2020 YEAR END REPORT
Management’s Discussion and Analysis
and
Consolidated Financial Statements
For the Twelve Months ended December 31, 2020
(AUDITED)
FILO MINING CORP.
MANAGEMENT’S DISCUSSION AND ANALYSIS
YEAR ENDED DECEMBER 31, 2020
(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 the year ended December
31, 2020 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 18, 2021. 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.
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 Filo del Sol Project which is comprised
of two 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 (“Filo del Sol”) 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 has completed a pre-feasibility study (“PFS”) on the Filo del Sol Project, with an effective date of January
13, 2019, which demonstrated the project’s robust economic potential. The PFS, which was based only on the oxide
portion of the current Mineral Resource and used prices of US$3.00/lb copper, US$1,300/oz gold, and US$20/oz silver,
yielded an after-tax net present value (“NPV”) of US$1.28 billion at a discount rate of 8%, and generated an internal
rate of return of 23%. Positive valuations were also maintained across a wide range of sensitivities on key assumptions.
The Company’s most recent Mineral Resource and Mineral Reserve statement for the Filo del Sol Project is shown
below.
Category
Mineral Resource
Indicated
Inferred
Mineral Reserve
Proven
Probable
Tonnes
(millions)
Cu
(%)
Au
(g/t)
Ag
(g/t)
Lbs Cu
(billions)
Oz Au
(millions)
Oz Ag
(millions)
425.1
175.1
-
259.1
0.33
0.27
-
0.39
0.32
0.33
-
0.33
10.7
6.2
-
15.1
3.1
1.1
-
2.2
4.4
1.8
-
2.8
146.9
34.8
-
126.0
The Filo del Sol Project continues to hold significant exploration potential, as the Mineral Resource remains completely
open to expansion at depth and laterally to the north, east and south. The Company’s Mineral Resource estimate is
inclusive of the Mineral Reserve estimate as set forth above.
1
The technical information relating to the PFS is based on a technical report titled “NI 43-101 Technical Report, Pre-
feasibility Study for the Filo del Sol Project” dated February 22, 2019, with an effective date of January 13, 2019 (the
“Technical Report”). The Technical Report was prepared for Filo Mining by Ausenco Engineering Canada Inc.
(“Ausenco”). The Qualified Persons, as defined under NI 43-101, responsible for the Technical Report are Scott Elfen,
P.E., Ausenco; Robin Kalanchey, P.Eng., Ausenco; Bruno Borntraeger, P.Eng., Knight Piesold Ltd.; Fionnuala Devine,
P.Geo., Merlin Geosciences Inc.; Ian Stillwell, BGC Engineering Inc.; Neil Winkelmann, FAusIMM, SRK Consulting
(Canada) Inc.; James N. Gray, P.Geo., Advantage Geoservices Limited; and Jay Melnyk, P.Eng., AGP Mining
Consultants, 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
and reserves at the Filo del Sol Project through further exploration, and by advancing 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.
2020 OPERATING HIGHLIGHTS
2019/2020 Field Program Confirms Large Copper-Gold Porphyry System beneath Current Resource and
Results in Development of Expansive Exploration Target
The 2019/2020 field campaign undertaken at Filo del Sol successfully confirmed the project’s vast potential for resource
expansion. The program was highlighted by two diamond drill holes which, together with assay results from earlier
programs, confirmed that copper-gold-silver mineralization extends to total depths of over 1 kilometre below surface,
more than 700 vertical metres below the floor of the current Mineral Resource. In addition, mineralization remains
open to the north and south of the Mineral Resource.
Assay results from the two highlight holes of the 2019/2020 drill program are summarized in the table below. Both
holes, FSDH032 and FSDH034, ended in mineralization.
Cu
(%)
From
(m)
132.0
378.3
492.0
72.0
520.0
676.0
Hole-ID
FSDH032
incl.
and incl.
FSDH034
incl.
incl.
CuEq1
(%)
0.95
1.10
1.46
0.68
0.84
1.25
1 Copper Equivalent is calculated based on US$ 2.80/lb Cu, US$ 1,400/oz Au and US$ 16/oz Ag, with 80%
metallurgical recoveries assumed for all metals. The formula is: CuEq % = Cu % + (0.7292 * Au g/t) + (0.0083
* Ag g/t). See the Company’s News Release dated April 20, 2020 for further details.
Length
(m)
1,009.0
762.7
210.8
1,034.0
439.0
56.0
To
(m)
1,141.0
1,141.0
702.8
1,106.0
959.0
732.0
Au
(g/t)
0.39
0.43
0.54
0.32
0.36
0.60
Ag
(g/t)
11.1
13.2
19.5
3.4
4.2
8.5
0.57
0.68
0.90
0.42
0.54
0.74
Following the 2019/2020 field season’s conclusion, the Company developed an exploration target by modelling
predicted volumes based on the east-west extents of the Mineral Resource, depths below surface drilled by the deeper
diamond drill holes and the north-south extent drilled by these holes. The resulting conceptual exploration target was
estimated to total between 1.2 to 1.6 billion tonnes with a copper equivalent grade of between 0.7 and 1.0%. As an
exploration target, these potential quantities and grades are conceptual in nature, and there has not yet been sufficient
exploration for it to constitute a Mineral Resource. It is uncertain if further exploration will result in the target being
delineated as a Mineral Resource.
2
This exploration target is in addition to the current Mineral Resource at Filo del Sol and does not include prospective
areas to the north and south of the deposit yet to be drilled. In addition, consistent with the geological model and the
drill results to date, the Company anticipates that there could also be smaller zones of considerably higher-grade
mineralization within this overall target. This exploration target will be a key focus of the Company’s future exploration
programs.
2020/2021 Drill Campaign Underway Following Implementation of COVID-19 Protocols
Following the successes of the 2019/2020 field season, the Company launched its 2020/2021 drill campaign in
November 2020. Guided by the results of 3D geophysical surveys conducted in the previous season, the Company
aims to complete approximately 8,000 metres of targeted core drilling in this current program. Drilling is ongoing at
Filo del Sol, and initial assay results are anticipated towards the end of March 2021.
The main objectives for the field program include:
Step-out drilling to the north to explore the 1.7 km gap between hole FSDH032 and a mineralized intersection
in hole VRC093;
Drill testing and investigating the geological controls on the high-grade copper, gold and silver mineralization
present within the overall mineralized envelope; and
Tightening of drill spacing to enable the Company to add a portion of the sulphide mineralization underlying
the deposit’s oxide cap to Filo del Sol’s Mineral Resource estimate, as appropriate.
The 2020/2021 field campaign began with two diamond rigs at site in November, with two additional rigs added in
December, and a fifth rig in February 2021. This staged ramp up of the current season’s operations has enabled the
Company to operate in a safe and controlled manner amidst the current novel coronavirus pandemic, in accordance
with its internally developed COVID-19 operating protocol.
With respect to the COVID-19 pandemic, the health and safety of the Company’s employees, contractors, visitors,
and stakeholders (collectively, “Stakeholders”) remain Filo Mining’s top priority, and after months of consultation
with local governments, health officials and health experts, the Company developed a detailed COVID-19 operating
protocol. The protocol includes a comprehensive testing and quarantine plan applicable to all personnel travelling
to the Filo del Sol project site, as well as detailed response measures for actual or suspected COVID-19 cases at
site. This protocol, which meets or exceeds all current government requirements, was presented to and approved
by the San Juan provincial health authority before implementation by the Company.
As of the date of this MD&A, the Company has not incurred any lost-time incidents at its operations with respect to
COVID-19.
CORPORATE UPDATE
Closing of Equity Financings for $41.7 Million
On July 30, 2020 the Company closed the sale of 6,325,000 common shares of the Company, including 825,000
common shares sold pursuant to the full exercise of an over-allotment option, on a bought deal basis to a syndicate
of underwriters led by PI Financial Corp. and Canaccord Genuity Corp. (the “Underwriters”), at a price of $1.85 per
share (the “Issue Price”) for total gross proceeds of approximately $11.7 million (the “Offering”).
3
On July 30, 2020, the Company also closed a concurrent private placement of 16,213,235 common shares at the Issue
Price for additional gross proceeds of approximately $30.0 million (the “Concurrent Private Placement”, and together
with the Offering, the “Financings”). The Concurrent Private Placement was to certain investors introduced to the
Company by SpareBank 1 Markets AS ("SpareBank"), and to certain other investors, including Lorito Holdings S.à.r.l
("Lorito") and Zebra Holdings and Investments S.à.r.l ("Zebra", and together with Lorito, the "Significant
Shareholders"). The Significant Shareholders each purchased 3,515,004 common shares in the Concurrent Private
Placement to maintain their approximate combined pro rata interest in the Company. No commission or other fee was
paid to the Underwriters or any other party in connection with the sale of common shares pursuant to the Concurrent
Private Placement, except for broker fees paid by the Company to SpareBank equal to 5% of the gross proceeds raised
by investors introduced to the Company by SpareBank. The common shares issued pursuant to the Concurrent Private
Placement were subject to a statutory hold period in Canada, which expired on December 1, 2020.
Zebra and Lorito report their shareholding in the Company as joint actors, as the term is defined by Canadian securities
regulations, and are related parties of the Company by virtue of their combined shareholding in the Company in excess
of 20%. Immediately following the close of the Offering and Concurrent Private Placement, Zebra and Lorito held
25.05% and 9.96%, respectively, of the then issued and outstanding common shares of the Company.
Shortly after closing of the Offering and Concurrent Private Placement, approximately $1.3 million of the resulting net
proceeds was used by the Company to fully repay amounts drawn under an existing credit facility extended by Zebra
(see “Liquidity and Capital Resources”). The Company plans to use the remaining net proceeds for exploration and
development of the Filo del Sol Project, as well as for working capital, corporate overhead and general and
administrative purposes.
OUTLOOK AND CONTINUED RESPONSE TO COVID-19
The Company’s 2020/2021 field program is currently ongoing and is scheduled to continue through April 2021.
The program targets the completion of approximately 8,000 metres of diamond drilling, which will seek to confirm the
extension of mineralization to the north, particularly towards a previously completed reverse circulation drill hole
(VRC093, drilled in 2015), which ended with 166.0 m (from 284 m depth) at 0.42% CuEq (0.15% Cu, 0.24 g/t Au,
11.9 g/t Ag) including 42.0 m of 0.57% CuEq (0.40% Cu, 0.17 g/t Au, 6.1 g/t Ag) at the bottom of the hole. In
addition, the program will look to identify the geological controls of high-grade copper, gold and silver zones within
the overall mineralization envelope, and provide adequate infill drilling to potentially add portions of the sulphide
mineralization to Filo del Sol’s Mineral Resource estimate.
