filo del Sol
Project for eventual development by the Company or by third parties.
The Company has a strong management team and board with extensive experience in the resource sector, particularly
in Chile and Argentina. The board and management team have an appropriate mix of geological, engineering,
financial, and business skills to advance the Company’s projects and to generate value for its shareholders.
2017 OPERATING HIGHLIGHTS
The Company achieved several key operating milestones for the Filo del Sol Project during the year ended December
31, 2017, most notably the successful completion of the 2016/2017 field program in March, an update of the Mineral
Resource estimate in August, the completion of the second phase of metallurgical testwork in September, and the
finalization of a PEA on the Project to cap off the year. The 2017/2018 field program which is intended to collect data
in support of a Preliminary Feasibility Study was initiated prior to the end of the year. Details of these various 2017
achievements are provided below:
Completion of 2016/2017 Field Program
A total of 8,616 metres was drilled in 41 holes during the 2016/2017 exploration program, which was completed on
March 28, 2017. Completion of the 2016/2017 filed program resulted in:
A successful infill program at the Filo del Sol deposit, which confirmed the flat-lying, layered geometry of the
orebody, with the uppermost strata being a gold oxide (AuOx) zone, followed by a copper-gold oxide (CuAuOx)
zone, a silver (Ag) zone, and lastly, an underlying copper-gold sulphide zone;
Expansion of the gold oxide zone of the Filo del Sol deposit to dimensions of approximately 700 metres north-
south by 350 metres east-west;
Better definition of the high-grade copper-gold oxide zone;
Confirmation of a high-grade, flat-lying silver-rich zone underlying the copper oxide zone in most areas of the
Filo del Sol deposit; and
Better definition of the newly discovered Tamberias zone (previously referred to as “Filo South”), which is
immediately adjacent to the Filo del Sol deposit and extends 1 km to the south. This zone is characterized by
a variety of mineralized intersections over an area of 1,000 metres north-south by at least 500 metres east-
west, where current year drilling has encountered an oxide gold zone, a shallow oxide copper zone, and a
new area of copper-gold mineralization.
2
Update to Mineral Resource Estimate
Following the successful completion of the 2016/2017 field program, the Company reported a significant increase to
the Filo del Sol Project’s Mineral Resource estimate. With an effective date of July 1, 2017, the overall Mineral Resource
was increased by 61% to 373 million tonnes Indicated, plus 239 million tonnes Inferred, containing 2.8 billion pounds
of copper, 4.0 million ounces of gold and 109.9 million ounces of silver in the Indicated category, and 1.4 billion pounds
of copper, 2.5 million ounces of gold and 60.0 million ounces of silver in the Inferred category.
With respect to the conversion of Inferred material to the Indicated category, the Company achieved a conversion
ratio of 98%, resulting in 61% of the updated Mineral Resource falling within the Indicated category, matching the
overall increase to the Mineral Resource itself. Most of the increase in the Mineral Resource comes from the Tamberias
zone, which is included in the Mineral Resource estimate for the first time. Tamberias is located 1 kilometer south and
is contiguous with the main Filo deposit. In addition, drilling during the 2016/2017 field season has greatly expanded
both the size and grade of the oxide gold mineralization in the Filo deposit to the point where it is now significant
enough to report on its own.
Details of the updated Mineral Resource estimate, presented by mineralization zones, are summarized in the following
table:
Cutoff
Category
(millions)
(%)
(g/t)
(g/t)
(millions)
(thousands) (thousands)
Tonnes
Cu
Au
Ag
lbs Cu
Ounces Au
Ounces Ag
Zone
AuOx
0.20 g/t Au
Indicated
Inferred
CuAuOx
0.15 % CuEq Indicated
Inferred
Ag
20 g/t Ag
Indicated
Inferred
Sulphide
0.30 % CuEq Indicated
Inferred
52.5
31.7
175.3
94.7
36.5
17.0
108.6
95.5
0.05
0.08
0.42
0.30
0.52
0.40
0.28
0.29
0.42
0.36
0.29
0.30
0.41
0.43
0.32
0.32
3.0
2.4
2.8
2.3
69.5
78.9
2.2
2.4
9.2
7.8
59
57
1,636
624
421
149
658
612
2,774
1,442
710
368
1,630
924
485
235
1,129
983
3,954
2,510
5,060
2,470
15,530
6,970
81,600
43,130
7,690
7,420
109,880
59,990
Total
Indicated
372.9
0.34
0.33
Inferred
238.9
0.27
0.33
For further details, please refer to the Company’s news release dated August 21, 2017.
Completion of Second Phase of Metallurgical Testwork
A comprehensive second phase metallurgical testwork program was undertaken on behalf of the Company by SGS
Canada Inc. in Lakefield, Ontario, and completed during the third quarter of 2017.
The program focused on the testing of gold oxide and copper-gold oxide material collected from both the main Filo
del Sol and Tamberias zones during the 2016/2017 exploration season under column leaching conditions, as well as
material gathered from the silver zone. Testing was conducted separately for each of these three types of
mineralization, and highlights are as follows:
Gold Oxide Zone:
Test Method
Average Recoveries
Other Observations
Two cyanide column leach tests on material crushed to 1.5” and ¾”
- Gold: 92.8%
- Silver: 69.8%
- No significant impacts from varying crush size
- Rapid leach kinetics, with over 90% gold recovery within first 15 days
3
Variability Testing
Results
Seven coarse bottle roll tests (minus 10 mesh) averaged:
- Gold: 92.8%
- Silver: 39.0%
Copper-Gold Oxide Zone:
Test Method
Average Recoveries
Other Observations
Variability Testing
Results
Silver Zone:
Test Method
Recoveries
Two sequential column leach tests on material crushed to 1.5” and ¾”
- Copper: 81.9%
- Gold: 86.7%
- Silver: 70.8%
- Copper leaching required minimal sulfuric acid; copper in test material
often water soluble
- Rapid leach kinetics, with over 80% copper recovery within first 15 days
of acid leaching, and over 80% gold recovery within first 15 days of cyanide
leaching
Five sequential coarse bottle roll tests (minus 10 mesh) averaged:
- Copper: 92.2%
- Gold: 88.2%
- Silver: 59.9%
- Sequential bottle roll test1 (minus 10 mesh)
- Copper: 60.8%
- Gold: 63.5%
- Silver: 72.8%
1 Silver zone material for metallurgical testing was collected from reverse circulation drill cuttings, which were not coarse
enough for column testing, and for which only sequential bottle roll testing could be performed.
Completion of PEA
Supported by the positive milestones achieved during 2017, the Company commissioned the undertaking of a formal,
independent PEA of the Filo del Sol Project. The PEA was completed in November 2017 by SRK and contemplated the
updated Mineral Resource estimate, using open-pit mining and heap leach processing of only the oxide portions of the
Resource. The results of the PEA demonstrate robust project economics for the Project, which are highlighted by the
following:
Estimated after-tax NPV of US$ 705 million using an 8% discount rate and an estimated IRR of 23%;
Estimated pre-production capital cost of US$ 792 million, including US$ 71 million in capitalized pre-stripping;
Average estimated annual production of approximately 50,000 tonnes of copper, 115,000 ounces of gold, and
over 5 million ounces of silver per year;
Estimated Life of Mine revenue split approximately 56% copper, 26% gold, and 18% silver;
Robust resource, with most of the mine plan derived from Indicated Mineral Resources (79%);
Open pit mining followed by heap leach processing to produce copper cathode and gold-silver doré; and
Excellent metallurgy and fast leach kinetics provide unique processing opportunities
For further details, please refer to the Company’s news release dated November 28, 2017.
The PEA is preliminary in nature and is partly based on 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 preliminary assessment
based on these Mineral Resources will be realized. Mineral Resources that are not Mineral Reserves do
not have demonstrated economic viability.
The Technical Report, which summarizes the results of the PEA, is available for review under the Company's profile
on SEDAR at www.sedar.com and on the Company's website at www.filo-mining.com.
4
Initiation of the 2017/2018 Field Program
A planned 10,000 metre drill program designed to upgrade Inferred resources to the Indicated category and provide
additional samples for metallurgical testwork and geotechnical characterization of the planned open pit was initiated
on December 16, 2017.
CORPORATE UPDATE
Changes to Executive Team
The Company appointed Mr. James Beck as the Company’s Vice President, Corporate Development and Projects
effective February 1, 2017. Mr. Beck is a registered Professional Engineer in the province of Ontario, holds a Bachelor
of Applied Science from Queen's University and an MBA from the University of British Columbia. Mr. Beck also serves
as the Vice President, Corporate Development and Projects of NGEx Resources Inc. (“NGEx”), an exploration company
listed on the TSX and Nasdaq Stockholm. Prior to his appointment, Mr. Beck was the Company’s Director, Corporate
Development.
Effective September 11, 2017, the Company appointed Mr. Adam Lundin as the Company’s President and Chief
Executive Officer, in replacement of Dr. Wojtek Wodzicki, who stepped down to focus on his activities as President
and Chief Executive Officer of NGEx. Mr. Lundin was also appointed to the Company’s Board of Directors, while Dr.
Wodzicki will continue to serve as a Director of Filo Mining and a lead advisor to the Company’s technical team.
Mr. Lundin's industry expertise and market understanding will build on the success that the Company has achieved
and he will be focused on helping the Company achieve its long-term strategic goals. He brings a recognized legacy
and years of international finance and capital markets experience to Filo Mining, complementing the Company's strong
technical team. He is well placed to lead Filo Mining through the next phase of its growth into a significant copper,
gold, and silver producer.
Credit Facility
On January 12, 2018, the Company obtained a US$ 2.0 million short-term credit facility from an insider of the Company
(the “Facility”) to provide additional financial flexibility to fund ongoing exploration at the Filo del Sol Project and
general corporate purposes. As consideration, the lender was entitled to 6,000 common shares of the Company upon
execution of the Facility, and will be issued an additional 300 common shares each month, for every US$ 50,000 in
principal outstanding on the Facility, prorated accordingly for the number of days outstanding. There is no interest
payable in cash during the term of the Facility, and all common shares issued in conjunction with the Facility are
subject to a four-month hold period under applicable securities laws. As of March 19, 2018, the Company has issued
a total of 12,300 common shares to the lender as consideration for providing the Facility to the Company, in lieu of
cash fees.
On February 28, 2018, all amounts drawn to date under the Facility were repaid in full following closing of a bought-
deal equity financing and concurrent non-brokered private placement (see section below). The Facility remains
available until January 12, 2019.
Closing of Financings for $25.5 Million
On February 28, 2018, the Company closed the sale of 5,894,231 common shares of the Company on a bought deal
basis to a syndicate of underwriters led by Haywood Securities Inc. (the “Underwriters”), at a price of $2.60 per share
(the “Issue Price”) for total gross proceeds of approximately $15.3 million (the “Offering”), which includes 124,231
common shares issued on partial exercise of an over-allotment option. The Underwriters have the option to purchase
up to an additional 741,269 common shares at the Issue Price for a period of 30 days from February 28, 2018 (the
“Over-allotment Option”). The gross proceeds generated from the Offering are subject to a 5.0% commission, payable
in cash.
