CONSOLIDATED FINANCIAL STATEMENTS
As at June 30, 2015 and 2014
In Canadian dollars
KPMG LLP
600 de Maisonneuve Blvd. West
Suite 1500
Tour KPMG
Montréal (Québec) H3A 0A3
Telephone
Fax
Internet
(514) 840-2100
(514) 840-2187
www.kpmg.ca
INDEPENDENT AUDITORS’ REPORT
To the Shareholders of Highland Copper Company Inc.
We have audited the accompanying financial statements of Highland Copper Company Inc., which
comprise the consolidated statements of financial position as at June 30, 2015 and June 30, 2014, the
consolidated statements of comprehensive income (loss), changes in shareholders’ equity and cash
flows for the year years then ended, and notes, comprising a summary of significant accounting policies
and other explanatory information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with International Financial Reporting Standards, and for such internal
control as management determines is necessary to enable the preparation of consolidated financial
statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our
audits. We conducted our audits in accordance with Canadian generally accepted auditing standards.
Those standards require that we comply with ethical requirements and plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures
in the consolidated financial statements. The procedures selected depend on our judgment, including
the assessment of the risks of material misstatement of the consolidated financial statements, whether
due to fraud or error. In making those risk assessments, we consider internal control relevant to the
entity’s preparation and fair presentation of the consolidated financial statements in order to design
audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of accounting estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to
provide a basis for our audit opinion.
KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG International Cooperative
("KPMG International"), a Swiss entity.
KPMG Canada provides services to KPMG LLP.
2 Page 2
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial
position of Highland Copper Company Inc. as at June 30, 2015 and June 30, 2014, and its financial
performance and its cash flows for the year years then ended in accordance with International Financial
Reporting Standards.
Emphasis of Matter
Without modifying our opinion, we draw attention to Note 2 in the consolidated financial statements
which indicates that Highland Copper Company Inc. is still in exploration stage and, as such, no
revenue has been yet generated from its operating activities. Accordingly, Highland Copper Company
Inc. depends on its ability to raise financing in order to discharge its commitments and liabilities in the
normal course of business. These conditions, along with other matters as set forth in Note 2, indicate
the existence of a material uncertainty that may cast significant doubt about Highland Copper Company
Inc.’s ability to continue as a going concern.
October 15, 2015
Montréal, Canada
*CPA auditor, CA, public accountancy permit No. A119245
3 Highland Copper Company Inc.
Consolidated Statements of Financial Position
(audited, in Canadian dollars)
ASSETS
Current
Cash
Sales taxes receivable
Prepaid expenses and other
Non-current
Capital assets (Note 4)
Exploration and evaluation assets (Note 5)
TOTAL ASSETS
LIABILITIES
Current
Accounts payable and accrued liabilities
Due to a related party (Note 14)
Deposit on sale of royalty (Note 6)
Promissory note (Note 7)
Non-current
Balance of purchase price payable (Note 8)
Environmental liability (Note 9)
TOTAL LIABILITIES
SHAREHOLDERS' EQUITY
Share capital (Note 10)
Contributed surplus
Deficit
Cumulative translation adjustment
TOTAL EQUITY
TOTAL LIABILITIES AND EQUITY
June 30,
June 30,
2015
$
2014
$
1,042,341
54,496
52,441
1,149,278
233,615
61,568,034
62,950,927
3,146,097
8,022
10,000,000
-
13,154,119
2,207,430
281,749
3,242,710
159,433
59,479
3,461,622
428,457
42,645,934
46,536,013
1,987,950
-
-
7,473,900
9,461,850
1,434,850
225,022
15,643,298
11,121,722
48,115,461
6,173,571
41,394,661
4,221,734
(13,592,922)
(10,450,128)
6,611,519
47,307,629
62,950,927
248,024
35,414,291
46,536,013
Going concern (Note 2); Commitments and contingencies (Notes 5 and 6); Event after the reporting date (Note 21)
The accompanying notes form an integral part of these consolidated financial statements.
On behalf of the Board,
/s/ James Crombie
James Crombie, Director
/s/ Jo Mark Zurel
Jo Mark Zurel, Director
4 Highland Copper Company Inc.
Consolidated Statements of Comprehensive Income (Loss)
(audited, in Canadian dollars)
Expenses and other items
Management and administration (Note 13)
Pre-exploration (Note 5)
Accretion on environmental liability (Note 9)
Finance income
Gain on foreign exchange
Net loss for the year
Year ended June 30,
2014
2015
$
$
3,087,579
81,765
17,403
(10,358)
(33,595)
1,724,225
1,745,437
2,106
(8,664)
(39,885)
(3,142,794)
(3,423,219)
Other comprehensive income (loss)
Item that will not be subsequently reclassified to income
Foreign currency translation adjustment
6,363,495
(212,774)
Total comprehensive income (loss) for the year
3,220,701
(3,635,993)
Basic and diluted loss per common share (Note 12)
(0.03)
(0.06)
Weighted average number of common shares - basic and diluted
106,419,831
55,316,991
The accompanying notes form an integral part of these consolidated financial statements.
5 Highland Copper Company Inc.
Consolidated Statements of Changes in Shareholders’ Equity
(audited, in Canadian dollars)
Number of issued
and outstanding
common shares
Share
capital
$
Contributed
surplus
$
Deficit
$
Cumulative
translation
adjustment
$
Total
shareholders'
equity
$
Balance at June 30, 2014
96,966,745
41,394,661
4,221,734
(10,450,128)
248,024
35,414,291
Shares issued
Pursuant to a mineral lease agreement (Note 10)
Private placement (Note 10)
Share issue expenses (Note 10)
Share-based remuneration
Loss for the year
Other comprehensive income
Foreign currency translation adjustment
Balance at June 30, 2015
2,164,701
30,410,746
-
-
32,575,447
-
485,840
6,458,496
(223,536)
-
6,720,800
-
-
129,542,192
-
48,115,461
-
1,144,191
-
807,646
1,951,837
-
-
6,173,571
-
-
-
-
-
(3,142,794)
-
-
-
-
-
-
(13,592,922)
6,363,495
6,611,519
485,840
7,602,687
(223,536)
807,646
8,672,637
(3,142,794)
6,363,495
47,307,629
Balance at June 30, 2013
52,277,878
19,801,726
3,609,412
(7,026,909)
460,798
16,845,027
Shares issued
Private placement (Note 10)
On acquisition of the White Pine Project (Note 10)
Pursuant to a property option agreement (Note 10)
Share issue expenses (Note 10)
Share-based remuneration
Loss for the year
Other comprehensive income
Foreign currency translation adjustment
Balance at June 30, 2014
41,622,200
3,000,000
66,667
-
-
44,688,867
-
-
96,966,745
20,811,100
1,500,000
10,000
(728,165)
-
21,592,935
-
-
41,394,661
-
-
-
-
612,322
612,322
-
-
-
-
-
-
-
(3,423,219)
-
-
-
-
-
-
-
4,221,734
-
(10,450,128)
(212,774)
248,024
20,811,100
1,500,000
10,000
(728,165)
612,322
22,205,257
(3,423,219)
(212,774)
35,414,291
The accompanying notes form an integral part of these consolidated financial statements.
6 Highland Copper Company Inc.
Consolidated Statements of Cash Flows
(audited, in Canadian dollars)
Operating activities
Net loss for the year
Adjustments
Share-based remuneration
Depreciation and amortization
Unrealized gain on foreign exchange
Accretion on environmental liability
Finance income accrued
Finance income received
Changes in working capital items
Sales taxes receivable
Prepaid expenses and other
Accounts payable and accrued liabilities
Due to a related party
Investing activities
Acquisition of capital assets
Disposal of capital assets
Additions to exploration and evaluation assets
Acquisition of Copperwood Project
Financing activities
Deposit on sale of royalty
Reimbursement of promissory note
Issue of shares
Share issue expenses
Effect of exchange rate changes on cash held in foreign currency
Net change in cash
Cash, beginning of the year
Cash, end of the year
Supplemental cash flow information (Note 19)
The accompanying notes form an integral part of these consolidated financial statements.
Year ended June 30,
2015
$
2014
$
(3,142,794)
(3,423,219)
667,777
24,237
(33,595)
17,403
(10,358)
11,151
104,937
7,215
(426,925)
8,022
511,202
9,720
(39,885)
2,106
(8,664)
8,442
(84,900)
(4,476)
863,546
-
(2,772,930)
(2,166,128)
(68,072)
27,837
(143,865)
-
(8,418,953)
(6,776,138)
-
(14,106,357)
(8,459,188)
(21,026,360)
10,000,000
(8,141,000)
7,602,687
(223,536)
9,238,151
(206,402)
-
-
20,811,100
(728,165)
20,082,935
112,035
(2,200,369)
(2,997,518)
3,242,710
1,042,341
6,240,228
3,242,710
7 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2015 and 2014 (audited, in Canadian dollars)
1. GENERAL INFORMATION
Highland Copper Company Inc. is a Canadian-based company. Highland and its subsidiaries (together “Highland” or
the “Company”) are primarily engaged in the acquisition, exploration and development of mineral properties in
Michigan, USA.
In May 2014, the Company completed the interim closing for the acquisition of the White Pine copper project (the
“White Pine Project”), which includes surface and mineral rights related to the White Pine North Project (the “White
Pine North Project”). In June 2014, the Company acquired the Copperwood copper project (the “Copperwood
Project”). The Company also has an option to acquire a 65% interest in the Keweenaw project which hosts the 543S
deposit, the G-2 project and other target areas (the “Keweenaw Project”).
To date, the Company has not earned significant revenues and is considered to be in the exploration and
development stage. The address of the Company’s registered office is 1055 West Georgia Street, Suite 1500,
Vancouver, British Columbia, Canada, V6E 4N7. All financial results in these consolidated financial statements are
expressed in Canadian dollars unless otherwise indicated. Highland’s common shares are listed on the TSX
Venture Exchange (the “TSXV”) under the symbol HI.The Board of Directors approved these consolidated financial
statements on October 15, 2015.
8 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2015 and 2014 (audited, in Canadian dollars)
2. GOING CONCERN
These consolidated financial statements have been prepared on the basis of a going concern, which assumes that
the Company will continue its operations in the foreseeable future and will be able to realize its assets and
discharge its liabilities and commitments in the normal course of operations.
The Company is subject to a number of risks and uncertainties associated with its future exploration and
development activities, including the successful completion of the acquisition of the White Pine Project, the
acquisition of a 65% interest in the Keweenaw Project and raising additional funds.
As is common with many exploration and development companies, the Company has relied on equity financing to
fund its operations, including its investments in exploration and evaluation assets. The Company has incurred a net
loss of $3,142,794 during the year ended June 30, 2015 ($3,423,219 in 2014) and has a deficit of $13,592,922 at
June 30, 2015 (a deficit of $10,450,128 at June 30, 2014). The Company has a working capital deficiency of
$12,004,841 at June 30, 2015, including a deposit on sale of a royalty of $10,000,000, which upon the expected
completion of the acquisition of the White Pine Project will be exchanged for the White Pine North Royalty (Note 6).
The completion of the acquisition of the White Pine Project is dependent on a number of factors, not all of which are
under the Company’s control, and as such, there is no assurance that the Company will complete the acquisition of
the White Pine Project (Note 3 – Significant Judgments and Estimates). If the acquisition of the White Pine Project is
not completed by December 31, 2015, the deposit on sale of a royalty of $10,000,000 will become refundable (Note
6).
The Company requires additional funds to settle its working capital deficiency, to complete the acquisition of the
White Pine Project, to pursue exploration and development work on its mineral projects, and to provide for
management and administration expenses. On October 6, 2015, the Company completed a private placement with
Osisko Gold Royalties Ltd. (“Osisko”) and issued 24,426,434 common shares for total gross proceeds of $3,663,965
(Note 21). However, the Company will require additional funds to meet its exploration and development objectives
and to provide for management and administration expenses for at least the next 12 months. Such funding
requirements may be met in the future in a number of ways, including the issuance of securities, debt financing, joint
venture or other arrangements. If the Company is not successful in raising additional funds, it may be required to
further delay, reduce the scope of, or eliminate its current or future exploration and development activities, any of
which could have a negative impact on the business, financial condition and results of operation of the Company.
The conditions and uncertainties described above indicate the existence of a material uncertainty that casts a
significant doubt about the Company’s ability to continue as a going concern. If the going concern assumption was
not appropriate for these consolidated financial statements, adjustments which could be material would be
necessary to the carrying value of assets and liabilities, in particular an impairment of exploration and evaluation
assets, as well as adjustments to reported expenses.
9 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2015 and 2014 (audited, in Canadian dollars)
3.
SUMMARY OF ACCOUNTING POLICIES
a)
Statement of compliance
These consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards (“IFRS”). The significant accounting policies that have been applied in the preparation of the consolidated
financial statements are summarized below.
b)
Basis of measurement
These consolidated financial statements have been prepared on a historical cost basis.
c)
Basis of consolidation
These consolidated financial statements include the accounts of Highland and its subsidiaries. All intercompany
transactions, balances, income and expenses are eliminated upon consolidation. The Company wholly owns Upper
Peninsula Holding Company Inc. (“UPHC”) (the Company’s US-based holding company, incorporated in February
2014 in the state of Delaware, USA), which in turn wholly owns: Keweenaw Copper Co. (“Keweenaw”), incorporated
in July 2011 in the state of Michigan, USA; White Pine LLC (“WP LLC”), formed in February 2014 in the state of
Delaware, USA; and Orvana Resources US Corp. (“Orvana US”), acquired in June 2014 and incorporated in the
state of Michigan, USA. Highland and its subsidiaries have an annual reporting date of June 30.
d)
Foreign currency translation
These consolidated financial statements are presented in Canadian dollars. The functional currency of Highland is
the Canadian dollar and the functional currency of the Company’s US-based subsidiaries is the US dollar. The
functional currencies of Highland and its subsidiaries have remained unchanged during the reporting years.
Monetary assets and liabilities denominated in a foreign currency other than the functional currency of each entity
are translated at the exchange rate in effect at the reporting date, whereas non-monetary assets and liabilities
denominated in a foreign currency are translated at the exchange rate in effect at the transaction date. Revenues
and expenses denominated in a foreign currency are translated at the exchange rate in effect at the transaction
date. Gains and losses on exchange arising from the translation of foreign operations are recorded in profit or loss
under gain or loss on foreign exchange.
On consolidation, assets and liabilities of the Company’s US-based subsidiaries are translated into Canadian dollars
at the closing rate in effect at the reporting date and components of equity are translated using the historical rate.
Income and expenses are translated into Canadian dollars at the average rate over the reporting year. Exchange
differences are presented as other comprehensive income and recognised in the currency translation adjustment
reserve in equity.
10
Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2015 and 2014 (audited, in Canadian dollars)
3.
SUMMARY OF ACCOUNTING POLICIES (continued)
e)
Financial assets and liabilities
Financial assets
Financial assets held by the Company consist of cash which includes deposits held with banks. This financial asset
is classified as loans and receivables. Loans and receivables are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market. Such assets are initially recognized at fair value
plus any directly attributable transaction costs. Subsequent to initial recognition, loans and receivables are
measured at amortized cost using the effective interest method, less any impairment losses. Financial assets are
derecognized when the contractual rights to the cash flows from the financial asset expire, or when the financial
asset and all substantial risks and rewards are transferred. Income relating to financial assets that are recognized in
profit or loss are presented as finance income.
