CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2020 and 2019
In US dollars
KPMG LLP
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Canada
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INDEPENDENT AUDITORS’ REPORT
To the shareholders of Highland Copper Company Inc.
Opinion
We have audited the accompanying consolidated financial statements of Highland Copper Company
Inc. (the "Entity"), which comprise:
•
•
•
•
•
the consolidated statements of financial position as at June 30, 2020 and June 30, 2019
the consolidated statements of loss and comprehensive loss for the years then ended
the consolidated statements of changes in shareholders’ equity for the years then ended
the consolidated statements of cash flows for the years then ended
as well as the notes to the consolidated financial statements, including a summary of significant
accounting policies
(hereinafter referred to as the "financial statements").
In our opinion, the accompanying financial statements present fairly, in all material respects, the
consolidated financial position of the Entity as at June 30, 2020 and June 30, 2019, and its
consolidated financial performance and its consolidated cash flows for the years then ended in
accordance with International Financial Reporting Standards ("IFRS").
Basis of opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our
responsibilities under those standards are further described in the "Auditors’ Responsibilities for
the Audit of the Financial Statements" section of our auditors’ report.
We are independent of the Entity in accordance with the ethical requirements that are relevant to our
audit of the financial statements in Canada and we have fulfilled our other ethical responsibilities in
accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our opinion.
Material Uncertainty Related to Going Concern
We draw attention to Note 2 in the financial statements, which indicates that the Entity is still in the
exploration stage and, as such, no revenue has been yet generated and it has incurred net losses for
the last two years, and has an accumulated deficit and a working capital deficiency as at June 30,
2020.
© 2020 KPMG LLP, an Ontario limited liability partnership and a member firm of the KPMG global organization of independent member firms
affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
2 As stated in Note 2 in the financial statements, these events or conditions, along with other matters
as set forth in Note 2 in the financial statements, indicate that a material uncertainty exists that may
cast significant doubt on the Entity's ability to continue as a going concern.
Our opinion is not modified in respect of this matter.
Other information
Management is responsible for the other information. Other information comprises:
•
the information included in Management’s Discussion and Analysis filed with the relevant
Canadian Securities Commissions.
Our opinion on the financial statements does not cover the other information and we do not and will
not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other
information identified above and, in doing so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge obtained in the audit and remain alert for
indications that the other information appears to be materially misstated.
We obtained the information included in Management’s Discussion and Analysis filed with the
relevant Canadian Securities Commissions as at the date of this auditors’ report. If, based on the
work we have performed on this other information, we conclude that there is a material misstatement
of this other information, we are required to report that fact in the auditors’ report.
We have nothing to report in this regard.
Responsibilities of Management and Those Charged with Governance for the
Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in
accordance with International Financial Reporting Standards, and for such internal control as
management determines is necessary to enable the preparation of financial statements that are free
from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is responsible for assessing the Entity’s ability to
continue as a going concern, disclosing as applicable, matters related to going concern and using the
going concern basis of accounting unless management either intends to liquidate the Entity or to
cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Entity’s financial reporting
process.
Auditors’ Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole
are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report
that includes our opinion.
3 Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in
accordance with Canadian generally accepted auditing standards will always detect a material
misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on
the basis of the financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise
professional judgment and maintain professional skepticism throughout the audit.
We also:
•
Identify and assess the risks of material misstatement of the financial statements, whether due to
fraud or error, design and perform audit procedures responsive to those risks, and obtain audit
evidence that is sufficient and appropriate to provide a basis for our opinion.
The risk of not detecting a material misstatement resulting from fraud is higher than for one
resulting
intentional omissions,
misrepresentations, or the override of internal control.
involve collusion,
from error, as
fraud may
forgery,
• Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Entity's internal control.
•
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
• Conclude on the appropriateness of management's use of the going concern basis of accounting
and, based on the audit evidence obtained, whether a material uncertainty exists related to
events or conditions that may cast significant doubt on the Entity's ability to continue as a going
concern. If we conclude that a material uncertainty exists, we are required to draw attention in our
auditors’ report to the related disclosures in the financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up
to the date of our auditors’ report. However, future events or conditions may cause the Entity to
cease to continue as a going concern.