5
On February 28, 2018, the Company also closed a concurrent private placement of 3,928,964 common shares,
including 82,810 common shares issued to adjust for the Underwriters’ partial exercise of the Over-allotment Option,
at the Issue Price, for gross proceeds of approximately $10.2 million (the “Concurrent Private Placement”). The
participants to the Concurrent Private Placement, which include an insider of the Company, may purchase up to an
additional 494,113 common shares of the Company at the Issue Price to adjust for the Underwriters’ further exercise
of the Over-allotment Option, if any.
The Company plans to use the net proceeds from the Offering and Concurrent Private Placement for exploration and
development at the Filo del Sol Project, and for working capital and general corporate purposes. A portion of the net
proceeds have also been used to repay the amounts drawn under the Facility.
OUTLOOK
In November 2017, the Company initiated the work program at the Filo del Sol Project for the 2017/2018 field season,
which coincides with the South American summer. This program is based on recommendations from the PEA and will
collect the data required to support the undertaking of a Pre-Feasibility Study (“PFS”), which was launched in January
2018, and is targeted for completion by the first quarter of 2019. The Company has engaged Ausenco Engineering
Canada Inc. to lead the PFS.
The current design of the field work program includes reverse circulation and diamond drilling for resource conversion,
metallurgical sample collection and geotechnical information, as well as infrastructure site investigations and ongoing
metallurgical and environmental studies. In addition, the PEA highlighted several opportunities for unlocking value at
the Filo del Sol Project, which will be explored by the Company during the PFS, such as:
Evaluating unique processing opportunities to take advantage of the fast leach kinetics noted in metallurgical
testwork completed to date, which could reduce project capital by recovering soluble copper through installing
a conventional washing system for process feed after the crushing circuit. Further study of this option is
planned and, if successful, the washing stage could eliminate the permanent copper and on/off leach pads
and their associated materials handling systems, saving on capital and operating costs associated with these
installations;
Optimizing the mine plan and production schedules by evaluating opportunities to smooth production and
bring forward copper revenues;
Increasing metallurgical recoveries with further test work and optimization; and
Delineating more or higher-grade material through continued exploration on the Company's extensive land
package. The deposit remains open in most directions with several additional exploration targets outside of
the immediate deposit area that have seen only preliminary exploration work. In addition, there are areas to
cover near the deposit that have not been drill tested and are prospective for additional discoveries.
With the recently completed PEA and a PFS currently underway on the Filo del Sol Project, together with a treasury
replenished by the $25.5 million financings discussed above, the Company is well position to make strides towards
advancing the Filo del Sol Project. The results of the PFS will guide the direction taken by the Company with respect
to the Filo del Sol Project and may lead to further advanced studies of the Project.
6
RESULTS FROM OPERATIONS
Year Ended
Net loss ($000’s)
Loss per share, basic and diluted ($)
Dec-17
Dec-161
Dec-151
18,695
0.30
8,666
0.16
11,817
0.23
Total assets ($000’s)
6,355
1 Amounts presented in the table prior to the completion of the NGEx Arrangement on August 16, 2016 were carved
out from figures previously reported by NGEx in accordance with the continuity of interest basis of accounting.
10,193
26,151
Filo Mining is a junior exploration company and, as such, its net losses are largely driven by its exploration and
project investigation activities and there is no expectation of generating operating profits until it identifies and
develops a commercially viable mineral deposit.
Key financial results for the last eight quarters are provided in the table below.
Three Months Ended
Dec-17
Sep-17
Jun-17
Mar-17
Dec-16
Sep-161
Jun-161 Mar-161
Exploration costs ($000's)
3,605
1,227
1,257
8,930
4,403
Operating loss ($000’s)
4,564
2,538
2,042
9,565
5,379
Net loss ($000’s)
4,580
2,549
2,053
9,513
5,297
457
858
860
331
1,286
634
1,789
646
1,862
Net loss per share, basic and
diluted ($)
0.07
0.04
0.03
0.15
0.09
0.02
0.01
0.05
1 Amounts presented in the table relating to periods prior to August 16, 2016, the completion date of the NGEx Arrangement, have been
prepared and presented in accordance with the continuity of interest basis of accounting.
Due to the geographic location of the Filo del Sol Project, the Company’s business activities fluctuate with the
seasons, through increased drilling and other exploration activities during the summer months in South America.
As a result, a general recurring trend is the increase in exploration expenditures, and therefore net losses, for the
fourth quarter and first quarter of a fiscal year, relative to the second and third quarters. In addition, other relevant
factors, such as the financial position of the Company, other corporate initiatives, as well as the type of planned
exploration/project work, could affect the level of exploration activities and net loss in a particular period.
Filo Mining incurred a net loss of $18.7 million (2016: $8.7 million) for the year ended December 31, 2017.
Exploration and project investigation costs are the most significant expenditures of the Company and account for
approximately 80% (2016: 75%) of the net loss during the year. This is reflective of the Company’s accounting
policy to expense its exploration costs through the consolidated statement of comprehensive loss, except for
mineral property option payments and mineral property acquisition costs.
Exploration and project investigation costs for the year ended December 31, 2017, totalled $15.0 million, which
exceeded the prior year (2016: $6.5 million). This increase is due to the execution of a larger exploration program
during the 2016/2017 exploration season and, to a lesser extent, higher costs related to engineering and
conceptual studies incurred as a result of the undertaking and completion of the PEA during the year ended
December 31, 2017. Detailed breakdowns of exploration costs for the years ended December 31, 2017 and 2016,
are provided in the notes to the consolidated financial statements.
Excluding share-based compensation, administration costs for the year ended December 31, 2017 were $2.0
million (2016: $1.3 million). Share-based compensation, a non-cash cost, reflects the amortization of the
estimated fair value of options over their vesting period and is based to a large degree on the Company’s share
price and its volatility. The actual future value to the option holders may differ materially from these estimates as
it depends on the trading price of the Company’s shares if and when the options are exercised. In addition, as the
granting of options and their vesting is at the discretion of the Board, the related expense is unlikely to be uniform
across quarters or financial years.
7
The higher compensation, travel, and promotion costs incurred during the year ended December 31, 2017,
compared to the 2016 comparative year, reflect the additional corporate costs associated with operating a stand-
alone public entity following the completion of the NGEx Arrangement on August 16, 2016, including $0.2 million
in incentive bonuses granted by the Board of Directors to certain officers and employees of the Company during
2017.
No tax recovery is recognized as a result of the nature of the Company’s activities and the lack of reasonably
expected taxable profits in the near term.
In other comprehensive loss, the Company reported a foreign exchange translation loss of $189,000 (2016: gain
of $12,000) for the year ended December 31, 2017, on translation of subsidiary company accounts from their
functional currency to the Canadian dollar presentation currency. This is principally the result of fluctuations of
the Canadian dollar relative to the Chilean peso and Argentine peso during the respective periods.
LIQUIDITY AND CAPITAL RESOURCES
As at December 31, 2017, the Company had cash of $2.4 million and net working capital of $1.5 million, compared
to cash of $19.5 million and net working capital of $17.7 million as at December 31, 2016. The decrease in the
Company’s cash and net working capital is due primarily to funds directed towards advancing the Filo del Sol
Project, and to a lesser extent, funds spent for general corporate purposes. This has been partially offset by the
receipt of approximately $1.0 million as proceeds from the exercise of share options during the year.
On January 12, 2018, the Company executed the Facility, which enabled access to up to US$ 2.0 million in short-term
credit, to provide additional financial flexibility to fund ongoing exploration at the Filo del Sol Project and general
corporate purposes. As consideration, the lender was entitled to 6,000 common shares of the Company upon execution
of the Facility, and will be issued an additional 300 common shares each month, for every US$ 50,000 in principal
outstanding on the Facility, prorated accordingly for the number of days outstanding. There is no interest payable in
cash during the term of the Facility, and all common shares issued in conjunction with the Facility are subject to a
four-month hold period under applicable securities laws. As of March 19, 2018, the Company has issued a total of
12,300 common shares to the lender as consideration for providing the Facility to the Company, in lieu of cash fees.
The Facility remains available until January 12, 2019.
On February 28, 2018, the Company closed the aggregate sale of 9,823,195 common shares of the Company pursuant
to the Offering and the Concurrent Private Placement for gross proceeds of approximately $25.5 million (see Corporate
Update section above). A portion of the net proceeds received were used to repay all amounts drawn to date under
the Facility, and the Company plans to use the remaining net proceeds from the Offering and Concurrent Private
Placement for exploration and development at the Filo del Sol Project, and for working capital and general corporate
purposes.
RELATED PARTY TRANSACTIONS
Related party services
The Company has a cost sharing arrangement with NGEx, a related party by way of directors, officers and
shareholders in common. Under the terms of this arrangement, the Company provides executive management,
technical exploration and exploration support services to NGEx, and NGEx provides financial management and
administrative services to the Company. In addition, the Company engages Bofill Mir & Alvarez Jana Abogados
Ltda. (“BMJAL”), a Chilean legal firm, of which a director of the Company is a partner. These transactions were
incurred in the normal course of operations, and are summarized as follows:
8
Executive management, technical exploration and
exploration support services to NGEx
Financial management and administrative services
from NGEx
Legal services from BMJAL
Related party balances
Year ended
December 31,
2016
2017
1,296,287
325,188
(142,815)
67,965
(58,131)
-
The amounts due from (to) related parties, and the components of the consolidated statement of financial position in
which they are included, are as follows:
Receivables and other assets
Accounts payable and accrued liabilities
Accounts payable and accrued liabilities
Key management compensation
Related Party
December 31,
2017
December 31,
2016
NGEx
NGEx
BMJAL
366,435
(93,617)
(23,135)
222,556
(56,025)
-
The Company’s key management personnel have the authority and responsibility for overseeing, planning, directing
and controlling its activities and consist of the Board of Directors and members of the executive management team.
Total compensation expense for key management personnel, and the composition thereof, is as follows:
Salaries
Short-term employee benefits
Directors fees
Stock-based compensation
Incentive bonuses
Year ended
December 31,
2016
2017
1,341,539
35,617
86,583
1,548,394
207,000
3,219,133
268,500
10,044
25,973
459,587
-
764,104
Up until the completion of the NGEx Arrangement on August 16, 2016, no compensation was paid to the Company’s
officers or directors. The compensation costs reported for key management personnel therefore only reflect
compensation costs incurred subsequent to August 16, 2016.
