CONSOLIDATED FINANCIAL STATEMENTS
As at June 30, 2017 and 2016
In Canadian dollars
KPMG LLP
600 de Maisonneuve Blvd. West
Suite 1500, Tour KPMG
Montréal (Québec) H3A 0A3
Canada
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 consolidated financial statements of Highland Copper
Company Inc., which comprise the consolidated statements of financial position as at June 30, 2017
and 2016, and the consolidated statements of comprehensive loss, changes in shareholders’ equity
and cash flows for the 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.
Auditor's Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our
audits. We conducted our audits in accordance with Canadian generally accepted auditing standards.
Those standards require that we comply with ethical requirements and plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements are free from
material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures
in the consolidated financial statements. The procedures selected depend on 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 Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the
consolidated financial position of Highland Copper Company Inc. as at June 30, 2017 and 2016, and
its consolidated financial performance and consolidated cash flows for the 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 the exploration stage and, as such, no
revenue has yet been 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 in the consolidated financial statements, 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 26, 2017
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 6)
Exploration and evaluation assets (Note 7)
TOTAL ASSETS
LIABILITIES
Current
Accounts payable and accrued liabilities
Due to a related party (Note 17)
Current portion of note payable (Note 8)
Current portion of promissory note (Note 4)
Current portion of balance of purchase price payable (Note 9)
Deposit on sale of royalty (Note 11)
Non-current
Note payable (Note 8)
Promissory note (Note 4)
Balance of purchase price payable (Note 9)
Environmental liability (Note 10)
TOTAL LIABILITIES
SHAREHOLDERS' EQUITY
Share capital (Note 12)
Contributed surplus
Deficit
Cumulative translation adjustment
TOTAL EQUITY
TOTAL LIABILITIES AND EQUITY
June 30,
June 30,
2017
$
2016
$
July 1,
2015
$
(Note 3 - restated)
(Note 3 - restated)
18,247,875
201,998
1,042,341
55,052
83,420
-
6,233
54,496
52,441
18,386,347
208,231
1,149,278
75,854
114,990
233,615
39,387,444
25,541,593
33,365,016
57,849,645
25,864,814
34,747,909
1,945,816
3,019,495
3,146,097
-
25,543
8,022
142,747
1,083,676
1,479,076
-
-
-
1,445,087
-
-
-
-
10,000,000
4,651,315
4,490,125
13,154,119
356,868
9,305,399
-
-
-
-
-
1,289,355
2,207,430
319,643
306,606
281,749
14,633,225
6,086,086
15,643,298
74,000,571
51,754,469
48,115,461
13,484,026
6,253,329
6,173,571
(48,023,937)
(42,075,943)
(38,087,810)
3,755,760
3,846,873
2,903,389
43,216,420
19,778,728
19,104,611
57,849,645
25,864,814
34,747,909
Going Concern (Note 2); Commitments and Contingencies (Note 7); Events after the Reporting Date (Note 24).
The accompanying notes form an integral part of these consolidated financial statements.
On behalf of the Board,
/s/ Denis Miville-Deschenes
Denis Miville-Deschenes, Director
/s/ Jo Mark Zurel
Jo Mark Zurel, Director
4 Highland Copper Company Inc.
Consolidated Statements of Comprehensive Loss
(audited, in Canadian dollars)
Expenses and other items
Exploration and evaluation (Note 14)
Management and administration (Note 15)
Business development
Write-down of exploration and evaluation assets (Note 7)
Accretion on environmental liability (Note 10)
FInance expense on loan from a director (Note 17)
Finance expense on note payable (Note 8)
Finance income
Loss (gain) on foreign exchange
Year ended June 30,
2016
2017
$
$
(Note 3 - restated)
3,876,783
1,423,209
264,906
-
11,875
11,497
22,624
(52,108)
389,208
2,304,235
1,486,118
79,783
123,301
15,637
-
-
(3,930)
(17,011)
Net loss for the year
(5,947,994)
(3,988,133)
Other comprehensive (loss) income
Item that will not be subsequently reclassified to income
Foreign currency translation adjustment
(91,113)
943,484
Total comprehensive loss for the year
(6,039,107)
(3,044,649)
Basic and diluted loss per common share (Note 16)
(0.02)
(0.03)
Weighted average number of common shares - basic and diluted
251,264,795
147,428,215
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
$
(Note 3 - restated)
(Note 3 - restated)
(Note 3 - restated)
Balance at June 30, 2016
153,968,626
51,754,469
6,253,329
(42,075,943)
3,846,873
19,778,728
Private placement (Note 12)
Share issue expenses (Note 12)
Debt settlement (Note 12)
Share-based compensation
Net loss for the year
Foreign currency translation adjustment
Balance at June 30, 2017
300,229,670
-
4,949,857
-
-
-
459,148,153
22,982,411
(1,181,675)
445,367
-
-
-
74,000,571
7,040,556
113,562
49,619
26,960
-
-
13,484,026
-
-
-
-
(5,947,994)
-
(48,023,937)
-
-
-
-
-
(91,113)
3,755,760
30,022,967
(1,068,114)
494,986
26,960
(5,947,994)
(91,113)
43,216,420
Balance at June 30, 2015
129,542,192
48,115,461
6,173,571
(38,087,810)
2,903,389
19,104,611
Private placement (Note 12)
Share issue expenses (Note 12)
Share-based compensation
Net loss for the year
Foreign currency translation adjustment
Balance at June 30, 2016
24,426,434
-
-
-
-
153,968,626
3,663,965
(24,957)
-
-
-
51,754,469
-
-
79,758
-
-
6,253,329
-
-
-
(3,988,133)
-
(42,075,943)
-
-
-
-
943,484
3,846,873
3,663,965
(24,957)
79,758
(3,988,133)
943,484
19,778,728
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 compensation
Depreciation and amortization
Write-down of exploration and evaluation assets
Unrealized loss (gain) on foreign exchange
Accretion on environmental liability
Finance expense on loan from a director
Finance income accrued
Finance income received
Changes in other 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
Financing activities
Issue of share capital (Note 12)
Share capital issue expenses (Note 12)
Loan from a director (Note 17)
Reimbursement of balance of purchase price payable (Note 9)
Reimbursement of note payable (Note 8)
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 22)
The accompanying notes form an integral part of these consolidated financial statements.
Year ended June 30,
2017
$
2016
$
(Note 3 - restated)
(5,947,994)
(3,988,133)
26,960
68,444
-
389,208
11,875
11,497
(52,108)
39,817
(55,052)
(78,758)
(526,003)
(25,543)
79,758
163,871
123,301
(17,011)
15,637
-
(3,930)
4,551
54,496
46,208
(786,396)
17,521
(6,137,657)
(4,290,127)
(28,263)
-
(2,890,197)
(2,918,460)
30,022,967
(1,068,114)
483,489
(1,678,077)
(252,116)
(34,947)
83,577
(275,711)
(227,081)
3,663,965
(24,957)
-
-
-
27,508,149
3,639,008
(406,155)
37,857
18,045,877
201,998
18,247,875
(840,343)
1,042,341
201,998
7 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2017 and 2016 (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. The address of the Company’s registered office is 1055 West Georgia Street, Suite 1500,
Vancouver, British Columbia, Canada, V6E 4N7. Highland’s common shares are listed on the TSX Venture
Exchange (the “TSXV”) under the symbol HI.
The Company has assembled a number of advanced-stage copper projects located in Michigan’s Upper Peninsula
region, including the 100%-owned Copperwood project (the “Copperwood Project”), the White Pine project (subject
to final closing pursuant to the May 2014 agreement with Copper Range Company (“CRC”), a wholly-owned
subsidiary of First Quantum Minerals Ltd.) (the “White Pine Project”), and the Keweenaw project which hosts the
543S deposit and other target areas (subject to the exercise of an option to acquire a 65% interest in the project
from BRP LLC) (the “Keweenaw Project”). Also, in May 2017, the Company acquired from subsidiaries of the Rio
Tinto Group a mineral property covering approximately 448,000 acres in the Upper Peninsula region (Note 4).
To date, the Company has not earned revenues and is considered to be in the exploration and development stage.
All financial results in these consolidated financial statements are expressed in Canadian dollars unless otherwise
indicated.
The Board of Directors approved these consolidated financial statements on October 26, 2017.
8 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2017 and 2016 (audited, in Canadian dollars)
2. GOING CONCERN
To date, the Company has not earned revenues and is considered to be in the exploration and development stage.
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 raising additional funds and completing the acquisition of the White Pine Project.
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 $5,947,994 during the year ended June 30, 2017 ($3,988,133 in 2016) and has a deficit of $48,023,937 at
June 30, 2017 (a deficit of $42,075,943 at June 30, 2016 taking into account the change in accounting policy
described in Note 3). The Company has a working capital of $13,735,032 at June 30, 2017.
The Company will require additional funds to settle its non-current liabilities and its other commitments described in
Note 7 and to pursue exploration and development work on its mineral properties. Although 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 is no assurance that the Company will be successful in raising such funds.
Should the Company not be successful in raising additional funds, it may be required to delay, reduce the scope of,
or eliminate its current or future exploration and development activities, and / or sell some of its assets, 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 may cast
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, 2017 and 2016 (audited, in Canadian dollars)
3. CHANGE IN ACCOUNTING POLICY
At June 30, 2017, the Company changed its accounting policy related to exploration and evaluation expenses,
which previously consisted in capitalizing all such expenditures. The Company believes that expensing certain
exploration and evaluation costs as incurred provides more reliable and relevant financial information. Under the
new policy, the cost of acquiring prospective properties and exploration rights continues to be capitalized and
exploration and evaluation costs, subsequent to acquisition, are expensed until it has been established that a
mineral property is commercially viable and a mine development decision has been made by the Company.
Thereafter, the Company will capitalize expenditures incurred to develop the mine, prior to the start of mining
operations.
The audited consolidated financial statements as at and for the year ended June 30, 2016 have been restated
retroactively to reflect adjustments made as a result of this change in accounting policy.