•
Evaluate the overall presentation, structure and content of the financial statements, including the
disclosures, and whether the financial statements represent the underlying transactions and
events in a manner that achieves fair presentation.
• Communicate with those charged with governance regarding, among other matters, the planned
scope and timing of the audit and significant audit findings, including any significant deficiencies
in internal control that we identify during our audit.
4 •
Provide those charged with governance with a statement that we have complied with relevant
ethical requirements regarding independence, and communicate with them all relationships and
other matters that may reasonably be thought to bear on our independence, and where
applicable, related safeguards.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the group Entity to express an opinion on the financial statements. We
are responsible for the direction, supervision and performance of the group audit. We remain
solely responsible for our audit opinion.
The engagement partner on the audit resulting in this auditors’ report is Marie David.
Montréal, Canada
October 27, 2020
*CPA auditor, CA, public accountancy permit No. A131681
5 Highland Copper Company Inc.
Consolidated Statements of Financial Position
(in US dollars)
ASSETS
Current
Cash (Note 5)
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
Lease liabilities (Note 8)
Credit facility, including accrued interest (Note 9)
Note payable (Note 10)
Promissory note, including accrued interest (Note 12)
Non-current
Note payable (Note 10)
Environmental liability (Note 13)
TOTAL LIABILITIES
SHAREHOLDERS' (DEFICIT) EQUITY
Share capital (Note 14)
Contributed surplus
Deficit
Cumulative translation adjustment
TOTAL (DEFICIT) EQUITY
TOTAL LIABILITIES AND (DEFICIT) EQUITY
June 30,
June 30,
2020
$
2019
$
164,327
605,046
7,282
29,297
12,767
36,899
200,906
654,712
51,214
81,768
20,636,987
20,385,814
20,889,107
21,122,294
916,939
913,359
9,446
-
5,006,142
2,495,484
55,000
110,000
16,535,251
15,128,068
22,522,778
18,646,911
-
266,151
55,000
257,004
22,788,929
18,958,915
66,137,274
66,137,274
11,872,108
11,681,150
(81,650,160)
(77,278,822)
1,740,956
1,623,777
(1,899,822)
2,163,379
20,889,107
21,122,294
Going Concern (Note 2); Commitments and Contingencies (Note 7); Event after the Reporting Date (Note 26).
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
6 Highland Copper Company Inc.
Consolidated Statements of Net Loss and Comprehensive Loss
(in US dollars)
Expenses and other items
Exploration and evaluation (Note 16)
Management and administration (Note 17)
Share-based compensation
Depreciation and amortization (Note 6)
Years ended June 30,
2019
$
2020
$
787,564
978,320
27,646
81,603
2,410,219
1,359,322
168,612
48,252
Write-down of exploration and evaluation assets (Note 7)
-
18,010,770
Accretion on environmental liability (Note 13)
Finance expense (Note 18)
Finance income
Loss (gain) on foreign exchange
9,147
2,385,385
(5,376)
107,049
4,326
219,908
(19,005)
(46,823)
Net loss for the year
(4,371,338)
(22,155,581)
Other comprehensive income
Item that will not be subsequently reclassified to income
Foreign currency translation adjustment
Item that may be subsequently reclassified to income
333,904
(248,958)
Foreign currency translation adjustment
(216,725)
191,144
Comprehensive loss for the year
(4,254,159)
(22,213,395)
Basic and diluted loss per common share (Note 20)
(0.01)
(0.05)
Weighted average number of common shares - basic and diluted
472,933,689
472,933,689
The accompanying notes form an integral part of these consolidated financial statements.