9
CRITICAL ACCOUNTING ESTIMATES
The preparation of the consolidated financial statements in accordance with IFRS, such as the underlying
consolidated financial statements for the year ended December 31, 2017, requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities and expenditures. These estimates and
assumptions are based on management’s best knowledge of the relevant facts and circumstances taking into
account previous experience. Actual results could differ from those estimates and such differences could be
material. Estimates are reviewed on an ongoing basis and are based on historical experience and other facts and
circumstances. Revisions to estimates and the resulting effects on the carrying amounts of the Company’s assets
and liabilities are accounted for prospectively. Information about estimates and assumptions that could have the
most significant effect on the recognition and measurement of assets is provided below.
Valuation of mineral properties – The Company carries the acquisition costs of its mineral properties at cost
less any provision for impairment. The Company undertakes periodic reviews of the carrying values of mineral
properties and whenever events or changes in circumstances indicate that their carrying values may exceed their
fair value. In undertaking these reviews, management of the Company is required to make significant estimates.
These estimates are subject to various risks and uncertainties, which may ultimately have an effect on the expected
recoverability of the carrying values of the mineral properties and related expenditures.
SIGNIFICANT ACCOUNTING POLICIES
The Company’s significant account policies are described in Note 3 of the audited consolidated financial statements
for year ended December 31, 2017, as on SEDAR at www.sedar.com.
New Accounting Pronouncements
The IASB and the IFRS Interpretations Committee (previously the International Financial Reporting Interpretations
Committee, IFRIC) have issued a number of new and revised International Accounting Standards, IFRS
amendments and related interpretations which are effective for the Company for periods after December 31, 2017,
beginning on the dates indicated below. Pronouncements that are not applicable to the Company have been
excluded from those described below.
Pronouncement
IFRS 9 Financial Instruments will replace IAS 39 Financial Instruments:
Recognition and Measurement. The new standard provides a model for
the classification and measurement of financial instruments, a single
forward-looking “expected loss” impairment model, and a reformed
approach for hedge accounting. Based on its current circumstances, the
Company does not expect any material impact on the financial position and
results of the Company to arise from the adoption of IFRS 9.
Effective Date
Required to be applied
for years beginning on
or after January 1, 2018.
IFRS 7 Financial instruments – disclosure has been amended to require
additional disclosures on transition from IAS 39 to IFRS 9. Based on its
current circumstances, the Company does not expect any material impact
to arise from the adoption of IFRS 7.
Required to be applied
for years beginning on
or after January 1, 2018.
10
IFRS 16 Leases specifies how leases should be recognized, measured,
presented and disclosed. The standard provides a single lessee accounting
model, requiring lessees to recognize assets and liabilities for all leases
unless the lease term is 12 months or less or the underlying asset has a low
value. Lessors continue to classify leases as operating or finance, with IFRS
16’s approach to lessor accounting substantially unchanged from its
predecessor, IAS 17. The Company is currently assessing whether the
adoption of this new standard would have a material impact on the financial
position and results of the Company.
Required to be applied
for years beginning on
or after January 1, 2019.
FINANCIAL INSTRUMENTS
The Company’s financial instruments consist of cash, receivables and other assets, and trade payables and accrued
liabilities, with carrying values considered to be reasonable approximations of fair value due to the short-term
nature of these instruments.
As at December 31, 2017, the Company’s financial instruments are exposed to the following financial risks,
including credit, liquidity and currency risks:
(i) Credit risks associated with cash is minimal as the Company deposits the majority of its cash
with a large Canadian financial institution that has been accorded a strong investment grade
rating by a primary rating agency.
(ii) Liquidity risks associated with the inability to meet obligations as they become due is minimized
through the management of its capital structure and by maintaining good relationships with
bankers. The Company also closely monitors and reviews its costs to date and actual cash flows
on a monthly basis. In assessing liquidity risk as at December 31, 2017, the Company has also
considered the impact of proceeds received from equity financings, which closed on February 28,
2018 (see Corporate Update section above).
The maturities of the Company’s financial liabilities as at December 31, 2017 are as follows:
Accounts payable and
accrued liabilities
Total
Less than
Total
1 year 1-5 years
More than
5 years
2,252,172
2,252,172
2,252,172
2,252,172
-
-
-
-
(iii) Foreign currency risk can arise when the Company or its subsidiaries transact or have net
financial assets or liabilities which are denominated in currencies other than their respective
functional currencies.
At December 31, 2017, the Company’s largest foreign currency risk exposure existed at the level
of its Chilean operating subsidiary, Frontera Chile Limitada (“Frontera”), which held a net financial
asset position denominated in US dollars having a Canadian dollar equivalent of approximately
$171,000. A 10% change in the foreign exchange rate between the US dollar, and the Chilean
peso, Frontera’s functional currency, would give rise to increases/decreases of approximately
17,000 Canadian dollars in financial position/comprehensive loss.
11
OUTSTANDING SHARE DATA
As at March 19, 2018, the Company had 72,137,279 common shares outstanding and 4,585,416 share options
outstanding under its share-based incentive plan.
RISKS AND UNCERTAINTIES
The operations of the Company are speculative due to the high-risk nature of its business which includes the
acquisition, financing, exploration, development and operation of mining properties. There are a number of factors
that could negatively affect the Company’s business and the value of its common shares, including the factors
listed below. The following information pertains to the outlook and conditions currently known to the Company
that could have a material impact on the financial condition of the Company. Other factors may arise that are not
currently foreseen by management of the Company that may present additional risks in the future. Current and
prospective security holders of the Company should carefully consider these risk factors, as they could materially
affect the Company’s future operations and could cause actual events to differ materially from those described in
forward-looking statements relating to the Company.
A detailed discussion of the significant risks and uncertainties identified by the Company are provided in the
Company’s most recent Annual Information Form (“AIF”), as filed on SEDAR at www.sedar.com. The more
significant risks, as they relate to the Company’s consolidated financial statements for the year ended December
31, 2017 and this MD&A, include:
Exploration and Development Risk
The Company’s properties are in the exploration stage and are without a known body of commercial ore.
Exploration for Mineral Resources involves a high degree of risk and few properties that are explored are
ultimately developed into producing mines. The risks and uncertainties inherent in exploration activities include
but are not limited to: legal and political risk arising from operating in certain developing countries, civil unrest,
general economic, market and business conditions, the regulatory process and actions, failure to obtain necessary
permits and approvals, technical issues, new legislation, competitive and general economic factors and conditions,
the uncertainties resulting from potential delays or changes in plans, the occurrence of unexpected events and
management’s capacity to execute and implement its future plans. Discovery of mineral deposits is dependent
upon a number of factors, not the least of which are the technical skills of the exploration personnel involved and
the capital required for the programs. The cost of conducting programs may be substantial and the likelihood of
success is difficult to assess. There is no assurance that the Company’s mineral exploration activities will result
in any discoveries of new bodies of commercial ore. There is also no assurance that even if commercial quantities
of ore are discovered that a new ore body would be developed and brought into commercial production. The
commercial viability of a mineral deposit once discovered is also dependent upon a number of factors, some of
which are the particular attributes of the deposit (such as size, grade, metallurgy and proximity to infrastructure
and labour), the interpretation of geological data obtained from drilling and sampling, feasibility studies, the cost
of water and power; anticipated climatic conditions; cyclical metal prices; fluctuations in inflation and currency
exchange rates; higher input commodity and labour costs, commodity prices, government regulations, including
regulations relating to prices, taxes, royalties, land tenure and use, allowable production, importing and exporting
of minerals, and environmental protection. Most of the above factors are beyond the control of the Company.
Development projects will also be subject to the successful completion of final feasibility studies, issuance of
necessary permits and other governmental approvals and receipt of adequate financing. The exact effect of these
factors cannot be accurately predicted, but the combination of any of these factors may adversely affect the
Company’s business.
12
Negative Operating Cash Flow
The Company is an exploration stage company and has not generated cash flow from operations. The Company
is devoting significant resources to the development and acquisition of its properties, however there can be no
assurance that it will generate positive cash flow from operations in the future. The Company expects to continue
to incur negative consolidated operating cash flow and losses until such time as it achieves commercial production
at a particular project. The Company currently has negative cash flow from operating activities.
Mineral Resource Estimates
The Company’s reported Mineral Resources are estimations only. No assurance can be given that the estimated
Mineral Resources will be recovered. By their nature, Mineral Resource estimations are imprecise and depend, to
a certain extent, upon statistical inferences, which may ultimately prove unreliable because, among other factors,
they are based on limited sampling, and, consequently, are uncertain because the samples may not be
representative. Mineral Resource estimations may require revision (either up or down).
There are numerous uncertainties inherent in estimating Mineral Resources, including many factors beyond the
Company’s control. Such estimation is a subjective process, and the accuracy of any Mineral Resource estimate
is a function of the quantity and quality of available data and of the assumptions made and judgments used in
engineering and geological interpretation. There can be no assurance that recoveries in small scale laboratory
tests will be duplicated in larger scale tests under on-site conditions. In particular, factors that may affect Mineral
Resource estimates include:
changes in interpretations of mineralization geometry and continuity of mineralization zones;
input parameters used in the Whittle shell that constrains the Mineral Resources amenable to open
pit mining methods;
metallurgical and mining recoveries;
operating and capital cost assumptions;
metal price and exchange rate assumptions;
confidence in modifying factors, including assumptions that surface rights to allow infrastructure to
be constructed will be forthcoming;
delays or other issues in reaching agreements with local or regulatory authorities and stakeholders;
changes in land tenure requirements or permitting requirements from those discussed in the report;
and
changes in the environmental regulations or laws governing the property.
Changes in key assumptions and parameters could result in a restatement of Mineral Resource estimates. Mineral
Resources that are not Mineral Reserves do not have demonstrated economic viability and there is no assurance
that they will ever be mined or processed profitably. Due to the uncertainty which may attach to Mineral
Resources, there is no assurance that all or any part of Measured or Indicated Mineral Resources will ever be
converted into Mineral Reserves. Any material reductions in estimates of Mineral Resources could have a material
adverse effect on the Company’s results of operations and financial condition.
Title Risk
The Company has investigated its right to explore and exploit its properties and, to the best of its knowledge,
those rights are in good standing. The results of the Company’s investigations should not be construed as a
guarantee of title. Other parties may dispute the title to a property, or the property may be subject to prior
unregistered agreements or liens and transfers or land claims by aboriginal, native, or indigenous peoples. The
title may be affected by undetected encumbrances or defects or governmental actions. The Company has not
conducted surveys of all of its properties, and the precise area and location of claims or the properties may be
challenged and no assurances can be given that there are no title defects affecting such properties. The rules
governing mining concessions in Chile and Argentina are complex and any failure by the Company to meet
13
requirements would have a material adverse effect on the Company. Any defects in the title to the Company’s
properties could have a material and adverse effect on the Company.