All financial assets are assessed for indicators of impairment at the end of each reporting year. Financial assets are
impaired when there is objective evidence that, as a result of one or more events that occurred after the initial
recognition of the financial assets, the estimated future cash flows of the investments have been negatively
impacted. The carrying amount of financial assets is reduced by any impairment loss. If, in a subsequent year, the
amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the
impairment was recognized, the reversal of the previously recognized impairment loss is reversed through profit or
loss.
Financial liabilities
The Company’s financial liabilities which consist of accounts payable and accrued liabilities, due to a related party,
deposit on sale of royalty, promissory note and balance of purchase price payable are initially recognized at fair
value plus any directly attributable transaction costs. Contractual contingent payments arising from exploration and
evaluation assets purchase agreements, for which the realization of the event that triggers the additional payment is
within the control of the Company, are recorded as financial liabilities when the event occurs. Subsequent to initial
recognition, the financial liabilities are accounted for at amortized cost, using the effective interest rate method.
Financial liabilities are derecognized when the obligations are extinguished, discharged, cancelled or expired.
11 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2015 and 2014 (audited, in Canadian dollars)
3.
SUMMARY OF ACCOUNTING POLICIES (continued)
f) Capital assets
Intangibles
Intangible assets, which consist of software licenses, are carried at cost (which includes the purchase price and any
costs directly attributable to bringing the asset to the condition necessary for its intended use), less accumulated
amortization and accumulated impairment losses. Amortization of software licenses begins when the asset is ready
for use and is recognized based on the cost of the item on a straight-line basis, over its useful life estimated to be
two years. Each intangible's residual value, useful life and depreciation method are reassessed, and adjusted if
appropriate, at each annual reporting date. The carrying amount of an item of intangible assets is derecognized
upon disposal or when no future economic benefits are expected from its use. The gain or loss arising from
derecognition is included in profit or loss when the item is derecognized.
Property, plant and equipment
Property, plant and equipment are carried at cost less accumulated depreciation and accumulated impairment
losses. The cost of an item of property, plant and equipment consists of the purchase price and all other costs
directly attributable to bringing the asset to the location and condition necessary for its intended use. Where parts of
an item of property, plant and equipment have a different useful life, they are accounted for as separate items of
property, plant and equipment. Depreciation is recognized on a straight-line basis using the cost of the item less its
estimated residual value, over its estimated useful life. Each asset's residual value, useful life and depreciation
method are reassessed, and adjusted if appropriate, at each annual reporting date. Vehicles are depreciated over
three years, computer equipment is depreciated over two years, office equipment and furniture is depreciated over
five years, exploration equipment is depreciated over three years and leasehold improvements are depreciated over
the lease period. The carrying amount of an item of property, plant and equipment is derecognized upon disposal or
when no future economic benefits are expected from its use. The gain or loss arising from derecognition is included
in profit or loss when the item is derecognized.
12 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2015 and 2014 (audited, in Canadian dollars)
3.
SUMMARY OF ACCOUNTING POLICIES (continued)
g)
Exploration and evaluation assets
Exploration and evaluation expenditures are costs incurred in the course of initial search for mineral deposits with
economic potential. Costs incurred before the legal right to undertake exploration and evaluation activities are
recognized in profit or loss when they are incurred. Once the legal right to undertake exploration and evaluation
activities has been obtained, all option and lease payments, costs of acquiring mineral rights and expenses related
to the exploration and evaluation of mining properties are capitalized as exploration and evaluation assets.
Expenses related to exploration and evaluation which are capitalized include topographical, geological, geochemical
and geophysical studies, exploration drilling, trenching, sampling and other costs related to the evaluation of the
technical feasibility and commercial viability of extracting a mineral resource. The various costs are capitalized on a
property-by-property basis pending determination of the technical feasibility and commercial viability of extracting a
mineral resource. These assets are carried at cost less any accumulated impairment losses. No depreciation
expense is recognized for these assets during the exploration and evaluation phase. Whenever a mining property is
considered no longer viable, or is abandoned, the capitalized amounts are written down to their recoverable
amounts with the difference recognized in profit or loss. When the technical feasibility and the commercial viability of
extracting a mineral resource are demonstrable, exploration and evaluation assets related to the mining property are
transferred as tangible assets and related development expenditures are capitalized. Before the reclassification, the
related exploration and evaluation assets are tested for impairment and any impairment loss is then recognized in
profit or loss.
Borrowing costs directly attributable to the acquisition of exploration and evaluation assets are added to the cost of
the project until such time as the assets are substantially ready for their intended use or sale, which in the case of
mining properties is when they are capable of commercial production.
13 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2015 and 2014 (audited, in Canadian dollars)
3.
SUMMARY OF ACCOUNTING POLICIES (continued)
h)
Impairment of non-financial assets
At the end of each reporting date, the Company reviews the carrying amounts of its non-financial assets with finite
lives to determine whether there is any indication that those assets have suffered an impairment loss. Where such
an indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the
impairment loss. Factors which could trigger an impairment review include, but are not limited to, the expiration of
the right to explore in the specific area during the period or said right will expire in the near future and is not
expected to be renewed; substantive expenditures in a specific area are neither budgeted nor planned; exploration
for and evaluation of mineral resources in a specific area have not led to the discovery of commercially viable
quantities of mineral resources and the entity has decided to discontinue such activities in the specific area; or
sufficient data exists to indicate that the carrying amount of the assets is unlikely to be recovered in full from
successful development or by sale due to significant negative industry or economic trends and a significant drop in
commodity prices. The recoverable amount of the asset is estimated in order to determine the extent of the
impairment loss. The recoverable amount is the higher of an asset’s fair value less cost to sell or its value in use.
Value in use takes into account estimated future cash flows associated with the asset, such value being discounted
to their present value using a pre-tax discount rate that reflects current market assessment of the time value of
money and the risks specific to the asset. In the case of exploration and evaluation assets, impairment reviews are
carried out on a property-by-property basis, with each property representing a potential cash-generating unit. A
previous impairment is reversed if the asset’s recoverable amount subsequently exceeds its carrying amount.
14 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2015 and 2014 (audited, in Canadian dollars)
3.
SUMMARY OF ACCOUNTING POLICIES (continued)
i)
Provisions and contingent liabilities
A provision is recognized when the Company has a present legal or constructive obligation as a result of a past
event, it is probable that an outflow of economic benefits will be required to settle the obligation, and the amount of
the obligation can be reliably estimated. Timing or amount of the outflow may still be uncertain. If the time value of
money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that
reflects current market assessment of the time value of money. Provisions are measured at the estimated
expenditure required to settle the present obligation, based on the most reliable evidence available at the reporting
date, including the risks and uncertainties associated with the present obligation. Any reimbursement that the
Company can be virtually certain to collect from a third party with respect to the obligation is recognised as a
separate asset. However, this asset may not exceed the amount of the related provision. All provisions are reviewed
at each reporting date and adjusted to reflect the current best estimate. In those cases where the possible outflow of
economic resources as a result of present obligations is considered improbable or remote, no liability is recognized,
unless it was assumed in the course of a business combination.
A legal or constructive obligation to incur restoration, rehabilitation and environmental costs may arise when
environmental disturbance is caused by the exploration, development or ongoing production of a mineral property
interest. Such costs arising from the decommissioning of plant and other site preparation work, discounted to their
net present value, are provided for and capitalized at the start of each project to the carrying amount of the related
asset, as soon as the obligation to incur such costs arises and to the extent that such cost can be reasonably
estimated.
15 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2015 and 2014 (audited, in Canadian dollars)
3.
SUMMARY OF ACCOUNTING POLICIES (continued)
j)
Income taxes
When applicable, income tax on the profit or loss comprises current and deferred tax. Income tax is recognized in
profit or loss except to the extent that it relates to items recognized in other comprehensive income or directly in
equity, in which case it is recognized in other comprehensive income or directly in equity.
Current tax is the expected tax payable on the taxable profit for the period, using tax rates enacted or substantively
enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax is provided using the liability method, providing for temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.
However, deferred tax is not provided on the initial recognition of goodwill or on the initial recognition of an asset or
liability unless the related transaction is a business combination which affects tax or accounting profit. Deferred tax
on temporary differences associated with investments in subsidiaries is not provided for if reversal of these
temporary differences can be controlled by the Company and it is probable that reversal will not occur in the
foreseeable future. The amount of deferred tax provided is based on the expected manner of realization or
settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the
financial position reporting date and which are expected to apply when the related deferred income tax asset is
realized or the deferred income tax liability is settled. A deferred tax asset is recognized only to the extent that it is
probable that future taxable income will be available against which the asset can be utilized. Deferred tax assets
and liabilities are offset only when the Company has a legally enforceable right and intention to set-off current tax
assets and liabilities from the same taxation authority.
k)
Equity
Share capital represents the amount received on the issue of shares, less issuance costs. Contributed surplus
includes changes related to stock options and warrants until such equity instruments are exercised. Deficit includes
all current and prior year losses. Cumulative translation adjustment includes the impact of converting the accounts
of the Company’s foreign subsidiary into Canadian dollars. All transactions with owners of the parent company are
recorded separately within equity.
The Company allocates the proceeds from an equity financing between common shares and share purchase
warrants based on the relative fair values of each instrument. The fair value of the common shares is calculated by
using the TSXV share price on the date of the issuance and is accounted for in share capital and the fair value of
the share purchase warrants is determined using the Black-Scholes valuation model and is accounted for in
contributed surplus. In the event of a modification of the original terms of warrants, the Company elects to not
recognize the fair value adjustment.
16 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2015 and 2014 (audited, in Canadian dollars)
3.
SUMMARY OF ACCOUNTING POLICIES (continued)
l)
Share-based payment transactions
Equity-settled share-based payments are made in exchange for services received and transactions related to
mineral properties and are measured at their fair value. The fair value of the services rendered or the mineral
property transaction is determined indirectly by reference to the fair value of the equity instruments granted when
the fair value of services rendered or the mineral property transaction cannot be reliably estimated. The fair value of
share-based payments to directors, officers, employees and consultants with employee-related functions is
recognized as an expense over the vesting period (the vesting being conditional in certain instances on the
achievement of defined performance conditions) with a corresponding increase to contributed surplus. Financing
warrants and warrants to brokers, in respect of an equity financing, are recognized as a share issue expense with a
corresponding increase to contributed surplus. The fair value of stock options granted is measured at the grant date
and recognized over the period during which the options vest. The fair value of the options granted is measured
using the Black-Scholes option pricing model and taking into account an estimated forfeiture rate and the terms and
conditions upon which the options were granted. At each financial position reporting date, the amount recognized as
an expense is adjusted to reflect the actual number of stock options that are expected to vest. Upon the exercise of
share-based payments, the proceeds received, net of any direct expenses, as well as the related compensation
expense previously recorded as contributed surplus are credited to share capital.
m)
Loss per share
The Company presents basic and diluted loss per share data for its common shares. Basic loss per share is
calculated by dividing the loss attributable to common shareholders of the Company by the weighted average
number of common shares outstanding during the period. Diluted loss per share is determined by adjusting the loss
attributable to common shareholders and the weighted average number of common shares outstanding for the
effects of all dilutive potential common shares. Dilutive potential common shares are deemed to have been
converted into common shares at the beginning of the period or, if later, at the date of issue of the potential common
shares. For the purpose of calculating diluted loss per share, the Company assumes the exercise of its dilutive
options and warrants. The assumed proceeds from these instruments are regarded as having been received from
the issue of common shares at the average market price of its shares during the period.
17 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2015 and 2014 (audited, in Canadian dollars)
3.
SUMMARY OF ACCOUNTING POLICIES (continued)
n)
Significant accounting judgments and estimates
The preparation of these consolidated financial statements requires management to make certain estimates,
judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated
financial statements and reported amounts of expenses during the reporting period. Actual outcomes could differ
from these estimates. These consolidated financial statements include estimates which, by their nature, are
uncertain and may require accounting adjustments based on future occurrences. Revisions to accounting estimates,
judgments and assumptions are recognized in the period in which the estimate is revised and future period if the
revision affects both current and future period. These estimates, judgments and assumptions are based on historical
experience, current and future economic conditions and other factors, including expectations of future events that
are believed to be reasonable under the circumstances. Significant assumptions about the future and other sources
of estimation uncertainty that management has made at the financial position reporting date, that could result in a
material adjustment to the carrying amounts of assets and liabilities, in the event that actual results differ from the
assumptions made, relate to, but are not limited to the following:
Title to mineral property interests
Although the Company has taken steps to verify title to mineral properties in which it has an interest, these
procedures are subject to certain assumptions and do not guarantee the Company‘s title. Such properties may be
subject to prior agreements or transfers and title may be affected by undetected defects.
The final closing of the acquisition of the White Pine Project will be completed once the Company has i) released
Copper Range Company (“CRC”) of a US$2.85 million financial assurance letter of credit associated with the
remediation and closure plan of the previous White Pine operation in a manner that is acceptable to all parties
involved, including the applicable governmental authorities; and ii) released CRC from its environmental obligations
with the Michigan Department of Environmental Quality (“MDEQ”). The Company has determined that there is no
indication that it will not be able to meet these conditions. However, meeting these conditions is dependent on a
number of factors, not all of which are under the Company’s control, and there is no assurance that they will be met
(Note 5).
Because the Company is not in a position to provide a feasibility study on the Keweenaw Project by October 26,
2015, the Company must negotiate an amendment to the agreement with BRP LLC (“BRP”) in order to maintain its
option to acquire a 65% interest in the Keweenaw Project. The Company is in discussions with BRP to this effect
and an amended agreement is being drafted. The Company believes that it will be able to come to terms with BRP
on an amended option agreement, but not all factors are under the Company’s control. There is therefore
uncertainty that an amended agreement with BRP will be completed.
18 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2015 and 2014 (audited, in Canadian dollars)
3.
SUMMARY OF ACCOUNTING POLICIES (continued)
n)
Significant accounting judgments and estimates (continued)
Exploration and evaluation expenditures
The application of the Company‘s accounting policy for exploration and evaluation expenditure requires judgment in
determining whether it is likely that future economic benefits will flow to the Company. If, after exploration and
evaluation expenditures are capitalized, information becomes available suggesting that the carrying amount of an
exploration and evaluation asset may exceed its recoverable amount, the Company carries out an impairment test in
the year the new information becomes available. The Company has determined that there are currently no
indicators of impairment.
Environmental liability
The Company’s accounting policy for the recognition of an environmental liability requires significant estimates and
assumptions such as the requirements of the relevant legal and regulatory framework, the magnitude of possible
disturbance, the timing, extent, and costs of rehabilitation activities and the determination of an appropriate discount
factor. Changes to these estimates and assumptions may result in future actual expenditures differing from the
amounts currently provided for. The environmental liability is periodically reviewed and updated based on the
available facts and circumstances.
19 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2015 and 2014 (audited, in Canadian dollars)
3.
SUMMARY OF ACCOUNTING POLICIES (continued)
o)
New accounting pronouncements
Certain pronouncements issued by the International Accounting Standards Board (“IASB”) became mandatory for
accounting periods beginning on or after January 1, 2014. The following new standards and amendments have
been adopted by the Company in preparing these consolidated financial statements.
IAS 32, Financial instruments - presentation
The IASB published amendments to IAS 32 to provide clarifications on the requirements for offsetting of financial
assets and financial liabilities on the statement of financial position. The amendments are effective for annual
periods beginning on or after January 1, 2014 and should be applied retrospectively. The adoption of IAS 32 did not
have a significant impact on the Company’s consolidated financial statements.
IFRIC 21, Levies
IFRIC 21 is an interpretation on IAS 37, Provisions, Contingent Liabilities and Contingent Assets with respect to the
accounting for levies imposed by governments. IAS 37 sets out criteria for the recognition of a liability, one of which
is the requirements for the entity to have a present obligation as a result of a past event. The interpretation clarifies
that the obligating event is the activity described in the relevant legislation that triggers the payment of the levy.