As of the date of this MD&A, the Company has completed a total of five holes, for which core samples are now being
assayed, with results pending and expected towards the end of March 2021. As drilling continues through April 2021,
additional assay results are expected to be received, analyzed, and announced throughout the second quarter.
The Company’s plans and timelines are subject to the Company being able to operate safely in accordance with its
approved COVID-19 protocol. As a result of its current strategies, the Company is confident that it can safely and
effectively complete the 2020/2021 field program currently underway, however, this expectation will be continuously
evaluated as the situation with respect to the COVID-19 pandemic in Argentina develops.
4
As the Company continues to monitor developments with respect to COVID-19, both globally and within its operating
jurisdictions, it may implement changes to its COVID-19 protocol, or its business in general, as may be deemed
appropriate to mitigate any potential impacts to its business and its Stakeholders. Such changes may include, but are
not limited to, temporary closures of the Company’s project site or offices, and deviations from the timing and nature
of previous operating plans. Moreover, sustained COVID-19 outbreaks globally have resulted in operational and supply
chain delays and disruption as a result of governmental regulation and preventative measures being implemented
worldwide, including in Argentina. The Company could also be required to close, curtail or otherwise limit its operating
activities as a result of the implementation of any such governmental regulation or preventative measures in the
jurisdictions in which the Company operates, or as a result of sustained COVID-19 outbreaks at its project site or
facilities. Any such closures or curtailments could have an adverse impact on the business of the Company. All non-
critical business travel continues to be curtailed.
RESULTS FROM OPERATIONS
Year Ended
Net loss ($000’s)
Loss per share, basic and diluted ($)
Total assets ($000’s)
Dec-20
Dec-19
Dec-18
18,879
0.19
47,663
28,571
0.37
23,750
28,891
0.41
11,938
Filo Mining is a junior exploration company and, as such, its net losses are largely driven by its exploration and
project investigation activities. There is no expectation of generating operating profits until it develops a
commercially viable mineral deposit.
Key financial results for the last eight quarters are provided in the table below.
Three Months Ended
Dec-20
Sep-20
Jun-20
Mar-20
Dec-19
Sep-19
Jun-19
Mar-19
Exploration costs ($000's)
4,214
969
1,932
11,940
5,759
1,895
4,332
11,022
Operating loss ($000’s)
4,879
2,665
2,776
12,794
7,844
2,575
5,243
12,030
Net loss ($000’s)
3,271
2,510
1,262
11,836
8,038
3,105
5,336
12,092
Net loss per share, basic and
diluted ($)
0.03
0.02
0.01
0.13
0.09
0.04
0.07
0.17
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 operating losses
and 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 and scope of planned exploration/project work, could affect the level of exploration activities,
operating loss, and net loss in a particular period.
Filo Mining incurred a net loss of $18.9 million (2019: $28.6 million) for the year ended December 31, 2020,
comprised primarily of an operating loss of $23.1 million (2019: $27.7 million). Exploration and project
investigation costs are generally the most significant expenditures of the Company and for the year ended
December 31, 2020, they accounted for approximately 82% (2019: 83%) of the operating loss. 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, which
are capitalized.
5
Exploration and project investigation costs for the year ended December 31, 2020 were $19.1 million (2019: $23.0
million), which decreased relative to 2019. The decrease is partially the result of smaller environmental programs
undertaken during 2020, following completion of the PFS in 2019. Specifically, during 2019 the Company undertook
initial hydrological studies with the objective of gathering data that would facilitate advancing the oxide resource
of the Filo del Sol deposit through a feasibility study. However, following receipt and analysis of the exploration
results from the 2018/2019 drill campaign, the Company has refocused around exploration of the Filo del Sol
deposit’s deeper mineralization, and accordingly it has reduced its environmental programs to baseline data
collection.
In addition, the decrease in exploration costs for the year ended December 31, 2020 is also due to 2019 including
certain engineering and study costs related to the PFS, which was completed in early 2019. No such studies have
been conducted in 2020. These increases have been partially offset by higher COVID-19-related health and safety
costs in 2020, which were not required in the prior year.
Detailed breakdowns of exploration costs for the periods presented are provided in the notes to the consolidated
financial statements.
Excluding share-based compensation, administration costs for the year ended December 31, 2020 totalled $2.5
million (2019: $2.8 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.
Administration costs for 2020, excluding share-based compensation, were lower than 2019 due primarily to lower
compensation costs. Specifically, compensation costs for the year ended December 31, 2020 were lower as a
result of voluntary salary reductions taken by senior management as a temporary response to the economic
uncertainties following the novel coronavirus outbreak. In addition, the lower compensation costs are the result
of a lower average senior management headcount in 2020 with the appointment of Mr. James Beck into the dual
role of President and Chief Executive Officer, following the resignation of Mr. Adam Lundin as Chief Executive
Officer in June 2020.
During the year ended December 31, 2020, the Company reported financing costs of $31,005, which decreased
relative to the prior year (2019: $1,338,936). This decrease is the result of the Company’s heavier use of credit
facilities during 2019, whereas during the year ended December 31, 2020 no amounts were drawn against the
credit facilities until June 2020, and such amounts were fully repaid by August 2020.
Also, during the year ended December 31, 2020, the Company recognized a net monetary gain of $132,383 (2019:
$158,181) in relation to the application of hyperinflationary accounting for the Company’s Argentine subsidiary,
which began in 2018. The monetary gains recognized are the results of changes in the Argentine price indices
and changes to the Company’s net monetary position during the respective periods. Further discussion regarding
the application of hyperinflationary accounting has been provided in the notes to the consolidated financial
statements.
In addition, during 2020, the Company began acquiring and transferring marketable securities as a mechanism to
facilitate intragroup funding transfers between its Canadian parent and its Argentine operating subsidiary.
Accordingly, for 2020, the Company recognized a gain of $4.6 million (2019: $nil) on the use of marketable
securities for the purposes of facilitating intragroup funding transfers, which represents the net benefit of having
used this funding mechanism over traditional methods.
6
During the year ended December 31, 2020, the Company recognized a foreign exchange gain of $99,200 (2019:
$302,041). The foreign exchange gain in the current period was largely driven by a US$900,000 liability held by
the Company’s Chilean operating subsidiary, which is related to committed payments for the Tamberias property
earn-in. By comparison, in 2019, the larger foreign exchange gain was the result of larger amounts drawn and
outstanding against the Company’s US dollar denominated credit facilities. As mentioned above, during 2019, the
Company used the credit facilities extensively to fund ongoing operations, and accordingly, the magnitude of the
foreign exchange impact was greater.
During the year ended December 31, 2020, the Company also recognized $567,551 in relation to wealth taxes
levied in Argentina. Argentina wealth tax is charged in relation to the net assets of the Company’s Argentine
operating subsidiary. While this is not a newly enacted tax in Argentina, a moratorium that had temporarily
suspended the levying of this tax recently expired.
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 income, the Company reported a foreign exchange translation gain of $162,891 for the
year ended December 31, 2020 (2019: loss of $514,478), on translation of subsidiary company accounts from
their functional currency to the Canadian dollar presentation currency. For the year ended December 31, 2020,
the foreign exchange translation gain is primarily the result of fluctuations of the Canadian dollar relative to the
Chilean peso over the year. For the year ended December 31, 2020, the impacts of hyperinflation amounted to a
loss of $432,713 (2019: $709,479) and consist of adjustments recognized on the continuing inflation of opening
non-monetary balances during the year and the ongoing translation of the Company’s Argentine subsidiary into
the Canadian dollar presentation currency.
LIQUIDITY AND CAPITAL RESOURCES
As at December 31, 2020, the Company had cash of $36.3 million and net working capital of $33.0 million, compared
to cash of $13.8 million and net working capital of $12.7 million as at December 31, 2019. The increase in the
Company’s cash and net working capital is due primarily to aggregate net proceeds totaling $40.5 million received
from the Financings, which closed on July 30, 2020. This significant cash inflow during 2020 has been partially offset
by funds directed towards advancing the Filo del Sol Project, and to a lesser extent, $0.2 million in relation to the
annual option payment made for the Tamberias property in June 2020, and funds spent for general corporate purposes.
Moving forward, the Company expects that the majority of its treasury will be used to fund ongoing work programs to
advance the Filo del Sol Project.
In addition, in June 2020, the Company entered into an agreement with Zebra, to obtain an unsecured US$5.0 million
credit facility, which became effective on July 12, 2020 (the “July 2020 Facility”) and replaced an existing US$5.0
million credit facility also extended by Zebra and maturing on the same date. The outstanding balance owed under
the existing facility was transferred into the July 2020 Facility. As consideration for the July 2020 Facility, Zebra will
receive 480 common shares each month, for every US$50,000 in principal outstanding, prorated accordingly for the
number of days outstanding. The July 2020 Facility matures on July 12, 2021, and no interest is payable in cash during
its term. As at December 31, 2020, no amounts have been drawn and remained outstanding by the Company.
7
RELATED PARTY TRANSACTIONS
Under the normal course of operations, the Company may undertake transactions or hold balances with related parties.
Other than those related party transactions identified elsewhere in this MD&A, the Company also engages with
Josemaria Resources Inc. (“Josemaria”, formerly NGEx Resources Inc.) and NGEx Minerals Ltd. (“NGEx Minerals”),
related parties by way of directors, officers and shareholders in common. Bofill Mir & Alvarez Jana Abogados Ltda.
(“BMJAL”), a Chilean legal firm, is also considered a related party of the Company until June 18, 2020, as a named
partner of BMJAL was also concurrently a director of the Company until such date.
Related party services
The Company has a cost sharing arrangement with Josemaria and NGEx Minerals. Under the terms of this
arrangement, the Company provides management, technical, administrative and/or financial services (collectively,
“Management Services”) to Josemaria and NGEx Minerals, and vice versa. In addition, the Company engages BMJAL,
as its legal counsel in Chile. These transactions were incurred in the normal course of operations, and are summarized
as follows:
Management Services to Josemaria
Management Services to NGEx Minerals
Management Services from Josemaria
Management Services from NGEx Minerals
Legal services from BMJAL
Related party balances
Year ended
December 31,
2019
1,217,414
238,003
(336,044)
(363,373)
(93,659)
2020
943,427
433,148
(314,419)
(500,101)
(43,866)
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
Receivables and other assets
Accounts payable and accrued liabilities
Accounts payable and accrued liabilities
Accounts payable and accrued liabilities
Related Party
Josemaria
NGEx Minerals
Josemaria
NGEx Minerals
BMJAL
December 31,
2020
December 31,
2019
-
11,752
-
(5,850)
-
196,489
64,222
(220,366)
(57,490)
(22,617)
8
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:
Salaries
Short-term employee benefits
Directors fees
Stock-based compensation
Incentive bonuses
Year ended
December 31,
2019
987,604
47,542
97,000
1,784,488
490,000
3,406,634
2020
762,667
22,447
108,495
1,368,514
540,000
2,802,123
SIGNIFICANT ACCOUNTING POLICIES
The Company’s significant account policies are described in Note 3 the consolidated financial statements for year
ended December 31, 2020, as filed on SEDAR at www.sedar.com.