No assurance can be given that applicable governments will not revoke or significantly alter the conditions of the
applicable exploration and mining authorizations nor that such exploration and mining authorizations will not be
challenged or impugned by third parties. Although the Company has not had any problem renewing its licenses
in the past there is no guarantee that it will always be able to do so. Inability to renew a license could result in
the loss of any project located within that license.
The Company is earning an interest in the Tamberias property through an option agreement requiring property
payments and acquisition of title to the properties is completed only when the option conditions have been met.
If the Company does not satisfactorily complete these option conditions in the period laid out in the option
agreements, the Company’s title to the related property will not vest and the Company will have to write down
its previously capitalized costs related to that property.
Foreign Operations Risk
The Company conducts exploration activities in foreign countries, including Argentina and Chile. Each of these
countries exposes the Company to risks that may not otherwise be experienced if all operations were located in
Canada. The risks vary from country to country and can include, but are not limited to, civil unrest or war,
terrorism, illegal mining, changing political conditions, fluctuations in currency exchange rates, expropriation or
nationalization without adequate compensation, changes to royalty and tax regimes, high rates of inflation, labour
unrest and difficulty in understanding and complying with the regulatory and legal framework respecting
ownership and maintenance of mineral properties. Changes in mining or investment policies or shifts in political
attitudes may also adversely affect Corporation’s existing assets and operations. Real and perceived political risk
may also affect Corporation’s ability to finance exploration programs and attract joint venture or option partners,
and future mine development opportunities.
Numerous countries have introduced changes to mining regimes that reflect increased government control or
participation in the mining sector, including, but not limited to, changes of law affecting foreign ownership,
mandatory government participation, taxation and royalties, exploration licensing, export duties, and repatriation
of income or return of capital. There can be no assurance that industries, which are deemed of national or
strategic importance in countries in which the Company has assets, including mineral exploration, will not be
nationalized. There is a risk that further government limitations, restrictions or requirements, not presently
foreseen, will be implemented. Changes in policy that alter laws regulating the mining industry could have a
material adverse effect on the Company. There can be no assurance that the Company’s assets in these countries
will not be subject to nationalization, requisition or confiscation, whether legitimate or not, by an authority or
body.
In addition, in the event of a dispute arising from foreign operations, the Company may be subject to the exclusive
jurisdiction of foreign courts or may not be successful in subjecting foreign persons to the jurisdiction of courts
in Canada. The Company also may be hindered or prevented from enforcing its rights with respect to a
governmental instrumentality because of the doctrine of sovereign immunity. It is not possible for the Company
to accurately predict such developments or changes in laws or policy or to what extent any such developments
or changes may have a material adverse effect on the Company.
Metal Price Risk
The Company’s portfolios of properties and investments have exposure to predominantly copper, gold, and silver.
Commodity prices fluctuate widely and are affected by numerous factors beyond the Company’s control, such as
the sale or purchase of metals by various central banks and financial institutions, interest rates, exchange rates,
inflation or deflation, fluctuation in the value of the United States dollar and foreign currencies, global and regional
supply and demand, and the political and economic conditions of major metals-producing and metals-consuming
14
countries throughout the world. The prices of these metals greatly affect the value of the Company, the price of
the common shares of the Company and the potential value of its properties and investments. This, in turn,
greatly affects its ability to form joint ventures, option agreements and the structure of any joint ventures formed.
This is due, at least in part, to the underlying value of the Company’s assets at different metals prices.
Uncertainty of Funding
The exploration and development of mineral properties requires a substantial amount of capital and may depend
on the Company’s ability to obtain financing through joint ventures, debt financing, equity financing or other
means. General market conditions, volatile metals prices, a claim against the Company, a significant disruption
to the Company’s business, or other factors may make it difficult to secure the necessary financing. There is no
assurance that the Company will be successful in obtaining required financing as and when needed on acceptable
terms. Failure to obtain any necessary additional financing may result in delaying or indefinite postponement of
exploration or development or even a loss of property interest. If the Company needs to raise additional funds,
such financing may substantially dilute the interests of shareholders of the Company and reduce the value of
their investment.
Future offerings of debt or equity securities
The Company may require additional funds to finance further exploration, development and production activities,
or to take advantage of unanticipated opportunities. If the Company raises additional funds by issuing additional
equity securities, such financing would dilute the economic and voting rights of the Company’s shareholders.
Since the Company’s capital needs depend on market conditions and other factors beyond its control, it cannot
predict or estimate the amount, timing or nature of any such future offering of securities. Thus, holders of
common shares of the Company bear the risk of any future offerings reducing the market price of the common
shares and diluting their shareholdings in the Company.
Economic and Political Instability in Argentina
The Filo del Sol Project is located in San Juan Province, Argentina. There are risks relating to an uncertain or
unpredictable political and economic environment in Argentina, especially as there is social opposition to mining
operations in certain parts of the country. During an economic crisis in 2001 to 2003 and again in 2014, Argentina
defaulted on foreign debt repayments and on the repayment on a number of official loans to multinational
organizations. In addition, the government has renegotiated or defaulted on contractual arrangements. The
previous Argentinean government placed currency controls on the ability of companies and its citizens to obtain
United States dollars, in each case requiring Central Bank approval (resulting in, at times, a limitation on the
ability of multi-national companies to distribute dividends abroad in United States dollars) and revoked exemptions
previously granted to companies in the oil and gas and mining sectors from the obligation to repatriate 100% of
their export revenues to Argentina for conversion in the local foreign exchange markets, prior to transferring
funds locally or overseas. Similarly, the government adopted a requirement that importers provide notice to the
government and obtain approval for importation before placing orders for certain goods. These measures have
been lifted by the new government that took office in December 2015. However, the past actions indicate that
the Argentinean government may from time to time alter or impose additional requirements or policies that may
adversely affect the Company’s activities in Argentina or in its ability to attract joint venture partners or obtain
financing for its projects in the future.
Currency Risk
The Company will transact business in a number of currencies including but not limited to the US Dollar, the
Argentine Peso and the Chilean Peso. The Argentine Peso in particular has had significant fluctuations in value
relative to the US and Canadian dollars. Ongoing economic uncertainty in Argentina as well as unpredictable
changes to foreign exchange rules may result in fluctuations in the value of the Argentine Peso that are greater
than those experienced in the recent past. Fluctuations in exchange rates may have a significant effect on the
15
cash flows of the Company. Future changes in exchange rates could materially affect the Company’s results in
either a positive or a negative direction. The Company does not currently engage in foreign currency hedging
activities.
Internal Controls
Internal controls over financial reporting are procedures designed to provide reasonable assurance that
transactions are properly authorized, assets are safeguarded against unauthorized or improper use, and
transactions are properly recorded and reported. A control system, no matter how well designed and operated,
can provide only reasonable, not absolute, assurance with respect to the reliability of financial reporting and
financial statement preparation.
Information Systems and Cyber Security
The Company's operations depend on information technology (“IT”) systems. These IT systems could be subject
to network disruptions caused by a variety of sources, including computer viruses, security breaches and cyber-
attacks, as well as disruptions resulting from incidents such as cable cuts, damage to physical plants, natural
disasters, terrorism, fire, power loss, vandalism and theft. The Company's operations also depend on the timely
maintenance, upgrade and replacement of networks, equipment, IT systems and software, as well as pre-emptive
expenses to mitigate the risks of failures. Any of these and other events could result in information system
failures, delays and/or increase in capital expenses. The failure of information systems or a component of
information systems could, depending on the nature of any such failure, adversely impact the Company's
reputation and results of operations.
Although to date the Company has not experienced any material losses relating to cyber attacks or other
information security breaches, there can be no assurance that the Company will not incur such losses in the
future. The Company's risk and exposure to these matters cannot be fully mitigated because of, among other
things, the evolving nature of these threats. As a result, cyber security and the continued development and
enhancement of controls, processes and practices designed to protect systems, computers, software, data and
networks from attack, damage or unauthorized access remain a priority. As cyber threats continue to evolve, the
Company may be required to expend additional resources to continue to modify or enhance protective measures
or to investigate and remediate any security vulnerabilities.
Corruption and Bribery
The Company is required to comply with anti-corruption and anti-bribery laws, including the Extractive Sector
Transparency Measures Act, the Canadian Corruption of Foreign Public Officials Act and the U.S. Foreign Corrupt
Practices Act, as well as similar laws in the countries in which the Company conducts its business. If the Company
finds itself subject to an enforcement action or is found to be in violation of such laws, this may result in significant
penalties, fines and/or sanctions imposed on the Company resulting in a material adverse effect on the Company.
Competition
There is aggressive competition within the mining industry for the discovery and acquisition of properties
considered to have commercial potential, as well as the necessary labour and supplies required to develop such
properties. The Company competes with other exploration and mining companies, many of which have greater
financial resources, operational experience and technical capabilities than the Company, for the acquisition of
mineral claims, leases and other mineral interests as well as for the recruitment and retention of qualified
employees and other personnel. The Company may not be able to maintain or acquire attractive mining properties
on terms it considers acceptable, or at all. Consequently, its financial condition could be materially adversely
affected.
16
Uninsurable Risks
Exploration, development and production operations on mineral properties involve numerous risks, including
unexpected or unusual geological operating conditions, rock bursts, cave-ins, fires, floods, earthquakes and other
environmental occurrences, as well as political and social instability. It is not always possible to obtain insurance
against all such risks and the Company may decide not to insure against certain risks because of high premiums
or other reasons. Should such liabilities arise, they could reduce or eliminate any further profitability and result
in increasing costs and a decline in the value of the securities of the Company. The Company does not maintain
insurance against political risks.
Tax
The Company runs its business in different countries and strives to run its business in as tax efficient a manner
as possible. The tax systems in certain of these countries are complicated and subject to changes. For this reason,
future negative effects on the result of the Company due to changes in tax regulations cannot be excluded.
Repatriation of earnings to Canada from other countries may be subject to withholding taxes. The Company has
no control over withholding tax rates.
QUALIFIED PERSON
The technical contents of this MD&A have been reviewed and approved by Bob Carmichael, P. Eng. (BC). Mr.
Carmichael is Filo Mining's Vice-President of Exploration and a Qualified Person under National Instrument 43-101
Standards of Disclosure for Mineral Projects.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements made and information contained herein in the MD&A constitutes “forward-looking information” and
forward-looking statements” within the meaning of applicable securities legislation (collectively, “forward-looking
information” or “forward-looking statements”) concerning the business, operations, financial performance and
condition of Filo Mining. The forward-looking information contained in this MD&A is based on information available to
the Company as of the date of this MD&A. Except as required under applicable securities legislation, the Company
does not intend, and does not assume any obligation, to update this forward-looking information. Generally, any
statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections,
objectives, assumptions or future events or performance, (often, but not always, identified by words or phrases such
as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends",
“projects” , “estimates”, “budgets”, “scheduled”, “forecasts”, “assumes”, “intends”, “strategy”, “goals”, “objectives”,
“potential”, “possible”, "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases or
statements that certain actions, events, conditions or results “will”, "may", "could", "would", “should”, "might" or "will
be taken", "will occur" or "will be achieved" or the negative connotations thereof and similar expressions) are not
statements of historical fact and may be forward-looking statements.