IFRIC 21 is effective for annual periods beginning on or after January 1, 2014. The adoption of this standard did not
have a significant effect on the Company’s consolidated financial statements.
IAS 36, Impairment of assets
The IASB published amendments to the disclosures required by IAS 36, when the recoverable amount is
determined based on fair value less costs of disposal. The amendments are effective for annual periods beginning
on or after January 1, 2014 and be applied retroactively. The adoption of the amendments did not have a significant
impact on the Company’s consolidated financial statements.
20 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2015 and 2014 (audited, in Canadian dollars)
3.
SUMMARY OF ACCOUNTING POLICIES (continued)
p)
Accounting standards issued but not yet applied
Standards, amendments and interpretations issued but not yet effective up to the date of the issuance of these
consolidated financial statements that are expected to be relevant to the Company are listed below. Certain other
standards and interpretations have been issued but are not expected to have a material impact on the Company’s
consolidated financial statements.
Business combination accounting for interest in a joint operation (Amendments to IFRS 11)
On May 6, 2014, the IASB issued Accounting for Acquisitions of Interests in Joint Operations (Amendments to IFRS
11). The amendments apply prospectively for annual periods beginning on or after January 1, 2016. Earlier
application is permitted. The amendments require business combination accounting to be applied to acquisitions of
interests in a joint operation that constitute a business.
IFRS 9, Financial instruments
In November 2009 and October 2010, the IASB issued the first phase of IFRS 9, Financial Instruments. In
November 2013, the IASB issued a new general hedge accounting standard, which forms part of IFRS 9. The final
version of IFRS 9 was issued in July 2014 and includes a third measurement category for financial assets (fair value
through other comprehensive income) and a single, forward-looking ‘expected loss’ impairment model.
IFRS 9 replaces the current multiple classification and measurement models for financial assets and liabilities with a
single model that has three classification categories: amortized cost, fair value through other comprehensive income
and fair value through profit and loss. The basis of classification depends on the entity’s business model and the
contractual cash flow characteristics of the financial assets or liability. It also introduces limited changes relating to
financial liabilities and aligns hedge accounting more closely with risk management. The new standard is effective
for annual periods beginning on or after January 1, 2018 with early adoption permitted. Management is currently
reviewing the impact that this standard will have on its consolidated financial statements.
21 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2015 and 2014 (audited, in Canadian dollars)
4.
CAPITAL ASSETS
Capital assets subject to depreciation and amortization are presented below.
Computer
Intangible
equipment
Exploration
Leasehold
assets
Vehicles and furniture
equipment
improvements
$
$
$
$
$
Cost
Balance at June 30, 2013
54,374
177,874
121,533
Additions
67,856
52,099
Effect of foreign exchange
482
2,342
10,097
1,680
Balance at June 30, 2014
122,712
232,315
133,310
Additions
Disposals
1,406
49,229
1,280
-
(21,399)
-
321,583
100,483
3,731
425,797
16,157
-
Effect of foreign exchange
11,138
40,450
22,015
73,414
Balance at June 30, 2015
135,256
300,595
156,605
515,368
Accumulated depreciation and amortization
Balance at June 30, 2013
17,925
Depreciation and amortization
35,137
Effect of foreign exchange
90
57,918
64,016
693
59,110
50,226
700
85,948
117,935
756
Balance at June 30, 2014
53,152
122,627
110,036
204,639
Disposals
-
(1,336)
Depreciation and amortization
45,687
Effect of foreign exchange
8,163
86,197
26,217
-
15,619
18,970
Balance at June 30, 2015
107,002
233,705
144,625
-
140,378
43,860
388,877
69,111
-
1,085
70,196
-
-
11,918
82,114
36,804
28,152
463
65,419
-
5,251
11,444
82,114
Total
$
744,475
230,535
9,320
984,330
68,072
(21,399)
158,935
1,189,938
257,705
295,466
2,702
555,873
(1,336)
293,132
108,654
956,323
Carrying amounts
Balance at June 30, 2014
69,560
109,688
Balance at June 30, 2015
28,254
66,890
23,274
11,980
221,158
126,491
4,777
-
428,457
233,615
Included in capital assets are assets with a carrying amount of $20,725 at June 30, 2015 ($44,962 at June 30, 2014)
for use at the Company’s corporate office. All other capital assets relate to the Company’s exploration activities.
22 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2015 and 2014 (audited, in Canadian dollars)
5.
EXPLORATION AND EVALUATION ASSETS
Amounts invested in exploration and evaluation assets are as follows:
White Pine
Copperwood
Keweenaw
Leased
Project
Project
Project
Properties
$
$
Total
$
10,062,930
333,623
10,396,553
$
-
Balance, June 30, 2013
Property payments in cash and promissory note
$
-
-
Property payments in shares
1,450,000
-
10,000
23,105,743
260,625
41,811
23,408,179
Property acquisition expenses
359,978
1,106,681
Environmental liability
Site preparation, drilling and assaying
Labour
Studies
Other exploration expenses
Depreciation and amortization
Share-based remuneration
Finance expense
227,320
1,784,196
825,001
158,591
274,775
-
-
-
-
-
9,877
6,296
4,267
934
-
55,306
-
-
-
-
-
1,460,000
1,466,659
227,320
796,602
129,009
2,709,807
882,706
220,470
63,622
1,781,206
-
385,357
454,642
(59,171)
674,513
282,537
101,120
-
2,275
285,746
-
-
101,120
55,306
Effect of foreign exchange
(51,767)
(390,359)
131,782
4,512
(305,832)
5,028,094
23,898,745
3,140,484
182,058
32,249,381
Balance, June 30, 2014
5,028,094
23,898,745
13,203,414
515,681
42,645,934
Property payments in cash
Property payments in shares
Site preparation, drilling and assaying
Labour
Studies
Other exploration expenses
Depreciation and amortization
Gain on disposal of capital assets
Share-based remuneration
Finance expense
275,701
485,840
4,027,384
1,780,645
1,459,535
806,237
200,619
-
-
-
127,313
-
35,217
220,683
171,758
100,357
6,089
(7,774)
-
-
1,884
141,431
16,815
50,011
62,187
-
-
139,869
1,083,301
-
49,304
452,318
-
-
-
-
-
-
-
-
-
485,840
4,064,485
2,142,759
1,648,108
956,605
268,895
(7,774)
139,869
1,083,301
Effect of foreign exchange
1,383,146
4,168,972
2,027,221
108,355
7,687,694
10,419,107
5,905,916
2,439,418
157,659
18,922,100
Balance, June 30, 2015
15,447,201
29,804,661
15,642,832
673,340
61,568,034
23 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2015 and 2014 (audited, in Canadian dollars)
5.
EXPLORATION AND EVALUATION ASSETS (continued)
Lease Agreement, White Pine, Michigan, USA
On April 24, 2015, the Company entered into an agreement to lease certain mineral rights located in White Pine,
Michigan from a private Michigan limited liability corporation. The mineral lease is for 20 years, with an option for an
additional 5 years. Payment at closing consisted of US$225,000 in cash and the issuance of 2,164,701 common
shares of Highland valued at an amount of $485,840 (the number of shares being the equivalent of US$400,000
divided by the 20‐day volume weighted average trading price of Highland as of the day prior to closing). Additional
cash payments of US$425,000 and US$150,000 will be payable on the first and second anniversaries of closing.
Annual rent will also be payable on each anniversary of the lease. Upon commencement of production, Highland will
have to pay a sliding scale royalty on copper and silver production from the leased mineral rights with a base royalty
of 2% for copper and 2.5% for silver. The Company has an option to repurchase 50% of the royalties. Highland may
terminate the lease at any time upon a 30 day notice. Expenses related to this agreement are presented as part of
the White Pine Project (described in the following section) as the related mineral rights are located within the White
Pine Project.
White Pine Project, Michigan, USA
On May 13, 2014 (the interim closing date), the Company acquired from CRC, a subsidiary of First Quantum
Minerals Ltd., a TSX-listed company, all of CRC’s rights, title and interest in the White Pine Project and issued to
CRC 3,000,000 of its common shares valued at $1,500,000. Highland further agreed that, upon completion of a
feasibility study and receipt of all necessary permits for the development of a mine at White Pine, it will pay as
additional consideration, in cash or in common shares of Highland, at the option of CRC, an amount equal to
US$0.005 (one half of one cent) per pound for the first 1 billion pounds of proven and probable reserves of copper
and US$0.0025 (one quarter of one cent) for each additional pound of proven and probable reserves of copper (the
“Contingent Consideration”). At June 30, 2015, the Company has not yet estimated any proven and probable
reserves at the White Pine Project and has not yet completed a feasibility study or initiated the activities required to
obtain the necessary permits. Consequently, the Company has not included the contractual contingent liability in the
purchase consideration detailed below.
The final closing of the acquisition will be completed once Highland has (i) released CRC for a US$2.85 million
financial assurance letter of credit associated with the remediation and closure plan of the previous White Pine
operation in a manner that is acceptable to all parties involved, including the applicable governmental authorities;
and (ii) released CRC from its environmental obligations with the Michigan Department of Environmental Quality. At
that time, Highland will assume all of CRC’s environmental liabilities related to White Pine and will also be
responsible for all on-going environmental obligations. Final closing is anticipated to occur by December 31, 2015.
Should the Company not be able to meet the final closing conditions, it will not be able to complete the acquisition of
the White Pine Project.
24 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2015 and 2014 (audited, in Canadian dollars)
5.
EXPLORATION AND EVALUATION ASSETS (continued)
White Pine Project, Michigan, USA (continued)
Until final closing, Highland has access to White Pine under an access agreement entered into on March 5, 2014,
which entitles it to perform exploration, engineering and environmental studies and other activities associated with
the potential development of a new copper mine at White Pine, and CRC continues to be responsible for
environmental obligations and for remediation work up to a maximum of US$2 million. In determining the value of
the net assets acquired, the Company has taken into account estimated environmental work to be performed after
the anticipated final closing date of December 31, 2015. The Company determined that the White Pine Project was
not a business in accordance with the definition in IFRS 3, Business Combinations, and therefore it accounted for
the acquisition as an asset acquisition rather than a business combination.
The following table summarizes the fair value of the purchase price, including transaction costs and the amounts of
identified assets acquired and liabilities assumed:
Purchase price
Issuance of 3,000,000 common shares
Transaction costs
Net assets acquired
Capital assets
Exploration and evaluation assets
Environmental liability
Copperwood Project, Michigan, USA
$
1,500,000
359,978
1,859,978
50,000
2,037,293
(227,315)
1,859,978
On June 17, 2014, the Company acquired the Copperwood Project through the acquisition from Orvana Minerals
Corp., a TSX-listed company (“Orvana”), of all of the outstanding shares of Orvana Resources US Corp. (“Orvana
US”). Highland paid US$13 million in cash at closing and issued a US$7 million secured promissory note (the
“Note”) as described in Note 7. The Note was fully reimbursed on December 15, 2014. An additional consideration
of up to US$5,000,000 may be paid by Highland in cash or shares of Highland, at Orvana’s option, of which
US$2,500,000 was accounted for as “Future Consideration” and described in Note 8; an amount of US$1,250,000
may also be payable if the average copper price for any 60 calendar day period following the first anniversary and
preceding the second anniversary of commencement of commercial production is greater than US$4.25/lb; and an
additional amount of US$1,250,000 may be payable if the average copper price for any 60 calendar day period
following the second anniversary and preceding the third anniversary of the commencement of commercial
production is greater than US$4.50/lb (for a total of US$2,500,000 accounted for as the “Contingent Consideration”).
25 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2015 and 2014 (audited, in Canadian dollars)
5.
EXPLORATION AND EVALUATION ASSETS (continued)
Copperwood Project, Michigan, USA (continued)
The fair value of the Future Consideration has been included in the purchase consideration, using a discount rate of
20%, as these payments have a set maturity date. The contractual Contingent Consideration will only be recognized
if and when the contingency is satisfied.
The Company determined that the Copperwood Project was not a business in accordance with the definition in IFRS
3, Business Combinations, and therefore it accounted for the acquisition as an asset acquisition rather than a
business combination.
The Copperwood Project consists of a number of mineral leases, which call for annual rental payments until 2036.
The mineral leases are also subject to quarterly Net Smelter Return (“NSR”) royalty payments that will range from
2% to 4% on a sliding scale based on inflation-adjusted copper prices. Under the mineral leases, Orvana US will
have mineral rights until the later of the 20th anniversary of the date of the lease or the date Orvana US ceases to be
actively engaged in development, mining, or related operations on the property. The mineral leases may be
terminated by Orvana US, the Company’s wholly owned subsidiary, on 60 days’ notice.
The following table summarizes the fair value of the purchase price, including transaction costs and the amounts of
identified assets acquired and liabilities assumed:
Purchase price
Cash
Promissory note
Balance of purchase price
Transaction costs
Net assets acquired
Cash
Capital assets
Exploration and evaluation assets
Accounts payable and accrued liabilities
$
14,107,434
7,596,310
1,439,171
1,106,681
24,249,596
1,077
36,670
24,212,424
(575)
24,249,596
26 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2015 and 2014 (audited, in Canadian dollars)
5.
EXPLORATION AND EVALUATION ASSETS (continued)
Keweenaw Project, Michigan, USA
Under a Mining Venture Agreement (the “Venture Agreement”) with BRP dated July 2011 and subsequently
amended on May 30, 2012 and on April 29, 2013, the Company has an option to acquire a 65 percent interest in the
Keweenaw Project by spending US$11,500,000 in exploration work and providing a feasibility study by October 26,
2015. At June 30, 2015, a cumulative amount of US$13,076,000 had been spent on the Keweenaw Project but the
Company is not in a position to provide a feasibility study by the end of October 2015. To this end, the Company is
in discussions with BRP to obtain an extension to the Venture Agreement. However, there is no assurance that an
extension can be obtained. If an extension is not obtained, the Company will lose its option to acquire a 65 percent
interest in the Keweenaw Project. Under the terms of the Venture Agreement, the Company was also required to
make cash payments to BRP totalling US$750,000 (of which the last payment of US$250,000 was made on October
15, 2013) and issue to BRP a total of 200,000 common shares (of which the last tranche of 66,667 shares was
issued on October 15, 2013). Upon providing a feasibility study and exercising the option, the Company will have a
65% interest and BRP will have a 35% interest in the property. In addition, BRP will be entitled to a sliding scale
NSR royalty from production on those properties contributed by BRP based on the price per pound of copper with a
minimum of 2% up to a maximum of 5%. For other properties, BRP will be entitled to a 1% NSR.
Leased Properties, Michigan, USA
In December 2012, the Company entered into a lease agreement with a Michigan corporation for the exploration
and development of two areas totalling approximately 6,400 acres of mineral and surface ownership in the Upper
Peninsula of the State of Michigan. The lease has a primary term of 10 years and may be extended for an additional
10 years under certain conditions. The Company paid an amount of US$40,000 as rent during the year ended June
30, 2015 (US$35,000 in 2014). Annual payments will increase by US$5,000 per year until year 10. For years 11 to
20, the annual rental payments will be US$100,000 and will be treated as advance royalty payments. If the
Company completes a feasibility study and constructs and operates a mine on any part of the leased premises, it
has agreed to make certain fixed-amount payments and to pay a sliding scale NSR from production based on the
price per pound of copper.