New Accounting Pronouncements
The IASB and/or the IFRS Interpretations Committee have issued new standards and amendments, or
interpretations to existing standards, which were not yet effective and not applied by the Company as at December
31, 2020. The Company continues to evaluate these changes to determine their impact, if any.
IAS 16, Property, plant and equipment
IAS 16 has been amended to provide clarity with respect to the treatment of net proceeds generated from selling
any items produced while bringing an item of property, plant and equipment to the location and condition
necessary for it to be capable of operating in the manner intended by the entity. Specifically, the amendments
prohibit entities from deducting amounts resulting from the selling of items produced during this phase from the
cost of property, plant and equipment. Instead, an entity shall recognize such sales proceeds and related costs in
profit or loss.
The amendments to IAS 16 are effective for annual reporting periods beginning on or after January 1, 2022, with
early adoption permitted. Upon adoption, the amendments shall be applied retrospectively, but only to property,
plant and equipment assets commissioned for their intended use by management on or after the beginning of the
earliest period presented in the financial statements.
9
CRITICAL ACCOUNTING ESTIMATES, ASSUMPTIONS AND JUDGEMENTS
The preparation of the consolidated financial statements in accordance with IFRS, such as the underlying
consolidated financial statements for the year ended December 31, 2020, requires management to make
estimates, assumptions and judgements that affect the reported amounts of assets, liabilities and expenditures.
These estimates, assumptions and judgements are based on management’s best knowledge of the relevant facts
and circumstances taking into account previous experience. Actual results could differ and such differences could
be material. Estimates, assumptions and judgements are reviewed on an ongoing basis and are based on historical
experience and other facts and circumstances. Revisions to estimates, assumptions and judgements, and the
resulting effects on the carrying amounts of the Company’s assets and liabilities, are accounted for prospectively.
Information about estimates, assumptions, judgements and other sources of estimation uncertainty as at December
31, 2020 that have a risk of resulting in a material adjustment to the carrying amounts of assets and liabilities within
the next year are 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 its mineral properties for indicators
of impairment, which requires the Company to exercise key judgements, including but not limited to, the
Company’s right to explore the mineral property, whether the Company has further plans or budgets for
substantive expenditures for the ongoing exploration and evaluation of the mineral property, the impact of
exploration and evaluation results to date with respect to the mineral property, and the likelihood that the carrying
value of the mineral property will be recovered in the future through development or sale of the asset. If indicators
of impairment are identified, the Company would further review the carrying values of the applicable mineral
properties to determine if their carrying values may exceed their fair value, which also requires the Company to
make significant judgments and estimates. The judgments and estimates mentioned above 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.
The Company has determined that no indicators of impairment exist for its mineral properties as of December 31,
2020.
FINANCIAL INSTRUMENTS
The Company’s financial instruments consist of cash, receivables and other assets, and trade payables and accrued
liabilities. The carrying values of the Company’s financial instruments are considered to be reasonable
approximations of fair value due to their anticipated short term nature.
As at December 31, 2020, 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 significant
shareholders and creditors, such as Zebra. The Company also closely monitors and reviews its costs
to date and actual cash flows on a monthly basis.
The maturities of the Company’s financial liabilities as at December 31, 2020, are as follows:
10
Total
Less than
1 year
1-5 years
More than
5 years
Accounts payable and
accrued liabilities
Lease liabilities
Total
4,097,835
13,013
4,110,848
4,097,835
13,013
4,110,848
-
-
-
-
-
(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, 2020, the Company’s largest foreign currency risk exposures existed at the level of
its Canadian headquarters and at its Chilean operating subsidiary, Frontera Chile Limitada, where the
Company held a net financial asset position denominated in US dollars having a Canadian dollar
equivalent of approximately $1.4 million, and a net financial liability position denominated in US dollars
having a Canadian dollar equivalent of approximately $1.1 million, respectively. A 10% change in the
foreign exchange rate between the US dollar and the Canadian dollar, the functional currency of Filo
Mining, or between the US dollar and the Chilean peso, the functional currency of Frontera Chile
Limitada., would give rise to increases/decreases of approximately $141,000 and $115,000,
respectively, in financial position/comprehensive loss.
OUTSTANDING SHARE DATA
As at March 18, 2021, the Company had 110,770,770 common shares outstanding and 9,455,834 share options
outstanding under its share-based incentive plan.
FINANCIAL INFORMATION
The Company’s next scheduled financial report will be for the three months ended March 31, 2021, which is
expected to be published on or around May 6, 2021.
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 mineral and mining properties. There are a
number of factors that could negatively affect the Company’s business and the value of its common shares, and
these risk factors could materially affect the Company’s future operations and financial position and could cause
actual events to differ materially from those described in forward-looking statements relating to the Company.
Significant risk factors have been identified by the Company and are listed below. Further discussion is also
available in the Company’s 2019 annual information form, as filed on SEDAR at www.sedar.com on July 10, 2020.
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.
11
Exploration and Development Risk
Mining exploration, development and operations generally involve a high degree of risk that cannot be
eliminated, and which can adversely impact the Company’s success and financial performance.
Exploration for and development of mineral deposits involves a high degree of risk and few properties
that are explored are ultimately developed into producing mines.
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 dependent upon a number of factors, some of which are
discussed separately in the subsequent sections, and include 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 price fluctuations; 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, as major expenses are typically required to locate and establish Mineral Reserves, to develop
metallurgical processes and to construct mining and processing facilities at a particular site. 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.
The Company’s operations are subject to all of the hazards and risks normally encountered in the
exploration and development of copper, gold, and silver projects and properties, including unusual and
unexpected geologic formations, seismic activity, rock slides, ground instabilities or failures, mechanical
failures, flooding and other conditions involved in the drilling and removal of material, any of which could
result in damage to, or destruction of facilities, damage to life or property, environmental damage and
possible legal liability.
As appropriate, the Company may seek to mitigate its exploration risk by diversifying its portfolio, or
through the establishment of joint ventures and option agreements with third parties.
Mineral Reserves and Mineral Resources Estimates
The Company’s reported Mineral Reserves and Mineral Resources are estimations only. No assurance
can be given that the estimated Mineral Reserves and Mineral Resources are accurate or that the
indicated level of copper, gold, silver or any other mineral will be recovered or produced. Actual
mineralization or formations may be different from those predicted. It may take many years from the
initial phase of drilling before production is possible and during that time the economic feasibility of
exploiting a discovery may change. Market price fluctuations of copper, gold and silver and certain other
metals, as well as increased production and capital costs or reduced recovery rates, may render the
Company’s Mineral Reserves uneconomic to develop. Moreover, short-term operating factors relating to
the Mineral Reserves, such as the need for the orderly development of ore bodies, the processing of new
or different ore grades, the technical complexity of ore bodies, unusual or unexpected geological
formations, ore dilution or varying metallurgical and other ore characteristics may cause Mineral Reserves
to be reduced. Estimated Mineral Reserves may have to be recalculated based on fluctuations in the
price of metals, or changes in other assumptions on which they are based. Any of these factors may
12
require the Company to reduce its Mineral Reserves and Mineral Resources, which could have a negative
impact on the Company’s business.
Failure to obtain or maintain necessary permits or government approvals or changes to applicable
legislation could also cause the Company to reduce its reserves. In addition, changes to mine plans could
cause the Company to reduce its Mineral Reserves. There is also no assurance that the Company will
achieve indicated levels of copper, gold or silver recovery or obtain the prices assumed in determining
such Mineral Reserves.
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; and no assurance that all or any part of an
Inferred Mineral Resources exists or is economically or legally mineable.
Permitting
The Company’s development and exploration activities are subject to permitting requirements in both
Argentina and Chile. In particular, comprehensive environmental assessments will be necessary for the
Filo del Sol Project in Argentina in order to obtain the necessary approval for each of the Filo del Sol
Project stages, which assessment will be conducted in compliance with Argentinian regulations. Project
development will also require an environmental impact assessment study in Chile. Following the receipt
of environmental approvals, additional permits, licences, authorizations, and certificates will be required
to proceed to project construction, including, for example, mining water and fuel delivery, sewage water
treatment, hazardous waste plans, drilling and closure plans. Failure to obtain required permits and/or
to maintain compliance with permits once obtained could result in injunctions, fines, suspension or
revocation of permits and other penalties.
There can be no assurance that the Company will obtain all such permits and/or achieve or maintain full
compliance with such permits at all times. Activities required to obtain and/or achieve or maintain full
compliance with such permits can be costly and involve extended timelines.
Previously issued permits may be suspended or revoked for a variety of reasons, including through
government or court action. Failure to obtain and/or comply with required permits can have serious
consequences, including: damage to the Company’s reputation; stopping the Company from proceeding
with the development of a project; negatively impacting further development of a mine; and increasing
the costs of development and litigation or regulatory action against the Company, and may materially
adversely affect the Company’s business, results of operations or financial condition.
Economic and Political Instability in Argentina
The Filo del Sol Project is predominantly 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 recently elected government, which took office in December
2019, has reinstated currency controls previously lifted by the opposition government, which, among
other impacts, restricts 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). While the political environment in
Argentina continues to develop, and the status of currency controls and restrictions remains fluid, past
actions indicate that the Argentinean government may from time to time alter or impose additional
13
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. In addition, economic
instability in Argentina may negatively impact the timeliness or recoverability of amounts collectible from
the government of Argentina.
Environmental and Socio-Political Risks
The Company seeks to operate within environmental protection standards that meet or exceed existing
requirements in the countries in which the Company conducts activities. The Company also aims to
conduct its activities in accordance with high corporate social responsibility principles. Present or future
laws and regulations, however, may affect the Company’s operations. Environmental legislation is
evolving in a manner that requires stricter standards and enforcement, increased fines and penalties for
non-compliance, more stringent environmental assessments of proposed projects and a heightened
degree of responsibility for companies and their officers, directors and employees. The Company is
currently engaged in exploration with limited environmental impact. Future environmental costs may
increase due to changing requirements or costs associated with exploration and the developing,
operating and closing of mines. The Company is subject to environmental regulation in the various
jurisdictions in which it operates. Failure to comply with these laws, regulations and permitting
requirements may result in enforcement actions, including orders issued by regulatory or judicial
authorities causing operations to cease or be curtailed, and may include corrective measures requiring
capital expenditures, installation of additional equipment, or remedial actions. Parties engaged in mining
operations or in the exploration or development of mineral properties may also be required to
compensate those suffering loss or damage by reason of the mining activities and may have civil or
criminal fines or penalties imposed for violations of applicable laws or regulations. Furthermore,
environmental hazards may exist on the properties on which the Company holds interests which are
unknown to the Company at present and which have been caused by previous or existing owners or
operators of the properties.