All statements other than statements of historical fact may be forward-looking statements. Forward-looking information
is necessarily based on estimates and assumptions that are inherently subject to known and unknown risks,
uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of
the Company to be materially different from those expressed or implied by such forward-looking information, including
but not limited to: risks and uncertainties relating to, among other things, the inherent uncertainties regarding mineral
resource estimates, cost estimates, changes in commodity prices, currency fluctuation, financings, unanticipated
resource grades, infrastructure, results of exploration activities, cost overruns, availability of materials and equipment,
timeliness of government approvals, taxation, political risk and related economic risk and unanticipated environmental
impact on operations as well as other risks, and uncertainties and other factors, including, without limitation, those
referred to in the “Risks and Uncertainties” section of the MD&A and in the Company’s most recent Annual Information
17
Form, under the heading “Risks Factors”, and elsewhere, which may cause the actual results, level of activity,
performance or achievements of the Company to be materially different from those expressed or implied by such
forward-looking information.
The Company believes that the expectations reflected in the forward-looking statements and information included in
this MD&A are reasonable but no assurance can be given that these expectations will prove to be correct and such
forward-looking statements and information should not be unduly relied upon. This statement and information is as
of the date of the MD&A. In particular, this MD&A contains forward-looking statements or information pertaining to
the assumptions used in the PEA for the Filo del Sol project, the assumptions used in the mineral resources estimates
for the Filo del Sol project, including, but not limited to, geological interpretation, grades, metal price assumptions,
metallurgical and mining recovery rates, geotechnical and hydrogeological conditions, as applicable; ability to develop
infrastructure; assumptions made in the interpretation of drill results, geology, grade and continuity of mineral
deposits; expectations regarding access and demand for equipment, skilled labour and services needed for exploration
and development of mineral properties; and that activities will not be adversely disrupted or impeded by exploration,
development, operating, regulatory, political, community, economic and/or environmental risks. In addition, this
MD&A contains forward-looking statements or information pertaining to the anticipated undertaking of and timing for
the completion of a Pre-Feasibility Study; expected timing or ability to secure additional financing and/or the quantum
and terms thereof; exploration and development plans and expenditures; the timing and nature of studies and any
potential development scenarios; opportunities to improve project economics; the success of future exploration
activities; potential for resource expansion; potential for the discovery of new mineral deposits; ability to build
shareholder value; expectations with regard to adding to mineral resources through exploration; expectations with
respect to the conversion of inferred resources to an indicated resources classification; ability to execute the Planned
Work programs; estimation of commodity prices, mineral resources, costs, and permitting time lines; ability to obtain
surface rights and property interests; currency exchange rate fluctuations; requirements for additional capital;
government regulation of mining activities; environmental risks; unanticipated reclamation expenses; title disputes or
claims; limitations on insurance coverage; and other risks and uncertainties.
Forward-looking information is based on certain assumptions that the Company believes are reasonable, including that
the current price of and demand for commodities will be sustained or will improve, the supply of commodities will
remain stable, that the general business and economic conditions will not change in a material adverse manner, that
financing will be available if and when needed on reasonable terms and that the Company will not experience any
material labour dispute, accident, or failure of plant or equipment. These factors are not, and should not be construed
as being, exhaustive. Although the Company has attempted to identify important factors that would cause actual
results to differ materially from those contained in forward-looking information, there may be other factors that cause
results not to be as anticipated, estimated, or intended. There can be no assurance that such statements will prove
to be accurate, as actual results and future events could differ materially from those anticipated in such statements. All
of the forward-looking information contained in this document is qualified by these cautionary statements. Readers
are cautioned not to place undue reliance on forward-looking information due to the inherent uncertainty thereof.
Statements relating to "mineral resources" are deemed to be forward looking information, as they involve the implied
assessment, based on certain estimates and assumptions, that the mineral resources described can be profitably
produced in the future.
18
March 20, 2018
Independent Auditor’s Report
To the Shareholders of Filo Mining Corp.
We have audited the accompanying consolidated financial statements of Filo Mining Corp., which
comprise the consolidated statements of financial position as at December 31, 2017 and
December 31, 2016 and the consolidated statements of comprehensive loss, cash flows and changes in
equity for the years then ended, and the related notes, which comprise a summary of significant
accounting policies and other explanatory information.
Management’s responsibility for the consolidated financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with International Financial Reporting Standards, and for such internal control
as management determines is necessary to enable the preparation of consolidated financial statements
that are free from material misstatement, whether due to fraud or error.
Auditor’s responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing standards. Those
standards require that we comply with ethical requirements and plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the consolidated financial statements. The procedures selected depend on the auditor’s judgment,
including the assessment of the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error. In making those risk assessments, the auditor considers internal control
relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order
to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of accounting estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a
basis for our audit opinion.
PricewaterhouseCoopers LLP
PricewaterhouseCoopers Place, 250 Howe Street, Suite 1400, Vancouver, British Columbia, Canada V6C 3S7
T: +1 604 806 7000, F: +1 604 806 7806
“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial
position of Filo Mining Corp. as at December 31, 2017 and December 31, 2016 and its financial
performance and its cash flows for the years then ended in accordance with International Financial
Reporting Standards.
(Signed) “PricewaterhouseCoopers LLP”
Chartered Professional Accountants
Filo Mining Corp.
Consolidated Statements of Financial Position
(Expressed in Canadian Dollars)
ASSETS
Current assets:
Cash
Receivables and other assets
Mineral properties
TOTAL ASSETS
LIABILITIES
Current liabilities:
Trade payables and accrued liabilities
SHAREHOLDERS’ EQUITY
Share capital
Contributed surplus
Deficit
Accumulated other comprehensive
income (loss)
TOTAL SHAREHOLDERS’ EQUITY
TOTAL LIABILITIES AND
SHAREHOLDERS’ EQUITY
Commitments (Note 14)
Subsequent Events (Note 15)
Note
December 31,
2017
December 31,
2016
4
5
6
$ 2,417,407
1,296,353
$ 19,464,829
595,274
3,713,760
6,479,344
10,193,104
20,060,103
6,091,311
26,151,414
2,252,172
2,407,145
59,481,338
2,877,642
(54,352,813)
(65,235)
7,940,932
58,511,463
766,535
(35,657,695)
123,966
23,744,269
$ 10,193,104
$ 26,151,414
The accompanying notes are an integral part of these consolidated financial statements.
On behalf of the Board:
/s/Alessandro Bitelli
Director
/s/Wojtek A. Wodzicki
Director
Filo Mining Corp.
Consolidated Statements of Comprehensive Loss
(Expressed in Canadian Dollars)
Expenses
Exploration and project investigation
General and administration:
Salaries and benefits
Share-based compensation
Management fees
Professional fees
Travel
Promotion and public relations
Office and general
Operating loss
Other expenses
Foreign exchange loss (gain)
Net loss
Note
Year ended
December 31,
2016
2017
8
$
15,019,239
$ 6,477,057
7c
1,101,723
1,659,287
153,600
167,763
182,927
163,499
261,226
18,709,264
514,894
872,484
166,590
194,994
50,664
111,689
271,819
8,660,191
(14,146)
18,695,118
5,835
8,666,026
Other comprehensive loss (gain)
Items that may be reclassified subsequently to net loss:
Foreign currency translation adjustment
Comprehensive loss
189,201
$ 18,884,319
(12,283)
$ 8,653,743
Basic and diluted loss per common share
$ 0.30
$ 0.16
Weighted average common shares outstanding
61,891,059
52,549,338
The accompanying notes are an integral part of these consolidated financial statements.
2
Filo Mining Corp.
Consolidated Statements of Cash Flows
(Expressed in Canadian Dollars)
Cash flows used in operating activities
Net loss for the year
Items not involving cash:
Depreciation
Share-based compensation
Net changes in working capital items:
Receivables and other
Trade payables and accrued liabilities
Cash flows from financing activities
Proceeds from exercise of share options
Cash received pursuant to private placement
Cash received pursuant to the NGEx Arrangement
Funding received from NGEx for operations
Cash flows used in investing activities
Mineral properties and related expenditures
Note
Year ended
December 31,
2016
2017
$ (18,695,118) $
(8,666,026)
7c
-
2,111,107
7,432
1,174,488
(850,040)
235,416
(17,198,635)
(488,347)
2,453,752
(5,518,701)
969,875
-
-
-
969,875
76,825
19,468,716
3,000,000
2,718,336
25,263,877
5
(398,012)
(398,012)
(756,519)
(756,519)
Effect of exchange rate change on cash
(420,650)
204,944
Increase (decrease) in cash during the year
(17,047,422)
19,193,601
Cash, beginning of year
Cash, end of year
$
19,464,829 $
271,228
$
2,417,407 $ 19,464,829
The accompanying notes are an integral part of these consolidated financial statements.
3
Filo Mining Corp.
Consolidated Statements of Changes in Equity
(Expressed in Canadian Dollars)
Balance, January 1, 2016
Funding and expenses paid by NGEx
Share-based compensation
Cash contributed by NGEx pursuant to the
NGEx Arrangement
Shares issued pursuant to the NGEx
Arrangement
Adjustment for shares issued in
connection
with the NGEx Arrangement
Exercise of options
Shares issued pursuant to
private placement
Net loss and other comprehensive income
Balance, December 31, 2016
Balance, January 1, 2017
Share-based compensation
Exercise of options
Net loss and other
comprehensive loss
Balance, December 31, 2017
Number of
Shares
Note
Share Capital
Contributed
Surplus
Other Capital
Reserves
Deficit
Accumulated
Other
Comprehensive
Income (Loss)
Total
Shareholders’
Equity
- $ - $ -
-
-
-
766,535
-
-
$ 39,752,747
2,566,602
407,953
$(33,753,049)
-
-
$ 111,683
-
-
$ 6,111,381
2,566,602
1,174,488
-
-
51,270,950
38,965,922
-
117,500
-
76,825
-
-
-
-
3,000,000
(38,965,922)
-
-
(6,761,380)
-
6,761,380
-
-
-
-
-
3,000,000
-
-
76,825
10,000,000
-
-
-
61,388,450 $ 58,511,463 $ 766,535
19,468,716
-
-
(8,666,026)
$ - $(35,657,695)
-
-
-
12,283
$ 123,966
19,468,716
(8,653,743)
$ 23,744,269
7c
61,388,450
-
880,000
$ 58,511,463
-
969,875
$ 766,535 $ -
-
-
2,111,107
-
$ (35,657,695)
-
-
$ 123,966
-
-
$ 23,744,269
2,111,107
969,875
(18,695,118)
62,268,450 $ 59,481,338 $ 2,877,642 $ - $(54,352,813)
-
-
-
-
(189,201)
$ (65,235)
(18,884,319)
$ 7,940,932
The accompanying notes are an integral part of these consolidated financial statements.