Consolidated Statement of Financial Position at June 30, 2016
As previously
reported
Adjustment
Restated
ASSETS
Current
Non-current
Capital assets
$
208,231
114,990
$
-
-
Exploration and evaluation assets
TOTAL ASSETS
53,827,188
(28,285,595)
54,150,409
(28,285,595)
$
208,231
114,990
25,541,593
25,864,814
4,490,125
1,595,961
6,086,086
51,754,469
6,253,329
4,490,125
1,595,961
6,086,086
51,754,469
6,253,329
-
-
-
-
-
(17,809,014)
(24,266,929)
(42,075,943)
7,865,539
(4,018,666)
48,064,323
(28,285,595)
54,150,409
(28,285,595)
3,846,873
19,778,728
25,864,814
LIABILITIES
Current
Non-current
TOTAL LIABILITIES
SHAREHOLDERS' EQUITY
Share capital
Contributed surplus
Deficit
Cumulative translation adjustment
TOTAL EQUITY
TOTAL LIABILITIES AND EQUITY
10 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2017 and 2016 (audited, in Canadian dollars)
3. CHANGE IN ACCOUNTING POLICY (continued)
Consolidated Statement of Financial Position at July 1, 2015
ASSETS
Current
Non-current
Capital assets
As previously
reported
Adjustment
Restated
$
1,149,278
233,615
$
-
-
$
1,149,278
233,615
Exploration and evaluation assets
61,568,034
(28,203,018)
33,365,016
TOTAL ASSETS
62,950,927
(28,203,018)
34,747,909
LIABILITIES
Current
Non-current
TOTAL LIABILITIES
SHAREHOLDERS' EQUITY
Share capital
Contributed surplus
Deficit
13,154,119
2,489,179
15,643,298
48,115,461
6,173,571
-
-
-
-
-
13,154,119
2,489,179
15,643,298
48,115,461
6,173,571
(13,592,922)
(24,494,888)
(38,087,810)
Cumulative translation adjustment
6,611,519
(3,708,130)
2,903,389
TOTAL EQUITY
47,307,629
(28,203,018)
19,104,611
TOTAL LIABILITIES AND EQUITY
62,950,927
(28,203,018)
34,747,909
11 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2017 and 2016 (audited, in Canadian dollars)
3. CHANGE IN ACCOUNTING POLICY (continued)
Consolidated Statement of Comprehensive Loss for the year ended June 30, 2016
Expenses and other items
Exploration and evaluation
Management and administration
Business development
Write-down of exploration and evaluation assets
Accretion of environmental liability
Finance income
Gain on foreign exchange
As previously
reported
Adjustment
Restated
$
-
1,486,118
79,783
2,655,495
15,637
(3,930)
(17,011)
$
$
2,304,235
-
-
(2,532,194)
-
-
-
2,304,235
1,486,118
79,783
123,301
15,637
(3,930)
(17,011)
Net loss for the year
(4,216,092)
227,959
(3,988,133)
Other comprehensive loss
Item that will not be subsequently reclassified to income
Foreign currency translation adjustment
1,254,020
(310,536)
943,484
Comprehensive loss for the year
(2,962,072)
(82,577)
(3,044,649)
Basic and diluted loss per common share
(0.03)
-
(0.03)
Consolidated Statement of Cash Flows for the year ended June 30, 2016
Cash flow from operating activities
Cash flow from investing activities
Cash flow from financing activities
Effect of exchange rate changes on cash held in foreign currency
Net change on cash
As previously
reported
Adjustment
Restated
$
(1,173,090)
(3,343,530)
3,639,008
37,269
(840,343)
$
$
(3,117,037)
(4,290,127)
3,116,449
-
588
-
(227,081)
3,639,008
37,857
(840,343)
12 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2017 and 2016 (audited, in Canadian dollars)
4. ACQUISITION OF A MINERAL PROPERTY AND PROMISSORY NOTE
On May 30, 2017, the Company acquired from Kennecott Exploration Company and Rio Tinto Nickel Company
(“RTX”), subsidiaries of the Rio Tinto Group, a mineral property covering approximately 448,000 acres in the Upper
Peninsula of the State of Michigan, USA (the “UPX Property”).
The UPX Property was acquired for a total consideration of US$18.0 million. A cash payment of US$2.0 million was
made at the acquisition date and the Company issued a US$16 million secured non-interest bearing promissory
note (the “Note”) that provides for the payment of US$1.0 million on the first anniversary of the acquisition and
US$3.0 million on each of the second, third, fourth, fifth and sixth anniversary of the acquisition. The payments
under the Note will be accelerated if Highland publicly releases a feasibility study covering any portion of the UPX
Property. The Note is secured by a 1st priority security interest over the acquired property.
RTX has retained a 2% net smelter return royalty (the “NSR”) on all mineral interests. Highland has an option to
buy-down half of the 2% NSR by paying US$8 million to RTX. The option will be exercisable at any time prior to May
30, 2028.
The Company determined that the UPX Property was not a business in accordance with the definition in IFRS 3,
Business Combinations, and therefore accounted for the acquisition as an asset acquisition rather than a business
combination.
Given that the Note is non-interest bearing, the Company accounted for its estimated fair value using a discount rate
of 20%. The balance of the Note was determined as follows:
Balance, beginning of year
Promissory Note from RTX, discounted at the rate of 20%
Accretion included in exploration and evaluation assets
Effect of foreign exchange
Balance, end of year
Current liability
Non-current liability
Year ended June 30,
2017
$
-
10,626,663
174,148
(411,736)
10,389,075
1,083,676
9,305,399
10,389,075
13 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2017 and 2016 (audited, in Canadian dollars)
5. 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, except for the promissory
note and balance of purchase price payable which are recognized at fair value.
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. Highland and its subsidiaries have
an annual reporting date of June 30. Details of the Company’s Subsidiaries are as follows:
•
Upper Peninsula Holding Company Inc. (“UPHC”); UPHC is the Company’s US-based holding company,
incorporated in February 2014 in the state of Delaware, USA), which in turn wholly owns the following four (4)
companies;
• 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;
• Copperwood Resources Inc. (“CRI”), previously known as Orvana Resources US Corp., acquired in June 2014
and incorporated in the state of Michigan, USA; and;
• UPX Minerals Inc, incorporated in March 2017 in the state of Michigan, USA.
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.
14 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2017 and 2016 (audited, in Canadian dollars)
5. SUMMARY OF ACCOUNTING POLICIES (continued)
d)
Foreign currency translation (continued)
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.
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,
note payable, 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.
15 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2017 and 2016 (audited, in Canadian dollars)
5. 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.
16 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2017 and 2016 (audited, in Canadian dollars)
5. SUMMARY OF ACCOUNTING POLICIES (continued)
g)
Exploration and evaluation assets
Costs related to exploration and evaluation of mineral properties are recognized in profit or loss as incurred. All
option and lease payments and costs of acquiring mineral rights are capitalized as exploration and evaluation
assets. Exploration and evaluation assets are assessed for impairment indicators at the end of each reporting
period.
Any option payments or proceeds from the sale of royalty interests received by the Company are credited to the
capitalized cost of the related exploration and evaluation asset. If payments received exceed the capitalized cost of
the exploration and evaluation assets, the excess is recognized as income in the period received.
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 and a mine development decision has
been made by the Company, 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.
The establishment of technical feasibility and commercial viability of a mineral property is assessed based on a
combination of factors, including a) the extent to which mineral reserves or mineral resources as defined in National
Instrument 43-101 have been identified through a feasibility study or similar document; b) the results of optimization
studies and further technical evaluation carried out to mitigate project risks identified in the feasibility study; c) the
status of environmental permits; and d) the status of mining leases or permits.
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.
17 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2017 and 2016 (audited, in Canadian dollars)
5. 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.
18 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2017 and 2016 (audited, in Canadian dollars)
5. 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.
19 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2017 and 2016 (audited, in Canadian dollars)
5. 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.
20 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2017 and 2016 (audited, in Canadian dollars)
5. 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.
21 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2017 and 2016 (audited, in Canadian dollars)
5. 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 can only 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”). Final closing, which initially was to occur by
December 31, 2015 was extended to September 2017 and subsequent to year-end was further extended to
December 15, 2017. The Company will also need to post the required financial assurance bond with the MDEQ. The
Company believes that it will 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. 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 which would trigger an impairment evaluation of the related exploration and
evaluation assets.
22 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2017 and 2016 (audited, in Canadian dollars)
5. SUMMARY OF ACCOUNTING POLICIES (continued)
n)
Significant accounting judgments and estimates (continued)
Exploration and evaluation assets
The application of the Company‘s accounting policy for exploration and evaluation assets requires judgment in
determining whether it is likely that future economic benefits will flow to the Company. If, after exploration and
evaluation activities have been conducted, 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.
Fair value of liabilities
The Company estimated the fair value of the non-interest bearing promissory note at June 30, 2017 and the balance
of purchase price payable at June 30, 2017 and 2016 using a discounted rate of 20%, based on management’s
judgment of its cost of capital given that it is considered to be in the exploration and development stage.
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.
Going concern
The assessment of the Company’s ability to execute its strategy by funding future working capital requirements
involves judgment. Estimates and assumptions are continually evaluated and are based on historical experience
and other factors, including expectations of future events that are believed to be reasonable under the
circumstances (Note 2).
23 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2017 and 2016 (audited, in Canadian dollars)
5. SUMMARY OF ACCOUNTING POLICIES (continued)
o)
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.
Classification and Measurement of Share-based Payment Transactions (Amendments to IFRS 2)
On June 20, 2016, the IASB issued amendments to IFRS 2 Share-based Payment, clarifying how to account for
certain types of share-based payment transactions. The amendments apply for annual periods beginning on or after
January 1, 2018. As a practical simplification, the amendments can be applied prospectively. Retrospective or early
application is permitted if information is available without the use of hindsight. The amendments provide
requirements on the accounting for: the effects of vesting and non-vesting conditions on the measurement of cash-
settled share-based payments; share-based payment transactions with a net settlement feature for withholding tax
obligations; and a modification to the terms and conditions of a share-based payment that changes the classification
of the transaction from cash-settled to equity-settled. The Company intends to adopt the amendments to IFRS 2 in
its financial statements for the annual period beginning on July 1, 2018. The extent of the impact of adoption of the
standard has not yet been determined.
IFRS 9, Financial Instruments
The International Accounting Standards Board (“IASB”) released IFRS 9, Financial Instruments (2014) (“IFRS 9”),
representing the completion of its project to replace IAS 39, Financial Instruments: Recognition and Measurement
(“IAS 39”). The new standard introduces extensive changes to IAS 39’s guidance on the classification and
measurement of financial assets and introduces a new “expected credit loss model” for the impairment of financial
assets. IFRS 9 also provides new guidance on the application of hedge accounting. The Company’s management
has yet to assess the impact of IFRS 9 on its consolidated financial statements. The new standard is required to be
applied for annual reporting periods beginning on July 1, 2018.
24 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2017 and 2016 (audited, in Canadian dollars)
5. SUMMARY OF ACCOUNTING POLICIES (continued)
o)
Accounting standards issued but not yet applied (continued)
IFRS 15, Revenue from Contracts with Customers
On May 28, 2014, the IASB issued IFRS 15 Revenue from Contracts with Customers. The new standard is effective
for annual periods beginning on or after January 1, 2018. On April 12, 2016, the IASB issued Clarifications to IFRS
15, Revenue from Contracts with Customers, which is effective at the same time as IFRS 15. The standard contains
a single model that applies to contracts with customers and two approaches to recognising revenue: at a point in
time or over time. The model features a contract-based five-step analysis of transactions to determine whether, how
much and when revenue is recognized. The new standard and its clarifications becomes mandatory for financial
years beginning on or after January 1, 2018. The Company intends to adopt IFRS 15 and the clarifications in its
consolidated financial statements for the annual period beginning on July 1, 2018. The adoption of this standard is
not expected to have a material impact in future periods until the Company commences generating revenues from
its mineral properties.