Programs may also be delayed or prohibited in some areas due to technical factors, new legislative
constraints, social opposition or local government capacity or willingness to issue permits to explore in a
timely manner.
In parts of Argentina, there is environmental opposition to both mineral exploration and mining.
Accordingly, there may be a certain degree of anti-mining sentiment that could potentially affect the risk
of successfully exploring and developing the Company’s assets in those provinces.
The Argentine Congress has passed legislation designed to protect the country’s glaciers. This law would
restrict development on and around glaciers. The detailed regulations that will govern implementation
of the law have not yet been written but this legislation could affect the Company’s ability to develop
parts of the Company’s properties in Argentina including the Filo del Sol Project. The Chilean Congress
is also considering legislation designed to protect the country’s glaciers. This legislation has not yet been
approved but depending on its final language could affect the Company’s ability to develop the Tamberias
property.
Uncertainty of Funding and Dilution of Shareholders’ Interests in the Company
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
14
property interest. If the Company needs to raise additional funds, such financing may substantially dilute
the economic and voting rights of the Company’s shareholders and reduce the value of their investment.
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.
Metal Price Risk
The Company’s portfolio 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 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.
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 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.
15
COVID-19
The COVID-19 pandemic has negatively impacted and increased volatility of global financial markets and
may continue to do so. The economic viability of the Company’s long-term business plan is impacted by
its ability to obtain financing, and global economic conditions impact the general availability of financing
through public and private debt and equity markets, as well as through other avenues.
The health and safety of the Stakeholders remain the Company’s priority, and pursuant to its COVID-19
operating protocol, the Company’s camp facilities and offices have implemented travel restrictions,
surveillance, monitoring and response plans to reduce the risk of COVID-19 exposure and outbreak,
including health screening of personnel when appropriate. All non-critical business travel has also been
curtailed.
As the Company continues to monitor developments with respect to COVID-19, both globally and within
its operating jurisdictions, it will remain adaptive and will implement any such changes to its COVID-19
protocol, or its business in general, as may be deemed appropriate to mitigate any potential impacts to
its business and its Stakeholders. Such changes, may include, but are not limited to, temporary closures
of the Company’s project site or offices, and deviations from the timing and nature of previous operating
plans. Moreover, sustained COVID-19 outbreaks have resulted in operational and supply chain delays
and disruption as a result of governmental regulation and preventative measures being implemented
worldwide, including in Argentina. The Company could also be required to close, curtail or otherwise limit
its operating activities as a result of the implementation of any such governmental regulation or
preventative measures in the jurisdictions in which the Company operates, or as a result of sustained
COVID-19 outbreaks at its project site or facilities. Any such closures or curtailments could have an
adverse impact on the business of the Company.
Dependence on Single Project
The Filo del Sol Project is the Company’s sole project and therefore, any adverse development with
respect to the Filo del Sol Project will have a material adverse effect on the Company.
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.
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, as well as
the revocation or suspension of previously issued mining permits. Changes in mining or investment
policies or shifts in political attitudes may also adversely affect Company’s existing assets and operations.
Real and perceived political risk may also affect Company’s ability to finance exploration programs and
attract joint venture or option partners, and future mine development opportunities. Chile is typically
16
viewed as a favourable mining jurisdiction; however, certain Canadian issuers have recently experienced
regulatory action with regards to Chilean operations, specifically with respect to increased permitting
timelines.
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.
Non-compliance with applicable laws, regulations and permitting requirements (including allegations of
such) may result in enforcement actions, including orders issued by regulatory or judicial authorities
causing operations to cease or be curtailed or causing the withdrawal of permits or mining licenses, and
the imposition of corrective measures requiring material capital expenditure or remedial action resulting
in materially increased cost of compliance, reputational damage and potentially impaired ability to secure
future approvals and permits. The Company may be required to compensate third parties for loss or
damage and may have civil or criminal fines or penalties imposed for violations of applicable laws or
regulations.
Indigenous Peoples
The Company operates in some areas including parts of the Tamberias area presently or previously
inhabited or used by indigenous peoples. Various international and national laws, codes, resolutions,
conventions, guidelines, and other material relate to the rights of indigenous peoples. Many of these
materials impose obligations on government to respect the rights of indigenous people. Some mandate
that government consult with indigenous people regarding government actions, which may affect
indigenous people, including actions to approve or grant mining rights or permits. ILO Convention 169,
which has been ratified by Argentina and Chile, is an example of such an international convention. The
obligations of government and private parties under the various international and national materials
pertaining to indigenous people continue to evolve and be defined. Examples of recent developments in
this area include the United Nations Declaration of the Rights of Indigenous People and the International
Finance Corporation’s revised Performance Standard 7, which requires governments to obtain the free,
prior, and informed consent of indigenous peoples who may be affected by government action, such as
the granting of mining concessions or approval of mine permits. The Company’s current and future
operations are subject to a risk that one or more groups of indigenous people may oppose continued
operation, further development, or new development of the Company’s projects or operations. Such
opposition may be directed through legal or administrative proceedings or expressed in manifestations
such as protests, roadblocks or other forms of public expression against the Company’s activities.
Opposition by indigenous people to the Company’s operations may require modification of, or preclude
operation or development of, the Company’s projects or may require the Company to enter into
agreements with indigenous people with respect to the Company’s projects.
17
Dependence on Key Personnel
The Company’s success will largely depend on the efforts and abilities of certain senior officers and key
employees. Certain of these individuals have significant experience in the mining industry and, in
particular, the mining industry in South America. While the Company does not foresee any reason why
such officers and key employees will not remain with the Company, if for any reason they do not, the
Company could be adversely affected. In addition, certain of these individuals are also senior officers
and key employees of Josemaria and/or NGEx Minerals and, pursuant to the terms of the Services
Agreement, the employment costs associated with these individuals are shared between the Company,
Josemaria and NGEx Minerals on a pro-rata basis. If such officers and key employees do not remain
employed with Josemaria and/or NGEx Minerals for the purposes of the cost-sharing basis under the
Services Agreement, the Company could be adversely affected. The Company has not purchased key
man life insurance for any of these individuals.
No Operating History
Exploration projects have no operating history upon which to base estimates of future cash flows.
Substantial expenditures are required to develop mineral projects. It is possible that actual costs and
future economic returns may differ materially from Filo Mining’s estimates. There can be no assurance
that the underlying assumed levels of expenses for any project will prove to be accurate. Further, it is
not unusual in the mining industry for new mining operations to experience unexpected problems during
start-up, resulting in delays and requiring more capital than anticipated. There can be no assurance that
Filo Mining’s projects will move beyond the exploration stage and be put into production, achieve
commercial production or that Filo Mining will produce revenue, operate profitably or provide a return
on investment in the future. Mineral exploration involves considerable financial and technical risk. There
can be no assurance that the funds required for exploration and future development can be obtained on
a timely basis. There can be no assurance that Filo Mining will not suffer significant losses in the near
future or that Filo Mining will ever be profitable.
Surface Access
The Company has surface access rights but does not own any surface rights at the Filo del Sol Project.
The owners of the surface rights are in agreement with the Company’s subsidiaries in conducting
exploration activities on their ground.
From time to time, a land possessor may dispute the Company’s surface access rights and, as a result,
the Company may be barred from its legal temporary occupation rights. Surface access issues have the
potential to result in the delay of planned exploration programs, and these delays may be significant.
Such delays may have a material adverse effect on the Company.
The Company may require additional surface rights and property interests to further develop or exploit
the resources on its properties, which will require negotiations with private landowners for the additional
ownership and/or surface rights in order for the Company to fully operate. Surface rights may also be
regulated and restricted by applicable law. There is no assurance that the Company will be able to obtain
the required surface rights or negotiate successfully with private landowners to allow it to develop its
properties and establish commercial mining operations on a timely basis. To the extent additional surface
rights are available, they may only be acquired at significantly increased prices, potentially adversely
impacting financial performance of the Company.
Conflicts of Interest
Some of the directors and employees/officers of the Company are also directors and employees/officers
of other companies that are similarly engaged in the business of acquiring, exploring and developing
18
natural resource properties. In addition, certain individuals also serve as officers of Josemaria and/or
NGEx Minerals and are subject to the Services Agreement. Such associations may give rise to conflicts
of interest from time to time. In particular, one of the consequences will be that corporate opportunities
presented to a director or employee/officer of the Company may be offered to another company or
companies with which the director or employee/officer is associated and may not be presented or made
available to the Company. The directors and employees/officers of the Company are required by law to
act honestly and in good faith with a view to the best interests of the Company, to disclose any interest
that they may have in any project or opportunity of the Company, and to abstain from voting on such
matter. Conflicts of interest that arise will be subject to and governed by the procedures prescribed by
the Company’s Code of Business Conduct and Ethics and the CBCA.
Trading Price for the Common Shares is Volatile
The securities of publicly traded companies, particularly mineral exploration and development companies,
can experience a high level of price and volume volatility and the value of the Company’s securities can
be expected to fluctuate depending on various factors, not all of which are directly related to the success
of the Company and its operating performance, underlying asset values or prospects. These include the
risks described elsewhere in this Prospectus. The trading price of the Company’s common shares has
been and may continue to be subject to large fluctuations, which may result in losses to investors. The
trading price of the Company’s common shares may increase or decrease in response to a number of
events and factors, including:
issuances of common shares or debt securities by the Company;
the Company’s operating performance and the performance of competitors and other similar
companies;
the addition or departure of key management and other personnel;
the expiration of lock-up or other transfer restrictions on outstanding common shares;
significant acquisitions or business combinations, strategic partnerships, joint ventures or capital
commitments by or involving the Company or its competitors;
the public’s reaction to the Company’s press releases, other public announcements and the
Company’s filings with the various securities regulatory authorities;
changes in recommendations by research analysts who track the Company’s common shares or
the shares of other companies in the resource sector;
the number of common shares to be publicly traded after an offering; and
the factors listed under the heading “Cautionary Note Regarding Forward-Looking Information
and Statements”.