4
Filo Mining Corp.
Notes to Consolidated Financial Statements
For the years ended December 31, 2017 and 2016
(Expressed in Canadian Dollars, unless otherwise stated)
1. NATURE OF OPERATIONS
Filo Mining Corp. (the “Company” or “Filo Mining”) was incorporated on May 12, 2016 under the Canada
Business Corporations Act in connection the plan of arrangement to reorganize NGEx Resources Inc.
(“NGEx”), which was completed on August 16, 2016 (the “NGEx Arrangement”). Detailed disclosure
pertaining to the NGEx Arrangement is available in the Company’s audited consolidated financial
statements for the year ended December 31, 2016.
The Company’s principal business activities are the exploration and development of the Filo del Sol and
Tamberias Properties, which are comprised of adjacent mineral titles in the San Juan Province in
Argentina and in Chile. Its registered office is located at Suite 2200, 885 West Georgia Street, Vancouver,
British Columbia, V6C 3E8, Canada. The Company’s common shares trade on the TSX Venture Exchange
(the "TSXV") and the NASDAQ First North Exchange under the symbol "FIL".
2. BASIS OF PRESENTATION
These consolidated financial statements have been prepared in accordance with International Financial
Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”) on
a going concern basis, which contemplates the realization of assets and settlement of liabilities in the
normal course of business. These consolidated financial statements are prepared on a historical cost
basis except for certain financial assets, which are measured at fair value.
In addition, certain comparative information as presented in these consolidated financial statements
have been prepared on a continuity of interest basis of accounting, which requires that prior to August
16, 2016, the assets, liabilities and results of operations and cash flows of Filo Mining be on a ‘carve-
out’ basis from the consolidated financial statements and accounting records of NGEx, in accordance
with the financial reporting framework specified in subsection 3.11(6) of National Instrument 52-107,
Acceptable Accounting Principles and Auditing Standards, for carve-out financial statements. As the
carve-out entity did not operate as a separate legal entity, the financial position, results of operations
and cash flows do not necessarily reflect the financial position, results of operations, and cash flows had
the carve-out entity operated as an independent entity during the comparative period presented.
These consolidated financial statements were authorized for issuance by the Board of Directors of the
Company on March 19, 2018.
3. SIGNIFICANT ACCOUNTING POLICIES
a) Consolidation
The consolidated financial statements of the Company include the following subsidiaries:
Subsidiaries
NGEx Filo del Sol Holdings Inc.
NGEx Chile Holdings Inc.
Filo del Sol Uruguay S.A.
Frontera Holdings (Bermuda) IV Ltd.
Frontera Holdings (Bermuda) V Ltd.
Filo del Sol Exploracion S.A.
Frontera Chile Limitada
Jurisdiction
Canada
Canada
Uruguay
Bermuda
Bermuda
Argentina
Chile
5
Nature of operations
Holding company
Holding company
Holding company
Holding company
Holding company
Exploration company
Exploration company
Filo Mining Corp.
Notes to Consolidated Financial Statements
For the years ended December 31, 2017 and 2016
(Expressed in Canadian Dollars, unless otherwise stated)
The Company consolidates an entity when it has power over that entity, is exposed, or has rights, to
variable returns from its involvement with that entity and has the ability to affect those returns through
its power over that entity.
All the Company’s subsidiaries are wholly-owned and all intercompany balances, transactions, including
income and expenses arising from inter-company transactions are eliminated in preparing the
consolidated financial statements.
b) Critical accounting estimates and assumptions
The preparation of the consolidated financial statements in accordance with IFRS requires management
to make estimates and assumptions that affect the reported amounts of assets, liabilities and
expenditures on the financial statements. These estimates and assumptions are based on management’s
best knowledge of the relevant facts and circumstances taking into account previous experience. Actual
results could differ from those estimates and such differences could be material. Estimates are reviewed
on an ongoing basis and are based on historical experience and other facts and circumstances. Revisions
to estimates and the resulting effects on the carrying amounts of the Company’s assets and liabilities are
accounted for prospectively. Information about estimates and assumptions that could have the most
significant effect on the recognition and measurement of assets is provided below.
Valuation of mineral properties – The Company carries the acquisition costs of its mineral properties
at cost less any provision for impairment. The Company undertakes periodic reviews of the carrying
values of mineral properties and whenever events or changes in circumstances indicate that their carrying
values may exceed their fair value. In undertaking these reviews, management of the Company is
required to make significant estimates. These estimates are subject to various risks and uncertainties,
which may ultimately have an effect on the expected recoverability of the carrying values of the mineral
properties and related expenditures.
c) Foreign currency translation
These consolidated financial statements are presented in Canadian dollars, which is the Company’s
functional and presentation currency. The functional currency of its material subsidiaries, which have
operations in Chile and Argentina, is the Chilean peso and the Argentine peso, respectively.
The results and financial positions of the subsidiaries that have a functional currency different from the
presentation currency are translated into the presentation currency as follows:
Assets and liabilities for each statement of financial position presented are translated using the
exchange rate prevailing at the date of that statement of financial position.
Income, expenses, and other comprehensive income for each statement of comprehensive income
are translated at average exchange rates (unless this average is not a reasonable approximation
of the cumulative effect of the rates prevailing on the transaction dates, in which case income and
expenses are translated at the rate on the dates of the transactions).
All resulting exchange differences are recognized as a separate component of equity and in other
comprehensive income.
d) Mineral properties and exploration expenditure
The Company capitalizes acquisition costs for property rights, including payments for exploration rights
and estimated fair value of exploration properties acquired as part of a business acquisition.
6
Filo Mining Corp.
Notes to Consolidated Financial Statements
For the years ended December 31, 2017 and 2016
(Expressed in Canadian Dollars, unless otherwise stated)
Mineral exploration costs and maintenance payments are expensed prior to the determination that a
property has economically recoverable ore reserves. When it has been established that a mineral property
is considered to be sufficiently advanced to the development stage and economic viability has been
demonstrated, all further expenditures for the current year and subsequent years are capitalized as
incurred and subsequently amortized on a units of production based on proven and probable reserves of
the assets to which they relate.
e) Impairment of non-financial assets
Assets that are subject to amortization are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. An impairment loss is
recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The
recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the
purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately
identifiable cash inflows (cash-generating units, or “CGU’s”). Value in use is determined as the present
value of future cash inflows expected to be derived from a CGU using a pre-tax discount rate that reflects
the current time value of money and the risks specific to that CGU.
Non-financial assets that suffered impairment are reviewed for possible reversal of the impairment at
each reporting date.
f) Financial instrument classification
In respect of the recognition and measurement of financial instruments, the Company has adopted the
following policies:
Financial instruments
Measured at amortized cost:
Cash, receivables and others
Trade payables and accrued liabilities
g) Cash
Loans and
receivables
Other financial
liabilities
X
X
Cash includes cash on hand, deposits held at call with financial institutions, net of bank overdrafts.
h) Impairment of receivables and other assets
The Company assesses at the end of each reporting period whether there is objective evidence that its
receivable and other assets are impaired. They are considered to be impaired and impairment losses
are incurred only if there is objective evidence of impairment as a result of one or more events that
occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an
impact on the estimated future cash flows of the financial asset or group of financial assets that can be
reliably estimated.
The amount of the loss is measured as the difference between the asset’s carrying amount and the
present value of estimated future cash flows (excluding future credit losses that have not been incurred)
discounted at the financial asset’s original effective interest rate. The asset’s carrying amount is reduced
and the amount of the loss is recognized in the consolidated statement of loss.
7
Filo Mining Corp.
Notes to Consolidated Financial Statements
For the years ended December 31, 2017 and 2016
(Expressed in Canadian Dollars, unless otherwise stated)
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related
objectively to an event occurring after the impairment was recognized, the reversal of the previously
recognized impairment loss is recognized in the consolidated statement of loss.
i) Current and deferred income tax
The Company follows the liability method of accounting for income taxes. Under the liability method,
deferred income tax assets and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets and liabilities and their
respective tax bases, unused tax losses and other income tax deductions. Deferred income tax assets
are recognized for deductible temporary differences, unused tax losses and other income tax deductions
to the extent that it is probable the Company will have taxable income against which those deductible
temporary differences, unused tax losses and other income tax deductions can be utilized.
Deferred income tax assets and liabilities are measured using enacted or substantively enacted tax rates
expected to apply when the related assets are realized or the liabilities are settled. The measurement of
deferred income tax assets and liabilities reflects the tax consequences that would follow from the
manner in which the Company expects, at the reporting date, to recover and settle the carrying amounts
of its assets and liabilities, respectively. The effect on deferred income tax assets and liabilities of a
change in tax rates is recognized in the period in which the change is substantively enacted.
j) Share capital
Common shares are classified as equity. Incremental costs directly attributable to the issuance of new
ordinary shares or options are show in equity as a deduction, net of tax, from the proceeds.
k) Share-based compensation
The Company has a share-based compensation plan, whereby it is authorized to grant share options to
officers, employees, directors, and other eligible persons. The fair value of the options is measured at
the date the options are granted, using the Black-Scholes option-pricing model with assumptions for risk-
free interest rates, dividend yields, volatility of the expected market price of the common shares and an
expected life of the options. The fair value less estimated forfeitures is charged over the vesting period
of the related options as an expense on its financial statements.
l) Provisions
Provisions for restructuring costs and legal claims are recognized when: the Company has a present
legal or constructive obligation as a result of past events; it is probable that an outflow of resources will
be required to settle the obligation; and the amount can be reliably estimated.
Provisions are measured at the present value of the expenditures expected to be required to settle the
obligations using the pre-tax rate that reflects current market assessments of the time value of money
and the risks specific to the obligation. The increase in the provision due to the passage of time is
recognized as interest expense.
8
Filo Mining Corp.
Notes to Consolidated Financial Statements
For the years ended December 31, 2017 and 2016
(Expressed in Canadian Dollars, unless otherwise stated)
m) Leases
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor
are classified as operating leases. Payments made under operating leases (net of any incentives received
from the lessor) are charged to the income statement on a straight-line basis over the period of the
lease.
n) Segment reporting
As the Company primarily focuses its activity on the exploration and development of mineral properties,
its operating and reportable segments are the Filo del Sol Property, the Tamberias Property, other
general exploration and project generation initiatives, and the Company’s corporate administration
function. Operating segments are components of an entity that engage in business activities from which
they incur expenses and whose operating results are regularly reviewed by a chief operating decision
maker to make resource allocation decisions and to assess performance. The Chief Executive Officer,
the chief operating decision-maker for the Company, obtains and reviews operating results of each
operating segment on a monthly basis.
o) New accounting pronouncements
The IASB and the IFRS Interpretations Committee (previously the International Financial Reporting
Interpretations Committee, IFRIC) have issued a number of new and revised International Accounting
Standards, IFRS amendments and related interpretations which are effective for the Company for
periods after December 31, 2017, beginning on the dates indicated below. Pronouncements that are
not applicable to the Company have been excluded from those described below.