IFRS 16, Leases
In January 2016, the IASB published IFRS 16, Leases (“IFRS 16”) which will replace IAS 17, Leases (“IAS 17”).
IFRS 16 eliminates the classification as an operating lease and requires lessees to recognize a right-of-use asset
and a lease liability in the statement of financial position for all leases with exemptions permitted for short-term
leases and leases of low value assets. In addition, IFRS 16 changes the definition of a lease; sets requirements on
how to account for the asset and liability, including complexities such as non-lease elements, variable lease
payments and option periods; changes the accounting for sale and leaseback arrangements; largely retains IAS
17’s approach to lessor accounting; and introduces new disclosure requirements. IFRS 16 is effective for annual
reporting periods beginning on July 1, 2019 with early application permitted in certain circumstances. The Company
has yet to assess the impact of this new standard on its consolidated financial statements.
25 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2017 and 2016 (audited, in Canadian dollars)
6. CAPITAL ASSETS
Capital assets subject to depreciation and amortization are presented below.
Computer
Intangible
equipment
Exploration
Leasehold
assets
Vehicles and furniture
equipment
improvements
$
$
$
$
$
Total
$
Cost
Balance at June 30, 2015
135,256
300,595
156,605
515,368
82,114
1,189,938
Additions
Disposals
-
-
-
34,947
-
(218,567)
-
(52,256)
Effect of foreign exchange
2,655
Balance at June 30, 2016
137,911
Additions
Write-down
-
(79,706)
10,095
92,123
-
-
5,211
17,619
196,763
480,731
1,725
-
-
-
2,807
84,921
26,538
34,947
(270,823)
38,387
992,449
28,263
(108,244)
(212,015)
(85,316)
(485,281)
Effect of foreign exchange
374
582
Balance at June 30, 2017
58,579
92,705
(425)
89,819
2,476
271,192
(190)
25,953
2,817
538,248
Accumulated depreciation and amortization
Balance at June 30, 2015
107,002
233,705
144,625
Disposals
-
(218,567)
Depreciation and amortization
28,131
38,775
Effect of foreign exchange
2,384
6,833
-
28,279
4,537
388,877
(52,256)
68,686
11,527
Balance at June 30, 2016
137,517
60,746
177,441
416,834
82,114
956,323
-
-
2,807
84,921
(270,823)
163,871
28,088
877,459
Write-down
(79,706)
-
(108,244)
(212,015)
(85,316)
(485,281)
Depreciation and amortization
Effect of foreign exchange
393
375
25,429
(233)
Balance at June 30, 2017
58,579
85,942
Carrying amounts
Balance at June 30, 2015
28,254
Balance at June 30, 2016
Balance at June 30, 2017
394
-
66,890
31,377
6,763
17,594
(392)
86,399
11,980
19,322
3,420
25,028
1,627
231,474
126,491
63,897
39,718
-
395
-
-
-
25,953
68,444
1,772
462,394
233,615
114,990
75,854
Included in capital assets are assets with a carrying amount of $1,710 at June 30, 2017 ($15,469 at June 30, 2016)
for use at the Company’s corporate office. All other capital assets relate to the Company’s exploration activities.
26 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2017 and 2016 (audited, in Canadian dollars)
7. EXPLORATION AND EVALUATION ASSETS
Amounts invested in exploration and evaluation assets, after taking into account the change in accounting policy
described in Note 3, are as follows:
Copperwood
White Pine
UPX
Other
Project
Project
Property
properties
Total
$
$
$
$
$
(Note 4)
Restated balance, June 30, 2015
29,220,203
3,116,386
Property payments in cash
146,605
596,981
Write-down
-
Conversion of loan into NSR royalty
(10,000,000)
Finance expense
Effect of foreign exchange
463,755
982,890
-
-
-
74,215
(8,406,750)
671,196
Restated balance, June 30, 2016
20,813,453
3,787,582
-
-
-
-
-
-
-
-
1,028,427
33,365,016
29,815
773,401
(123,301)
(123,301)
-
-
(10,000,000)
463,755
5,617
1,062,722
(87,869)
(7,823,423)
940,558
25,541,593
Property payments in cash
Finance expense
Effect of foreign exchange
146,638
199,039
13,340,196
32,393
13,718,266
373,356
85,226
-
174,148
-
547,504
10,953
(515,893)
(205)
(419,919)
605,220
209,992
12,998,451
32,188
13,845,851
Balance, June 30, 2017
21,418,673
3,997,574
12,998,451
972,746
39,387,444
27 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2017 and 2016 (audited, in Canadian dollars)
7. EXPLORATION AND EVALUATION ASSETS (continued)
Copperwood Project, Michigan, USA
In June 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 Copperwood Resources Inc. (“CRI”), previously
known as Orvana Resources US Corp. As part of the acquisition of the Copperwood Project, the Company paid in
cash as additional consideration an amount of US$1,250,000 on June 17, 2017 and is required to pay in cash or
shares of Highland, at Orvana’s option, an additional amount of US$1,250,000 on June 17, 2018. The fair value of
the amount due in 2018, which was accounted for as “Future Consideration”, is described in Note 9.
An additional 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 a “Contingent Consideration”). The contractual Contingent Consideration will only be recognized if and when the
contingency is satisfied.
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 CRI, the Company’s wholly owned subsidiary, on 60 days’ notice.
28 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2017 and 2016 (audited, in Canadian dollars)
7. EXPLORATION AND EVALUATION ASSETS (continued)
White Pine Project, Michigan, USA
On May 13, 2014 (the interim closing date), the Company acquired from CRC all of CRC’s rights, title and interest in
the White Pine Project. The final closing of the acquisition will be completed once Highland has (i) released 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; 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, which
initially was to occur by December 31, 2015, was extended to September 2017 and subsequent to year-end was
further extended to December 15, 2017. 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.
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.
Upon completion of a feasibility study and receipt of all necessary permits for the development of a mine at White
Pine, the Company will pay to CRC 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, 2017, 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 yet accounted for this
contractual contingent liability.
29 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2017 and 2016 (audited, in Canadian dollars)
7. EXPLORATION AND EVALUATION ASSETS (continued)
Lease Agreement, White Pine, Michigan, USA
In April 2015, the Company entered into a 20-year lease agreement, with an option for an additional 5 years, for
certain mineral rights located in White Pine, Michigan. In accordance with the terms of the agreement with the
holder of the mineral rights (the “Lessor”), an additional cash payment of US$575,000 was to be made to the Lessor
by the Company, including US$425,000 payable in April 2016 and US$150,000 due in April 2017. On December 30,
2016, the Company entered into an amended agreement with the Lessor providing a revised schedule of payments
for the US$575,000 amount owed to the Lessor, including the April 2016 payment which had not yet been made at
that date, as described in Note 8 below.
The lease agreement also calls for an annual rent to be paid on the anniversary of the lease. The initial rent
payment of US$25,000 which was due in April 2016 was paid on December 30, 2016.
Upon commencement of production, Highland will have to pay to the Lessor 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 as the related
mineral rights are located within the White Pine Project.
UPX Property
Details of the May 2017 acquisition of the UPX Property are described in Note 4.
30 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2017 and 2016 (audited, in Canadian dollars)
7. EXPLORATION AND EVALUATION ASSETS (continued)
Other properties
Under a Mining Venture Agreement (the “Venture Agreement”) with BRP dated July 2011 and subsequently
amended on May 30, 2012, on April 29, 2013 and on November 20, 2015, the Company has an option to acquire a
65 percent interest in the Keweenaw Project by spending US$11,500,000 in exploration work, providing a feasibility
study by December 31, 2017 (amended from October 26, 2015 as part of the November 20, 2015 amendment) and
securing some of the historical shafts located on the Keweenaw region. At June 30, 2017, The Company had spent
the minimum amount required on the Keweenaw Project. 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. The Company recorded a write-down of exploration and evaluation assets of $55,781 during the year
ended June 30, 2016 related to the G-2 project. The amount capitalized on the G-2 project was written-down to nil
given that the exploration work conducted in the past has not led to the discovery of commercially viable quantities
of mineral resources and the Company does not intend to conduct further activities on the G-2 project in the near
term.
In December 2012, the Company entered into a lease agreement with a Michigan corporation for the exploration
and development of mineral properties in the Upper Peninsula of the State of Michigan, which lease agreement was
subsequently amended in September 2016 following the non-renewal of a portion of the leased area. 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$22,400 as rent during the year ended June 30, 2017 (US$21,000 in 2016). The Company
recorded a write-down of exploration and evaluation assets of $67,520 during the year ended June 30, 2016 related
to the leased properties. The Company wrote-down to nil the portion of the leased properties which was not
renewed.
31 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2017 and 2016 (audited, in Canadian dollars)
8.
NOTE PAYABLE
On December 30, 2016, the Company entered into an amended agreement with the Lessor of certain mineral rights
located in White Pine, Michigan (Note 7 - Lease Agreement, White Pine, Michigan, USA) for the remaining amount
of US$575,000 owed to the Lessor. Under the terms of the amended agreement, the Company paid an amount of
US$135,000 on December 30, 2016 and agreed to pay the balance of US$440,000 in sixteen equal quarterly
principal amounts of US$27,500, plus interest accruing at the rate of 8% per annum. Quarterly payments were made
on March 30, 2017 and June 30, 2017 and subsequent quarterly payments are due on September 30, December
30, March 30 and June 30 of each year until fully paid.
The balance of the Note Payable was determined as follows:
Balance, beginning of year
Conversion of accounts payable to note payable
Addition
Reimbursements
Effect of foreign exchange
Balance, end of year
Current liability
Non-current liability
Year ended June 30,
2017
$
-
560,788
201,406
(252,116)
(10,463)
499,615
142,747
356,868
499,615
2016
$
-
-
-
-
-
-
-
-
-
32 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2017 and 2016 (audited, in Canadian dollars)
9. BALANCE OF PURCHASE PRICE PAYABLE
In connection with the acquisition of the Copperwood Project, the Company accounted for the estimated fair value of
the Future Consideration using a discount rate of 20%. The remaining amount payable of US$1,250,000 as Future
Consideration is due on June 17, 2018 and may be paid by Highland to Orvana in cash or shares of Highland, at
Orvana’s option.