In addition, the market price of the common shares is affected by many variables not directly related to
the Company’s success and therefore not within the Company’s control. Factors which may influence the
price of the Company’s securities, include, but are not limited to: worldwide economic conditions;
changes in government policies; local community opposition to mining projects generally; investor
perceptions; movements in global interest rates and global stock markets; variations in operating costs;
the cost of capital that the Company may require in the future; the market price of metals, including
copper, gold and silver; the price of commodities necessary for the Company’s operations;
recommendations by securities research analysts; the share price performance of the Company’s
competitors; news reports relating to trends, concerns, technological or competitive developments,
regulatory changes and other related industry and market issues affecting the mining sector; publicity
about the Company, the Company’s personnel or others operating in the industry; loss of a major funding
source; and all market conditions that are specific to the mining industry, including other developments
that affect the market for all resource sector shares, the breadth of the public market for the common
shares, and the attractiveness of alternative investments. The effect of these and other factors on the
market price of Shares on the exchanges on which the Company trades has historically made the
19
Company’s share price volatile and suggests that the Company’s share price will continue to be volatile
in the future.
As a result of any of these factors, the market price of the common shares at any given point in time
may not accurately reflect the long-term value of the Company. Securities class-action litigation often
has been brought against companies following periods of volatility in the market price of their securities.
The Company may in the future be the target of similar litigation. Securities litigation could result in
substantial costs and damages and divert management’s attention and resources.
Control of Filo Mining
As at the date of this MD&A, Zebra and Lorito, who report their security holdings as joint actors, are
control persons of Filo Mining (as defined by the Canadian securities regulations). As long as Zebra and
Lorito maintain significant interests in Filo Mining, they will have the ability to exercise certain influence
with respect to the affairs of Filo Mining and significantly affect the outcome of the votes of shareholders.
There is a risk that the interests of Zebra and Lorito differ from those of other shareholders.
As a result of the significant holdings of Zebra and Lorito, there is a risk that the Company’s securities
are less liquid and trade at a relative discount compared to circumstances where these persons did not
have the ability to influence or determine matters affecting Filo Mining. Additionally, there is a risk that
their significant interests in Filo Mining discourages transactions involving a change of control of Filo
Mining, including transactions in which an investor, as a holder of the Company’s securities, would
otherwise receive a premium for its Company’s securities over the then-current market price.
Infrastructure
Development and exploration activities depend, to one degree or another, on adequate infrastructure.
Reliable roads, bridges, power and water supplies are important determinants that affect costs. The
Company’s ability to obtain a secure supply of power and water at a reasonable cost depends on many
factors, including: global and regional supply and demand; political and economic conditions; problems
that can affect local supplies; delivery; and relevant regulatory regimes. Power and water are currently
in short supply throughout Northern Chile and this may adversely affect the ability of the Company to
explore and develop its Chilean projects. Unusual or infrequent weather phenomena, sabotage or
government, and other interference in the maintenance or provision of such infrastructure could
adversely affect the activities and profitability of the Company.
Establishing such infrastructure will require significant resources, identification of adequate sources of
raw materials and supplies and necessary cooperation from national and regional governments, none of
which can be assured. There is no guarantee that the Company will secure these power, water and
access rights going forward or on reasonable terms.
Global Financial Conditions Can Reduce Share Prices and Limit Access to Financing
The economic viability of the Company’s business plan is impacted by the Company’s ability to obtain
financing. The economic conditions and outlook of the jurisdictions in which the Company’s projects
reside, and more generally global economic conditions, may impact the general availability of financing
through public and private debt and equity markets, as well as through other avenues.
Significant political, market, economic, natural or manmade events may have wide-reaching effects and,
to the extent they are not accurately anticipated or priced into markets, may result in sudden periods of
market volatility and correction. Periods of market volatility and correction may have an adverse impact
on economic growth and outlook, as well as lending and capital markets activity, all of which may impact
the Company’s ability to secure adequate financing on favourable terms, or at all.
20
Most recently, global financial markets experienced a period of correction and increased volatility during
the COVID-19 pandemic, which began in March 2020. While financial markets have generally recovered,
there is no guarantee that credit market conditions will not worsen, nor that favourable equity market
conditions will persist. A general risk-adverse approach to investing, decreases in consumer spending
and increases in the unemployment rate and consumer debt levels, which may become more
predominant as a result of market turmoil, may limit the Company’s ability to obtain future equity
financing. Inability to obtain financing at all, or on acceptable terms, may have a material adverse effect
on the Company’s business, financial condition, results of operations, cash flows or prospects.
Other events may also result in volatility and disruption to global supply chains, operations, mobility of
people, patterns of consumption and service, and financial markets, and therefore potentially have a
negative impact on the Company’s ability to secure financing on favourable terms, or at all, its access to
the Filo del Sol Project, or its ability to execute its business initiatives, including its field programs. Such
events may include catastrophic events, either on a global scale or in the specific jurisdictions where the
Company has its projects, and include, but are not limited to, financial crises, such as that which occurred
globally in 2008, earthquakes, tsunamis, floods, typhoons, fires, power disruptions, other natural or
manmade disasters, terrorist attacks, wars, riots, civil unrest or other conflicts, outbreaks of a public
health crises, including epidemics, pandemics or outbreaks of new infectious diseases or viruses, as well
as related and attendant events.
Furthermore, general market, political and economic conditions, including, for example, inflation, interest
and currency exchange rates, structural changes in the global mining industry, global supply and demand
for commodities, political developments, legislative or regulatory changes, social or labour unrest and
stock market trends will affect the Company’s operating environment and its operating costs, profit
margins and share price. Uncertainty or adverse changes relating to government regulation, economic
and foreign policy matters, and other world events have the potential to adversely affect the performance
of and outlook for the Canadian and global economies, which in turn may affect the ability of the
Company to access financing on favourable terms or at all. The occurrence of negative sentiment or
events in the Canadian and broader global economy could have a material adverse effect on the
Company’s business, financial condition, results of operations, cash flows or prospects.
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 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.
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.
21
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.
Application of Anti-Corruption and Anti-Bribery Laws
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.
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.
22
QUALIFIED PERSON
The scientific and technical disclosure for the Filo del Sol Project included in this MD&A have been reviewed and
approved by Bob Carmichael, P. Eng. (BC) and/or Jamie Beck, B.A.Sc., P.Eng. 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. (“NI 43-101”). Mr. Beck is Filo Mining’s President and CEO and is also a Qualified Person under NI 43-101.
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
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 PFS for the Filo del Sol Project, the assumptions used in the Mineral Reserves and
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 may contain forward-looking statements or information pertaining to: potential exploration upside
at the Filo del Sol Project, including the extent and significance of the sulphide mineralization underlying the current
Mineral Resource and the prospectivity of exploration targets; exploration and development plans and expenditures;
23
the ability of the Company’s COVID-19 operating protocol to continue to meet government mandated health and safety
guidelines enabling it to conduct its field programs as planned; 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 Reserves or 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 Reserves and Resources,
estimations of 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 the Company’s actual results and future events could differ materially from those anticipated in
such statements, as a result of the factors discussed in the “Risk and Uncertainties” section of this MD&A, and
elsewhere, and in the “Risk Factors” section of the Company’s most recent Annual Information Form, which is available
under the Company’s profile on SEDAR at www.sedar.com. 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.
24
Independent auditor’s report
To the Shareholders of Filo Mining Corp.
Our opinion
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects,
the financial position of Filo Mining Corp. and its subsidiaries (together, the Company) as at December 31,
2020 and 2019, and its financial performance and its cash flows for the years then ended in accordance
with International Financial Reporting Standards as issued by the International Accounting Standards
Board (IFRS).
What we have audited
The Company’s consolidated financial statements comprise:
the consolidated statements of financial position as at December 31, 2020 and 2019;
the consolidated statements comprehensive loss for the years then ended;
the consolidated statements of cash flows for the years then ended;
the consolidated statements of changes in equity for the years then ended; and
the notes to the consolidated financial statements, which include significant accounting policies and
other explanatory information.
Basis for opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our
responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of
the consolidated financial statements section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Independence
We are independent of the Company in accordance with the ethical requirements that are relevant to our
audit of the consolidated financial statements in Canada. We have fulfilled our other ethical responsibilities
in accordance with these requirements.
Other information
Management is responsible for the other information. The other information comprises the Management’s
Discussion and Analysis.
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.
Our opinion on the consolidated financial statements does not cover the other information and we do not
express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other
information identified above and, in doing so, consider whether the other information is materially
inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or
otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of management and those charged with governance for the
consolidated financial statements
Management is responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with IFRS, 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.
In preparing the consolidated financial statements, management is responsible for assessing the
Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless management either intends to liquidate
the Company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting
process.
Auditor’s responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as
a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s
report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards
will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise
professional judgment and maintain professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error, design and perform audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of
not detecting a material misstatement resulting from fraud is higher than for one resulting from error,
as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of
internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
Conclude on the appropriateness of management’s use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If
we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report
to the related disclosures in the consolidated financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to
the date of our auditor’s report. However, future events or conditions may cause the Company to
cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements,
including the disclosures, and whether the consolidated financial statements represent the underlying
transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Company to express an opinion on the consolidated financial
statements. We are responsible for the direction, supervision and performance of the group audit. We
remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope
and timing of the audit and significant audit findings, including any significant deficiencies in internal
control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant
ethical requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, related
safeguards.
The engagement partner on the audit resulting in this independent auditor’s report is Lana Kirk.
/s/PricewaterhouseCoopers LLP
Chartered Professional Accountants
Vancouver, British Columbia
March 18, 2021
Filo Mining Corp.
Consolidated Statements of Financial Position
(Expressed in Canadian Dollars)
ASSETS
Current assets:
Cash
Receivables and other assets
Non-current assets:
Right-of-use asset
Taxes receivable
Mineral properties
Note
December 31,
2020
December 31,
2019
5
5
6
$ 36,326,118
810,243
37,136,361
$ 13,753,440
2,595,966
16,349,406
12,275
1,656,495
8,857,401
10,526,171
88,832
-
7,312,220
7,401,052
TOTAL ASSETS
47,662,532
23,750,458
LIABILITIES
Current liabilities:
Trade payables and accrued liabilities
Lease liabilities
Non-current liabilities:
Lease liabilities
4,097,835
13,013
4,110,848
-
-
3,553,545
60,658
3,614,203
12,145
12,145
TOTAL LIABILITIES
4,110,848
3,626,348
SHAREHOLDERS’ EQUITY
Share capital
Contributed surplus
Deficit
Accumulated other comprehensive loss
TOTAL SHAREHOLDERS’ EQUITY
8
TOTAL LIABILITIES AND
SHAREHOLDERS’ EQUITY
Commitments (Note 6)
166,119,611
9,763,491
(130,693,363)
(1,638,055)
43,551,684
125,577,816
7,729,168
(111,814,641)
(1,368,233)
20,124,110
$ 47,662,532
$ 23,750,458
The accompanying notes are an integral part of these consolidated financial statements.