7 Highland Copper Company Inc.
Consolidated Statements of Changes in Shareholders’ (Deficit) Equity
(in US dollars)
Number of issued
and outstanding
common shares
Share
capital
$
Contributed
surplus
$
Deficit
$
Cumulative
translation
adjustment
$
Total
shareholders'
(deficit) equity
$
Balance at June 30, 2019
472,933,689
66,137,274
11,681,150
(77,278,822)
1,623,777
2,163,379
Share-based compensation
Below-market element of credit facility (Note 9)
Net loss for the year
Foreign currency translation adjustment
-
-
-
-
-
-
-
-
27,646
163,312
-
-
-
-
(4,371,338)
-
-
-
-
117,179
27,646
163,312
(4,371,338)
117,179
Balance at June 30, 2020
472,933,689
66,137,274
11,872,108
(81,650,160)
1,740,956
(1,899,822)
Balance at June 30, 2018
472,933,689
66,137,274
11,349,577
(55,123,241)
1,681,591
24,045,201
Share-based compensation
Below-market element of credit facility (Note 8)
Net loss for the year
Foreign currency translation adjustment
-
-
-
-
-
-
168,612
162,961
-
-
-
-
(22,155,581)
-
-
-
-
(57,814)
168,612
162,961
(22,155,581)
(57,814)
Balance at June 30, 2019
472,933,689
66,137,274
11,681,150
(77,278,822)
1,623,777
2,163,379
The accompanying notes form an integral part of these consolidated financial statements.
8 Highland Copper Company Inc.
Consolidated Statements of Cash Flows
(in US dollars)
Operating activities
Net loss for the year
Adjustments
Share-based compensation
Depreciation and amortization
Write-down of exploration and evaluation assets
Accretion on environmental liability
Loss (gain) on sale of capital assets
Unrealized loss (gain) on foreign exchange
Finance expense
Finance income accrued
Finance income received
Changes in other working capital items
Sales taxes receivable
Prepaid expenses and other
Accounts payable and accrued liabilities
Investing activities
Proceeds on sale of capital assets (Note 6)
Additions to exploration and evaluation assets (Note 7)
Financing activities
Credit facility, net of transaction costs (Note 9)
Reimbursement of note payable (Note 10)
Reimbursement of balance of purchase price payable (Note 11)
Repayment of lease liabilities (Note 8)
Effect of exchange rate changes on cash held in foreign currency
Net change in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash, end of year
Supplemental cash flow information
Years ended June 30,
2020
$
2019
$
(4,371,338)
(22,155,581)
27,646
81,603
-
9,147
1,225
107,049
2,374,891
(5,376)
6,495
5,053
6,838
168,612
48,252
18,010,770
4,326
(19,776)
(46,823)
199,596
(19,005)
21,884
118,777
86,795
(52,527)
(447,462)
(1,809,294)
(4,029,635)
5,666
(178,410)
(172,744)
1,750,000
(110,000)
29,379
(352,752)
(323,373)
2,586,917
(110,000)
-
(1,000,000)
(61,552)
1,578,448
-
1,476,917
(37,129)
(6,710)
(440,719)
(2,882,801)
605,046
164,327
3,487,847
605,046
Additions to exploration and evaluation assets included in accounts payable and accrued liabilities
Accretion of promissory note included in exploration and evaluation assets (Note 12)
Below-market element of credit facility in contributed surplus (Note 9)
87,500
-
163,312
-
6,254,513
162,961
The accompanying notes form an integral part of these consolidated financial statements.
9 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2020 and 2019 (in US dollars)
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 and on the OTCQB Venture Marketplace (the "OTCQB") under the symbol "HDRSF".
The Company’s principal assets, located in Michigan’s Upper Peninsula region, include the 100%-owned Copperwood
copper project (the “Copperwood Project”), the White Pine copper 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 a mineral exploration property referred to as the UPX Property, which was acquired in
May 2017 from Kennecott Exploration Company and Rio Tinto Nickel Company (“RTX”), subsidiaries of the Rio Tinto
Group.
1. BASIS OF PRESENTATION
Statement of compliance
These consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
The Board of Directors approved these consolidated financial statements on October 27, 2020.
Basis of measurement
These consolidated financial statements were prepared on a going concern and historical cost basis. Financial assets
and liabilities are measured at fair value at inception pursuant to IFRS 9, Financial Instruments, and equity-classified
share-based payment arrangements are measured at fair value at grant date pursuant to IFRS 2, Share-based
payment.
The methods used to measure fair value are discussed further in Note 4.
Functional and reporting currency
These consolidated financial statements are presented in US 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. The exchange
difference resulting from the conversion of the consolidated financial statements from its functional currency to its
reporting currency is included in other comprehensive income presented in equity.