The balance of purchase price payable is as follows:
Balance, beginning of year
Accretion included in exploration and evaluation assets
Reimbursement
Effect of foreign exchange
Balance, end of year
Current portion
Non-current portion
10. ENVIRONMENTAL LIABILITY
Year ended June 30,
2017
$
2,734,442
373,356
(1,678,077)
49,355
2016
$
2,207,430
463,755
-
63,257
1,479,076
2,734,442
June 30,
June 30,
2017
$
1,479,076
-
2016
$
1,445,087
1,289,355
1,479,076
2,734,442
The environmental liability consists of a provision for reclamation costs related to the acquisition of the White Pine
Project (Note 7). The undiscounted cash flow amount of the liability was estimated at $369,000. The present value
of the liability was calculated using a discount rate of 8.0% and reflecting payments to be made from 2018 to 2027,
inclusively.
Balance, beginning of year
Accretion expense
Effect of foreign exchange
Balance, end of year
Year ended June 30,
2017
$
306,606
11,875
1,162
319,643
2016
$
281,749
15,637
9,220
306,606
33 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2017 and 2016 (audited, in Canadian dollars)
11. DEPOSIT ON SALE OF ROYALTY
On June 30, 2016, the Company and Osisko Gold Royalties Ltd. (“Osisko”) agreed to amend the terms of their
agreement entered into in December 2014 and to convert the $10 million deposit on sale of royalty into a 3.0% net
smelter return (“NSR”) royalty on all metals produced from the mineral rights and leases associated with the
Copperwood Project. The amendment also provides that upon final closing of the acquisition of the White Pine
Project, the Company will grant Osisko a 1.5% NSR royalty on all metals from the White Pine North Project, and
Osisko’s royalty on the Copperwood Project will be reduced to 1.5%. Osisko retains security over all of the
Company’s assets. On June 30, 2016, the amount of $10 million was recorded as a reduction of the carrying
amount of the related exploration and evaluation assets (Note 7).
Option to purchase future silver production
In December 2014, the Company also 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.
34 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2017 and 2016 (audited, in Canadian dollars)
12. SHARE CAPITAL
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
Between November 30, 2016 and March 24, 2017, the Company completed in four tranches a non-brokered private
placement for gross proceeds of $30,022,967 (the “Financing”). A total of 300,229,670 units, each unit comprised of
one common share of the Company and one half of one share purchase warrant (“Warrant”), were sold at $0.10 per
unit. Each Warrant is exercisable for a period of 12 months from its respective closing date at an exercise price of
$0.15 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 weighted-average risk-free interest rate of 0.74%, an expected life of the Warrants of one
year, an annualized weighted-average volatility of 96% and a dividend rate of 0%. An amount of $7,040,556 was
allocated to such Warrants and was presented as part of contributed surplus.
As part of the Financing, Greenstone Resources II LP (“Greenstone”) and OMF Fund II (H) LP, a subsidiary of Orion
Mine Finance (“Orion), acquired such number of units resulting in Greenstone and Orion holding respectively 17.5%
and 14.6% of the issued and outstanding common shares of the Company. Greenstone and Orion each received
participation rights to maintain their equity ownership level in future equity financings. Greenstone also received
nomination rights for the sale of Highland’s production pro-rata to its shareholding, and Orion entered into an offtake
agreement with the Company entitling Orion to purchase 15% of all concentrates to be produced at the Copperwood
Project. Orion also received a right of first refusal on any debt financing for the Copperwood project until September
17, 2018, excluding any royalty or stream financings. Osisko continues to have the right of first refusal on any other
debt financing entered into by the Company.
As part of the Financing, the Company paid finders’ fees totaling $948,129 and granted 1,000,000 compensation
warrants exercisable into 1,000,000 common shares at an exercise price of $0.15 per share expiring on March 17,
2020. The fair value of the compensation warrants, estimated at $113,562 and presented as share issue expenses,
was measured based on the Black-Scholes option pricing model, using a risk-free interest rate of 0.75%, an
expected life of three years, an annualized volatility of 100% and a dividend rate of 0%. The Company also incurred
other share issue expenses of $119,985.
35 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2017 and 2016 (audited, in Canadian dollars)
12. SHARE CAPITAL (continued)
On December 12, 2016, the Company settled an outstanding indebtedness in the amount of $494,986 owing to
Laurentian Mountains Investments Limited, a company owned by David Fennell, the Company’s chairman, by
issuing 4,949,857 common shares and 2,474,928 Warrants (the “Debt Settlement”). Each Warrant entitles the
holder to purchase one common share of the Company for a period of 12 months from the closing date at an
exercise price of $0.15 to acquire one common share. The amount of the Debt Settlement was 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 Debt Settlement and the value of the Warrants was measured
based on the Black-Scholes option pricing model, using a risk-free interest rate of 0.69%, an expected life of the
Warrants of one year, an annualized volatility of 89% and a dividend rate of 0%. An amount of $49,619 was
allocated to such Warrants and was presented as part of contributed surplus.
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. The Company incurred share issue
expenses of $24,957 in connection with the private placement.
The underlying expected volatility described above was determined by reference to historical data of the Company’s
share price over the expected life of the warrants.
Share purchase warrants
The following table sets out the activity in share purchase warrants:
Number of warrants
Balance, beginning of year
Granted
Expired
Balance, end of year
Year ended June 30,
2017
2016
56,455,373
56,455,373
153,589,762
(56,455,373)
-
-
153,589,762
56,455,373
36 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2017 and 2016 (audited, in Canadian dollars)
12. SHARE CAPITAL (continued)
The following table reflects the number of issued and outstanding share purchase warrants at June 30, 2017:
Grant date
May 2012 (1)
March 11, 2015 (2)
March 20, 2015 (2)
March 27, 2015 (2)
November 30, 2016
December 12, 2016
February 22, 2017
March 17, 2017
March 17, 2017
March 24, 2017
Number of
warrants
June 30,
2016
Granted
Expired
41,250,000
12,275,020
1,680,000
1,250,353
-
-
-
-
(41,250,000)
(12,275,020)
(1,680,000)
(1,250,353)
Number of
warrants
June 30,
2017
-
-
-
-
Price
per
share
$
-
-
-
-
Expiry
Date
-
-
-
-
-
-
-
-
-
-
15,140,000
2,474,928
9,574,545
76,730,714
1,000,000
48,669,575
-
-
-
-
-
-
15,140,000
0.15 Nov 30, 2017
2,474,928
0.15 Dec 12, 2017
9,574,545
0.15 Feb 22, 2018
76,730,714
0.15 Mar 17, 2018
1,000,000
0.15 Mar 17, 2020
48,669,575
0.15 Mar 24, 2018
56,455,373
153,589,762
(56,455,373)
153,589,762
0.15
Average price
0.68
0.15
(0.68)
0.15
(1) These share purchase warrants expired unexercised in March 2017.
(2) These share purchase warrants expired unexercised in September 2016.
37 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2017 and 2016 (audited, in Canadian dollars)
13. STOCK OPTIONS
The following table sets out the activity in stock options:
Year
ended
June 30,
2017
Year
ended
June 30,
2016
Average exercise
Average exercise
Number
price ($)
Number
price ($)
7,522,000
-
(67,000)
7,455,000
0.48
-
(0.43)
0.48
7,597,000
200,000
(275,000)
7,522,000
0.49
0.13
(0.40)
0.48
Number of options
Balance, beginning of year
Granted
Expired
Balance, end of year
On November 20, 2015, the Company granted 200,000 stock options to a director of the Company. The stock
options have a five year term and are exercisable at a price of $0.13 per share. The stock options granted will vest
over a two-year period. The fair value of the stock options was estimated at $0.11 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 0.93%, a volatility rate of 136% and a 0% dividend factor.
The following table reflects the stock options issued and outstanding at June 30, 2017:
Number of
Exercise
price of
Issue date
options
price
contratual life
options
options
Number of
Exercise
Remaining
exercisable
exercisable
July 6, 2012
November 5, 2012
August 1, 2014
April 21, 2015
November 20, 2015
400,000
3,740,000
1,400,000
1,715,000
200,000
7,455,000
$
0.50
0.60
0.50
0.25
0.13
0.48
(years)
0.0
0.3
2.1
2.8
3.4
1.3
400,000
3,740,000
1,400,000
960,000
133,333
6,633,333
$
0.50
0.60
0.50
0.25
0.13
0.51
38 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2017 and 2016 (audited, in Canadian dollars)
14. EXPLORATION AND EVALUATION EXPENSES
The Company incurred the following exploration and evaluation expenses:
Drilling and assaying
Labour
Studies
Office, overhead and other administrative costs
Gain on disposal of capital assets
Depreciation and amortization
Share-based compensation
15. 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 compensation
Depreciation and amortization
Year ended June 30,
2016
$
(Note 3)
-
1,217,610
554,438
460,543
(83,577)
123,669
31,552
2017
$
1,529,178
1,138,197
547,414
599,152
-
52,960
9,882
3,876,783
2,304,235
Year ended June 30,
2016
$
858,049
237,159
260,796
24,128
17,578
48,206
40,202
2017
$
929,797
151,471
184,892
95,635
28,852
17,078
15,484
1,423,209
1,486,118
39 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2017 and 2016 (audited, in Canadian dollars)
16.
LOSS PER SHARE
The calculation of basic and diluted loss per share for the year ended June 30, 2017 was based on the loss
attributable to common shareholders of $5,947,994 ($3,988,133 in 2016) and the weighted average number of
common shares outstanding of 251,264,795 (147,428,215 in 2016). Excluded from the calculation of the diluted
loss per share for the year ended June 30, 2017 are 153,589,762 share purchase warrants and 7,455,000 stock
options (56,455,373 share purchase warrants and 7,522,000 stock options in 2016) because to include them would
be anti-dilutive as they would have the effect of decreasing the loss per share.
17. RELATED PARTY TRANSACTIONS
The detail of transactions between the Company and its related parties, in addition to the loan settlement transaction
described in Note 12, are as follows:
During the year ended June 30, 2017, the Company incurred administration expenses of $100,998 from Reunion
Gold Corporation, a related party by virtue of common key management and directors (administration expenses of
$270,658 and the purchase of office furniture and computer equipment for an amount of $31,681 from Reunion Gold
Corporation in 2016). At June 30, 2017, the Company had an amount due to Reunion Gold Corporation of nil
($25,543 at June 30, 2016).
During the year ended June 30, 2017, the Company recovered amounts of $152,514 for management services to
other TSXV-listed companies, related by virtue of common key management, including Odyssey Resources Limited
and Reunion Gold Corporation (an amount of $120,810 was recovered during the year ended June 30, 2016). The
services are provided at cost.
These charges were measured at the exchange amount, which is the amount agreed upon by the transacting
parties.
Settlement payment to the Company’s former president and CEO
In March 2017, the Company paid to its former president and CEO an amount of US$150,000 as full and final
settlement of all unpaid amounts related to his employment with the Company due at the date of his resignation in
February 2016, in accordance with a settlement agreement entered into at that time.