Pre-exploration expenses
In accordance with the Company’s accounting policy on exploration and evaluation assets, costs incurred before the
legal right to undertake exploration and evaluation activities has been obtained are recognized in profit or loss when
they are incurred. Pre-exploration expenses in 2015 relate mostly work performed on properties under the Venture
Agreement with BRP whereas expenses in 2014 relate mostly to the White Pine Project prior to the Company
entering into an access agreement with CRC dated March 5, 2014.
27
Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2015 and 2014 (audited, in Canadian dollars)
6. DEPOSIT ON SALE OF ROYALTY
On December 15, 2014, Osisko made a $10 million refundable deposit on a 3% sliding-scale NSR royalty on all
metals from the White Pine North Project (the “White Pine North Royalty”). The Osisko deposit is secured against all
of the Company’s assets. Upon completion of the acquisition of the White Pine North Project, the Osisko deposit will
be exchanged for the White Pine North Royalty. In the event the acquisition of the White Pine North Project is not
completed by December 31, 2015, the Osisko deposit will become refundable and will bear interest at the rate of
Libor + 5%. The White Pine North Royalty will have a base rate of 3% and will increase by 0.01% for every $0.01
increase in the copper price above $3.00 per pound.
Option to purchase future silver production
In connection with the White Pine North Royalty, the Company also has granted to Osisko an option to purchase for
US$26 million a 100% NSR on any future silver production from the Company’s projects, including White Pine,
Copperwood and Keweenaw (the “Michigan Projects”). Osisko may elect to exercise the option to purchase the
silver production by paying US$26 million to the Company within 60 days following the delivery to Osisko of a
feasibility study on the Michigan Projects.
7.
PROMISSORY NOTE
On June 17, 2014, in connection with the acquisition of the Copperwood Project (Note 5), the Company had issued
a Note in the amount of US$7,000,000 to Orvana, bearing interest at an effective rate of 15.2%. On December 15,
2014, the Company reimbursed the Note in full and paid to Orvana an amount of $8,761,412, including accrued
interest of $620,412. The amount of the Note was established as follows:
Balance, beginning of year
Acquisition of the Copperwood Project
Effect of foreign exchange
Reimbursement
Balance, end of year
Year ended June 30,
2015
$
7,473,900
-
667,100
(8,141,000)
2014
$
-
7,596,310
(122,410)
-
-
7,473,900
28 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2015 and 2014 (audited, in Canadian dollars)
8. BALANCE OF PURCHASE PRICE PAYABLE
In connection with the acquisition of the Copperwood Project (Note 5), the Company has accounted for the
estimated fair value of the Future Consideration using a discount rate of 20%. The Future Consideration in the
amount of US$2,500,000 may be paid by Highland to Orvana in cash or shares of Highland, at Orvana’s option, with
US$1,250,000 payable upon the earliest of (i) commencement of commercial production of Copperwood and (ii) the
date that is 36 months after closing of the acquisition; and an additional US$1,250,000 on the first anniversary of
this payment. The balance of purchase price payable was determined as follows:
Balance, beginning of year
Acquisition of the Copperwood Project
Accretion included in exploration and evaluation assets
Effect of foreign exchange
Balance, end of year
9.
ENVIRONMENTAL LIABILITY
Year ended June 30,
2015
$
1,434,850
2014
$
-
-
1,439,171
499,325
273,255
18,870
(23,191)
2,207,430
1,434,850
The environmental liability consists of reclamation costs related to the acquisition of the White Pine Project (Note 5).
The undiscounted cash flow amount of the liability was estimated at $313,460 at June 30, 2015 and 2014 and the
present value of the liability was estimated at $227,315 at the date of the acquisition of the White Pine Project,
calculated using a discount rate of 8.0% and reflecting payments to be made from 2016 to 2023, inclusively.
Balance, beginning of year
Acquisition of the White Pine Project
Accretion expense
Effect of foreign exchange
Balance, end of year
Year ended June 30,
2015
$
225,022
-
17,403
39,324
281,749
2014
$
-
227,315
2,106
(4,399)
225,022
29 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2015 and 2014 (audited, in Canadian dollars)
10.
SHARE CAPITAL AND WARRANTS
Authorized
An unlimited number of common shares, issuable in series. The holders of common shares are entitled to one vote
per share at meetings of the Company and to receive dividends, which are declared from time-to-time. No dividends
have been declared by the Company since its inception. All shares are ranked equally with regard to the Company’s
residual assets.
Issuance of common shares
On April 24, 2015, the Company issued to a private Michigan limited liability corporation 2,164,701 of its common
shares at a value of $485,840 as partial consideration to enter into an agreement to lease certain mineral rights
located in White Pine, Michigan, as further described in Note 5.
In March 2015, the Company completed in three (3) tranches a non brokered private placement for gross proceeds
of $7,602,687 (the “Financing”). A total of 30,410,746 units, each unit comprised of one common share of the
Company and one half of one share purchase warrant (“Warrant”), were sold at $0.25 per unit. Each Warrant is
exercisable for a period of 18 months from the closing at an exercise price of $0.50 to acquire one common share.
Proceeds of the Financing were allocated between common shares and Warrants based on their relative fair values.
The fair value of the common shares was calculated by using the subscription price of the Financing and the value
of the Warrants was measured based on the Black-Scholes option pricing model, using a risk-free interest rate of
0.56%, an expected life of the Warrants of 1.5 years, an annualized volatility of 104% (determined by reference to
historical data) and a dividend rate of 0%. An amount of $1,144,191 was allocated to such Warrants and was
presented as part of contributed surplus. The Company paid finders’ fees totaling $181,250 and incurred other share
issue expenses of $42,286.
From March to June 2014, the Company completed in three tranches a non-brokered private placement of its
common shares by issuing 41,622,200 common shares at $0.50 per share for gross proceeds of $20,811,100.
Share issue expenses of $728,165 were incurred in relation with this private placement, including finder’s fees of
$661,310.
On May 13, 2014, the Company issued 3,000,000 common shares, valued at $1,500,000, in consideration for the
acquisition of the White Pine Project (Note 5).
The Company issued 66,667 common shares in October 2013, in accordance with the Venture Agreement with BRP
(Note 5), at a value of $10,000.
30 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2015 and 2014 (audited, in Canadian dollars)
10.
SHARE CAPITAL AND WARRANTS (continued)
Share purchase warrants
The following tables sets out the activity in share purchase warrants:
Number of warrants
Balance, beginning of year
Issued
Balance, end of year
Year ended June 30,
2015
2014
41,250,000
15,205,373
56,455,373
41,250,000
-
41,250,000
The following table reflects the number of issued and outstanding share purchase warrants at June 30, 2015:
Number of
warrants
June 30,
2014
Issued Exercised
Private placement – May 2012 (1)
41,250,000
-
Private placement – March 11, 2015
Private placement – March 20, 2015
Private placement – March 27, 2015
-
-
-
12,275,020
1,680,000
1,250,353
41,250,000
15,205,373
Average price
0.75
0.50
-
-
-
-
-
-
Number of
warrants
June 30,
2015
41,250,000
12,275,020
1,680,000
1,250,353
56,455,373
0.68
Price
per
share
$
0.75
0.50
0.50
0.50
0.68
Expiry date
Mar 31, 2016
Sep 11, 2016
Sep 20, 2016
Sep 27, 2016
(1)
In March 2015, the Company further extended the expiry date of the 41,250,000 share purchase warrants
originally issued in three tranches in May 2012 as part of a non brokered private placement of the Company’s
securities. The original expiry dates of May 2014 were previously extended to March 31, 2015. The new expiry
date is March 31, 2016 and the exercise price of $0.75 remains unchanged.
31 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2015 and 2014 (audited, in Canadian dollars)
11.
STOCK OPTIONS
The following table sets out the activity in stock options:
Year
ended
June 30,
2015
Year
ended
June 30,
2014
Average exercise
Average exercise
Number
price ($)
Number
price ($)
4,442,000
3,305,000
(150,000)
7,597,000
0.59
0.36
(0.65)
0.49
4,442,000
-
-
4,442,000
0.59
-
-
0.59
Number of options
Balance, beginning of year
Granted
Expired
Balance, end of year
On April 22, 2015, the Company granted 1,905,000 stock options to directors, officers, employees and consultants
of the Company. Of this total, 830,000 options will vest subject to the achievement of certain defined performance
objectives. The balance of 1,075,000 options will vest over a two-year period. The options have a five-year term and
are exercisable at a price of $0.25 per share. The fair value of the stock options was estimated at $0.14 per option
by applying the Black-Sholes option pricing model, using an expected time-period of 5 years, a semi-annual
weighted-average risk-free interest rate of 1.00%, a volatility rate of 137% and a 0% dividend factor.
On August 1, 2014, the Company granted 1,400,000 stock options to officers of the Company. The stock options
have a five year term and are exercisable at a price of $0.50 per share. A total of 700,000 of the stock options
granted vested on the date of grant and 700,000 vested on December 1, 2014. The fair value of the stock options
was estimated at $0.44 per option by applying the Black-Sholes option pricing model, using an expected time-period
of 5 years, a semi-annual weighted-average risk-free interest rate of 1.46%, a volatility rate of 145% and a 0%
dividend factor.
At June 30, 2015, an amount of $144,509 of cost remains to be amortized in future periods (until April 2017) related
to the grant of stock options.
32 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2015 and 2014 (audited, in Canadian dollars)
11.
STOCK OPTIONS (continued)
The following table reflects the stock options issued and outstanding at June 30, 2015:
Issue date
options
price
contratual life
options
options
Number of
Exercise
Remaining
exercisable
exercisable
Number of
Exercise
price of
September 22, 2006
July 6, 2012
November 5, 2012
August 1, 2014
April 21, 2015
12.
LOSS PER SHARE
2,000
400,000
3,890,000
1,400,000
1,905,000
7,597,000
$
1.00
0.50
0.60
0.50
0.25
0.49
(years)
1.2
2.0
2.3
4.1
4.8
3.3
2,000
400,000
3,890,000
1,400,000
358,333
6,050,333
$
1.00
0.50
0.60
0.50
0.25
0.55
The calculation of basic and diluted loss per share for the year ended June 30, 2015 was based on the loss
attributable to common shareholders of $3,142,794 ($3,423,219 in 2014) and the weighted average number of
common shares outstanding of 106,419,831 (55,316,991 in 2014).
Excluded from the calculation of the diluted loss per share for the year ended June 30, 2015 are 56,455,373 share
purchase warrants and 7,597,000 stock options (41,250,000 share purchase warrants and 4,442,000 stock options
in 2014) because to include them would be anti-dilutive as they would have the effect of decreasing the loss per
share.
33 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2015 and 2014 (audited, in Canadian dollars)
13. MANAGEMENT AND ADMINISTRATION EXPENSES
The Company incurred the following management and administration expenses:
Administrative and general
Office
Professional fees
Investor relations and travel
Reporting issuer costs
Share-based remuneration
Depreciation and amortization
14. RELATED PARTY TRANSACTIONS
Year ended June 30,
2014
$
490,781
116,225
254,724
320,140
21,433
511,202
9,720
2015
$
1,348,384
257,624
459,894
298,152
31,511
667,777
24,237
3,087,579
1,724,225
During the year ended June 30, 2015, the Company incurred administration expenses of $495,633 from Reunion
Gold Corporation, a related party by virtue of common management and directors (administration expenses of
$241,917 and the purchase of capital assets of $41,000 from Reunion Gold Corporation in 2014). At June 30, 2015,
the Company had an amount due to Reunion Gold Corporation of $8,022 (nil at June 30, 2014).
These charges were measured at the exchange amount, which is the amount agreed upon by the transacting
parties.
Remuneration of directors and key management of the Company
The remuneration awarded to directors and to senior key management, including the Executive Chairman, the
President and CEO, the Executive Vice-President and the CFO, is as follows:
Salaries, benefits and director fees
Consulting fees
Share-based remuneration
2015
$
660,474
423,437
568,861
1,652,772
Year ended June 30,
2014
$
88,019
425,302
483,906
997,227
34 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2015 and 2014 (audited, in Canadian dollars)
15.
INCOME TAXES
The reconciliation of the effective tax rate is as follows:
2015
$
Year ended June 30,
2014
$
Loss before income tax
(3,142,794)
(3,423,219)
Tax using the Company’s domestic tax rate
26.90%
(845,412)
26.90%
(920,845)
Share-based remuneration
Non-deductible expenses and non-taxable revenues
Effect of tax rate in foreign jurisdictions
Unrecognized tax assets
Other
Deferred income tax
(5.72%)
(0.05%)
0.58%
(29.94%)
8.23%
-
179,632
(4.02%)
1,603
(18,347)
941,013
(258,489)
0.64%
5.50%
(29.28%)
0.26%
-
-
137,513
(21,781)
(188,478)
1,002,321
(8,730)
-
Recognized deferred tax assets and liabilities are attributable to the following:
Exploration and evaluation assets
Non-capital loss carry-forwards
Offsetting of tax assets and liabilities
Exploration and evaluation assets
Non-capital loss carry-forwards
Offsetting of tax assets and liabilities
June 30, 2015
Net
$
$
Assets
Liabilities
$
-
(2,270,440)
(2,270,440)
2,270,440
-
2,270,440
2,270,440
(2,270,440)
(2,270,440)
2,270,440
-
-
-
-
-
Assets
Liabilities
June 30, 2014
Net
$
$
(177,576)
(177,576)
-
177,576
(177,576)
177,576
-
-
-
-
$
-
177,576
177,576
(177,576)
-
35 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2015 and 2014 (audited, in Canadian dollars)
15.
INCOME TAXES (continued)
Unrecognized deductible temporary differences for which no deferred tax assets have been recognized are as
follows:
Non-capital loss carry-forwards
Capital assets
Exploration and evaluation assets
Share issue expenses
Financing expenses
Non-capital loss carry-forwards
Capital assets
Exploration and evaluation assets
Share issue expenses
Canada
$
June 30, 2015
Total
$
USA
$
7,778,259
2,393,403
10,171,662
39,904
528,035
1,294,069
675,483
148,651
-
-
-
567,939
1,294,069
675,483
148,651
9,936,366
2,921,438
12,857,804
Canada
$
June 30, 2014
Total
$
USA
$
5,517,245
1,618,932
7,136,177
15,667
327,408
1,352,051
736,067
-
-
343,075
1,352,051
736,067
7,621,030
1,946,340
9,567,370
Deferred tax assets have not been recognised in respect of these items because it is not probable that future
taxable profit will be available against which the Company can utilise these benefits.
Non-capital losses expire as follows:
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
Canada
$
103,000
120,000
304,000
538,000
744,000
951,000
1,370,000
96,000
1,136,000
2,416,000
7,778,000
USA
$
-
-
-
-
-
-
-
477,000
1,142,000
774,000
2,393,000
36 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2015 and 2014 (audited, in Canadian dollars)
16. CAPITAL MANAGEMENT
The Company defines capital that it manages as loans (including deposit on sale of royalty, promissory note and
balance of purchase price payable) and shareholders’ equity. When managing capital, the Company’s objectives are
a) to ensure the entity continues as a going concern; b) to increase the value of the entity’s assets; and c) to achieve
optimal returns to shareholders. These objectives will be achieved by identifying the right exploration projects,
adding value to these projects and ultimately taking them to production or obtaining sufficient proceeds from their
disposal. As at June 30, 2015, managed capital was $59,515,059 ($44,323,041 at June 30, 2014).