On behalf of the Board:
/s/Alessandro Bitelli
Director
/s/James Beck
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
Financing costs
Net monetary gain
Gain on use of marketable securities
Foreign exchange gain
Argentina wealth tax
Net loss
Note
Year ended
December 31,
2019
2020
10
$ 19,055,232
$ 23,007,517
9c
7
4
14
1,519,194
1,605,500
169,180
185,770
13,221
377,608
188,794
23,114,499
31,005
(132,383)
(4,602,750)
(99,200)
567,551
18,878,722
1,786,349
1,906,469
198,700
177,260
139,500
261,611
214,481
27,691,887
1,338,936
(158,181)
-
(302,041)
-
28,570,601
Other comprehensive loss (gain)
Items that may be reclassified subsequently to net loss:
Foreign currency translation adjustment
Impact of hyperinflation
Comprehensive loss
4
(162,891)
432,713
$ 19,148,544
514,478
709,479
$ 29,794,558
Basic and diluted loss per common share
$ 0.19
$ 0.37
Weighted average common shares outstanding
97,769,050
78,215,358
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:
Share-based compensation
Financing costs
Net monetary loss
Unrealized foreign exchange gain
Net changes in working capital items:
Receivables and other
Trade payables and accrued liabilities
Cash flows from (used in) financing activities
Proceeds from equity financings, net
Drawdown of credit facilities
Repayment of credit facilities
Proceeds from exercise of share options
Repayment of lease liabilities
Cash flows used in investing activities
Mineral properties and related expenditures
Note
9c
8
7
6
Year ended
December 31,
2019
2020
$ (18,878,722) $ (28,570,601)
2,034,323
31,005
136,292
(162,835)
2,469,795
1,338,936
452,304
-
(719,388)
469,778
(17,089,547)
(1,172,236)
1,563,745
(23,918,057)
40,514,416
1,350,960
(1,349,900)
-
(60,665)
40,454,811
38,797,273
16,603,165
(18,454,800)
790,558
(102,130)
37,634,066
(207,501)
(207,501)
(654,579)
(654,579)
Effect of exchange rate change on cash
(585,085)
(1,713,099)
Increase in cash during the year
22,572,678
11,348,331
Cash, beginning of year
Cash, end of year
$
13,753,440 $
2,405,109
$
36,326,118 $ 13,753,440
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)
Note
Number of
Shares
Share Capital
Contributed
Surplus
Deficit
Accumulated
Other
Comprehensive
Loss
Total
Shareholders’
Equity
Balance, January 1, 2019
Share-based compensation
Shares issued pursuant to the equity
financings
Share issuance costs
Shares issued pursuant to credit facilities
Exercise of options
Net loss and other comprehensive loss
Balance, December 31, 2019
Balance, January 1, 2020
Share-based compensation
Shares issued pursuant to the equity
8
financings
Share issuance costs
8
Shares issued pursuant to credit facilities 7
Net loss and other comprehensive loss
Balance, December 31, 2020
9c
72,575,195
-
$ 84,350,227 $ 5,554,793
2,469,795
-
$ (83,244,040)
-
$ (144,276)
-
$ 6,516,704
2,469,795
14,547,727
-
497,196
598,333
-
-
-
-
-
(1,223,957)
88,218,451 $ 125,577,816 $ 7,729,168 $(111,814,641) $ (1,368,233)
-
-
-
-
(28,570,601)
40,006,249
(1,208,976)
1,344,338
1,085,978
-
-
-
-
(295,420)
-
40,006,249
(1,208,976)
1,344,338
790,558
(29,794,558)
$ 20,124,110
88,218,451
$ 125,577,816
$ 7,729,168
$(111,814,641)
$ (1,368,233)
$ 20,124,110
-
-
2,034,323
-
-
2,034,323
22,538,235
-
14,084
-
-
-
-
(269,822)
110,770,770 $ 166,119,611 $ 9,763,491 $(130,693,363) $ (1,638,055)
-
-
-
(18,878,722)
41,695,735
(1,181,319)
27,379
-
-
-
-
-
41,695,735
(1,181,319)
27,379
(19,148,544)
$ 43,551,684
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, 2020 and 2019
(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 with the plan of arrangement to reorganize Josemaria
Resources Inc. (“Josemaria”, formerly NGEx Resources Inc.), which was completed on August 16, 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 2000, 885 West Georgia Street, Vancouver,
British Columbia, V6C 3E8, Canada. The Company’s common shares trade on the TSX Venture Exchange
and the NASDAQ First North Growth Market under the symbol "FIL", and on the OTCQX under the
symbol “FLMMF”.
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.
These consolidated financial statements were authorized for issuance by the Board of Directors of the
Company on March 18, 2021.
3. SUMMARY OF 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
Nature of operations
Holding company
Holding company
Holding company
Holding company
Holding company
Exploration company
Exploration company
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.
5
Filo Mining Corp.
Notes to Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(Expressed in Canadian Dollars, unless otherwise stated)
b) Critical accounting estimates, assumptions and judgements
The preparation of the consolidated financial statements in accordance with IFRS requires management
to make estimates, assumptions and judgements that affect the reported amounts of assets, liabilities
and expenditures on the financial statements. These estimates, assumptions and judgements are based
on management’s best knowledge of the relevant facts and circumstances taking into account previous
experience. Actual results could differ and such differences could be material. Estimates, assumptions
and judgements are reviewed on an ongoing basis and are based on historical experience and other facts
and circumstances. Revisions to estimates, assumptions and judgements, and the resulting effects on
the carrying amounts of the Company’s assets and liabilities, are accounted for prospectively. Information
about estimates, assumptions, judgments and other sources of estimation uncertainty as at December
31, 2020 that have a risk of resulting in a material adjustment to the carrying amounts of assets and
liabilities within the next year are 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 its mineral
properties for indicators of impairment, which requires the Company to exercise key judgements,
including but not limited to, the Company’s right to explore the mineral property, whether the Company
has further plans or budgets for substantive expenditures for the ongoing exploration and evaluation of
the mineral property, the impact of exploration and evaluation results to date with respect to the mineral
property, and the likelihood that the carrying value of the mineral property will be recovered in the future
through development or sale of the asset. If indicators of impairment are identified, the Company would
further review the carrying values of the applicable mineral properties to determine if their carrying
values may exceed their fair value, which also requires the Company to make significant judgments and
estimates. The judgments and estimates mentioned above 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.
The Company has determined that no indicators of impairment exist for its mineral properties as of
December 31, 2020.
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.
For the Company’s Argentine subsidiary, which is affected by hyperinflationary accounting as described
in Notes 3n and 4 below, and uses the Argentine peso as its functional currency, the results and financial
position of this subsidiary are translated into the presentation currency using the exchange rate prevailing
at the date of the statement of financial position.
The results and financial position of all other 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.
6
Filo Mining Corp.
Notes to Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(Expressed in Canadian Dollars, unless otherwise stated)
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 an acquisition.
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, with economic viability and technical
feasibility 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
Non-financial assets 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 instruments
(i) Recognition
The Company measures and classifies its financial assets based on its business model for managing its
financial assets and the contractual cash flow characteristics of those financial assets. Financial assets
are classified into three measurement categories on initial recognition: those measured at fair value
through profit or loss, those measured at fair value through other comprehensive income (“OCI”) and
those measured at amortized cost.
Financial assets and liabilities at amortized costs are initially recognized at fair value plus or minus
transaction costs, respectively, and subsequently carried at amortized cost loss any impairment.
7
Filo Mining Corp.
Notes to Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(Expressed in Canadian Dollars, unless otherwise stated)
Investments in marketable securities, such as equity instruments of publicly listed entities, are required
to be measured at fair value through profit or loss, unless the Company makes an irrevocable election
to present subsequent changes in the fair value of such instruments through OCI. The Company has
not elected to measure any of its marketable securities through OCI.
(ii) Derecognition
The Company derecognizes financial assets when the contractual rights to cash flows from the financial
assets expire, or when it transfers the financial assets and substantially all the associated risk and
rewards of ownership to another entity. A financial liability is derecognized when the obligation under
the liability is discharged, canceled or expired. Gains and losses on derecognition of financial assets and
liabilities are generally recognized in the consolidated statements of comprehensive losses.
(iii) Impairment
The Company recognizes a loss allowance for expected credit losses on financial assets that are
measured at amortized costs based on a probability-weighted estimate of credit losses over the expected
life of the financial asset.
At each reporting date, the Company measures the loss allowance for the financial asset at an amount
equal to the lifetime expected credit losses if the credit risk on the financial asset has increased
significantly since initial recognition. If at the reporting date, the credit risk on the financial asset has
not increased significantly since initial recognition, the Company measures the loss allowance for the
financial asset at an amount equal to twelve month expected credit losses. Impairment losses on
financial assets carried at amortized cost are reversed in subsequent periods if the expected credit
losses are reversed after the impairment was recognized.
g) Cash
Cash includes cash on hand, and deposits held with financial institutions with a fixed deposit term of
three months or less, net of bank overdrafts.
h) 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.
8
Filo Mining Corp.
Notes to Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(Expressed in Canadian Dollars, unless otherwise stated)
i) Share capital
Common shares are classified as equity. Incremental costs directly attributable to the issuance of new
ordinary shares or options are shown in equity as a deduction, net of tax, from the proceeds.
j) 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.
k) 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.
l) Leases
The Company recognizes a right-of-use asset, and corresponding lease liability, for almost all leases,
unless the lease term is 12 months or less or the underlying asset has a low value, in which case, lease
payments are recognized as an expense on a straight-line basis over the lease term or another
systematic basis, if deemed more representative.
m) 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 Project, comprised of the Filo del Sol Property
and 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.
9
Filo Mining Corp.
Notes to Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(Expressed in Canadian Dollars, unless otherwise stated)
n) Hyperinflation
On July 1, 2018, the Company adopted IAS 29, Financial Reporting in Hyperinflationary Economies,
which outlines the use of the hyperinflationary accounting to consolidate and report its Argentine
operating subsidiary.
The application of hyperinflationary accounting requires restatement of the Argentine subsidiary’s non-
monetary assets and liabilities, shareholders’ equity and comprehensive loss items from the transaction
date when they were first recognized into the current purchasing power which reflects a price index
current at the end of the reporting period before being included in the consolidated financial statements.
To measure the impact of inflation on its financial position and results, the Company has elected to use
the Wholesale Price Index (Indice de Precios Mayoristas or “IPIM”) for periods up to December 31,
2016, and the Retail Price Index (Indice de Precios al Consumidor or “IPC”) thereafter. These price
indices have been recommended by the Government Board of the Argentine Federation of Professional
Councils of Economic Sciences (“FACPCE”).