40 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2017 and 2016 (audited, in Canadian dollars)
17. RELATED PARTY TRANSACTIONS (continued)
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:
Management and administration expenses
Exploration and evaluation expenses
Share-based compensation included in management and administration expenses
Share-based compensation included in exploration and evaluation expenses
Year ended June 30,
2016
$
627,004
234,710
41,773
9,190
912,677
2017
$
670,202
249,506
15,090
2,840
937,638
41 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2017 and 2016 (audited, in Canadian dollars)
18.
INCOME TAXES
The reconciliation of the effective tax rate is as follows:
2017
$
Year ended June 30,
2016
$
(Note 3)
Loss before income tax
(5,947,994)
(3,988,133)
Tax using the Company’s domestic tax rate
26.90%
(1,600,011)
26.90%
(1,072,808)
Share-based compensation
Non-deductible expenses and non-taxable revenues
Effect of tax rate in foreign jurisdictions
Unrecognized tax assets
Impact of newly-enacted tax rates
Other
Deferred income tax
(0.08%)
(0.00%)
7.85%
4,594
111
(467,080)
(0.54%)
(0.00%)
6.62%
(34.20%)
2,034,256
(54.53%)
21,455
263
(263,884)
2,174,648
-
(0.85%)
0.38%
-
50,430
(22,300)
-
-
21.55%
(859,674)
-
-
Recognized deferred tax assets and liabilities are attributable to the following:
Assets
Liabilities
Advances in foreign currency
Non-capital loss carry-forwards
Offsetting of tax assets and liabilities
Advances in foreign currency
Non-capital loss carry-forwards
Offsetting of tax assets and liabilities
June 30, 2017
Net
$
$
(436,015)
(436,015)
-
442,596
(436,015)
436,015
-
6,581
(6,581)
-
June 30, 2016
Net
$
$
(641,005)
(641,005)
-
641,005
(641,005)
641,005
-
-
-
-
$
-
442,596
442,596
(442,596)
-
$
-
641,005
641,005
(641,005)
-
Assets
Liabilities
42 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2017 and 2016 (audited, in Canadian dollars)
18.
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
Financing expenses
Canada
$
June 30, 2017
Total
$
USA
$
9,359,000
18,218,000
27,577,000
95,590
410,280
505,870
2,006,474
11,363,923
13,370,397
1,104,513
47,552
-
-
1,104,513
47,552
12,613,129
29,992,203
42,605,332
Canada
$
June 30, 2016
Total
$
USA
$
7,162,000
18,308,000
25,470,000
80,106
514,726
594,832
2,006,474
16,021,650
18,028,124
451,895
71,329
-
-
451,895
71,329
9,771,804
34,844,376
44,616,180
Deferred tax assets have not been recognised in respect of these items because of the uncertainties that future
taxable profit will be available against which the Company can utilise these benefits.
43 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2017 and 2016 (audited, in Canadian dollars)
18.
INCOME TAXES (continued)
Non-capital losses expire as follows:
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
Canada
$
103,000
120,000
304,000
538,000
744,000
951,000
1,370,000
96,000
1,136,000
2,466,000
1,034,000
497,000
9,359,000
USA
$
-
-
-
-
-
-
-
-
1,618,000
9,862,000
1,429,000
5,309,000
18,218,000
19. CAPITAL MANAGEMENT
The Company defines capital that it manages as loans (including note payable, 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, 2017, managed capital was $55,584,186 ($22,513,170 at June 30, 2016).
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, 2017. The Company is not subject to any
externally imposed capital requirements as at June 30, 2017.
44 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2017 and 2016 (audited, in Canadian dollars)
20.
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, 2017.
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, 2017:
Carrying
Settlement
Within
Within
Over
amount
amount
6 months
1 year
2-3 years
3 years
Accounts payable and accrued liabilities
1,945,816
1,945,816
885,936
1,059,880
$
$
$
$
$
-
$
-
Note payable
Promissory note
499,615
499,615
71,374
71,373
285,495
71,373
Balance of purchase price payable
1,479,076
1,622,125
10,389,075
20,763,200
-
-
1,297,700
7,786,200 11,679,300
1,622,125
-
-
Credit risk
14,313,582
24,830,756
957,310
4,051,078
8,071,695 11,750,673
Credit risk is the risk that the Company will incur losses due to the non-payment of contractual obligations by third
parties. The Company is exposed to credit risk with respect to cash.
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
$182,000.
45 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2017 and 2016 (audited, in Canadian dollars)
20.
FINANCIAL RISK MANAGEMENT (continued)
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, 2017,
financial assets and liabilities denominated in a foreign currency consisted of cash of $8,734,211 and accounts
payable and accrued liabilities of $207,652. The impact on profit or loss of a 10% increase or decrease in foreign
currencies against the Canadian dollar would be approximately $853,000.
21. 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 note
payable is considered to be a reasonable approximation of fair value as it bears interest at a rate negotiated
between the parties. The fair value of the promissory note and the balance of purchase price payable were
determined based on discounted cash flows using a rate of 20% (20% at June 30, 2016 for the determination of the
balance of purchase price payable), a rate similar to other debt instruments at the date of the consolidated
statement of financial position.
46 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2017 and 2016 (audited, in Canadian dollars)
22. SUPPLEMENTAL CASH FLOW INFORMATION
Non-cash items
Change in payables and accruals related to exploration and evaluation assets
Reclassification of accounts payable to note payable
Note payable related to exploration and evaluation assets
Promissory note related to exploration and evaluation assets
Year ended June 30,
2017
$
-
560,788
201,406
10,626,663
2016
$
(386,760)
-
-
-
Accretion on balance of purchase price payable included in exploration and evaluation assets
547,504
463,755
Osisko deposit on sale of royalty presented as a reduction of exploration and evaluation assets
-
10,000,000
Loan from a director settled by the issue of shares and warrants
494,986
-
23. 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, 2017
USA
$
Total
$
18,268,175
118,172
18,386,347
1,710
74,144
75,854
-
39,387,444
39,387,444
18,269,885
39,579,760
57,849,645
Canada
$
USA
$
182,915
15,469
25,316
99,521
June 30, 2016
Total
$
(Note 3)
208,231
114,990
-
25,541,593
25,541,593
198,384
25,666,430
25,864,814
47 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
June 30, 2017 and 2016 (audited, in Canadian dollars)
24. EVENTS AFTER THE REPORTING DATE
Grant of stock options
On August 29, 2017, the Company granted a total of 9,025,000 incentive stock options to directors, officers,
employees and consultants of the Company at an exercise price of $0.11 per share and on October 26, 2017, the
Company granted a total of 2,070,000 incentive stock options to directors, officers and employees of the Company
at an exercise price of $0.17 per share. All of the stock options will be vesting over a period of two years and, if not
exercised, will expire five years from the date of the grant.
48 MANAGEMENT’S DISCUSSION & ANALYSIS
Year ended June 30, 2017
HIGHLAND COPPER COMPANY INC.
MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS FOR THE
YEAR ENDED JUNE 30, 2017
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 26, 2017, covers the years ended June 30, 2017 and
2016 and should be read in conjunction with the audited consolidated financial statements and related notes at June 30, 2017
and 2016 (the “June 30, 2017 and 2016 consolidated financial statements”). The June 30, 2017 and 2016 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 the State of Michigan, USA.
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
(subject to final closing of the acquisition from Copper Range Company (“CRC”), a wholly-owned subsidiary of First Quantum
Minerals Ltd.), and Keweenaw, which includes the 543S deposit (subject to the exercise of an option to acquire a 65% interest
in the project from BRP LLC). Also, in May 2017, the Company acquired from subsidiaries of the Rio Tinto Group a mineral
property covering approximately 448,000 acres in the Upper Peninsula region. The acquisition of this property establishes
Highland as a dominant mining exploration and development company in the Upper Peninsula of Michigan.
Highland was incorporated under the Business Corporations Act (British Columbia) in 2006. Highland’s common shares are
listed on the TSX Venture Exchange (“TSXV”) under the symbol HI. On October 23, 2017, the Company’s common shares
started trading on the OTCQB Venture Marketplace (the "OTCQB"), a U.S. trading platform that is operated by the OTC
Markets Group in New York. The Company trades on the OTCQB under symbol "HDRSF".
At October 26, 2017, the Company has 459,148,153 common shares and 153,589,762 share purchase warrants issued and
outstanding.
Financing
On March 24, 2017, the Company completed a private placement raising a total of $30,022,967 by issuing 300,229,670 units
(the “Units”) at $0.10 per Unit (the “Offering”). Each Unit consisted of one common share of the Company and one half of one
common share purchase warrant (each whole warrant, a "Warrant"), with each Warrant exercisable to acquire one common
share at $0.15 for a period of 12 months. The Offering was completed in four tranches, with closing dates of November 30,
2016, February 22, 2017, March 17, 2017 and March 24, 2017. In connection with the Offering, the Company paid finders’
fees of $948,129 and issued 1,000,000 compensation warrants allowing the holder to acquire 1,000,000 common shares of
the Company at a price of $0.10 until March 17, 2020.
2
Management’s Discussion and Analysis
Year ended June 30, 2017
As part of the Offering, Osisko Gold Royalties Ltd. (“Osisko”) acquired a total of 43,000,000 Units, which combined with its
previous holding now holds 15.2% of the issued and outstanding common shares in Highland. Greenstone Resources II LP
(“Greenstone”) acquired 80,700,000 Units and OMF Fund II (H) LP, a subsidiary of Orion Mine Finance (“Orion”), acquired
67,250,000 Units resulting in Greenstone and Orion holding respectively 17.5% and 14.6% of Highland’s issued and
outstanding common shares. Greenstone and Orion received participation rights to maintain their equity ownership level in
future equity financings and a right to nominate a representative on a project steering committee. Greenstone also received
nomination rights for the sale of Highland’s production pro-rata to its shareholding, and Orion entered into an offtake
agreement with the Company entitling Orion to purchase 15% of all concentrates to be produced at the Copperwood project.
Orion also received a right of first refusal on any debt financing for the Copperwood project until September 17, 2018,
excluding any royalty or stream financings. Osisko continues to have a right to maintain its equity ownership in future
issuances of securities and a right of first refusal on any other future debt financing.
Copperwood Project
In June 2014, the Company acquired 100% of the Copperwood Project from Orvana for a cash consideration of US$20 million.
As part of the acquisition of the Copperwood Project, the Company paid in cash as additional consideration an amount of
US$1.25 million on June 17, 2017 and is required to pay in cash or shares of Highland, at Orvana’s option, an additional
amount of US$1.25 million on June 17, 2018. 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.
The Copperwood deposit is located in Gogebic County in the Upper Peninsula of Michigan, USA within the Keweenaw copper
district and about 35 kilometers west of the White Pine property. The Copperwood Project is comprised of long-term mineral
leases covering an aggregate of 4,707 acres and options to lease for an additional 1,470 acres.