The Company’s properties are in the exploration and development stage and, as a result, the Company currently
has no source of operating cash flows. The Company intends to raise such funds as and when required to complete
the exploration and development of its projects. There is no assurance that the Company will be able to raise
additional funds on reasonable terms. The only sources of future funds presently available to the Company are
through the sale of equity capital of the Company, the exercise of outstanding warrants or stock options, or the sale
by the Company of an interest in any of its properties in whole or in part. The ability of the Company to arrange such
financing in the future will depend in part upon the prevailing capital market conditions as well as the business
performance of the Company. There can be no assurance that the Company will be successful in its efforts to
arrange additional financing on terms satisfactory to the Company. There were no changes in the Company’s
approach to capital management during the year ended June 30, 2015. The Company is not subject to any
externally imposed capital requirements as at June 30, 2015.
37 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2015 and 2014 (audited, in Canadian dollars)
17.
FINANCIAL RISK MANAGEMENT
The Company thoroughly examines the various financial risks to which it is exposed and assesses the impact and
likelihood of those risks. Where material, these risks are reviewed and monitored by the Board of Directors. There
were no changes to the financial objectives, policies and processes during the year ended June 30, 2015.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The
Company’s ability to continue as a going concern is dependent on management’s ability to raise the funds required
for its continued operations as the Company generates cash flow from its financing activities (Note 2).
The following table summarizes the contractual maturities of the Company’s financial liabilities at June 30, 2015:
Carrying
Settlement
amount
amount
$
$
Within
1 year
$
Accounts payable and accrued liabilities
3,146,097
3,146,097
3,146,097
Due to a related party
8,022
8,022
8,022
Deposit on sale of royalty
10,000,000
10,000,000
10,000,000
Balance of purchase price payable
2,207,430
3,122,500
-
3,122,500
15,361,549
16,276,619
13,154,119
3,122,500
Credit risk
Over
2-3 years
3 years
$
-
-
-
$
-
-
-
-
-
At June 30, 2015, the Company’s financial assets exposed to credit risk are primarily composed of cash. To mitigate
exposure to credit risk, the Company has established a policy to ensure counterparties demonstrate minimum
acceptable credit worthiness, and to ensure liquidity of available funds. The Company’s cash is held with large
financial institutions, with most of the Company’s cash held with a Canadian-based financial institution.
38 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2015 and 2014 (audited, in Canadian dollars)
17.
FINANCIAL RISK MANAGEMENT (continued)
Interest rate risk
The Company’s interest risk relates to cash. The Company's current policy on its cash balances is to invest excess
cash in guaranteed investment certificates or interest bearing accounts with a major Canadian-based chartered
bank. The Company regularly monitors compliance to its cash management policy. Cash is subject to floating
interest rates. Sensitivity to a plus or minus 1% change in interest rates would affect profit or loss by approximately
$10,000.
Currency risk
In the normal course of operations, the Company is exposed to currency risk on transactions that are denominated
in a currency other than the respective functional currencies of each of the entities within the consolidated group.
The currencies in which these transactions are denominated are primarily the Canadian and the US dollar. The
consolidated entity seeks to minimise its exposure to currency risk by monitoring exchange rates and entering into
foreign currency transactions that maximize the consolidated entity’s position. The consolidated entity does not
presently enter into hedging arrangements to hedge its currency risk. All foreign currency transactions are entered
into at spot rates. The Board considers this policy appropriate, taking into account the consolidated entity’s size,
current stage of operations, financial position and the Board’s approach to risk management. At June 30, 2015,
financial assets and liabilities denominated in a foreign currency consisted of cash of $91,504, and accounts
payable and accrued liabilities of $670,464. The impact on profit or loss of a 10% increase or decrease in foreign
currencies against the Canadian dollar would be approximately $58,000.
18. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash, accounts payable and accrued liabilities and due to a related party are considered to be
a reasonable approximation of fair value due to their immediate or short-term maturity. The fair value of the balance
of purchase price payable at June 30, 2015 was determined based on discounted cash flows using a rate of 20%
(20% at June 30, 2014), a rate similar to other debt instruments at the date of the consolidated statement of financial
position.
39 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2015 and 2014 (audited, in Canadian dollars)
19. SUPPLEMENTAL CASH FLOW INFORMATION
Non-cash items
Payables and accruals related to exploration and evaluation assets
Depreciation and amortization included in exploration and evaluation assets
Gain on disposal included in exploration and evaluation assets
Environmental liability included in exploration and evaluation assets
Promissory note related to exploration and evaluation assets
Balance of purchase price payable related to exploration and evaluation assets
Accretion on balance of purchase price payable included in exploration and evaluation assets
Share-based remuneration included in exploration and evaluation assets
Shares issued included in capital assets
Year ended June 30,
2015
$
1,429,300
268,895
(7,774)
-
-
-
499,325
139,869
-
2014
$
712,058
285,746
-
227,320
7,596,310
1,439,171
18,870
101,120
50,000
Shares issued included in exploration and evaluation assets
485,840
1,460,000
20. SEGMENTED INFORMATION
The Company has one reportable operating segment being the acquisition and exploration of mineral properties in
Michigan, USA. Assets are located as follows:
Current assets
Capital assets
Exploration and evaluation assets
Total assets
Current assets
Capital assets
Exploration and evaluation assets
Total assets
Canada
$
June 30, 2015
Total
$
USA
$
1,107,655
20,725
41,623
212,890
1,149,278
233,615
-
61,568,034
61,568,034
1,128,380
61,822,547
62,950,927
Canada
$
June 30, 2014
Total
$
USA
$
3,403,109
44,962
58,513
383,495
3,461,622
428,457
-
42,645,934
42,645,934
3,448,071
43,087,942
46,536,013
40 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2015 and 2014 (audited, in Canadian dollars)
21. EVENT AFTER THE REPORTING DATE
On October 6, 2015, the Company completed a non-brokered private placement of 24,426,434 common shares with
Osisko at a price of $0.15 per share for gross proceeds of $3,663,965. Following completion of the private
placement, the Company has 153,968,626 shares issued and outstanding and Osisko owns 29,420,434 shares
(representing approximately 19.1% of the issued and outstanding shares of Highland on a non-diluted basis).
41 MANAGEMENT’S DISCUSSION & ANALYSIS
Year ended June 30, 2015
HIGHLAND COPPER COMPANY INC.
MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS FOR THE
YEAR ENDED JUNE 30, 2015
The following management’s discussion and analysis (“MD&A”) of the operations, results, and financial position of Highland
Copper Company Inc. (“Highland” or the “Company”), dated October 15, 2015, covers the years ended June 30, 2015 and
2014 and should be read in conjunction with the audited consolidated financial statements and related notes at June 30, 2015
and 2014 (the “June 30, 2015 and 2014 consolidated financial statements”). The June 30, 2015 and 2014 consolidated
financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”). All financial
results presented in this MD&A are expressed in Canadian dollars unless otherwise indicated.
DESCRIPTION OF BUSINESS
Highland is a Canadian-based company engaged in the acquisition, exploration and development of mineral properties. The
Company’s mineral projects are located in Michigan, USA. Highland’s common shares are listed on the TSX Venture
Exchange (“TSXV”) under the symbol HI. At October 15, 2015, the Company had 153,968,626 common shares issued and
outstanding.
The Company has assembled a number of advanced-stage copper projects located in Michigan’s Upper Peninsula region,
including Copperwood, a feasibility stage project, acquired in June 2014 from Orvana Minerals Corp. (“Orvana”), White Pine
North, acquired in May 2014 from a wholly-owned subsidiary of First Quantum Minerals Ltd. (subject to final closing expected
to occur by December 31, 2015) and Keweenaw, which includes the 543S and G-2 deposits (subject to the exercise of an
option to acquire a 65% interest in the project from BRP LLC). The Company has also entered into lease agreements entitling
the Company to explore and develop certain other projects located in the same area.
FINANCIAL CONDITION
At June 30, 2015, the Company had a working capital deficit of $12.0 million. This amount includes a $10.0 million refundable
deposit to be exchanged for a royalty on all metals from the White Pine North Project on completion of the acquisition of the
White Pine project (see details of the $10.0 million refundable deposit under Financing Activities section). The Company
requires additional funds to meet all of its obligations, to pursue exploration and development work on its mineral projects, to
provide for management and administration expenses, and to ensure the Company’s ability to continue as a going concern.
On October 6, 2015, the Company completed a private placement with Osisko Gold Royalties Ltd., a TSX-listed company,
(“Osisko”) and issued 24,426,434 common shares for a total consideration of $3,663,965 (see detail under Financing Activities
section). However, the Company will require additional funds to meet its exploration and development objectives and to
provide for management and administration expenses for at least the next 12 months. Such funding requirements may be met
in the future in a number of ways, including the issuance of securities, debt financing, joint venture or other arrangements.
There can be no assurance that the Company will be able to raise the funds required. If the Company is not successful in
raising additional funds and it is not able to complete the acquisition of the White Pine project, the Company may not be able
to refund the $10.0 million deposit described above and it may be required to delay, reduce the scope of, or eliminate its
current or future exploration and development activities.
2
Management’s Discussion and Analysis
Year ended June 30, 2015
FINANCING ACTIVITIES
Private Placements
On October 6, 2015, the Company completed a non-brokered private placement of 24,426,434 common shares with Osisko at
a price of $0.15 per share for gross proceeds of $3,663,965. Following completion of the private placement, the Company has
153,968,626 shares issued and outstanding and Osisko owns 29,420,434 shares (representing approximately 19.1% of the
issued and outstanding shares of Highland on a non-diluted basis).
In March 2015, the Company completed in three (3) tranches a non brokered private placement for gross proceeds of
$7,602,687. A total of 30,410,746 units, each unit comprised of one common share of the Company and one half of one share
purchase warrant (“Warrant”), were sold at $0.25 per unit. Each Warrant is exercisable for a period of 18 months from the
closing at an exercise price of $0.50 to acquire one common share of the Company. The Company paid finders’ fees totaling
$181,250 in connection with this private placement.
Royalty agreements with Osisko
On December 15, 2014, Osisko made a $10.0 million refundable deposit on a 3% sliding-scale net smelter return (“NSR”)
royalty on all metals from the White Pine North Project (the “White Pine North Royalty”). The Osisko deposit is secured against
all of the Company’s assets. Upon completion of the acquisition of the White Pine North Project, the Osisko deposit will be
exchanged for the White Pine North Royalty. In the event the acquisition of the White Pine North Project is not completed by
December 31, 2015, the Osisko deposit will need to be refunded and will bear interest at the rate of Libor + 5% until it is
refunded. The White Pine North Royalty will have a base rate of 3% and will increase by 0.01% for every $0.01 increase in the
copper price above $3.00 per pound.
In addition, the Company has granted to Osisko an option to purchase for US$26 million any future silver production from the
Company’s Michigan projects, including White Pine and Copperwood (the “Silver Royalty”). Osisko may elect to exercise the
option to purchase the silver production by paying US$26 million to the Company within 60 days following the delivery to
Osisko of a feasibility study on the Michigan projects.
As part of the White Pine North Royalty transaction, Osisko has the right to nominate one director to the Board of Highland.
Osisko will also be entitled to nominate one additional director to the Board of Highland if it exercises the Silver Royalty option.
Reimbursement of Note due to Orvana
A portion of the proceeds from the Osisko $10.0 million deposit was used to reimburse the US$7 million promissory note and
accrued interest due to Orvana for the acquisition of the Copperwood project (see Copperwood Project section).
3
Management’s Discussion and Analysis
Year ended June 30, 2015
Extension of Expiry Date of 2012 Warrants
In March 2015, the Company further extended the term of the 41,250,000 share purchase warrants originally issued in three
tranches as part of a non-brokered private placement of the Company’s securities in May 2012. The original expiry dates of
May 2014 were previously extended to March 31, 2015. The new expiry date is March 31, 2016 and the exercise price of
$0.75 remains unchanged.
Grant of Stock Options
On August 1, 2014, the Company granted 1,400,000 stock options to officers of the Company. These stock options have a five
year term, are exercisable at a price of $0.50 per share and have fully vested at June 30, 2015. On April 22, 2015, the
Company granted an aggregate of 1,905,000 stock options to directors, officers, employees and consultants of the Company.
The options are exercisable for a period of five years at an exercise price of $0.25 per share. A total of 830,000 options will
vest subject to the achievement of certain defined performance objectives. The balance of 1,075,000 options will vest over a
two-year period.
EXPLORATION AND DEVELOPMENT ACTIVITIES
During the financial year ended June 30, 2015, the Company has conducted exploration and development activities on its
Michigan projects as more particularly described below.
Copperwood Resource Estimate
On May 11, 2015, the Company announced a mineral resource estimate for its 100%-owned Copperwood Project located in
Gogebic County, western Upper Peninsula of Michigan, and on June 25, 2015 the Company filed on SEDAR a NI 43-101
technical report in support of the resource estimate. The mineral resource estimate presented in the following table was
prepared by G Mining Services Inc. (“G Mining”), an independent Canadian mining consultant. The current mineral resource
estimate is based on 1,726 assay results from 324 diamond drill holes totaling 59,230 meters, drilled by three companies
between 1956 and 2013.
Copperwood Project
Mineral Resource Estimate – April 15, 2015
Deposits
Resource
Category
Tonnage
(Mt)
Copper
Grade
(%)
Silver
Grade
(g/t)
Copper
Contained
(M lbs)
Silver
Contained
(M oz)
Measured
22.5
1.73
5.08
Copperwood
Indicated
M + I
Inferred
Satellites
Inferred
6.6
29.1
1.9
38.6
861
200
1.37
2.56
1.65
4.51
1061
1.24
2.36
52
1.23
2.09
1050
3.7
0.5
4.2
0.1
2.6
4
Management’s Discussion and Analysis
Year ended June 30, 2015
Notes on Mineral Resource Estimate
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
Mineral Resources are reported using a copper price of $3.00/lb and a silver price of $20/oz.
A payable rate of 96.5% for copper and 90% for silver was assumed.
The Copperwood feasibility study reported metallurgical testing with recovery of 86% for copper and 50% for silver.
Cut-off grade of 1.0% copper was used.
Operating costs are estimated at $49/t of ore including ore transportation to a plant at the White Pine site.
An NSR sliding scale royalty is applicable and equivalent to 3.0% at $3.00/lb.
Measured, Indicated and Inferred Mineral Resources have a drill hole spacing of 175 m, 250 m and 350 m, respectively.
No mining dilution and mining loss were considered for the Mineral Resources.
Rock bulk densities are based on rock types, % copper and proximity to specific gravity measurements.
Classification of Mineral Resources conforms to CIM definitions.
The qualified person for the estimate is Mr. Réjean Sirois, P. Eng., Vice President Geology and Resources of G Mining. The
estimate has an effective date of April 15, 2015.
Mineral resources, which are not mineral reserves, do not have demonstrated economic viability. The estimate of mineral resources
may be materially affected by environmental, permitting, legal, title, taxation, sociopolitical, marketing, or other relevant issues.
The quantity and grade of reported inferred resources in this estimation are uncertain in nature and there has been insufficient
exploration to define these inferred resources as indicated or measured mineral resources.
Resource Drilling at White Pine North
During January and February 2015, Highland completed 27 diamond drill holes totaling 19,152 meters over an area of
approximately eight square kilometers at the White Pine North deposit, Ontonagon County. Two holes were cased for re-entry
at a later date because of spring melting. Six holes were inclined to obtain structural data for geotechnical studies and were
surveyed with televiewer technology. The program used HQ core size and recoveries averaged over 99 percent. Highland
designed its 2015 winter drilling program primarily to (i) infill the historical drill grid to prepare an estimate of mineral resource
and (ii) obtain information to guide mine planning. The program was successful and the results from this second phase infill
drilling (news release of April 23, 2015) are consistent with results from Highland’s 2014 drilling program (news release of July
3, 2014) and confirmed copper-silver mineralization from adjacent historical drill holes completed by the previous operator.