Pronouncement
IFRS 9 Financial Instruments will replace IAS 39 Financial Instruments:
Recognition and Measurement. The new standard provides a model for
the classification and measurement of financial instruments, a single
forward-looking “expected loss” impairment model, and a reformed
approach for hedge accounting. Based on its current circumstances, the
Company does not expect any material impact on the financial position and
results of the Company to arise from the adoption of IFRS 9.
Effective Date
Required to be applied
for years beginning on
or after January 1,
2018.
IFRS 7 Financial instruments – disclosure has been amended to require
additional disclosures on transition from IAS 39 to IFRS 9. Based on its
current circumstances, the Company does not expect any material impact
to arise from the adoption of IFRS 7.
Required to be applied
for years beginning on
or after January 1,
2018.
IFRS 16 Leases specifies how leases should be recognized, measured,
presented and disclosed. The standard provides a single lessee accounting
model, requiring lessees to recognize assets and liabilities for all leases
unless the lease term is 12 months or less or the underlying asset has a
low value. Lessors continue to classify leases as operating or finance, with
IFRS 16’s approach to lessor accounting substantially unchanged from its
predecessor, IAS 17. The Company is currently assessing whether the
adoption of this new standard would have a material impact on the financial
position and results of the Company.
Required to be applied
for years beginning on
or after January 1,
2019.
9
Filo Mining Corp.
Notes to Consolidated Financial Statements
For the years ended December 31, 2017 and 2016
(Expressed in Canadian Dollars, unless otherwise stated)
4. RECEIVABLES AND OTHER ASSETS
Taxes receivable
Other receivables
Prepaid expenses and deposits
5. MINERAL PROPERTIES
Year ended
December 31,
2016
2017
92,255
384,860
819,238
1,296,353
46,861
237,271
311,142
595,274
January 1, 2016
Additions
Effect of foreign currency translation
December 31, 2016
Additions
Filo del Sol
Tamberias
Total
$ 3,951,919
$ 1,998,910
$ 5,950,829
-
(705,359)
756,519
89,322
756,519
(616,037)
$ 3,246,560
$ 2,844,751
$ 6,091,311
-
398,012
398,012
Effect of foreign currency translation
December 31, 2017
(68,716)
$ 3,177,844
58,737
$ 3,301,500
(9,979)
$ 6,479,344
The Company’s primary mineral property assets are the Filo del Sol and Tamberias Properties (together,
the “Filo del Sol Project”), which are comprised of adjacent mineral titles in the San Juan Province in
Argentina and in Chile, and are 100% controlled by Filo Mining either through direct ownership or option
agreements.
Filo del Sol Property (San Juan Province, Argentina)
Sole ownership of the Filo del Sol Property was acquired by Filo del Sol Exploracion S.A., a wholly owned
subsidiary of the Company, in October 2014, through the acquisition of its then joint exploration partner’s
40% interest in the property.
Tamberias Property (Region III, Chile)
Through its wholly owned subsidiary, Frontera Chile Limitada, the Company is party to an option
agreement with Compania Minera Tamberias SCM (“Tamberias SCM”) whereby the Company can earn
a 100% interest in the Tamberias Property by making option payments totaling US$20 million on or
before June 30, 2023. In addition, Tamberias SCM will retain a 1.5% net smelter royalty, which will be
paid only after the Company has recovered all of its exploration and development costs.
10
Filo Mining Corp.
Notes to Consolidated Financial Statements
For the years ended December 31, 2017 and 2016
(Expressed in Canadian Dollars, unless otherwise stated)
In June 2017, the Company made a US$300,000 option payment to Tamberias SCM, which has been
recorded as an addition to the Tamberias Property. The Company’s total remaining option payments as
at December 31, 2017 were US$17.2 million, with the next option payment being US$400,000, payable
in June 2018.
6. SHARE CAPITAL
The Company has authorized an unlimited number of voting common shares without par value.
7. SHARE OPTIONS
a) Share option plan
The Company has a share option plan approved on July 8, 2016 (the “Plan”), reserving an aggregate
of 10% of the issued and outstanding shares of the Company for issuance upon the exercise of options
granted. The granting, vesting and terms of the share options are at the discretion of the Board of
Directors.
b) Share option outstanding
Movements in the number of share options outstanding and their related weighted average exercise
prices are as follows:
Balance at January 1, 2016
Options pursuant to NGEx Arrangement
Options granted
Exercised
Expired
Balance at December 31, 2016
Options granted
Exercised
Number of
share issuable
pursuant to
share options
Weighted
average
exercise price
per share
-
1,746,875
2,335,000
(117,500)
(48,125)
3,916,250
1,582,500
(880,000)
$ -
0.89
2.00
0.65
1.41
$ 1.55
2.50
1.10
Balance at December 31, 2017
4,618,750
$ 1.96
On September 13, 2017, the Company granted a total of 1,582,500 share options to officers,
employees, directors and other eligible persons at an exercise price of $2.50 per share.
The Company uses the Black-Scholes option pricing model to estimate the fair value for all options
granted and the resulting stock-based compensation. The weighted average assumptions used in this
pricing model, and the resulting fair values per option, for the 1,582,500 share options granted during
the year ended December 31, 2017, were as follows:
11
Filo Mining Corp.
Notes to Consolidated Financial Statements
For the years ended December 31, 2017 and 2016
(Expressed in Canadian Dollars, unless otherwise stated)
(i)
(ii)
(iii)
(iv)
(v)
Risk-free interest rate:
Expected life:
Expected volatility:
Expected dividends:
Fair value per option:
1.39%
5 years
62.55%
nil
$1.45
The weighted average share price on the exercise date for the share options exercised during the year
ended December 31, 2017 was $2.09.
The following table details the share options outstanding and exercisable as at December 31, 2017:
Outstanding options
Weighted
average
remaining
contractual
life
(Years)
1.13
0.36
3.93
4.70
3.71
Weighted
average
exercise
price
$0.51
$0.74
$2.00
$2.50
$1.96
Options
outstanding
310,000
391,250
2,335,000
1,582,500
4,618,750
Exercise
prices
$0.50-0.65
$0.74
$2.00
$2.50
Exercisable options
Weighted
average
remaining
contractual
life
(Years)
1.13
0.36
3.93
4.70
3.26
Weighted
average
exercise
price
$0.51
$0.74
$2.00
$2.50
$1.75
Options
exercisable
310,000
391,250
1,556,667
527,500
2,785,417
c) Share-based compensation
Exploration and project
investigation
General and administration
Year ended
December 31,
2016
2017
451,820
1,659,287
2,111,107
302,003
872,485
1,174,488
12
Filo Mining Corp.
Notes to Consolidated Financial Statements
For the years ended December 31, 2017 and 2016
(Expressed in Canadian Dollars, unless otherwise stated)
8. EXPLORATION AND PROJECT INVESTIGATION
The Company expensed the following exploration and project investigation costs, all incurred in South America, for the years ended
December 31, 2017 and 2016:
Year ended
December 31,
2017
2016
Land holding and access costs
Drilling, fuel, camp costs and field supplies
Roadwork, travel and transport
Engineering and conceptual studies
Consultants, geochemistry and geophysics
Environmental and community relations
VAT and other taxes
Office, field and administrative salaries,
overhead and other administrative costs
Share-based compensation
Total
Land holding and access costs
Drilling, fuel, camp costs and field supplies
Roadwork, travel and transport
Engineering and conceptual studies
Consultants, geochemistry and geophysics
Environmental and community relations
VAT and other taxes
Office, field and administrative salaries,
overhead and other administrative costs
Share-based compensation
Total
13
Filo del Sol
Property
Tamberias
Property
77,678
4,115,070
2,159,377
515,890
900,911
388,641
1,810,991
457,894
716,050
481,427
-
-
44,999
168,884
1,924,370
368,979
12,261,907
292,938
67,062
2,229,254
92,261
1,707,953
1,309,012
31,535
311,984
58,648
655,472
1,041,575
254,729
5,463,169
79,256
21,559
126,554
-
-
7,493
27,282
57,945
15,655
335,744
Other
28,170
23,679
52,668
-
19,325
3,828
74,945
309,684
15,779
528,078
75,222
47,715
102,204
-
42,803
-
80,113
298,468
31,619
678,144
Total
563,742
4,854,799
2,693,472
515,890
920,236
437,468
2,054,820
2,526,992
451,820
15,019,239
246,739
1,777,227
1,537,770
31,535
354,787
66,141
762,867
1,397,988
302,003
6,477,057
Filo Mining Corp.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017 and 2016
(Expressed in Canadian Dollars, unless otherwise stated)
9. RELATED PARTY TRANSACTIONS
Related party services
The Company has a cost sharing arrangement with NGEx, a related party by way of directors, officers
and shareholders in common. Under the terms of this arrangement, the Company provides executive
management, technical exploration and exploration support services to NGEx, and NGEx provides
financial management and administrative services to the Company. In addition, the Company engages
Bofill Mir & Alvarez Jana Abogados Ltda. (“BMJAL”), a Chilean legal firm, of which a director of the
Company is a partner. These transactions were incurred in the normal course of operations, and are
summarized as follows:
Executive management, technical
exploration and exploration
support services to NGEx
Financial management and
administrative services from
NGEx
Legal services from BMJAL
Related party balances
Year ended
December 31,
2016
2017
1,296,287
325,188
(142,815)
67,965
(58,131)
-
The amounts due from (to) related parties, and the components of the consolidated statement of
financial position in which they are included, are as follows:
Related Party
December 31,
2017
December 31,
2016
Receivables and other assets
Accounts payable and accrued liabilities
Accounts payable and accrued liabilities
NGEx
NGEx
BMJAL
366,435
(93,617)
(23,135)
222,556
(56,025)
-
Key management compensation
The Company’s key management personnel have the authority and responsibility for overseeing,
planning, directing and controlling its activities and consist of the Board of Directors and members of
the executive management team. Total compensation expense for key management personnel, and
the composition thereof, is as follows:
14
Filo Mining Corp.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017 and 2016
(Expressed in Canadian Dollars, unless otherwise stated)
Salaries
Short-term employee benefits
Directors fees
Stock-based compensation
Incentive bonuses
Year ended
December 31,
2016
2017
1,341,539
35,617
86,583
1,548,394
207,000
3,219,133
268,500
10,044
25,973
459,587
-
764,104
Up until the completion of the NGEx Arrangement on August 16, 2016, no compensation was paid to the
Company’s officers or directors. The compensation costs reported for key management personnel
therefore only reflect compensation costs incurred subsequent to August 16, 2016
10. INCOME TAXES
Income tax expense differs from the amount that would result from applying the Canadian federal and
provincial income tax rates to the loss for the year. These differences result from the following items:
Year ended
December 31,
2017
Year ended
December 31,
2016
Loss before taxes
Combined Canadian federal and provincial statutory
income tax rates
Income tax recovery based on the above rate
18,695,118
8,666,027
26.00%
4,860,731
26.00%
2,253,167
Income tax benefits that have not been recognized
and other items
Impacts of changes in income tax rates
Differences between Canadian and foreign tax rates
Non-deductible expenses
Total income tax recovery
(5,302,460)
20,903
977,066
(556,240)
-
(2,607,900)
77,087
477,778
(200,132)
-
15
Filo Mining Corp.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017 and 2016
(Expressed in Canadian Dollars, unless otherwise stated)
The Company’s unrecognized deductible temporary differences and unused tax losses for which no
deferred tax asset has been recognized consist of the following:
Non-capital losses carried forward
Mineral properties and related expenditures
Other
December 31,
2017
1,311,529
6,353,264
82,880
7,747,673
December 31,
2016
431,105
5,952,703
110,507
6,494,315
As at December 31, 2017, the non-capital loss carry-forwards and their respective expiration dates are
as follows:
Year
2018
2019
2020
2021
Subsequent to 2022
Canada
-
-
-
-
4,165,122
Argentina
-
632
249
436,671
421,599
Other
2,936
5,879
14,420
5,101
26,903
Total
2,936
6,511
14,669
441,772
4,613,624
4,165,122
859,151
55,239
5,079,512
11. SEGMENTED INFORMATION
The Company is principally engaged in the acquisition, exploration and development of mineral properties
in South America. The information regarding mineral properties and exploration and project investigation
costs presented in Notes 5 and 8, respectively, represent the manner in which management reviews its
business performance. Materially all of the Company’s mineral properties and exploration and project
investigation costs relate to the Filo del Sol Project, which straddles the border between the San Juan
Province, Argentina and Region III, Chile and is comprised of the Filo del Sol Property and the Tamberias
Property. Materially all of the Company’s administrative costs are incurred by the Canadian parent, where
materially all of the Company’s cash is held in the normal course of business until it is required to be
deployed to the Company’s South American subsidiaries in support of ongoing and planned work
programs.