Copperwood Project Feasibility Study
In May 2017, the Company initiated the work required to update the 2012 feasibility study prepared by Orvana (“FS Update”)
on the Copperwood Project. The Company expects to release the results of the FS Update in the second quarter of 2018 and
aims to complete the necessary permitting and financing for the development of the Copperwood Project in the first half of
2018 with construction planned to begin in the second half of 2018.
The Company engaged G Mining Services Inc. (“G Mining”) as lead consultant for the preparation of the FS Update. G Mining
is also responsible for mineral resource modelling and estimation and for the development of the mining plan using a mine
throughput of 6,000 tonnes per day, and a room-and-pillar mining method as the base case. Alternative mining scenarios are
also being evaluated. Mine design is being carried out by G Mining with geotechnical support from Golder Associates, using
results from additional geotechnical holes drilled on all mineralized zones earlier in 2017.
Design of the processing facility is being completed by Lycopodium Minerals Canada of Toronto. Design of the tailings facility
and water management systems is being done by Golder Associates, who had been involved in the previous studies at
3
Management’s Discussion and Analysis
Year ended June 30, 2017
Copperwood. A thorough metallurgical test program is being completed at SGS Lakefield in Ontario, Canada on samples from
all mineralized zones.
Infrastructure studies, including transportation, are being done internally and the Company has recently submitted a grant
application for funding the upgrade of County road 519. Various power alternatives are also being studied, including a trade-off
analysis to compare the cost of bringing a powerline to site versus on-site natural gas generation, as a gas line is available
close-by in the town of Wakefield. Raw water is available from nearby municipalities and the Company is also considering a
water wells alternative.
A portion of the environmental permitting applications is being handled internally, but the permitting lead and coordination is
being performed by Foth Infrastructure and Environment, a Wisconsin-based engineering firm with solid experience in
Michigan and the region.
Copperwood Project Updated Resource Estimate
On October 19, 2017, the Company reported an updated mineral resource estimate for the Copperwood Project, as shown in
the table below. The updated resource estimate was prepared by G Mining. The updated resource estimate represents a 46%
increase in the Measured and Indicated Resources categories compared to the previous resource estimate dated April 15th,
2015. This updated resource estimate provides a solid base for the FS Update described above. G Mining used the results of
the 2017 drilling program to update the 2015 resource estimate that had been reported in a NI 43-101 technical report.
The 2017 drilling program consisted of 32 HQ-diameter and three PQ-diameter drill holes for a total of 6,784 meters of core or
approximately 74% of the planned 44-hole, 9,198 meters core drilling program. The drilling provided 527 samples for copper
and silver assaying and 607 kg of materialized material for metallurgical testing. The remaining 12 in-fill resource drill holes in
the Section 5 area, at the eastern edge of the deposit, were not completed due to an early spring thaw. The 2017 drill program
was designed to upgrade the current inferred mineral resources at the eastern section of the deposit, obtain metallurgical
samples and carry out geotechnical studies to refine the mining plan. All of these objectives were realized and every drill hole
intersected copper-silver mineralization, as expected.
The drilling at the Copperwood “main zone” at the western section of the deposit, along with Section 6, has now been
completed. Samples for the available drill holes were sent for assay to Activation Laboratories, Thunder Bay, Ontario, and all
samples for geotechnical and metallurgical testing have been shipped to specialized laboratories.
The updated resource estimate is based on 2,738 assay results from 359 diamond drill holes totaling 66,577 meters, drilled by
four companies between 1956 and 2017. The conversion of Indicated Resources into Measured Resources was robust
including the zones drilled in 2017.
4
Copperwood Project - Mineral Resource Estimate – October 18, 2017
Deposits
Resource
Category
Tonnage
(Mt)
Copper
Grade
(%)
Silver
Grade
(g/t)
Copper
Contained
(M lbs)
Silver
Contained
(M oz)
Management’s Discussion and Analysis
Year ended June 30, 2017
Copperwood
LCBS
Copperwood
UCBS
Measured
Indicated
M + I
Inferred
Measured
Indicated
M + I
Inferred
26.8
11.6
38.4
4.6
-
4.1
4.1
0.3
1.69
4.59
1,000
1.50
2.68
383
1.63
4.02
1,383
1.36
1.69
-
-
1.19
3.33
1.19
3.33
1.05
3.23
138
-
107
107
8
885
155
4.0
1.0
5.0
0.3
-
0.4
0.4
0.0
2.5
0.9
Satellite LCBS
Inferred
33.2
1.21
2.37
Satellite UCBS
Inferred
6.1
1.15
4.75
Notes
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
Mineral Resources are reported using a copper price of US$ 3.00/lb and a silver price of US$ 18/oz.
A payable rate of 96.5% for copper and 90% for silver was assumed
The 2012 Copperwood feasibility study by Orvana Minerals Corp. reported metallurgical testing with recovery of 86% for
copper and 50% for silver
Cut-off grade of 1.0% copper was used, based on an underground “room and pillar” mining scenario
Operating costs are based on a processing plant located at the Copperwood site
An NSR sliding scale royalty is applicable and equivalent to 3.0% at US$ 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
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 for G Mining
Services Inc. The estimate has an effective date of October 18, 2017
Mineral Resources that 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, socio-political, marketing, or other
relevant issues
LCBS: Lower Copper Bearing Sequence
UCBS: Upper Copper Bearing Sequence
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.
5
Management’s Discussion and Analysis
Year ended June 30, 2017
Acquisition of the UPX Property from Rio Tinto
In May 2017, UPX Minerals Inc. (“UPX”), a wholly owned subsidiary of Highland, acquired from Kennecott Exploration
Company and Rio Tinto Nickel Company (“RTX”), subsidiaries of the Rio Tinto Group, a mineral property located in central
Upper Peninsula of Michigan. The property is comprised of non-contiguous mineral rights covering approximately 1,800
square kilometers (448,000 acres) (the “UPX Property”).
The consideration for the acquisition of the UPX Property was US$18.0 million of which US$2.0 million was paid at closing and
UPX issued a US$16 million secured non-interest bearing promissory note (the “Note”) that provides for the payment of
US$1.0 million on the first anniversary of the acquisition and US$3.0 million on each of the second, third, fourth, fifth and sixth
anniversary dates of the acquisition. The payments under the Note will be accelerated if Highland publicly releases a feasibility
study covering any portion of the UPX Property. The Note is secured by a first priority security interest over the acquired
property.
RTX has retained a 2% net smelter return royalty (the “NSR”) on all mineral interests. Highland has an option to buy-down half
of the 2% NSR by paying US$8 million to RTX. The option will be exercisable at any time prior to May 30, 2028.
In addition to the UPX Property, the acquisition includes all geological, geophysical, geochemical, environmental and other
technical information related to the property including maps, geophysical and geochemical surveys, drill core, and other
technical and operational information generated by RTX.
The UPX Property package covers the extension into Michigan of the Wawa-Abitibi geological Sub-province, which is part of
the Superior Province of the Canadian Shield. The Superior Province is a geologically distinct Archean (>2.5 billion years old)
province that stretches from Quebec through Ontario and into Minnesota and Michigan in the US and is well known for its
mineral endowment.
Since 2003, the UPX Property has been subject to over 69,500 line-miles of detailed airborne geophysical surveys as well as
147 diamond drill holes. Almost all of the RTX exploration effort was focused on Ni-Cu targets and the program ultimately led
to the discovery of the Eagle Mine. Although exploration for deposits of other commodities was limited, the potential for several
mineral deposit types have been identified, including nickel-copper massive sulphides in Mesoproterozoic rocks, orogenic gold
in Archean greenstone belts and zinc-copper in Paleoproterozoic sediments. The Archean and Proterozoic rock assemblages
are separated by the Great Lakes Tectonic zone, a large crustal boundary that in the Marquette area is 2.4 km wide. The
Company believes that the UPX Property offers the opportunity to build a pipeline of mineral projects that could be developed
in the future.
Exploration work planned for the next 12 months includes compilation of all available data to better understand the potential of
the property. The work program will also include field mapping and soil surveys along with ground geophysics. A re-
interpretation of available geophysical data will also be carried out with emphasis on the understanding of the various
geological environments. Budgeted expenditures for this exploration phase are approximately US$1.5 million. Some targets
may be ready for drill testing in 2018. Once the initial compilation work has been completed on the UPX Property and targets
have been prioritized, a strategic decision will be taken regarding which portion of the UPX Property could be explored under
arrangements with potential joint venture partners.
6
Management’s Discussion and Analysis
Year ended June 30, 2017
White Pine North Project
In May 2014 (the interim closing date), the Company entered into an agreement to acquire from CRC, all of CRC’s rights, title
and interest in mineral and surface rights forming the White Pine property. The Company issued to CRC at that time 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 MDEQ. At that time, Highland will assume all of CRC’s environmental liabilities related to
the former White Pine mine site and will also be responsible for all on-going environmental obligations. Highland and CRC
recently agreed to extend the period to complete the acquisition of the White Pine property to December 15, 2017.
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 began in 1952. Production from 1952 to 1995 was 198,070,985 short
tons of ore 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 mineral resource was completed in October 1995 by the former White Pine chief
geologist based on 526 diamond drill holes. The total historical estimate at that time was 118.7 million short tons averaging
20.7 pounds of copper per ton, for approximately 2.5 billion pounds of contained copper.
The resources reported for the White Pine North are provided as historical data only. A qualified person has not completed the work
necessary to verify the quality of the historic exploration data or to classify the historical estimate as current mineral resources or
mineral reserves. The Company is not treating the historical estimate as current mineral resources or mineral reserves and the
historical data should not be relied upon until they have been verified.
With an improving commodity price backdrop, Highland intends to develop a conceptual approach to mine development at the
White Pine North Project in 2018. Based on the historical resource estimate already identified at the White Pine North deposit,
this Project represents a significant medium-term copper production growth opportunity for the Company.
7
Management’s Discussion and Analysis
Year ended June 30, 2017
Lease Agreement, White Pine, Michigan
In April 2015, the Company entered into an agreement to lease certain mineral rights located in White Pine from a private
Michigan limited liability corporation. 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. Additional cash
payments were payable on the first and second anniversaries of closing. On December 30, 2016, the Company entered into
an amended agreement with the lessor to revise the payment schedule of the remaining amount of US$575,000 owed by the
Company to the Lessor. Under the terms of the amended agreement, the Company paid an amount of US$135,000 on
December 30, 2016 and agreed to pay the balance of US$440,000 in sixteen equal quarterly principal amounts of US$27,500,
plus interest accruing at the rate of 8% per annum. These quarterly payments started on March 30, 2017.
Keweenaw Project
The Keweenaw Project, which covers an area of approximately 9,000 acres, includes the 543S deposit. Under a Mining
Venture Agreement (the “Venture Agreement”) with BRP, the Company has an option to acquire a 65% interest in the
Keweenaw Project by spending US$11,500,000 in exploration work (which amount has been spent), providing a feasibility
study by December 31, 2017 and securing historical shafts. In addition to its 35% interest, BRP will retain 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%. The Company will not be able to complete the feasibility study by December 31, 2017 and it will have
to renegotiate the terms of the Venture Agreement or it may lose its right to acquire an interest in the project.