Highland also completed seven wedges to obtain approximately 200 kg of mineralized samples for metallurgical testing. The
Company maintains a rigorous QA/QC program with respect to the preparation, shipping, analysis and checking of all samples
and data from the properties. Activation Laboratories in Thunder Bay, Ontario, Canada (IOS 17025 accreditation) assayed all
samples from the 2015 winter drilling program using an ICP method tailored for the project samples.
543S Resource Estimate
On August 25, 2014, the Company announced an initial resource estimate for the 543S copper deposit which is part of the
Keweenaw Project, Keweenaw County, and a NI 43-101 technical report in support of the resource was filed on SEDAR on
October 9, 2014. The mineral resource estimate was prepared by G Mining. After a detailed review of different options,
Highland and G Mining have opted to report the mineral resources for potential underground development of the 543S deposit.
This initial mineral resource estimate for the 543S copper deposit is based on 262 diamond drill holes totaling 45,608 m, of
which 220 are NQ core size and 42 HQ core size, on a drill grid spaced 30.5 m by 15 m. Refer to the August 25, 2014 press
release for further detail related to this initial resource estimate of the 543S deposit.
5
Management’s Discussion and Analysis
Year ended June 30, 2015
543S Copper & Silver Project – Base Case - Underground Scenario
Mineral Resource Estimate – July 5, 2014
Resource
Category
Indicated
Inferred
Cut-Off
Grade
Cu Eq. (%)
Tonnage
('000 t)
Grade
Cu Eq. (%)
Grade
Cu (%)
Copper
('000 lbs)
Grade
Ag (g/t)
Silver
('000 oz)
1.9
1.9
1,518
193
3.31
3.12
3.27
3.08
109,514
13,116
5.1
4.8
248
30
Notes on Mineral Resource
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
Cu Equivalent = Cu% + (Ag g/t * 20$/oz * 80% * 90%) / (22.0462 lbs/10kg * 3$/lb * 31.1035 g/oz * 90% * 96.5%)
Mineral Resources are reported using a copper price of 3$/lb and a silver price of 20$/oz
A payable rate of 96.5% for copper and 90% for silver was assumed
Preliminary metallurgical testing suggests recovery of 90% for copper and 80% for silver
Cut-off grade of 1.9% Cu Eq. was used
Underground mining costs are estimated at 57.27$/t of ore
Production costs are estimated at 37.50$/t of ore: 12.00$/t for processing, 2.50$/t for general and administrative costs, 0.50$/t for
tailings and 22.50$/t for ore transportation to White Pine Complex
A 5% royalty was used (4.99$/t ore)
No mining dilution and mining loss were considered for the Mineral Resources
Rock bulk densities are based on rock types, %Cu and proximity to specific gravity measurements
Assay capping was applied to some mineralized domains
Classification of Mineral Resources conforms to CIM definitions
The qualified person for the estimate is Mr. Réjean Sirois, eng., Vice President Geology and Resources of G Mining.
Mineral resources, which are not mineral reserves, do not have demonstrated economic viability. The estimate of mineral resources
may be materially affected by environmental, permitting, legal, title, taxation, sociopolitical, marketing, or other relevant issues.
The quantity and grade of reported inferred resources in this estimation are uncertain in nature and there has been insufficient
exploration to define these inferred resources as indicated or measured mineral resources.
Pre-Feasibility Study
During the financial year ended June 30, 2015, work on several disciplines as part of a pre-feasibility study (“PFS”) were
conducted. G Mining is managing the PFS, which began in September 2014. Other independent technical consultants have
also been retained to conduct certain work. The main purpose of the study is to consider and assess the potential
development of the Company’s Michigan projects through a centralized processing facility to be located at the White Pine site,
which could also benefit from existing infrastructures. The White Pine brownfield site is being considered for several
infrastructure installations such as tailings basins, water and natural gas pipelines, rail spur, electrical substation, and
warehousing, to minimize impact on greenfield areas. As part of the PFS, the Company is re-assessing the mine plan
previously proposed for the Copperwood deposit. The Company has retained COREM, a Quebec-based research laboratory,
to conduct metallurgical studies of the White Pine North and Copperwood mineralized samples obtained from drill core and
channel samples from underground pillars. The main focus of COREM’s work is process scheme development. Testing was
designed to validate and improve historical performances from the previous White Pine mine operations. Preliminary open
tests results are encouraging, having already produced a concentrate grading around 30% Cu at an average 88% Cu recovery.
The collector being used has proven very suitable for silver flotation, indicating recoveries greater than 90%.
Golder Associates has been retained to analyze the alternatives for tailings disposal for the projects, particularly at the
possibility of a combined facility at the White Pine site. Golder has also been looking at water management issues related to
the various tailings disposal scenarios.
6
Management’s Discussion and Analysis
Year ended June 30, 2015
MHF Services, an Energy Solutions subsidiary, has conducted trade-off studies on the alternatives for ore transportation from
the Copperwood and Keweenaw deposits to the White Pine site, and for the transportation of copper concentrate from a
central processing plant at White Pine. The alternatives being contemplated include rail, trucking and barging. Highland has
also initiated discussions with utility companies providing electrical power in the region and is currently studying the options of
self-generation and connection to the local grid. Itasca Consulting Group of Minneapolis, Minnesota, was retained to act as
geo-mechanical consultants to the projects.
Finally, environmental baseline studies have begun for all key areas including groundwater, surface water, wetlands, water
balance, meteorological, flora and fauna, and baseline environmental assessments associated with the historical mining area
at White Pine.
WHITE PINE NORTH PROJECT
On May 13, 2014 (the interim closing date), the Company entered into an agreement to acquire from Copper Range Company
(“CRC”), a subsidiary of First Quantum Minerals Ltd., all of CRC’s rights, title and interest in the White Pine site and issued to
CRC 3,000,000 of its common shares. Highland further agreed that, upon completion of a feasibility study and receipt of all
necessary permits for the development of a mine at White Pine, it will pay as additional consideration, in cash or in common
shares of Highland, at the option of CRC, an amount equal to US$0.005 (one half of one cent) per pound for the first one
billion pounds of proven and probable reserves of copper and US$0.0025 (one quarter of one cent) for each additional pound
of proven and probable reserves of copper.
The final closing of the acquisition will be completed once Highland has (i) released CRC for a US$2.85 million financial
assurance letter of credit associated with the remediation and closure plan of the previous White Pine mine site in a manner
that is acceptable to all parties involved, including the applicable governmental authorities; and (ii) released CRC from its
environmental obligations with the Michigan Department of Environmental Quality (“MDEQ”). At that time, Highland will
assume all of CRC’s environmental liabilities related to the White Pine mine site and will also be responsible for all on-going
environmental obligations. A number of technical and legally-focused meetings have been held over the last few months.
These meetings have included representatives from CRC, the MDEQ and Highland. Final closing is anticipated to occur by
December 31, 2015.
CRC acquired the original White Pine mine in 1937. Subsequent drilling revealed the widespread nature of the mineralization
and underground mining by room and pillar methods followed by flotation of sulfides began in 1952. Production from 1952 to
1995 was 198,070,985 short tons averaging 1.14% copper for approximately 4.5 billion pounds of copper. In 1995, as a result
of depressed copper prices, CRC, then a subsidiary of Inmet Mining Corporation, closed the White Pine mine, although
significant amounts of mineralization remained, particularly to the northeast of the mine, referred to as the White Pine North
Project. An historical estimate of the White Pine North Project was completed in October 1995 by the then White Pine chief
geologist based on 526 diamond drill holes. The Company has initiated the work required to verify the historical data with the
objective of completing a resource estimate.
7
Management’s Discussion and Analysis
Year ended June 30, 2015
Lease of Mineral Rights
On April 24, 2015, the Company entered into an agreement to lease certain mineral rights located in White Pine, from a private
Michigan limited liability corporation that is at arm’s length to Highland. The mineral lease is for 20 years, with an option for an
additional five years. Payment at closing consisted of US$225,000 in cash and the issuance of 2,164,701 common shares of
Highland (the equivalent of an amount of US$400,000 using the 20‐day volume weighted average trading price of Highland as
of the day prior to closing). Additional cash payments will be payable on the first and second anniversaries of closing. Annual
rent will also be payable on each anniversary of the lease. Upon commencement of production, Highland will have to pay a
sliding scale royalty on copper and silver production from the leased mineral rights with a base royalty of 2% for copper and
2.5% for silver. The Company has an option to repurchase 50% of the royalties. Highland may terminate the lease at any time
upon a 30-day notice. The leased mineral rights cover an area of approximately 1,816 acres and are located within the White
Pine North Project area, but do not belong to the owner of the former White Pine mine.
COPPERWOOD PROJECT
On June 17, 2014, the Company acquired the Copperwood Project through the acquisition from Orvana of all of the
outstanding shares of Orvana Resources US Corp. (“Orvana US”). Highland paid US$13 million in cash at closing and issued
to Orvana a US$7 million promissory note, which amount was reimbursed in full on December 15, 2014 (see Reimbursement
of Note due to Orvana in Financing Activities section). An additional consideration of up to US$5,000,000 may be paid by
Highland in cash or shares of Highland, at Orvana’s option, of which US$1.25 million will become due upon the earliest of (i)
commencement of commercial production of Copperwood and (ii) June 17, 2017; and an additional US$1.25 million on the first
anniversary of this payment. An amount of US$1.25 million may also be payable if the average copper price for any 60
calendar day period following the first anniversary and preceding the second anniversary of commencement of commercial
production is greater than US$4.25/lb; and an additional payment of US$1.25 million if the average copper price for any 60
calendar day period following the second anniversary and preceding the third anniversary of the commencement of
commercial production is greater than US$4.50/lb.
KEWEENAW PROJECT
The Keweenaw Project, which includes the 543S and G-2 deposits, covers an area of approximately 9,000 acres. Under a
Mining Venture Agreement (the “Venture Agreement”) with BRP LLC (“BRP”), the Company has an option to acquire a 65
percent interest in the Keweenaw Project, by spending US$11,500,000 in exploration and development work and providing a
feasibility study by October 26, 2015. At June 30, 2015, a cumulative amount of US$13,076,171 in eligible expenditures has
been spent on the Keweenaw Project but the Company is not in a position to provide a feasibility study by the end of October
2015. To this end, the Company is in discussions with BRP to obtain an extension to the Venture Agreement. However, there
is no assurance that an extension can be obtained. If the option is exercised, BRP will be entitled to a sliding scale net smelter
return royalty from production (“NSR”) on those properties contributed by BRP based on the price per pound of copper with a
minimum of 2% up to a maximum of 5%.
8
Management’s Discussion and Analysis
Year ended June 30, 2015
OUTLOOK
Given the Company’s limited financial resources and the current copper price environment, the Company has considerably
reduced its activities over the last few months. The Company’s current focus is to complete the final acquisition of the White
Pine project. Based on the progress made to date, the Company strongly feels that CRC should be in a position to transfer to
Highland all surface and mining rights associated with the White Pine Project and complete the final closing of the transaction
prior to December 31, 2015.
The Company is also reassessing its development plans for its Michigan copper projects with a view of significantly reducing
initial capital expenditure requirements and minimizing the payback period. To that end, the Company is considering the
impact of developing its projects sequentially through a proposed centralized processing facility to be located at White Pine.
Required drilling at this time, if deemed necessary, studies and metallurgical tests required for the completion of a PFS as well
as environmental baseline studies will recommence as soon as the Company has raised the required funds.
The funds raised through the October private placement with Osisko (see detail under Financing Activities section) should
enable the Company to settle all of its current obligations and to finalize the acquisition of the White Pine project. However, the
Company requires additional funds to pursue the exploration and developments of its Michigan projects and to provide for
management and administration expenses. The Company is continuing discussions with a number of parties to finance the
Company’s working capital requirements. In light of the current difficult market conditions and their impact on junior exploration
companies in general and on copper developers in particular, there can be no assurance that the Company will be able to
raise the funds required.
QUALIFIED PERSON
Carlos H. Bertoni, P. Geo., a Qualified Person under NI 43-101, has reviewed and approved all of the technical information in
this MD&A. Mr. Bertoni is the Company’s executive vice president, project development.
9
EXPLORATION EXPENSES
Amounts invested in exploration and evaluation assets and capitalized in accordance with the Company’s accounting policy,
during the years ended June 30, 2015 and 2014 are as follows:
Management’s Discussion and Analysis
Year ended June 30, 2015
Year ended June 30, 2015
North Project
Project
Project
Properties
White Pine
Copperwood
Keweenaw
Other
$
-
1,884
141,431
16,815
-
50,011
210,141
62,187
-
$
270,625
796,602
882,706
220,470
-
$
Total
$
49,304
938,158
-
-
-
-
-
4,064,485
2,142,759
1,648,108
583,976
956,605
49,304
10,334,091
-
-
-
-
268,895
(7,774)
139,869
499,325
41,811
26,562,158
129,009
2,709,807
63,622
1,781,206
$
-
-
Total
$
385,357
36,436
674,513
Property payments
Site preparation, drilling and assaying
Labour
Studies
Finance expense on promissory note
Other expenses
$
761,541
4,027,384
1,780,645
1,459,535
-
806,237
$
127,313
35,217
220,683
171,758
583,976
100,357
8,835,342
1,239,304
Depreciation and amortization
200,619
Gain on disposal of capital assets
Share-based remuneration
Accretion on purchase price payable
-
-
-
6,089
(7,774)
-
139,869
499,325
-
Effect of foreign exchange
1,383,146
4,168,972
2,027,221
108,355
7,687,694
10,419,107
5,905,916
2,439,418
157,659
18,922,100
Year ended June 30, 2014
North Project
Project
Project
Properties
White Pine
Copperwood
Keweenaw
Other
$
2,037,298
1,784,196
825,001
158,591
-
274,775
$
24,212,424
-
9,877
6,296
36,436
4,267
Property payments
Site preparation, drilling and assaying
Labour
Studies
Finance expense on promissory note
Other expenses
Depreciation and amortization
Share-based remuneration
Accretion on purchase price payable
454,642
(59,171)
5,079,861
24,269,300
2,625,045
175,271
32,149,477
-
-
-
934
-
18,870
282,537
101,120
-
2,275
-
-
285,746
101,120
18,870
Effect of foreign exchange
(51,767)
(390,359)
131,782
4,512
(305,832)
5,028,094
23,898,745
3,140,484
182,058
32,249,381
10
SELECTED CONSOLIDATED FINANCIAL INFORMATION (1 )(2)(3)
The following selected financial information should be read in conjunction with the Company’s June 30, 2015 and 2014
consolidated financial statements.
Management’s Discussion and Analysis
Year ended June 30, 2015
Financial position
Cash
Exploration and evaluation assets
Total assets
Deposit on sale of royalty
Promissory note
Balance of purchase price payable
Shareholders' equity
Expenses and other items
Management and administration expenses
Pre-exploration expenses
Accretion on environmental liability
Finance income
Gain on foreign exchange
Net loss for the period
June 30,
June 30,
2015
$
2014
$
1,042,341
61,568,034
62,950,927
10,000,000
-
2,207,430
47,307,629
3,242,710
42,645,934
46,536,013
-
7,473,900
1,434,850
35,414,291
12-months
12-months
13-months
ended
June 30,
2015
$
3,087,579
81,765
17,403
(10,358)
(33,595)
ended
June 30,
2014
$
1,724,225
1,745,437
2,106
(8,664)
(39,885)
ended
June 30,
2013
$
2,607,240
41,785
-
(84,744)
(256,946)
(3,142,794)
(3,423,219)
(2,307,335)
Basic and diluted loss per share
(0.03)
(0.06)
(0.04)
Cash flows
Operating activities
Investing activities
Financing activities
(2,772,930)
(8,459,188)
9,238,151
(2,166,128)
(21,026,360)
20,082,935
(1,411,382)
(9,026,316)
406,249
1) The Selected Consolidated Financial Information was derived from the Company’s June 30, 2015 and 2014 consolidated financial
statements, prepared in accordance with IFRS.