10 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2020 and 2019 (in US dollars)
2. GOING CONCERN
These consolidated financial statements have been prepared on the basis of a going concern, which assumes that
the Company will continue its operations in the foreseeable future and will be able to realize its assets and discharge
its liabilities and commitments in the normal course of operations.
The Company is subject to a number of risks and uncertainties associated with its future exploration and development
activities. The recovery of amounts recorded for exploration and evaluation assets depend on the ability of the
Company to complete the acquisition of the White Pine Project, the ability of the Company to obtain the necessary
financing to complete the development of the projects, and future profitable production from the projects or proceeds
from their disposition thereof.
To date, the Company has not earned revenues and is in the exploration and development stage. The Company has
incurred a net loss of $4,371,338 during the year ended June 30, 2020 ($22,155,581 in 2019) and has a deficit of
$81,650,160 a at June 30, 2020 (a deficit of $77,278,822 at June 30, 2019). The Company also has a working capital
deficiency of $22,321,872 as at June 30, 2020 (a working capital deficiency of $17,992,199 at June 30, 2019).
The Company needs to secure funds to reimburse the credit facility and accrued interest described in Note 9, to
reimburse the promissory note and accrued interest described in Note 12, to meet all existing commitments, to
complete the acquisition of White Pine (including an amount of approximately $1.7 million to replace the current
environmental financial assurance bond) and to provide for management and administration expenses for the next 12
months. The Company is continuing its review of various options to secure such additional funds. This includes
discussions with its major shareholders, lenders and royalty holders. Given the Company’s significant working capital
deficiency and the state of the capital markets for a company such as Highland, there is no assurance that additional
funds will be available or available on terms acceptable to the Company or that the Company will be able to complete
a strategic transaction.
The conditions and uncertainties described above indicate the existence of a material uncertainty that may cast a
significant doubt about the Company’s ability to continue as a going concern. If the going concern assumption was
not appropriate for these consolidated financial statements, adjustments which could be material would be necessary
to the carrying value of assets and liabilities, in particular an impairment of exploration and evaluation assets, as well
as adjustments to reported expenses.
11 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2020 and 2019 (in US dollars)
3. CHANGES IN ACCOUNTING POLICIES
Adoption of IFRS 16, Leases
On July 1, 2019, the Company has adopted IFRS 16, Leases (“IFRS 16”) using the modified retrospective approach
for transition. As a result, comparative information has not been restated. IFRS 16 sets out the principles for the
recognition, measurement, presentation and disclosure of leases. IFRS 16 replaces IAS 17, Leases (“IAS 17”), and
related interpretations. IFRS 16 eliminates the classification of leases as either operating leases or finance leases as
is required by IAS 17 and, instead, introduces a single lessee accounting model. All leases result in the lessee
obtaining the right to use an asset at the start of the lease and incurring a financing obligation corresponding to the
lease payments to be made over time. The main impact of IFRS 16 relates to office and warehouse space leases. At
July 1, 2019, the Company recognized a right-of-use assets of $58,183 included in capital assets with a corresponding
amount to lease liabilities. When measuring lease liabilities, the Company discounted lease payments using its
incremental borrowing rate of 20%. Each lease payment is allocated between the liability and finance cost. The finance
cost is charged to profit or loss over the lease period. The right-of-use assets are amortized over the shorter of the
asset’s useful life and the lease term on a straight-line basis. Instead of performing an impairment review of the right-
of-use assets at the date of initial application, the Company has relied on its historic assessment as to whether leases
were onerous immediately before the date of initial application of IFRS 16. The Company has benefited from the use
of hindsight for determining lease term when considering options to extend and terminate leases.