Management Appointments
Denis Miville-Deschênes, as President and CEO
On February 22, 2017, the Company announced that Mr. Denis Miville-Deschênes had joined Highland as President and CEO
and as a member of the Board of Directors. Mr. Miville-Deschênes is a mining engineer with over 30 years of experience in the
design, development and construction of mines as well as closure and rehabilitation of sites. During his career, which started
with Falconbridge Copper and then with Cambior and Iamgold, Mr. Miville-Deschênes has worked on numerous technical
studies and fourteen underground or open pit mining projects in North America, South America and Africa. He is recognized
for his ability to establish dynamic work teams and operating at high standards.
Mr. David Fennell who had been acting as President and CEO on an interim basis remains Chairman of the board of directors
of the Company.
Sylvain Collard, as General Manager, Projects and Operations
Mr. Sylvain Collard has recently joined the Company to coordinate the work being performed by the various engineering firms
to oversee the completion of the Copperwood FS Update. Mr. Collard is a highly-qualified mechanical engineer who
possesses thorough knowledge of mining, construction and operating activities. Mr. Collard was until recently responsible for
the daily operations of the mine, mill and power plant at Iamgold’s Essakane gold mine, in Burkina Faso.
8
Management’s Discussion and Analysis
Year ended June 30, 2017
David Charles, as Manager, Investor Relations
On February 22, 2017, the Company also announced the appointment of Mr. David Charles as Manager, Investor Relations.
David Charles brings close to 30 years of experience in the financial services industry in Canada primarily as a senior mining
equity analyst. Mr. Charles holds a bachelor’s degree in geology from Trinity College Dublin, an MSc. (applied) in Mineral
Exploration from McGill University and is a CFA charter holder.
Appointment of Jean Desrosiers as director
On October 26, 2017, the Board of Directors appointed Mr. Jean Desrosiers as a director of the Company. Mr. Desrosiers is a
retired mining engineer with over 40 years of experience in the mining industry. During his career, Mr. Desrosiers has held
senior management positions with Noranda, Falconbridge, Xstrata and Glencore Xstrata.
Debt Settlement
On December 12, 2016, the Company settled an outstanding indebtedness in the amount of $494,986, including accrued
interest calculated at the rate of 1% per month, owing to a company wholly-owned by David Fennell, the Company’s chairman,
by issuing 4,949,857 common shares and 2,474,928 warrants, with each warrant entitling the holder to purchase one common
share of the Company for a period of 12 months at an exercise price of $0.15 per share. Mr. Fennell had advanced these
funds to the Company during the period from August 1, 2016 to November 30, 2016 to ensure that critical payments to
maintain the Company in good standing were being made.
Grant of Stock Options
On August 29, 2017, the Company granted a total of 9,025,000 incentive stock options to directors, officers, employees and
consultants of the Company at an exercise price of $0.11 per share and on October 26, 2017, the Company granted a total of
2,070,000 incentive stock options to directors, officers and employees of the Company at an exercise price of $0.17 per share.
All of the stock options will be vesting over a period of two years and, if not exercised, will expire five years from the date of the
grant.
9
Management’s Discussion and Analysis
Year ended June 30, 2017
Exploration and Evaluation Expenses and Change in Accounting Policy
At June 30, 2017, the Company changed its accounting policy related to exploration and evaluation expenses, which
previously consisted in capitalizing all such expenditures. Under the new policy, the cost of acquiring prospective properties
and exploration rights continues to be capitalized and exploration and evaluation costs, subsequent to acquisition, are
expensed until it has been established that a mineral property is commercially viable and a mine development decision has
been made by the Company. Thereafter, the Company will capitalize expenditures incurred to develop the mine, prior to the
start of mining operations. This change in accounting was applied retroactively and all related numbers for the year ended
June 30, 2016 were restated retroactively to reflect adjustments made as a result of this change in accounting policy. Details of
the restatement to the June 30, 2016 audited consolidated financial statements are presented in Note 3 to the June 30, 2017
and 2016 consolidated financial statements.
Amounts invested in exploration and evaluation assets and capitalized in accordance with the Company’s new accounting
policy on exploration and evaluation expenses described above, are as follows:
Copperwood
White Pine
UPX
Other
Project
Project
Property
properties
Restated balance, June 30, 2015
29,220,203
3,116,386
$
$
Property payments in cash
Write-down
Conversion of Osisko loan into NSR royalty
(10,000,000)
Finance expense
Effect of foreign exchange
463,755
982,890
Restated balance, June 30, 2016
20,813,453
3,787,582
(8,406,750)
671,196
146,605
596,981
-
-
-
-
74,215
Total
$
$
1,028,427
33,365,016
29,815
773,401
(123,301)
(123,301)
-
-
(10,000,000)
463,755
5,617
1,062,722
(87,869)
(7,823,423)
940,558
25,541,593
$
-
-
-
-
-
-
-
-
Property payments in cash
Finance expense
Effect of foreign exchange
146,638
199,039
13,340,196
32,393
13,718,266
373,356
-
174,148
-
547,504
85,226
10,953
(515,893)
(205)
(419,919)
605,220
209,992
12,998,451
32,188
13,845,851
Balance, June 30, 2017
21,418,673
3,997,574
12,998,451
972,746
39,387,444
10
Management’s Discussion and Analysis
Year ended June 30, 2017
The amounts capitalized during the year ended June 30, 2017 included the acquisition cost of the UPX property for an amount
of $13,340,196 (which consist of the amount of US$2,000,000 paid at closing and the fair value of the non-interest bearing
note of US$16,000,000 payable over a period of 6 years in favor of the vendor, using a discount rate of 20%), lease payments
of $146,638 related to the Copperwood Project and $32,393 related to other properties, the balance of the additional payment
of $199,039 owing to the lessor of the property in White Pine, a total accretion amount of $547,504 related to the non-interest
bearing promissory note in favor of RTX and the non-interest bearing balance of purchase price payable in favor of Orvana
and an unrealized gain on foreign of exchange of $419,919.
In 2016, the capitalized amounts included lease payments of $146,605 related to the Copperwood Project and other $29,815
related to other properties, an additional amount of $596,981 owing to the lessor of the property in White Pine, an accretion
amount of $463,755 related to the non-interest bearing balance of purchase price payable in favor of Orvana and an
unrealized loss on foreign exchange of $1,062,722. Capitalized amounts were reduced during the year by an amount of
$123,301 related mostly to the write-down of the G-2 project expenditures and an amount of $10,000,000 following the
conversion of the Osisko deposit on sale of royalty into a 3% NSR royalty on the Copperwood Project.
Exploration and evaluation expenses charged to the statement of comprehensive loss during the years ended June 30, 2017
and 2016 are as follows:
Copperwood
White Pine
UPX
Other
June 30, 2017 June 30, 2016
Year ended
Year ended
Site preparation, drilling and assaying
Labour
Studies and consultants
Office, overhead and other administrative costs
Gain on sale of capital assets
Depreciation and amortization
Share-based compensation
$
1,529,045
538,719
256,791
154,285
-
2,694
-
Project
Project
Project
projects
$
-
$
133
$
-
Total
$
1,529,178
Total
$
-
417,725
179,448
2,305
1,138,197
1,217,610
290,623
-
-
547,414
554,438
299,165
119,417
26,285
599,152
460,543
-
35,054
-
-
-
-
-
15,212
9,882
-
(83,577)
52,960
123,669
9,882
31,552
2,481,534
1,042,567
298,998
53,684
3,876,783
2,304,235
11
Selected Consolidated Financial Information (1)(2)
The following selected financial information should be read in conjunction with the Company’s June 30, 2017 and 2016
consolidated financial statements.
Management’s Discussion and Analysis
Year ended June 30, 2017
Financial Position
Cash
Working capital (deficit)
Exploration and evaluation assets (3)
Total assets (3)
Non-current portion of note payable and promissory note
Non-current portion of balance of purchase price payable
Shareholders' equity (3)
Comprehensive Loss
Net loss for the year
Basic and diluted loss per share
Cash Flows
Operating activities
Investing activities
Financing activities
June 30,
June 30,
2017
$
2016
$
18,247,875
201,998
13,735,032
(4,281,894)
39,387,444
25,541,593
57,849,645
25,864,814
9,662,267
-
-
1,289,355
43,216,420
19,778,728
Year ended
Year ended
June 30,
2017
$
June 30,
2016 (3)
$
Year ended
June 30,
2015 (3)
$
(5,947,994)
(3,988,133)
(12,355,741)
(0.02)
(0.03)
(0.12)
(6,137,657)
(2,918,460)
27,508,149
(4,290,127)
(10,739,565)
(227,081)
3,639,008
(492,553)
9,238,151
1) The Selected Consolidated Financial Information was derived from the Company’s June 30, 2017 and 2016 consolidated financial
statements, prepared in accordance with IFRS.
2) The Company’s June 30, 2017 and 2016 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 raising additional funds and completing
the acquisition of the White Pine property. 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, it may be required to further delay, reduce the scope of, or eliminate
its current or future exploration and development activities, and/or sell some of its assets, 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 material uncertainty that may cast 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 June 30, 2017 and 2016 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
ended
June 30,
Management’s Discussion and Analysis
Year ended June 30, 2017
3) Amounts restated to reflect the change in accounting policy related to exploration and evaluation expenses described in the
Exploration and Evaluation Expenses and Change in Accounting Policy section.
Since its incorporation, the Company has not paid any cash dividend on its outstanding common shares. Any future dividend
payments will depend on the Company’s financial needs to fund its exploration and development programs and any other
factor that the board of directors may deem necessary to consider. It is highly unlikely that any dividends will be paid in the
near future.
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.
Year ended June 30, 2017 compared to year ended June 30, 2016
The Company incurred a net loss of $5,947,994 during the year ended June 30, 2017 compared to a net loss of $3,988,133 in
2016. The increased loss in 2017 is mostly due to expenses incurred for the drilling program conducted during the year at the
Copperwood Project ($1,529,178) and an unrealized loss on foreign exchange of $389,208 on the conversion of the
Company’s cash position held in US dollars at June 30, 2017.
The detail of exploration expenses of $3,876,783 incurred in 2017 compared to $2,304,235 in 2016 is presented by project in
the Exploration and Evaluation Expenses and Change in Accounting Policy section.
Management and administration expenses of $1,423,209 in 2017 compared to $1,486,118 in 2016 reflect higher wages and
fees following the hiring of senior corporate staff (wages and fees of $929,797 in 2017 compared to $858,049 in 2016), higher
investor relations and travel expenses for attending key mining conferences and other investor relations events ($95,635 in
2017 compared to $24,128 in 2016) offset by lower office expenses ($151,471 in 2017 compared to $237,159 in 2016) and
professional fees ($184,892 in 2017 compared to $260,796 in 2016).