As the consolidated financial statements of the Company have been previously presented in Canadian
dollars, a stable currency, the comparative period amounts do not require restatement.
o) New accounting pronouncements
The IASB and/or the IFRS Interpretations Committee have issued new standards and amendments, or
interpretations to existing standards, which were not yet effective and not applied by the Company as
at December 31, 2020. The Company continues to evaluate these changes to determine their impact, if
any.
IAS 16, Property, plant and equipment
IAS 16 has been amended to provide clarity with respect to the treatment of net proceeds generated
from selling any items produced while bringing an item of property, plant and equipment to the location
and condition necessary for it to be capable of operating in the manner intended by the entity.
Specifically, the amendments prohibit entities from deducting amounts resulting from the selling of items
produced during this phase from the cost of property, plant and equipment. Instead, an entity shall
recognize such sales proceeds and related costs in profit or loss.
The amendments to IAS 16 are effective for annual reporting periods beginning on or after January 1,
2022, with early adoption permitted. Upon adoption, the amendments shall be applied retrospectively,
but only to property, plant and equipment assets commissioned for their intended use by management
on or after the beginning of the earliest period presented in the financial statements.
10
Filo Mining Corp.
Notes to Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(Expressed in Canadian Dollars, unless otherwise stated)
4. HYPERINFLATION
Argentina was designated a hyperinflationary economy as of July 1, 2018 for accounting purposes.
The Company recognized a loss of $432,713 for the year ended December 31, 2020 (2019: $709,479)
in relation to the impact of hyperinflation within other comprehensive income, which is primarily the
result of devaluation of the Argentine peso relative to the Canadian dollar during the respective periods.
As a result of changes in the IPC and changes to the Company’s net monetary position during the year
ended December 31, 2020, the Company recognized a net monetary gain $132,383 (2019: $158,181)
to adjust transactions recorded during the year into a measuring unit current as of December 31, 2020.
The level of the IPC at December 31, 2020 was 385.9 (December 31, 2019: 283.4), which represents
an increase of approximately 36% over the IPC at December 31, 2019, and an approximate 17%
increase over the average level of the IPC during the year ended December 31, 2020.
5. RECEIVABLES AND OTHER ASSETS
Current
Taxes receivable
Other receivables
Prepaid expenses and deposits
Non-current
Taxes receivable
December 31,
2020
December 31,
2019
165,043
347,870
297,330
810,243
1,656,495
1,656,495
1,060,702
968,536
566,728
2,595,966
-
-
Pursuant to regulations, the Company is entitled to a refund of certain value added taxes (“VAT”) paid
in Argentina. While the Company continues to expect full payment of the amounts claimed, the timing
of receipt of the refunds has become increasingly uncertain. Accordingly, the corresponding taxes
receivable balance has been reclassified as non-current.
11
Filo Mining Corp.
Notes to Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(Expressed in Canadian Dollars, unless otherwise stated)
6. MINERAL PROPERTIES
Filo del Sol
Tamberias
Total
January 1, 2019
$ 3,450,982
$ 3,667,251
$ 7,118,233
Additions
Adjustment for the impacts of hyperinflation
Effect of foreign currency translation
December 31, 2019
-
(40,255)
-
$ 3,410,727
654,579
-
(420,337)
$ 3,901,493
654,579
(40,255)
(420,337)
$ 7,312,220
Additions
Adjustment for the impacts of hyperinflation
Effect of foreign currency translation
December 31, 2020
-
(25,196)
-
$ 3,385,531
1,465,136
-
105,241
$ 5,471,870
1,465,136
(25,196)
105,241
$ 8,857,401
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 certain scheduled option payments. In addition,
Tamberias SCM will retain a 1.5% net smelter royalty, which will be paid only after the Company has
recovered all its exploration and development costs.
Pursuant to a series of amendments to the terms of the remaining option payments payable under the
option agreement with Tamberias SCM, the last of which was executed on May 13, 2020 (the “Option
Amendments”), the remaining option payments were rescheduled and extended through to June 30,
2026.
As at December 31, 2020, following a payment of US$150,000 in June 2020 pursuant to the Option
Amendments, the Company’s total remaining payments were as follows:
12
Filo Mining Corp.
Notes to Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(Expressed in Canadian Dollars, unless otherwise stated)
Payment by:
January 18, 20211,2
June 30, 20211
June 30, 2022
June 30, 2023
June 30, 2024
June 30, 2025
June 30, 2026
Amount
(US$)
150,000
750,000
500,000
750,000
950,000
1,050,000
12,000,000
16,150,000
1 Pursuant to the Option Amendments, the Company has irrevocably
committed to make the two indicated payments. Accordingly, as at
December 31, 2020, a corresponding amount has been recognized as an
addition to mineral properties, with a corresponding amount recorded
within trade payables and accrued liabilities, until such amounts are
settled. Payment of all subsequent amounts remain at the Company’s sole
option and discretion.
2 Payment was made as scheduled in January 2021.
7. CREDIT FACILITIES
On January 12, 2019, the Company obtained an unsecured US$5.0 million credit facility (the “January
2019 Facility”) from Zebra Holdings and Investments S.à.r.l ("Zebra"), a related party of the Company
by virtue of its shareholding in the Company in excess of 20%, to provide additional financial
flexibility to fund ongoing exploration at the Filo del Sol Project and for general corporate purposes.
Zebra reports its security holdings in the Company as a joint actor, as the term is defined by Canadian
securities regulations, with Lorito Holdings S.à.r.l. (“Lorito”), and at the time of entering into the
January 2019 Facility they collectively held more than 20% of the Company’s issued and outstanding
common shares. The January 2019 Facility matured on July 12, 2020, and no interest was payable
in cash during its term. As consideration for the January 2019 Facility, Zebra received 300 common
shares each month, for every US$50,000 in principal outstanding, prorated accordingly for the
number of days outstanding.
In June 2020, the Company entered into an agreement with Zebra, to obtain an additional unsecured
US$5.0 million credit facility, which became accessible by the Company on July 12, 2020 (the “July
2020 Facility”) and replaced the January 2019 Facility. The outstanding balance owed under the
January 2019 Facility was transferred into the July 12, 2020 Facility. As consideration for the July
2020 Facility, Zebra will receive 480 common shares each month, for every US$50,000 in principal
outstanding, prorated accordingly for the number of days outstanding. The July 2020 Facility matures
on July 12, 2021, and no interest is payable in cash during its term.
During the year ended December 31, 2020, the Company drew a total of US$1,000,000 against the
facilities, and the amounts were fully repaid in August 2020 following the completion of equity
financings (Note 8). The repayment had a Canadian dollar equivalent of approximately $1.3 million.
As a result of the amounts previously drawn, the Company issued 14,084 common shares during the
year ended December 31, 2020, resulting in $27,379 in financing costs recognized through the
consolidated statement of loss (2019: $1,322,599).
13
Filo Mining Corp.
Notes to Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(Expressed in Canadian Dollars, unless otherwise stated)
All common shares issued in conjunction with the facilities are subject to a four-month hold period
under applicable securities laws.
8. SHARE CAPITAL
The Company has authorized an unlimited number of voting common shares without par value.
On July 30, 2020, the Company closed a bought deal offering of common shares and a concurrent
non-brokered private placement of common shares (the “Financings”). In aggregate, 22,538,235
common shares of the Company were sold at a price of $1.85 per common share, generating
aggregate gross proceeds of $41.7 million. Share issuance costs related to the Financings totaled
$1.2 million, and included commissions, professional fees and regulatory fees.
Zebra and Lorito acquired an aggregate of 7,030,008 common shares of the Company through the
Financings, for gross proceeds of $13.0 million, each subscribing to 3,515,004 common shares
pursuant to the concurrent non-brokered private placement of common shares. On July 30, 2020,
following the close of the Financings, Zebra and Lorito held 25.05% and 9.96%, respectively, of the
then issued and outstanding common shares of the Company.
9. SHARE OPTIONS
a) Share option plan
The Company has a share option plan adopted by the Board of Directors on July 8, 2016 and
amended May 12, 2017, which reserves 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, 2019
Options granted
Exercised
Expired or forfeited
Balance at December 31, 2019
Options granted
Expired or forfeited
Balance at December 31, 2020
Number of
shares issuable
pursuant to
share options
6,647,500
2,395,000
(598,333)
(176,666)
8,267,501
1,450,000
(261,667)
9,455,834
Weighted
average
exercise price
per share
$ 2.13
2.75
1.32
2.19
$ 2.37
1.91
2.53
$ 2.29
On August 17, 2020, the Company granted a total of 1,450,000 share options to officers, employees,
directors and other eligible persons at an exercise price of $1.91 per share.
14
Filo Mining Corp.
Notes to Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(Expressed in Canadian Dollars, unless otherwise stated)
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 1,450,000 share options granted
during the year ended December 31, 2020, were as follows:
(i)
(ii)
(iii)
(iv)
(v)
Risk-free interest rate:
Expected life:
Expected volatility:
Expected dividends:
Fair value per option:
0.27%
5 years
58.06%
nil
$0.93
The following table details the share options outstanding and exercisable as at December 31, 2020:
Outstanding options
Weighted
average
remaining
contractual
life
(Years)
4.63
0.93
2.62
1.70
3.78
2.71
Weighted
average
exercise
price
$1.91
$2.00
$2.20
$2.50
$2.75
$2.29
Exercise
prices
$1.91
$2.00
$2.20
$2.50
$2.75
Options
outstanding
1,450,000
1,950,000
2,286,667
1,522,500
2,246,667
9,455,834
c) Share-based compensation
Exploration and project investigation
General and administration
Exercisable options
Weighted
average
remaining
contractual
life
(Years)
4.63
0.93
2.62
1.70
3.78
2.37
Weighted
average
exercise
price
$1.91
$2.00
$2.20
$2.50
$2.75
$2.30
Options
exercisable
483,334
1,950,000
2,286,667
1,522,500
1,510,001
7,752,502
Year ended
December 31,
2019
563,326
1,906,469
2020
428,823
1,605,500
2,034,323
2,469,795
10. EXPLORATION AND PROJECT INVESTIGATION
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.
15
Filo Mining Corp.