The following table sets forth the adjustments to the Company’s operating lease commitments as disclosed in the
Company’s consolidated financial statements for the year ended June 30, 2019, used to derive the lease obligations
recognized on initial application of IFRS on July 1, 2019:
Operating lease commitments at June 30, 2019
Effect of discounting commitments using the incremental borrowing rate of 20%
Lease liabilities recognized at July 1, 2019
$
74,100
(15,917)
58,183
12 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2020 and 2019 (in US dollars)
3. CHANGES IN ACCOUNTING POLICIES (continued)
Adoption of IFRIC 23, Uncertainty Over Income Tax Treatments
On July 1, 2019, the Company adopted IFRIC 23, Uncertainty Over Income Tax Treatments (“IFRIC 23”). IFRIC 23
explains how to recognize and measure deferred and current income tax assets and liabilities where there is
uncertainty over a tax treatment. In particular, it discusses the following issues: that each uncertain tax treatment
should be considered separately or together as a group, depending on which approach better predicts the resolution
of the uncertainty; that the entity should assume a tax authority will examine the uncertain tax treatments and have
full knowledge of all related information; that the entity should reflect the effect of the uncertainty in its income tax
accounting when it is not probable that the tax authorities will accept the treatment; that the impact of the uncertainty
should be measured using either the most likely amount or the expected value method, depending on which method
better predicts the resolution of the uncertainty; and that the judgments and estimates made must be reassessed
whenever circumstances have changed or there is new information that affects the judgments. The adoption of IFRIC
23 had no impact on the consolidated financial statements for the year ended June 30, 2020.
4. SUMMARY OF ACCOUNTING POLICIES
a)
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”) 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.
13 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2020 and 2019 (in US dollars)
4. SUMMARY OF ACCOUNTING POLICIES (continued)
b)
Foreign currency translation
Transactions in foreign currencies are translated to the functional currency at exchange rates in effect at the date of
transaction. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to
the functional currency in effect at that date. The foreign currency gain or loss on monetary items is the difference
between amortized cost in the functional currency at the beginning of the reporting year, adjusted for effective interest
and payments during the reporting year, and the amortized cost in foreign currency translated at the exchange rate in
effect at the end of the reporting year.
Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are translated
to the functional currency at the exchange rate in effect at the date on which the fair value was determined. Non-
monetary items that are measured at historical cost in a foreign currency are translated using the exchange rate in
effect at the date of the transaction. Foreign currency differences arising on translation are recognized in net loss.
The assets and liabilities in foreign operations whose functional currency is not the Canadian dollar are translated into
Canadian dollars at the exchange rate prevailing at the balance sheet rate. Revenues and expenses are translated at
the exchange rate in effect at the transaction date. Unrealized exchange gains and losses resulting from translation
are presented in other comprehensive income.
c)
Financial instruments
Financial instruments are measured on initial recognition at fair value, plus, in the case of financial instruments other
than those classified as fair value through profit or loss ("FVPL"), directly attributable transaction costs. Financial
instruments are recognized when the Company becomes party to the contracts that give rise to them and are classified
as amortized cost, FVPL or fair value through other comprehensive income (“FVOCI”), as appropriate. The Company
considers whether a contract (other than a financial asset) contains an embedded derivative when the entity first
becomes a party to it. The embedded derivatives are separated from the host contract if the host contract is not
measured at fair value through profit or loss and when the economic characteristics and risks are not closely related
to those of the host contract. Reassessment only occurs if there is a change in the terms of the contract that
significantly modifies the cash flows that would otherwise be required. The Company has no financial assets at FVPL
and at FVOCI.
14 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2020 and 2019 (in US dollars)
4. SUMMARY OF ACCOUNTING POLICIES (continued)
c)
Financial instruments (continued)
Financial assets at amortized cost
A financial asset is measured at amortized cost if it is held within a business model whose objective is to hold assets
to collect contractual cash flows and its contractual terms give rise on specified dates to cash flows that are solely
payments of principal and interest on the principal amount outstanding, and is not designated as FVPL. Financial
assets classified as amortized cost are measured subsequent to initial recognition at amortized cost using the effective
interest method. Cash and cash equivalents, including accrued interest, are classified as and measured at amortized
cost.
Financial liabilities
Financial liabilities are recognized initially at fair value, net of transaction costs. After initial recognition, financial
liabilities are subsequently measured at amortized cost using the effective interest method. Gains and losses are
recognized in profit or loss when the liabilities are derecognized as well as through the amortization process. Accounts
payable and accrued liabilities, credit facility, including accrued interest, note payable, balance of purchase price
payable and promissory note are classified as and measured at amortized cost.