2)
In August 2012, the Company changed its year-end from May 31 to June 30. Accordingly, the 2013 financial information presented in this
MD&A is for a 13-month period ended June 30, 2013.
11
ended
June 30,
Management and administration expenses are summarized as follows:
Administrative and general
Office
Professional fees
Investor relations and travel
Reporting issuer costs
Share-based remuneration
Depreciation and amortization
Management’s Discussion and Analysis
Year ended June 30, 2015
12-months
12-months
13-months
ended
June 30,
2015
$
1,348,384
257,624
459,894
298,152
31,511
2,395,565
667,777
24,237
3,087,579
ended
June 30,
2014
$
490,781
116,225
254,724
320,140
21,433
1,203,303
511,202
9,720
ended
June 30,
2013
$
981,564
118,659
56,163
208,577
43,800
1,408,763
1,192,529
5,948
1,724,225
2,607,240
Since its incorporation, the Company has not paid any cash dividend on its outstanding common shares. Any future dividend
payment will depend on the Company’s financial needs to fund its exploration programs and any other factor that the board
may deem necessary to consider. It is highly unlikely that any dividends will be paid in the near future.
Going concern
The Company’s consolidated financial statements have been prepared on the basis of a going concern, which assumes that
the Company will continue its operations in the foreseeable future and will be able to realize its assets and discharge its
liabilities and commitments in the normal course of operations. The Company is subject to a number of risks and uncertainties
associated with its future exploration and development activities, including the successful completion of the acquisition of the
White Pine project, the acquisition of a 65% interest in the Keweenaw Project and raising additional funds (see Other Risks
and Uncertainties section). The completion of the acquisition of the White Pine project is dependent on a number of factors,
not all of which are under the Company’s control, and as such, there is no assurance that the Company will complete the
acquisition of the White Pine project. If the acquisition of the White Pine project is not completed by December 31, 2015, the
deposit on sale of a royalty of $10,000,000 will become refundable (see Royalty agreements with Osisko section). The
Company requires additional funds to meet its exploration and development objectives and to provide for management and
administration expenses for at least the next 12 months. If the Company is not successful in raising additional funds, it may be
required to further delay, reduce the scope of, or eliminate its current or future exploration and development activities, any of
which could harm the business, financial condition and results of operation of the Company. The conditions and uncertainties
described above indicate the existence of a material uncertainty that casts a significant doubt about the Company’s ability to
continue as a going concern. If the going concern assumption was not appropriate for the Company’s consolidated financial
statements, adjustments which could be material would be necessary to the carrying value of assets and liabilities, in particular
an impairment of exploration and evaluation assets, as well as adjustments to reported expenses.
12
Management’s Discussion and Analysis
Year ended June 30, 2015
Financial Review
The Company is in the exploration and development phase and does not yet have revenue-generating activities. Accordingly,
the Company’s financial performance is largely a function of the level of exploration and development activities undertaken on
its projects and the management and administrative expenses required to operate and carry out its activities as well as other
items such as foreign exchange gains or losses.
In accordance with its accounting policy, an amount of $18.9 million in exploration and evaluation expenses was capitalized
during the year ended June 30, 2015. These expenses include site preparation, drilling and assaying expenses of $4.1 million,
labor and overhead expenses of $3.1 million, PFS-related expenses of $1.6 million, finance expense on the Orvana
promissory note and balance of purchase price payable of $1.1 million, property payments of $0.9 million, an increase due to
foreign exchange of $7.7 million following the weakening of the Canadian dollar during the reporting period and other non-cash
expenses of $0.4 million. In 2014, the Company capitalized a total amount of $32.2 million as exploration and evaluation
assets, including the cost of acquiring the Copperwood Project ($24.2 million) and the White Pine Project ($2.0 million). The
detail of the exploration and evaluation assets by project is presented in the Exploration expenses section.
Year ended June 30, 2015 compared to year ended June 30, 2014
The Company incurred a net loss of $3.1 million during the year ended June 30, 2015 compared to a net loss of $3.4 million in
2014. Pre-exploration expenses of $1.7 million incurred at White Pine North in 2014 before the legal right to undertake
exploration and evaluation activities had been obtained were partially offset during the current year by higher administrative
and general expenses of $1.4 million as a result of the increased activities following the acquisition of the White Pine North
Project and the Copperwood Project in May and June 2014 and professional fees incurred in relation to the Royalty
Agreements with Osisko described in the Financing Activities section. Higher share-based remuneration expense was charged
to income in 2015 compared to 2014 due to the grant of 1,905,000 stock options in April 2015 and 1,400,000 stock options in
August 2014. At June 30, 2015, an amount of $144,509 of cost remains to be amortized in future periods (until April 2017)
related to the grant of stock options.
Year ended June 30, 2014 compared to year ended June 30, 2013
The Company incurred a net loss of $3.4 million during the year ended June 30, 2014 compared to a net loss of $2.3 million
during the year ended June 30, 2013. The increased loss in 2014 is due mainly to pre-exploration expenses of $1.7 million
(which mainly included preparation work related to the White Pine North Project before the legal right to undertake exploration
and evaluation activities had been obtained) compared to $0.1 million in 2013. This increased loss was partially offset by lower
management and administration expenses. Lower administrative and general expenses in 2014 (administrative and general
expenses in 2013 included signing bonuses of $0.6 million in order to retain the services of the executive chairman and the
president and CEO of the Company) and lower share-based remuneration were partially offset by higher professional fees
related to the acquisition of the White Pine and Copperwood projects and to higher investor relations and travel expenses due
to the increased corporate activities.
13
Management’s Discussion and Analysis
Year ended June 30, 2015
During the years ended June 30, 2014 and 2013, share-based remuneration of $0.5 million and $1.2 million, respectively were
charged to income and $0.1 million and $0.3 million, respectively were deferred to exploration and evaluation assets. No stock
options were granted in 2014 compared to the grant of 4,380,000 stock options in 2013 at a weighted-average fair value of
$0.51 per option. At June 30, 2014, an amount of $120,321 of cost remains to be amortized in future periods (until November
2014), related to the grant of stock options.
During the year ended June 30, 2014, the Company accounted for a gain on foreign exchange of $0.1 million, which results
mostly from the conversion of cash held by the parent company in US dollars. During the comparative period, the Company
accounted for a gain on foreign exchange of $0.3 million.
4th quarter ended June 30, 2015 compared to the 4th quarter ended June 30, 2014
During the 4th quarter ended June 30, 2015, the Company incurred a net loss of $0.5 million ($0.01 per share), compared to a
net loss of $0.8 million ($0.01 per share) during the 4th quarter ended June 30, 2014. Management and administration
expenses totaled $0.5 million during each of the 4th quarters ended June 30, 2015 and June 30, 2014. Pre-exploration
expenses which relate to activities conducted at the White Pine North Project before the legal right to undertake exploration
and evaluation activities had been obtained totaled $0.3 million during the 4th quarter ended June 30, 2014 compared to nil
during the comparative period in 2015.
Selected Quarterly Financial Information
The following is a summary of the Company’s financial results for the past eight quarters:
Period ended
June 30, 2015
March 31, 2015
December 31, 2014
September 30, 2014
June 30, 2014
March 31, 2014
December 31, 2013
September 30, 2013
Liquidity and Capital Resources
Revenues
Net loss
per share
Basic and
diluted loss
$
3,359
2,325
582
4,092
3,303
1,279
1,529
2,553
$
(529,381)
(436,823)
(1,011,470)
(1,165,120)
(846,359)
(1,123,722)
(718,037)
(735,101)
$
(0.01)
(0.00)
(0.01)
(0.01)
(0.01)
(0.02)
(0.01)
(0.02)
The Company’s working capital deficiency at June 30, 2015 totaled $12.0 million compared to a working capital deficiency of
$6.0 million at June 30, 2014. The increase in the working capital deficiency during the year ended June 30, 2015 is mainly
attributable to investments made on the Company’s exploration and evaluation assets ($10.3 million), management and
14
Management’s Discussion and Analysis
Year ended June 30, 2015
administration expenses ($2.4 million) and the impact of the weakening Canadian dollar on the repayment of the promissory
note to Orvana ($0.7 million), partially offset by the net proceeds of $7.4 million received on the completion of a private
placement.
In March 2015, the Company completed in three tranches a non brokered private placement for gross proceeds of $7.6 million.
A total of 30,410,746 units, each unit comprised of one common share of the Company and one half of one share purchase
warrant (“Warrant”), were sold at $0.25 per unit. Each Warrant is exercisable for a period of 18 months from the closing date at
an exercise price of $0.50 to acquire one common share. Finder’s fees of $0.2 million were incurred in relation to this private
placement.
On December 15, 2014, Osisko made a $10.0 million refundable deposit on a 3% sliding-scale NSR royalty on all metals from
the White Pine North Project (see details in the Financing Activities section). An amount of $8.8 million was used from the
proceeds of the Osisko deposit to reimburse the US$7 million promissory note and accrued interest due to Orvana for the
acquisition of the Copperwood project. The deposit is secured against all of the Company's assets.
The Company needs to raise additional funds to meet all of its obligations, to pursue exploration and development work on its
mineral projects and to provide for management and administration expenses. To this effect, on October 6, 2015, the
Company completed a private placement with Osisko and issued 24,426,434 common shares for total gross proceeds of $3.7
million (see detail of this private placement under Financing Activities section). However, the Company will require additional
funds to meet its exploration and development objectives and to provide for management and administration expenses for at
least the next 12 months. The Company’s properties are in the exploration and development stage and, as a result, the
Company currently has no source of operating cash flow. The potential sources of future funds presently available to the
Company are through the sale of equity capital of the Company, debt financing, joint venture or other arrangements. The
ability of the Company to arrange the required financing depends in part upon the global economic and capital market
conditions as well as the business performance of the Company. There can be no assurance that the Company will be
successful in its efforts to arrange additional financing on terms satisfactory to the Company. The Company’s ability to
continue as a going concern is dependent on management’s ability to raise the funds required for continued operations.
Capital Management
The Company defines capital that it manages as loans (including deposit on sale of royalty, promissory note and balance of
purchase price payable) and shareholders’ equity. When managing capital, the Company’s objectives are a) to ensure the
entity continues as a going concern; b) to increase the value of the entity’s assets; and c) to achieve optimal returns to
shareholders. These objectives will be achieved by identifying the right exploration projects, adding value to these projects and
ultimately taking them to production or obtaining sufficient proceeds from their disposal. At June 30, 2015, managed capital
was $59.5 million ($44.3 million at June 30, 2014). There were no changes in the Company’s approach to capital management
during the year ended June 30, 2015. The Company is not subject to any externally imposed capital requirements as at June
30, 2015.
15
Management’s Discussion and Analysis
Year ended June 30, 2015
Off-Balance Sheet Arrangements
At June 30, 2015, the Company has no off-balance sheet arrangements.
Transactions with Related Parties
During the year ended June 30, 2015, the Company incurred administration expenses of $0.5 million from Reunion Gold
Corporation (“Reunion”), a related party by virtue of common management and directors (administration expenses of $0.2
million and the purchase of capital assets of $0.1 million from Reunion in 2014). At June 30, 2015, the Company had an
amount due to Reunion of $8,022 (nil at June 30, 2014). These transactions were measured at the exchange amount, which is
the amount agreed upon by the transacting parties. The services provided by Reunion under the service agreement include
administrative support, corporate and regulatory services, office space, and office equipment and supplies.
Remuneration to directors and key management of the Company totaled $1.7 million during the year ended June 30, 2015,
($1.0 million in 2014).
Outstanding Share Data
At October 15, 2015, the Company has 153,968,626 common shares issued and outstanding, 56,455,373 share purchase
warrants exercisable at an average price of $0.68 per share until September 27, 2016, and 7,582,000 stock options
outstanding with an average exercise price of $0.49, expiring at various dates until April 2020.
Significant Accounting Policies
Exploration and evaluation assets
Exploration and evaluation expenditures are costs incurred in the course of initial search for mineral deposits with economic
potential. Costs incurred before the legal right to undertake exploration and evaluation activities are recognized in profit or loss
when they are incurred. Once the legal right to undertake exploration and evaluation activities has been obtained, all option
and lease payments, costs of acquiring mineral rights and expenses related to the exploration and evaluation of mining
properties are capitalized as exploration and evaluation assets. Expenses related to exploration and evaluation which are
capitalized include topographical, geological, geochemical and geophysical studies, exploration drilling, trenching, sampling
and other costs related to the evaluation of the technical feasibility and commercial viability of extracting a mineral resource.
The various costs are capitalized on a property-by-property basis pending determination of the technical feasibility and
commercial viability of extracting a mineral resource. These assets are carried at cost less any accumulated impairment
losses. No depreciation expense is recognized for these assets during the exploration and evaluation phase. Whenever a
mining property is considered no longer viable, or is abandoned, the capitalized amounts are written down to their recoverable
amounts with the difference recognized in profit or loss. When the technical feasibility and the commercial viability of extracting
a mineral resource are demonstrable, exploration and evaluation assets related to the mining property are transferred as
tangible assets and related development expenditures are capitalized. Before the reclassification, the related exploration and
16
evaluation assets are tested for impairment and any impairment loss is then recognized in profit or loss. Borrowing costs
directly attributable to the acquisition of exploration and evaluation assets are added to the cost of the project until such time
as the assets are substantially ready for their intended use or sale, which in the case of mining properties, is when they are
Management’s Discussion and Analysis
Year ended June 30, 2015
capable of commercial production.
Impairment of non-financial assets
At the end of each reporting date, the Company reviews the carrying amounts of its non-financial assets with finite lives to
determine whether there is any indication that those assets have suffered an impairment loss. Where such an indication exists,
the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. Factors which could
trigger an impairment review include, but are not limited to, the expiration of the right to explore in the specific area during the
period or said right will expire in the near future and is not expected to be renewed; substantive expenditures in a specific area
are neither budgeted nor planned; exploration for and evaluation of mineral resources in a specific area have not led to the
discovery of commercially viable quantities of mineral resources and the entity has decided to discontinue such activities in the
specific area; or sufficient data exists to indicate that the carrying amount of the assets is unlikely to be recovered in full from
successful development or by sale due to significant negative industry or economic trends and a significant drop in commodity
prices. The recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. The
recoverable amount is the higher of an asset’s fair value less cost to sell or its value in use. Value in use takes into account
estimated future cash flows associated with the asset, such value being discounted to their present value using a pre-tax
discount rate that reflects current market assessment of the time value of money and the risks specific to the asset. In the case
of exploration and evaluation assets, impairment reviews are carried out on a property-by-property basis, with each property
representing a potential cash-generating unit. A previous impairment is reversed if the asset’s recoverable amount exceeds its
carrying amount.
Provisions and contingent liabilities
A provision is recognized when the Company has a present legal or constructive obligation as a result of a past event, it is
probable that an outflow of economic benefits will be required to settle the obligation, and the amount of the obligation can be
reliably estimated. Timing or amount of the outflow may still be uncertain. If the time value of money is material, provisions are
determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessment of the time
value of money. Provisions are measured at the estimated expenditure required to settle the present obligation, based on the
most reliable evidence available at the reporting date, including the risks and uncertainties associated with the present
obligation. Any reimbursement that the Company can be virtually certain to collect from a third party with respect to the
obligation is recognised as a separate asset. However, this asset may not exceed the amount of the related provision. All
provisions are reviewed at each reporting date and adjusted to reflect the current best estimate. In those cases where the
possible outflow of economic resources as a result of present obligations is considered improbable or remote, no liability is
recognized, unless it was assumed in the course of a business combination.