Notes to Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(Expressed in Canadian Dollars, unless otherwise stated)
The Company expensed the following exploration and project investigation costs, all incurred in South America, for the years ended
December 31, 2020 and 2019:
Year ended
December 31,
2020
Land holding and access costs
Drilling, fuel, camp costs and field supplies
Roadwork, travel and transport
Consultants, geochemistry and geophysics
Environmental and community relations
VAT and other taxes
Office, field and administrative salaries,
overhead and other administrative costs
COVID-19-related health and safety
Share-based compensation
Filo del Sol
Project
515,701
9,310,843
2,478,956
964,632
489,547
1,869,125
2,447,112
550,493
428,823
Total
19,055,232
857,254
8,991,119
3,215,580
309,794
1,066,062
2,742,382
2,604,952
2019
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
16
Other
Total
-
-
-
-
-
-
-
-
-
58,534
-
159
-
-
-
70,053
515,701
9,310,843
2,478,956
964,632
489,547
1,869,125
2,447,112
550,493
428,823
19,055,232
915,788
8,991,119
3,215,739
309,794
1,066,062
2,742,382
2,675,005
2,517,945
561,568
22,866,656
10,357
1,758
140,861
2,528,302
563,326
23,007,517
Filo Mining Corp.
Notes to Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(Expressed in Canadian Dollars, unless otherwise stated)
11. RELATED PARTY TRANSACTIONS
Under the normal course of operations, the Company may undertake transactions or hold balances
with related parties. Other than those related party transactions identified elsewhere in these
consolidated financial statements, the Company also engages with Josemaria and NGEx Minerals
Ltd. (“NGEx Minerals”), related parties by way of directors, officers and shareholders in common.
Bofill Mir & Alvarez Jana Abogados Ltda. (“BMJAL”), a Chilean legal firm, is also considered a related
party of the Company until June 18, 2020, as a named partner of BMJAL was also concurrently a
director of the Company until such date.
a) Related party services
The Company has a cost sharing arrangement with Josemaria and NGEx Minerals. Under the terms of
this arrangement, the Company provides management, technical, administrative and/or financial
services (collectively, “Management Services”) to Josemaria and NGEx Minerals, and vice versa. In
addition, the Company engages BMJAL, as its legal counsel in Chile. These transactions were incurred
in the normal course of operations, and are summarized as follows:
Management Services to Josemaria
Management Services to NGEx Minerals
Management Services from Josemaria
Management Services from NGEx Minerals
Legal services from BMJAL
b) Related party balances
Year ended
December 31,
2019
2020
943,427
433,148
(314,419)
(500,101)
(43,866)
1,217,414
238,003
(336,044)
(363,373)
(93,659)
The amounts due from (to) related parties, and the components of the consolidated statements of
financial position in which they are included, are as follows:
Receivables and other assets
Receivables and other assets
Accounts payable and accrued liabilities
Accounts payable and accrued liabilities
Accounts payable and accrued liabilities
Related Party
Josemaria
NGEx Minerals
Josemaria
NGEx Minerals
BMJAL
December 31,
2020
December 31,
2019
-
11,752
-
(5,850)
-
196,489
64,222
(220,366)
(57,490)
(22,617)
17
Filo Mining Corp.
Notes to Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(Expressed in Canadian Dollars, unless otherwise stated)
c) 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:
Salaries
Short-term employee benefits
Directors fees
Stock-based compensation
Incentive bonuses
12. INCOME TAXES
Year ended
December 31,
2019
987,604
47,542
97,000
1,784,488
490,000
3,406,634
2020
762,667
22,447
108,495
1,368,514
540,000
2,802,123
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,
2020
Year ended
December 31,
2019
Loss before taxes
Combined Canadian federal and provincial statutory
income tax rates
Income tax recovery based on the above rate
18,878,722
28,570,601
27.00%
5,097,255
27.00%
7,714,062
Income tax benefits that have not been recognized
and other items
Other permanent differences
Impacts of changes in foreign tax and currency rates
Differences between Canadian and foreign tax rates
Non-deductible expenses
Total income tax recovery
(3,256,439)
1,878,319
(3,090,555)
271,809
(900,389)
-
(3,331,520)
-
(3,610,455)
412,203
(1,184,290)
-
18
Filo Mining Corp.
Notes to Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(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,
2020
3,968,318
10,620,277
996,792
15,585,387
December 31,
2019
2,903,562
8,885,625
477,010
12,266,197
As at December 31, 2020, the non-capital loss carry-forwards and their respective expiration dates are
as follows:
Year
2021
2022
2023
2024
2025 and onwards
Canada
-
-
-
-
13,744,341
Argentina
98,012
94,374
5,415
151,567
396,982
Other
5,101
26,903
11,943
-
239,088
Total
103,113
121,277
17,358
151,567
14,380,411
13,744,341
746,350
283,035
14,773,726
19
Filo Mining Corp.
Notes to Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(Expressed in Canadian Dollars, unless otherwise stated)
13. 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 6 and 10, 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. The net gains on the use of marketable securities are allocated to the Filo del Sol Project, as
they are the result of funding provided to the Company’s Argentine subsidiary in support of the project.
Materially all 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.
The following are summaries of the Company’s current and non-current assets, current liabilities, and
net losses by segment:
As at
December 31,
2020
2019
Filo del Sol
Project
Other
Corporate
Total
Current assets
Right-of-use asset
Tax receivable
Mineral properties
3,397,742
12,275
1,656,495
8,857,401
Total assets
13,923,913
Current liabilities
3,854,243
Current assets
Right-of-use asset
Mineral properties
Total assets
Current liabilities
Lease liabilities
Total liabilities
6,509,343
88,832
7,312,220
13,910,395
3,233,542
12,145
3,245,687
-
-
-
-
-
-
-
-
-
-
-
-
-
33,738,619
-
-
-
37,136,361
12,275
1,656,495
8,857,401
33,738,619
47,662,532
256,605
4,110,848
9,840,063
-
-
9,840,063
16,349,406
88,832
7,312,220
23,750,458
380,661
-
380,661
3,614,203
12,145
3,626,348
20
Filo Mining Corp.
Notes to Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(Expressed in Canadian Dollars, unless otherwise stated)
Year ended
December 31,
2020
2019
Exploration and
project
investigation
Gain on use of
marketable
securities
General and
administration
and other items
Net loss
Exploration and
project
investigation
General and
administration
and other items
Net loss
Filo del Sol
Project
Other
Corporate
Total
19,055,232
(4,602,750)
(291,593)
14,160,889
-
-
-
-
-
-
19,055,232
(4,602,750)
4,717,833
4,717,833
4,426,240
18,878,722
22,866,656
140,861
-
23,007,517
(141,845)
22,724,811
-
140,861
5,704,929
5,704,929
5,563,084
28,570,601
14. USE OF MARKETABLE SECURITIES
From time to time, the Company may acquire and transfer marketable securities to facilitate intragroup
funding transfers between the Canadian parent and its Argentine operating subsidiary.
The Company does not acquire marketable securities or engage in these transactions for speculative
purposes. In this regard, under this strategy, the Company generally uses marketable securities of
large and well established companies, with high trading volumes and low volatility. Nonetheless, as the
process to acquire, transfer and ultimately sell the marketable securities occurs over approximately
several days, some fluctuations are unavoidable.
As the marketable securities are acquired with the intention of a near term sale, they are considered
financial instruments that are held for trading, all changes in the fair value of the instruments, between
acquisition and disposition, are recognized through profit or loss.
As a result of having utilized this mechanism for intragroup funding for the year ended December 31,
2020, the Company realized a net gain of $4,602,750 (2019: $nil), comprised of a favorable foreign
currency impact of $5,514,960 (2019: $nil) and a trading loss of $912,211 (2019: $nil).
21
Filo Mining Corp.
Notes to Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(Expressed in Canadian Dollars, unless otherwise stated)
15. 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.
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.
16. 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. The carrying values of the Company’s financial instruments are
considered to be reasonable approximations of fair value due to their anticipated short-term nature.
As at December 31, 2020, 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 15 and by
maintaining good relationships with significant shareholders and creditors, such as Zebra.
The Company also closely monitors and reviews its costs to date and actual cash flows on a
monthly basis.
The maturities of the Company’s financial liabilities as at December 31, 2020 are as follows:
22
Filo Mining Corp.
Notes to Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(Expressed in Canadian Dollars, unless otherwise stated)
Total
Less than
1 year
1-5
years
More than
5 years
Accounts payable and
accrued liabilities
Lease liabilities
Total
4,097,835
13,013
4,097,835
13,013
4,110,848
4,110,848
-
-
-
-
-
(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, 2020, the Company’s largest foreign currency risk exposures existed at the
level of its Canadian headquarters and at its Chilean operating subsidiary, Frontera Chile
Limitada, where the Company held a net financial asset position denominated in US dollars
having a Canadian dollar equivalent of approximately $1.4 million, and a net financial liability
position denominated in US dollars having a Canadian dollar equivalent of approximately $1.1
million, respectively. A 10% change in the foreign exchange rate between the US dollar and the
Canadian dollar, the functional currency of Filo Mining, or between the US dollar and the Chilean
peso, the functional currency of Frontera Chile Limitada., would give rise to increases/decreases
of approximately $141,000 and $115,000, respectively, in financial position/comprehensive loss.
17. COVID-19 IMPACT AND RESPONSE
On March 11, 2020, the World Health Organization officially declared the global outbreak of the
novel coronavirus, COVID-19, a pandemic. The impacts of COVID-19 on global commerce and
financial markets to date have been broad and significant.
The Company continues to respond to the COVID-19 pandemic within the framework of internal
protocols, and local and national health authority requirements and recommendations. The health
and safety of the Company’s employees, contractors, visitors, and stakeholders remain Filo Mining’s
top priority. Since March 2020, the Company has implemented travel restrictions, surveillance,
monitoring and response plans to reduce the risk of COVID-19 exposure and outbreak, including
health screening of personnel when appropriate.
The Company’s current COVID-19 operating protocol has enabled it to undertake and substantially
complete its 2020/2021 field program, which is currently scheduled to conclude in April 2021.
However, any tightening/retightening of COVID-19-related travel restrictions or new developments
in local or national health protocols, particularly in Chile and Argentina, would likely impact future
activities and result in a reduction to the Company’s cash expenditures and exploration costs. As of
the date of these consolidated financial statements, the Company cannot be certain of the impact of
the COVID-19 pandemic on its financial position, results of operations and cash flows.
The Company’s longer term business plans remain dependent on its ability to obtain additional
financing through global financial markets. Should the COVID-19 pandemic and/or the general
depression of financial markets persist in the longer term, the Company’s ability to access financing
on favorable terms may be negatively impacted.
23
CORPORATE DIRECTORY
OFFICERS
Jamie Beck
President & CEO
Robert Carmichael
VP Exploration
Jeffrey Yip
Chief Financial Officer
Brenda Nowak
Corporate Secretary
DIRECTORS
Adam Lundin, Chairman
Jamie Beck
Lukas Lundin
Wojtek Wodzicki
Erin Johnston
Alessandro Bitelli
Carmel Daniele
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: +1 604 689-7842
Fax: +1 604 689-4250
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
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TSXV & Nasdaq First North
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CUSIP No.: 31730E101
ISIN: CA31730E1016