Fair values
Financial instruments that are measured at fair value subsequent to initial recognition, if any, are grouped into a
hierarchy based on the degree to which the fair value is observable as follows: Level 1: Quoted prices in active markets
for identical items (unadjusted); Level 2: Observable direct or indirect inputs other than Level 1 inputs; or Level 3:
Unobservable inputs (not derived from market data).
Impairment of financial assets
A loss allowance for expected credit losses is recognized in net loss for financial assets measured at amortized cost.
At each balance sheet date, on a forward-looking basis, the Company assesses the expected credit losses associated
with its financial assets carried at amortized cost and, if any, FVOCI. The impairment methodology applied depends
on whether there has been a significant increase in credit risk. The expected credit losses are required to be measured
through a loss allowance at an amount equal to the 12-month expected credit losses (expected credit losses that
result from those default events on the financial instrument that are possible within 12 months after the reporting date)
or full lifetime expected credit losses (expected credit losses that result from all possible default events over the life of
the financial instrument). A loss allowance for full lifetime expected credit losses is required for a financial instrument
if the credit risk of that financial instrument has deteriorated significantly since initial recognition and whose credit risk
is low.
15 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2020 and 2019 (in US dollars)
4. SUMMARY OF ACCOUNTING POLICIES (continued)
c) Financial instruments (continued)
Derecognition of financial assets and liabilities
A financial asset is derecognised when either the rights to receive cash flows from the asset have expired or the
Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the
received cash flows in full without material delay to a third party. If neither the rights to receive cash flows from the
asset have expired nor the Company has transferred its rights to receive cash flows from the asset, the Company will
assess whether it has relinquished control of the asset or not. If the Company does not control the asset, then
derecognition is appropriate.
A financial liability is derecognised when the associated obligation is discharged or canceled or has expired. When an
existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of
an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the
original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised
in profit or loss.
d) Cash and cash equivalents
Cash and cash equivalents include cash balances and highly liquid investments with original maturities of three
months or less.
16 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2020 and 2019 (in US dollars)
4. SUMMARY OF ACCOUNTING POLICIES (continued)
e) 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 are 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.
17 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2020 and 2019 (in US dollars)
4. SUMMARY OF ACCOUNTING POLICIES (continued)
f)
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.
18 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2020 and 2019 (in US dollars)
4. SUMMARY OF ACCOUNTING POLICIES (continued)
g)
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 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 considers 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.
19 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2020 and 2019 (in US dollars)
4. SUMMARY OF ACCOUNTING POLICIES (continued)
h)
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.
20 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2020 and 2019 (in US dollars)
4. SUMMARY OF ACCOUNTING POLICIES (continued)
i)
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.
j)
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’s losses. Cumulative translation adjustment includes the impact of converting the accounts
of Highland’s expenses into US 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.
21 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2020 and 2019 (in US dollars)
4. SUMMARY OF ACCOUNTING POLICIES (continued)
k)
Transactions with shareholders
Transactions entered into with shareholders, where the Company is receiving a benefit when compared to a similar
transaction entered into with an arm’s length party, are divided between a capital transaction and a deemed arm’s
length transaction. The portion of the deemed arm’s length transaction, measured at fair value, is recognised in profit
or loss and the remaining portion of the transaction is recognised in equity as contributed surplus.
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. 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.
22 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2020 and 2019 (in US dollars)
4. 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, include, 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 $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 on a number of occasions until June 30, 2020, and on that date was further extended to December 31,
2020. The Company will also need to post the required financial assurance bond with the MDEQ, estimated at $1.7
million. 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.
23 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2020 and 2019 (in US dollars)
4. 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 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. As at June 30, 2020, the
Company has determined that there were no significant events or changes in circumstances that indicated that the
carrying value of its non-current assets may not be recoverable. As such, no impairment test was performed, and no
impairment loss was recognized during the year ended June 30, 2020.
Fair value of liabilities
The Company determined the fair value of the credit facility, the non-interest-bearing promissory note and the balance
of purchase price payable at inception using the discounted cash flow method. The discount rate used is 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).