A legal or constructive obligation to incur restoration, rehabilitation and environmental costs may arise when environmental
disturbance is caused by the exploration, development or ongoing production of a mineral property interest. Such costs arising
17
Management’s Discussion and Analysis
Year ended June 30, 2015
from the decommissioning of plant and other site preparation work, discounted to their net present value, are provided for and
capitalized at the start of each project to the carrying amount of the related asset, as soon as the obligation to incur such costs
arises and to the extent that such cost can be reasonably estimated.
Significant accounting judgements and estimates
The preparation of the Company’s consolidated financial statements requires management to make certain estimates,
judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial
statements and reported amounts of expenses during the reporting period. Actual outcomes could differ from these estimates.
The Company’s consolidated financial statements include estimates which, by their nature, are uncertain and may require
accounting adjustments based on future occurrences. Revisions to accounting estimates, judgments and assumptions are
recognized in the period in which the estimate is revised and future period if the revision affects both current and future period.
These estimates, judgments and assumptions are based on historical experience, current and future economic conditions and
other factors, including expectations of future events that are believed to be reasonable under the circumstances. Significant
assumptions about the future and other sources of estimation uncertainty that management has made at the financial position
reporting date, that could result in a material adjustment to the carrying amounts of assets and liabilities, in the event that
actual results differ from the assumptions made, relate to, but are not limited to the following:
a) Title to mineral property interests
Although the Company has taken steps to verify title to mineral properties in which it has an interest, these procedures are
subject to certain assumptions and do not guarantee the Company‘s title. Such properties may be subject to prior agreements
or transfers and title may be affected by undetected defects.
The final closing of the acquisition of the White Pine Project will be completed once the Company has i) released Copper
Range Company (“CRC”) of a US$2.85 million financial assurance letter of credit associated with the remediation and closure
plan of the previous White Pine operation in a manner that is acceptable to all parties involved, including the applicable
governmental authorities; and ii) released CRC from its environmental obligations with the Michigan Department of
Environmental Quality (“MDEQ”). The Company has determined that there is no indication that it will not be able to meet these
conditions. However, meeting these conditions is dependent on a number of factors, not all of which are under the Company’s
control, and there is no assurance that they will be met.
Because the Company is not in a position to provide a feasibility study on the Keweenaw Project by October 26, 2015, the
Company must negotiate an amendment to the agreement with BRP LLC (“BRP”) in order to maintain its option to acquire a
65% interest in the Keweenaw Project. The Company is in discussions with BRP to this effect and an amended agreement is
being drafted. The Company believes that it will be able to come to terms with BRP on an amended option agreement, but not
all factors are under the Company’s control. There is therefore uncertainty that an amended agreement with BRP will be
completed.
18
Management’s Discussion and Analysis
Year ended June 30, 2015
b)
Exploration and evaluation expenditures
The application of the Company‘s accounting policy for exploration and evaluation expenditure requires judgment in
determining whether it is likely that future economic benefits will flow to the Company. If, after exploration and evaluation
expenditures are capitalized, information becomes available suggesting that the carrying amount of an exploration and
evaluation asset may exceed its recoverable amount, the Company carries out an impairment test in the year the new
information becomes available. The Company has determined that there are currently no indicators of impairment.
c) Environmental liability
The Company’s accounting policy for the recognition of environmental liability requires significant estimates and assumptions
such as the requirements of the relevant legal and regulatory framework, the magnitude of possible disturbance, the timing,
extent, and costs of closure and rehabilitation activities and the determination of an appropriate discount factor. Changes to
these estimates and assumptions may result in future actual expenditures differing from the amounts currently provided for.
The environmental liability is periodically reviewed and updated based on the available facts and circumstances.
New Accounting Pronouncements
Certain pronouncements issued by the IASB or the IFRS Interpretations Committee are mandatory for accounting periods
beginning on or after January 1, 2014. These include IAS 32, Financial Instruments - presentation; IFRIC 21, Levies; and IAS
36, Impairment of Assets. The Company has adopted these new standards, amendments and interpretations effective July 1,
2014 but they have had no significant impact on its financial information.
Accounting Standards Issued but not yet Applied
Standards, amendments and interpretations issued but not yet effective up to the date of the issuance of these consolidated
financial statements that are expected to be relevant to the Company are listed below. Certain other standards and
interpretations have been issued but are not expected to have a material impact on the Company’s consolidated financial
statements.
Business combination accounting for interest in a joint operation (Amendments to IFRS 11)
On May 6, 2014, the IASB issued Accounting for Acquisitions of Interests in Joint Operations (Amendments to IFRS 11). The
amendments apply prospectively for annual periods beginning on or after January 1, 2016. Earlier application is permitted. The
amendments require business combination accounting to be applied to acquisitions of interests in a joint operation that
constitute a business.
19
Management’s Discussion and Analysis
Year ended June 30, 2015
IFRS 9, Financial Instruments
In November 2009 and October 2010, the IASB issued the first phase of IFRS 9, Financial Instruments. In November 2013,
the IASB issued a new general hedge accounting standard, which forms part of IFRS 9. The final version of IFRS 9 was
issued in July 2014 and includes a third measurement category for financial assets (fair value through other comprehensive
income) and a single, forward-looking ‘expected loss’ impairment model. IFRS 9 replaces the current multiple classification
and measurement models for financial assets and liabilities with a single model that has three classification categories:
amortized cost, fair value through other comprehensive income and fair value through profit and loss. The basis of
classification depends on the entity’s business model and the contractual cash flow characteristics of the financial assets or
liability. It also introduces limited changes relating to financial liabilities and aligns hedge accounting more closely with risk
management. The new standard is effective for annual periods beginning on or after January 1, 2018 with early adoption
permitted. Management is currently reviewing the impact that this standard will have on its consolidated financial statements.
FINANCIAL RISK FACTORS
The Company thoroughly examines the various financial risks to which it is exposed and assesses the impact and likelihood of
those risks. These risks include liquidity risk, currency risk, credit risk and interest rate risk. Where material, these risks are
reviewed by the board of directors.
Liquidity Risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company’s
ability to continue as a going concern is dependent on management’s ability to raise the funds required for continued
operations through future financings (see ‘Financial Condition’ section).
The following table summarizes the contractual maturities of the Company’s financial liabilities at June 30, 2015:
Carrying
amount
$
Settlement
amount
$
Within
1 year
$
Accounts payable and accrued liabilities
3,146,097
3,146,097
3,146,097
Due to a related party
Deposit on sale of royalty
8,022
8,022
8,022
10,000,000
10,000,000
10,000,000
$
-
-
-
Balance of purchase price payable
2,207,430
3,122,500
-
3,122,500
15,361,549
16,276,619
13,154,119
3,122,500
Over
2-3 years
3 years
$
-
-
-
-
-
20
Management’s Discussion and Analysis
Year ended June 30, 2015
Currency Risk
In the normal course of operations, the Company is exposed to currency risk on transactions that are denominated in a
currency other than the respective functional currencies of each of the entities within the consolidated group. The currency in
which these transactions are denominated are primarily the Canadian and the US dollar. The consolidated entity seeks to
minimise its exposure to currency risk by monitoring exchange rates and entering into foreign currency transactions that
maximize the consolidated entity’s position. The consolidated entity does not presently enter into hedging arrangements to
hedge its currency risk. All foreign currency transactions are entered into at spot rates. The board of directors considers this
policy appropriate, taking into account the consolidated entity’s size, current stage of operations, financial position and the
board’s approach to risk management. At June 30, 2015, assets and liabilities denominated in a foreign currency consisted of
cash of $0.1 million and accounts payable and accrued liabilities of $0.7 million. The impact on profit or loss of a 10% increase
or decrease in foreign currencies against the Canadian dollar would be approximately $58,000.
Credit Risk
At June 30, 2015, the Company’s financial assets exposed to credit risk are primarily composed of cash. To mitigate exposure
to credit risk, the Company has established a policy to ensure counterparties demonstrate minimum acceptable credit
worthiness, and to ensure liquidity of available funds. The Company’s cash is held with large financial institutions, with most of
the Company’s cash held with a Canadian-based financial institution.
Interest Rate Risk
The Company’s interest rate risk relates to cash. The Company's current policy on its cash balances is to invest excess cash
in guaranteed investment certificates or interest bearing accounts with major Canadian-based chartered banks. The Company
regularly monitors compliance to its cash management policy. Cash is subject to floating interest rates. Sensitivity to a plus or
minus 1% change in interest rates would affect profit or loss by approximately $10,000.
OTHER RISKS AND UNCERTAINTIES
The Company is subject to a number of significant risks and uncertainties which include but are not limited to the nature of its
business and the present stage of exploration and development of its mineral projects, the requirement for additional funds to
settle its obligations and commitments, and to pursue its planned exploration and development activities on all of its projects.
Failure to successfully address such risks and uncertainties could have a significant negative impact on the Company’s overall
operations and financial condition and could materially affect the value of the Company’s assets and future operating results.
Therefore, an investment in the securities of the Company involves significant risks and should be considered speculative. The
risks and uncertainties described herein are not necessarily the only ones that the Company could be facing. The Company
cannot give assurance that it will successfully address these risks or other unknown risks that may affect its business. Readers
should carefully consider the risks and uncertainties described below.
21
Company Specific Risks
Management’s Discussion and Analysis
Year ended June 30, 2015
•
•
The Company may be unable to continue funding the exploration and development of its projects and achieve its
business objectives and milestones.
The Company may be unable to complete the acquisition of the White Pine Project if it cannot meet the final closing
conditions. This would force the Company to refund the $10 million deposit on sale of a royalty to Osisko and would
negatively impact the Company’s business plan.
•
The Company’s plans and objectives as well as its ability to raise funds may be affected by copper prices. The price
of copper has recently declined to a six-year low.
•
The Company is subject to environmental risks related to the fact that the White Pine Project is subject to a consent
decree and, as part of the acquisition of White Pine, the Company will have to assume certain environmental
responsibilities related to the closure of the former White Pine Mine.
•
The Company will not complete a feasibility study on the Keweenaw Project by October 26, 2015 as a condition to
acquire a 65% interest in the Keweenaw Project; discussions to obtain an extension to the agreement with the owner
of the Keweenaw Project have been held, however, there is no assurance that an extension can be obtained.
•
The Company is taking steps to verify title with respect to its most material mineral properties. Although the
Company believes that title to its mineral properties are in good standing there is no guarantee that title to such
properties will not be challenged or impugned.
•
The Company’s mineral resource estimates are not mineral reserves. There is no assurance that minerals will be
discovered in sufficient quantities to justify commercial operations and that the Company will be able to demonstrate
the economic viability of its deposits.
•
•
•
•
The Company may not obtain all necessary permits to conduct its activities and operate a mine.
Future issuance of common shares into the public market may result in dilution to the existing shareholders.
The Company faces substantial competition within the mining industry from other mineral companies with much
greater financial and technical resources.
The Company has no history of earnings and does not expect to receive revenues from operations in the
foreseeable future.
• Certain directors and senior officers of the Company also serve as officers and/or directors of other mineral resource
companies, which may give rise to conflicts.
Industry Risks
Mineral exploration and development is a high risk, speculative business. Few properties that are explored are
ultimately developed into producing mines.
Mineral exploration is subject to geological uncertainties and interpretation.
Mineral exploration is subject to numerous industry operating and environmental hazards and risks, many of which
are beyond the Company’s control.
Substantial expenditures are required to explore mineral projects, define mineral resources, and complete all
metallurgical, engineering, environmental, financial and other studies required to complete a feasibility study.
22
Management’s Discussion and Analysis
Year ended June 30, 2015
Changes in mining and environmental laws.
Necessary permits to operate may not be granted or may be granted later than anticipated.
Current economic uncertainties globally have created market volatility and risk aversion among investors, limiting
capital raising options.
Commodity prices including the price of copper have fluctuated widely in the past and are expected to continue to do
so in the future.
Mining operations including exploration and development activities are subject to numerous laws and regulations.
Title to mineral rights and surface rights may be disputed.
Social and environmental groups may be opposed to the development of mining projects.
Cautionary Note Regarding Forward-Looking Information
This MD&A contains “forward-looking information” within the meaning of applicable Canadian securities laws. Forward-looking
information can often be identified by forward-looking words such as “anticipate”, “believe”, “expect”, “goal”, “plan”, “intend”,
“estimate”, “may” and “will” or similar words suggesting future outcomes, or other expectations, beliefs, plans, objectives,
assumptions, intentions or statements about future events or performance. Forward-looking information is based on the
reasonable assumptions, estimates, analysis and opinions of management made in light of its experience and its perception of
trends, current conditions and expected developments, as well as other factors that management believes to be relevant and
reasonable in the circumstances at the date that such statements are made. Forward-looking information is 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 the forward-looking information.
Specifically, this MD&A contains forward-looking information regarding the Company’s plans going forward including plans to
raise additional funds to pursue the Company’s activities and to meet its current obligations, plans to complete the acquisition
of the White Pine Project and of a 65% interest in the Keweenaw Project, plans to complete technical studies, additional
drilling programs and resource estimates, and plans to have a centralized processing facility at White Pine. Other forward
looking information in this MD&A includes, but is not limited to, forward-looking information with respect to the requirement for
additional capital and other statements relating to the financial and business prospects of the Company.
There can be no assurance that the Company will be successful in its efforts to complete its plans and achieve its objectives
and that such forward-looking information will prove to be accurate. Actual results could differ materially from those currently
anticipated due to any number of factors, including the inability of the Company to secure the funds necessary to meet its
plans and obligations, the inability to complete a resource estimate and technical studies, the conclusions of such studies, and
other variables such as lower than expected grades and quantities of resources, changes in demand for and prices of copper,
mining rates and recovery rates, legislative, environmental and other regulatory approval or political changes, delays in
obtaining or failures to obtain required governmental, environmental or other approvals and sufficient financing, changes in
exchange rates, and other factors.
23
Management’s Discussion and Analysis
Year ended June 30, 2015
Accordingly, readers should not place undue reliance on forward-looking information. The Company undertakes no obligation
to update publicly or otherwise revise any forward-looking information, except as may be required by law.
Cautionary Note to U.S. Investors Concerning Resource Estimates
The resource estimates in this MD&A were prepared in accordance with NI 43-101 adopted by the Canadian Securities
Administrators and it contains the terms “measured”, “indicated” and “inferred” resources. Although these terms are
recognized and required in Canada, the U.S. Securities and Exchange Commission ("SEC") does not recognize them. The
SEC permits US mining companies, in their filings with the SEC, to disclose only those mineral deposits that constitute
“reserves”. Under United States standards, mineralization may not be classified as a reserve unless the determination has
been made that the mineralization could be economically and legally extracted at the time the determination is made. United
States investors should not assume that all or any portion of a measured or indicated resource will ever be converted into
“reserves”. Further, “inferred resources” have a great amount of uncertainty as to their existence and whether they can be
mined economically or legally, and United States investors should not assume that “inferred resources” exist or can be legally
or economically mined, or that they will ever be upgraded to a higher category.
Additional Information and Continuous Disclosure
This MD&A has been prepared as at October 15, 2015. Additional information on the Company is available through regular
filings of press releases, financial statements and MD&A on SEDAR (www.sedar.com) and on the Company’s website
(www.highlandcopper.com).
24