A summary of the Company’s financial position as at December 31, 2017 and 2016, and net losses for
the years then ended are as follows:
16
Filo Mining Corp.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017 and 2016
(Expressed in Canadian Dollars, unless otherwise stated)
As at
December 31,
2017
2016
Year ended
December 31,
2017
2016
Filo del Sol
Project
Other
Corporate
Total
Current assets
Mineral properties
Total Assets
2,651,268
6,479,344
9,130,612
Current liabilities
1,722,233
Current assets
Mineral properties
Total Assets
5,743,965
6,091,311
11,835,276
Current liabilities
2,285,235
-
-
-
-
-
-
-
-
1,062,492
-
1,062,492
3,713,760
6,479,344
10,193,104
529,939
2,252,172
14,316,138
-
14,316,138
20,060,103
6,091,311
26,151,414
121,910
2,407,145
Filo del Sol
Project
Other
Corporate
Total
Exploration and
project
investigation
General and
administration
and other items
Net loss
Exploration and
project
investigation
General and
administration
and other items
Net loss
14,491,161
528,078
-
15,019,239
-
14,491,161
-
528,078
3,675,879
3,675,879
3,675,879
18,695,118
5,798,913
678,144
-
6,477,057
-
5,798,913
-
678,144
2,188,969
2,188,969
2,188,969
8,666,026
12. CAPITAL MANAGEMENT
The Company’s objectives when managing capital are to safeguard its ability to continue as a going
concern in order to pursue the development of its mineral properties and to maintain a flexible capital
structure which optimizes the costs of capital at an acceptable risk. In the management and definition
of capital, the Company considers the items included in shareholders’ equity to be capital.
The Company manages the capital structure and makes adjustments, as necessary, in light of
changes in economic conditions and the risk characteristics of its assets. In order to maintain or
adjust the capital structure, the Company may attempt to issue new shares or debt instruments,
acquire or dispose of assets, or to bring in joint venture partners.
17
Filo Mining Corp.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017 and 2016
(Expressed in Canadian Dollars, unless otherwise stated)
To facilitate the management of its capital requirements, the Company prepares annual expenditure
budgets that are updated as necessary depending on various factors, including, but not limited to,
successful capital deployment and general industry conditions. The annual and updated budgets are
approved by the Board of Directors.
13. FINANCIAL INSTRUMENTS AND MANAGEMENT OF FINANCIAL RISKS
The Company has estimated the fair values of its financial instruments based on appropriate
valuation methodologies. These values are not materially different from their carrying value.
The Company classifies the fair value of its financial instruments according to the following hierarchy
based on the amount of observable inputs used to value the instrument:
Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities
Level 2 – inputs other than quoted prices included in Level 1 that are observable for the
assets or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
Level 3 – inputs for the asset or liability that are not based on observable market data
(unobservable inputs).
The Company’s financial instruments consist of cash, receivables and other assets, and trade
payables and accrued liabilities, with carrying values considered to be reasonable approximations of
fair value due to the short-term nature of these instruments.
As at December 31, 2017, the Company’s financial instruments are exposed to the following
financial risks, including credit, liquidity and currency risks:
(i)
(ii)
Credit risks associated with cash is minimal as the Company deposits the majority of its cash
with a large Canadian financial institution that has been accorded a strong investment grade
rating by a primary rating agency.
Liquidity risks associated with the inability to meet obligations as they become due is
minimized through the management of its capital structure as explained on Note 12 and by
maintaining good relationships with bankers. The Company also closely monitors and reviews
its costs to date and actual cash flows on a monthly basis. In assessing liquidity risk as at
December 31, 2017, the Company has also considered the impact of proceeds received from
equity financings, which closed on February 28, 2018 (Note 15b).
The maturities of the Company’s financial liabilities as at December 31, 2017 are as follows:
Total
Less than
1 year
1-5
years
More than
5 years
Accounts payable and
accrued liabilities
Total
2,252,172
2,252,172
2,252,172
2,252,172
-
-
-
-
18
Filo Mining Corp.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017 and 2016
(Expressed in Canadian Dollars, unless otherwise stated)
(iii)
Foreign currency risk can arise when the Company or its subsidiaries transact or have net
financial assets or liabilities which are denominated in currencies other than their respective
functional currencies.
At December 31, 2017, the Company’s largest foreign currency risk exposure existed at the
level of its Chilean operating subsidiary, Frontera Chile Limitada (“Frontera”), which held a net
financial asset position denominated in US dollars having a Canadian dollar equivalent of
approximately $171,000. A 10% change in the foreign exchange rate between the US dollar,
and the Chilean peso, Frontera’s functional currency, would give rise to increases/decreases of
approximately 17,000 Canadian dollars in financial position/comprehensive loss.
14. COMMITMENTS
In November 2017, the Company entered into agreements with the owners of certain lands, accesses
and surface rights related to the Tamberias Property (the “Access Agreements”). Under the terms of
the Access Agreements, in exchange for total payments of US$ 1.26 million, the Company secured
its right to use and maintain roads and accesses, which allow entry to the Filo del Sol Project from
Chile, and also perform any surface disturbances as necessary to undertake its exploration work
programs, such as establishing drill platforms, for a period of four years.
As of December 31, 2017, the Company has three remaining payments of US$ 315,875 each, which
are payable in November 2018, 2019, and 2020.
15. SUBSEQUENT EVENTS
a) Credit Facility
On January 12, 2018, the Company obtained a US$ 2.0 million short-term credit facility from an
insider of the Company (the “Facility”) to provide additional financial flexibility to fund ongoing
exploration at the Filo del Sol Project and general corporate purposes. As consideration, the lender
was entitled to 6,000 common shares of the Company upon execution of the Facility, and will be
issued an additional 300 common shares each month, for every US$ 50,000 in principal outstanding
on the Facility, prorated accordingly for the number of days outstanding. There is no interest payable
in cash during the term of the Facility, and all common shares issued in conjunction with the Facility
are subject to a four-month hold period under applicable securities laws. As of March 19, 2018, the
Company has issued a total of 12,300 common shares to the lender as consideration for providing
the Facility in lieu of cash fees to the Company.
On February 28, 2018, all amounts drawn to date under the Facility were repaid in full following
closing of a bought-deal equity financing and concurrent non-brokered private placement (Note 15b).
The Facility remains available until January 12, 2019.
19
Filo Mining Corp.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017 and 2016
(Expressed in Canadian Dollars, unless otherwise stated)
b) Closing of $25.5 Million Financing
On February 28, 2018, the Company closed a bought deal offering of common shares and a
concurrent non-brokered private placement (the “Financing”). In aggregate, 9,823,195 common
shares of the Company were sold at a price of $2.60 per common share (the “Price”), generating
aggregate gross proceeds of $25.5 million. Approximately $15.3 million of the gross proceeds relate
to the bought deal, and subject to a 5.0% commission, payable in cash.
A portion of the net proceeds have also been used to repay the amounts drawn under the Facility
(Note 15a).
Under the terms of the Financing, at the option of the underwriters to the bought deal equity
financing and/or participants of the private placement, up to an additional 1,235,382 common shares
of the Company may be purchased at the Price for a period of 30 days from February 28, 2018.
20
CORPORATE DIRECTORY
OFFICERS
Adam I. Lundin
President & Chief Executive Officer
Robert Carmichael
VP Exploration
James Beck
VP Corporate Development & Projects
Jeffrey Yip
Chief Financial Officer
Julie Kemp
Corporate Secretary
DIRECTORS
Lukas H. Lundin, Chairman (non-executive)
Alessandro Bitelli
C. Ashley Heppenstall
Adam I. Lundin
Paul McRae
Pablo Mir
Wojtek Wodzicki
AUDITORS
PricewaterhouseCoopers LLP
Vancouver, British Columbia, Canada
LEGAL COUNSEL
Cassels Brock & Blackwell LLP
Vancouver, British Columbia, Canada
CORPORATE OFFICE
Suite 2000 - 885 West Georgia Street
Vancouver, British Columbia
Canada V6C 3E8
Telephone: (604) 689-7842
Fax: (604) 689-4250
REGISTERED & RECORDS OFFICE
Suite 2200 - 885 West Georgia Street
Vancouver, British Columbia
Canada V6C 3E8
REGISTRAR AND TRANSFER AGENT
Computershare Trust Company of Canada
Vancouver, British Columbia
Canada
SHARE LISTINGS
TSX Venture Exchange &
Nasdaq First North Exchange
Symbol: FIL
CUSIP No.: 31730E101
ISIN: CA31730E1016