24 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2020 and 2019 (in US dollars)
4. SUMMARY OF ACCOUNTING POLICIES (continued)
o)
Accounting standards issued but not yet applied
The Company has not yet adopted certain standards, interpretations to existing standards and amendments which
have been issued but have an effective date of later than June 30, 2020. These updates are not expected to have a
significant impact on the Company and are therefore not discussed herein.
5.
CASH
As at June 30, 2020, the cash position of $164,327 ($605,046 as at June 30, 2019) is restricted to be disbursed
pursuant to an approved budget by the lenders of the Credit Facility (Note 9).
25 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2020 and 2019 (in US dollars)
6. CAPITAL ASSETS
Capital assets subject to depreciation and amortization are as follows:
Computer
Right-of-use
assets and
Intangible
equipment
Exploration
leasehold
assets
Vehicles and furniture
equipment
improvements
$
$
$
$
$
Total
$
Cost
Balance at June 30, 2018
45,141
108,822
98,252
Disposals
Write-down
Effect of foreign exchange
Balance at June 30, 2019
Additions
Disposals
Effect of foreign exchange
Balance at June 30, 2020
-
(83,284)
(45,141)
-
-
-
-
-
-
-
-
25,538
-
-
-
25,538
-
-
(932)
97,320
-
(50,358)
6,533
53,495
186,250
(5,380)
-
-
180,870
-
-
-
35,000
473,465
-
-
-
35,000
58,183
-
-
(88,664)
(45,141)
(932)
338,728
58,183
(50,358)
6,533
180,870
93,183
353,086
Accumulated depreciation and amortization
Balance at June 30, 2018
45,141
79,117
45,696
153,783
Disposals
Depreciation and amortization
-
-
(73,681)
10,903
Write-down
(45,141)
Effect of foreign exchange
Balance at June 30, 2019
Disposals
Depreciation and amortization
Effect of foreign exchange
Balance at June 30, 2020
Carrying amounts
Balance at June 30, 2019
Balance at June 30, 2020
-
-
-
-
-
-
-
-
-
19,520
-
(549)
64,667
-
-
16,339
(5,380)
6,162
-
-
9,722
-
11,667
-
-
154,565
21,389
-
(42,814)
-
-
6,216
-
9,993
6,123
5,421
59,973
-
-
22,555
37,969
159,986
81,362
301,872
9,199
2,983
32,653
15,526
26,305
20,884
13,611
11,821
81,768
51,214
333,459
(79,061)
48,252
(45,141)
(549)
256,960
(42,814)
81,603
6,123
26 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2020 and 2019 (in US dollars)
7. EXPLORATION AND EVALUATION ASSETS
Amounts invested in exploration and evaluation assets are as follows:
Copperwood
White Pine
UPX
Other
Project
Project
Property
properties
Total
$
$
$
$
$
Balance, June 30, 2018
16,801,384
3,107,246
11,756,257
130,945
31,795,832
Property payments in cash
Finance expense (a)
Write-down (b)
Effect of foreign exchange
168,600
132,500
-
-
25,000
-
26,652
220,252
-
-
-
6,254,513
(18,010,770)
-
-
6,387,013
(18,010,770)
-
(6,513)
(6,513)
301,100
25,000
(11,756,257)
20,139
(11,410,018)
Balance, June 30, 2019
17,102,484
3,132,246
Property payments in cash
Effect of foreign exchange
209,775
25,000
-
-
209,775
25,000
Balance, June 30, 2020
17,312,259
3,157,246
-
-
-
-
-
151,084
20,385,814
31,135
265,910
(14,737)
(14,737)
16,398
251,173
167,482
20,636,987
(a) The amount of $6,254,513 under the UPX Property represents the amount of accretion related to the Note issued to RTX in May
2017 following the event of default described in Note 12.
(b) At June 30, 2019, the Company has written off the amount of $18,010,770 in exploration and evaluation assets related to the
UPX Property as it does not plan to conduct any work on this property in the near future.
27 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2020 and 2019 (in US 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 the outstanding shares of CRI.
As part of the consideration for the acquisition of the Copperwood Project, an amount of $1,250,000 may 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 $4.25/lb; and an additional amount of
$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
$4.50/lb (for a total of $2,500,000 representing 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, the Company will have
mineral rights until the later of the 20th anniversary of the date of the lease or the date the Company ceases to be
actively engaged in development, mining, or related operations on the property. The mineral leases may be terminated
by the Company on 60 days’ notice.