The Company continues to assess mineral projects which resulted in business development expenses of $264,906 in 2017
compared to $79,783 in 2016. Such expenses consist mostly of professional fees and travel expenses.
The Company incurred a finance expense of $11,497 in 2017 (nil in 2016) related to funds advanced by the Company’s
chairman between August 1, 2016 to November 30, 2016 to ensure that critical payments to maintain the Company in good
standing were being made, and a finance expense of $22,624 (nil in 2016) on the remaining amount of US$575,000 owed to
the lessor of certain mineral rights located in White Pine, Michigan, in accordance with an amended agreement described in
the Debt Settlement section.
13
Management’s Discussion and Analysis
Year ended June 30, 2017
4th quarter ended June 30, 2017 compared to the 4th quarter ended June 30, 2016
During the 4th quarter ended June 30, 2017, the Company incurred a net loss of $1,939,703 (nil per share), compared to a net
loss of $831,780 ($0.01 per share) during the 4th quarter ended June 30, 2016. The increased loss during the 4th quarter
ended June 30, 2017 compared to 2016 is mainly due to increased exploration and evaluation expenses of $1,003,925 related
to the beginning of the Copperwood Project feasibility study and the completion of the drilling program at the Copperwood
Project that had been initiated in February 2017, business developments expenses of $106,582 related to the assessment of
various mineral projects and an unrealized loss on foreign exchange of $147,197 on the conversion of the Company’s cash
position held in US dollars at June 30, 2017. Such increases were partially offset by finance income of $41,683 and lower
management and administration expenses of $85,774. The amount of management and administration expenses for the 4th
quarter ended June 30, 2016 included a settlement provision of US$150,000 payable to the Company’s former president and
CEO following his resignation in February 2016. This settlement amount was paid in full in March 2017.
Selected Quarterly Financial Information
The following is a summary of the Company’s financial results for the past eight quarters:
Period ended
June 30, 2017
March 31, 2017 (1)
December 31, 2016 (1)
September 30, 2016 (1)
June 30, 2016 (1)
March 31, 2016 (1)
December 31, 2015 (1)
September 30, 2015 (1)
Revenues
Net loss
per share
Basic and
diluted loss
$
41,683
8,881
1,509
35
302
700
2,340
588
$
(1,939,703)
(2,689,432)
(613,734)
(705,125)
(831,780)
(736,362)
(1,207,457)
(1,212,534)
$
(0.00)
(0.01)
(0.00)
(0.00)
(0.01)
(0.00)
(0.01)
(0.01)
1) Amounts restated to reflect the change in accounting policy related to exploration and evaluation expenses described in the
Exploration and Evaluation Expenses and Change in Accounting Policy section.
Liquidity and Capital Resources
At June 30, 2017, the Company had a working capital of $13,735,032 compared to a working capital deficit of $4,281,894 at
June 30, 2016. The increase in the working capital during the year ended June 30, 2017 is mainly attributable to the
completion of a private placement which resulted in the issuance of 300,229,670 Units at a price of $0.10 per Unit for total
gross proceeds of $30,022,967, partially offset by share issue expenses of $1,068,114, the payment of $2,699,000
(US$2,000,000) to acquire the UPX Property, lease payments of $179,031 related to the Copperwood Project and other
mineral leases held, the reimbursement of an amount due to Orvana of $1,678,077 (US$1,250,000) as a balance of the
14
Management’s Discussion and Analysis
Year ended June 30, 2017
purchase price of the Copperwood Project, exploration and evaluation expenses of $3,813,941 and management and
administration expenses of $1,390,647, excluding non-cash items.
On May 30, 2017, as consideration for the acquisition of the UPX Property, the Company issued a US$16,000,000 million
secured non-interest bearing promissory note in favor of RTX repayable over a period of six years.
On December 30, 2016, the Company entered into an amended agreement with the lessor of certain mineral rights located in
White Pine and agreed to pay the balance of the amount due of US$440,000 in sixteen equal quarterly principal amounts of
US$27,500 plus interest accruing at the rate of 8% per annum, starting on March 30, 2017.
The Company will require additional funds to settle its non-current liabilities and its other commitments and to further pursue
exploration and development activities on its mineral properties. Although 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 is no
assurance that the Company will be successful in raising such funds. Should the Company not be successful in raising
additional funds, it may be required to delay, reduce the scope of, or eliminate its future exploration and development activities,
and / or it may have to sell some or all of its assets, any of which could have a negative impact on the business, financial
condition and results of operation of the Company.
Capital Management
The Company defines capital that it manages as loans (including note payable, 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, 2017, managed capital was $55,584,186
($22,513,170 at June 30, 2016). There were no changes in the Company’s approach to capital management during the year
ended June 30, 2017. The Company is not subject to any externally imposed capital requirements as at June 30, 2017.
Off-Balance Sheet Arrangements
At June 30, 2017, the Company has no off-balance sheet arrangements.
Transactions with Related Parties
During the year ended June 30, 2017, the Company incurred administration expenses of $100,998 for office-related services
provided by Reunion Gold Corporation (“Reunion”), a related party by virtue of common key management and directors
(administration expenses of $270,658 and the purchase of office furniture and computer equipment for an amount of $31,681
from Reunion in 2016). At June 30, 2017, the Company had an amount due to Reunion of nil ($25,543 at June 30, 2016).
15
Management’s Discussion and Analysis
Year ended June 30, 2017
During the year ended June 30, 2017, the Company recovered amounts of $152,514 for management services provided to
other TSXV-listed companies, related by virtue of common key management, including Odyssey Resources Limited and
Reunion (an amount of $120,810 was recovered in 2016). The services are provided at cost.
David Fennell, the Company’s chairman advanced funds of $483,489 between August 1, 2016 and November 30, 2016,
through a company wholly-owned by David Fennell, to ensure that critical payments to maintain the Company in good
standing were being made. These advances bore interest at the rate of 1% per month on the principal amount. On December
12, 2016, the Company settled the amount of the debt due to Mr. Fennell, by issuing common shares and share purchase
warrants.
Remuneration to directors and key management of the Company totaled $937,638 during the year ended June 30, 2017
($912,677 in 2016).
Outstanding Share Data
At October 26, 2017, the Company has 459,148,153 common shares issued and outstanding, 153,589,762 share purchase
warrants exercisable at a price of $0.15 per share at various dates until March 17, 2020, and 7,455,000 stock options
outstanding with an average exercise price of $0.48, expiring at various dates until November 2020.
Basis of Presentation of Financial Statements
The Company’s consolidated financial statements have been prepared in accordance with IFRS as issued by the International
Accounting Standards Board. The accounting policies, methods of computation and presentation applied in the Company’s
consolidated financial statements are consistent with those of the previous year, except for the change in accounting policy
related to exploration and evaluation assets described in the Exploration and Evaluation Expenses and Change in Account
Policy section. The significant accounting policies of Highland are detailed in Note 5 to the June 30, 2017 and 2016
consolidated financial statements filed on SEDAR.
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. 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, include title to mineral property interests, exploration and evaluation assets, fair value of liabilities, environmental
liability and going concern. Details on the significant assumptions are presented in Note 5 to the June 30, 2017 and 2016
consolidated financial statements filed on SEDAR.
16
Management’s Discussion and Analysis
Year ended June 30, 2017
Accounting Standards Issued but not yet Applied
Standards, amendments and interpretations issued but not yet effective up to the date of the issuance of the Company’s
consolidated financial statements that are expected to be relevant to the Company are presented in Note 5 to the June 30,
2017 and 2016 consolidated financial statements filed on SEDAR.
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.
The following table summarizes the contractual maturities of the Company’s financial liabilities at June 30, 2017:
Carrying
Settlement
Within
Within
Over
amount
amount
6 months
1 year
2-3 years
3 years
Accounts payable and accrued liabilities
1,945,816
1,945,816
885,936
1,059,880
$
$
$
$
$
-
$
-
Note payable
Promissory note
499,615
499,615
71,374
71,373
285,495
71,373
Balance of purchase price payable
1,479,076
1,622,125
10,389,075
20,763,200
-
-
1,297,700
7,786,200 11,679,300
1,622,125
-
-
Credit Risk
14,313,582
24,830,756
957,310
4,051,078
8,071,695 11,750,673
Credit risk is the risk that the Company will incur losses due to the non-payment of contractual obligations by third parties. The
Company is exposed to credit risk with respect to cash.
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 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 $182,000.
17
Management’s Discussion and Analysis
Year ended June 30, 2017
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, 2017, financial assets and liabilities denominated in a foreign currency
consisted of cash of $8,734,211 and accounts payable and accrued liabilities of $207,652. The impact on profit or loss of a
10% increase or decrease in foreign currencies against the Canadian dollar would be approximately $853,000.
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 and the requirement for additional funds
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.
Company Specific Risks
•
The ability of the Company to achieve its plans and objectives as well as its ability to raise funds may be affected by
the results of the ongoing feasibility study on its Copperwood project, the results of exploration programs on its
projects, delays in obtaining or failures to obtain required governmental, environmental or other approvals, and other
variables such as changes in demand for and prices of copper, lower than expected grades and quantities of
resources, mining rates and recovery rates, legislative, environmental and other regulatory approval or political
changes.
•
•
The Company may be unable to complete the acquisition of the White Pine property if it cannot meet the final closing
conditions. This would negatively impact the Company’s business plan.
The Company is subject to environmental risks related to the fact that the White Pine property is subject to a consent
decree and, as part of the acquisition of White Pine, the Company will have to assume certain environmental
responsibilities and risks related to the closure of the former White Pine Mine.
•
In Michigan, mineral rights are property rights that can be sold, transferred or leased. The Company is taking steps
to verify title with respect to its most material mineral properties. Although the Company believes that title to its
18
Management’s Discussion and Analysis
Year ended June 30, 2017
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.
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
19
Management’s Discussion and Analysis
Year ended June 30, 2017
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 relating to the Company’s plans to complete the updated
feasibility study on the Copperwood deposit by the second quarter of 2018, plans to complete the necessary permitting and
financing for the development of the Copperwood Project in the first half of 2018, plans to begin construction in the second half
of 2018, the potential upgrade of inferred resources, plans to raise additional funds to achieve the Company’s objectives, and
plans to complete the acquisition of the White Pine property by December 15, 2017. Other forward looking information in this
MD&A includes perceived merit of properties; exploration plans and budgets; mineral reserves and resource estimates; work
programs; capital expenditures; timelines; strategic plans; market prices for copper; or other statements that are not
statements of fact.
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 a number of risk factors, including those described above. 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.
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 Vice President, Exploration.
20
Management’s Discussion and Analysis
Year ended June 30, 2017
Additional Information and Continuous Disclosure
This MD&A has been prepared as at October 26, 2017. 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).
21