28 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2020 and 2019 (in US 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
$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 ongoing environmental obligations. Final closing, which initially was to occur by
December 31, 2015, was extended on a number of occasions until June 30, 2020, and was further extended on that
date to December 31, 2020. 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.
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 $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 $0.005 (one half of one cent) per pound for the first 1 billion pounds of proven and
probable reserves of copper and $0.0025 (one quarter of one cent) for each additional pound of proven and probable
reserves of copper (the “Contingent Consideration”). At June 30, 2020, 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
Years ended June 30, 2020 and 2019 (in US 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 $575,000 was to be made to the Lessor by the
Company. On December 30, 2016, the Company entered into an amended agreement with the Lessor providing a
revised schedule of payments for the amount of $575,000 owed to the Lessor, as described in Note 9. The lease
agreement also calls for annual lease payments of $25,000 for the first five years, $30,000 for the sixth and seventh
years, and $1,000,000 thereafter.
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. Highland may
terminate the lease at any time upon a 30-day notice.
Royalty and option to purchase silver production
In accordance with an agreement entered into in December 2014 (and subsequently amended in June 2016), Osisko
Gold Royalies Ltd. (“Osisko”) holds a 3.0% net smelter return (“NSR”) royalty on all metals produced from the mineral
rights and leases associated with the Copperwood Project. The June 2016 amendment also provided 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%. To secure
the payment of future NSR royalty, Osisko has a mortgage on the Copperwood property and a general security
agreement over all the assets of the Company and includes specifically a pledge of the shares of the following
subsidiaries: Copperwood Resources Inc., Upper Peninsula Copper Holdings Inc., White Pine Copper LLC and
Keweenaw Copper Co.
In December 2014, the Company also granted to Osisko an option to purchase for $26 million a 100% NSR on future
silver production from the Company’s projects. Osisko may elect to exercise the option to purchase the silver
production by paying $26 million to the Company within 60 days following the delivery to Osisko of a feasibility study.
30 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2020 and 2019 (in US dollars)
7. EXPLORATION AND EVALUATION ASSETS (continued)
UPX Property
On May 30, 2017, the Company acquired from Kennecott Exploration Company and Rio Tinto Nickel Company
(“RTX”), subsidiaries of the Rio Tinto Group, mineral properties 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 $18.0 million. A cash payment of $2.0 million was made
at the acquisition date and the Company issued a $16 million secured non-interest-bearing promissory note (the
“Note”) payable over a period of 6 years (Note 12). The Note is secured by a first priority security interest over the
UPX Property.
RTX has retained a 2% net smelter return royalty (the “NSR”) on all mineral interests. Highland has an option to
buydown half of the 2% NSR by paying $8 million to RTX. The option is exercisable at any time prior to May 30, 2028.
At June 30, 2019, the Company has written off the amount of $18,010,770 in exploration and evaluation assets related
to the UPX Property as it does not plan to conduct any work on this property in the near future.
8. LEASE LIABILITIES
Following the adoption of IFRS 16 on July 1, 2019 (Note 3), the Company recorded lease liabilities of $58,183. The
Company accounted for the estimated fair value of the lease liabilities using a discount rate of 20%. The balance of
the lease liabilities as at June 30, 2020 is as follows:
Balance, at beginning
Lease liabilities on adoption of IFRS 16
Accretion expense
Repayment of liabilities
Balance, at end
Year ended
June 30,
2020
$
-
58,183
12,815
(61,552)
9,446
31 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2020 and 2019 (in US dollars)
9. CREDIT FACILITY
On May 20, 2019, the Company entered into a loan agreement with Greenstone Resources II LP and Osisko Gold
Royalties Ltd (collectively, the "Lenders"), which are deemed to have significant influence over the Company. Under
the terms of the loan agreement, the Lenders have agreed to provide the Company with a loan of up to $4,500,000
(the “Principal Amount”). The loan bears interest at a rate of 12% per annum. On December 31, 2019, the Lenders
agreed to extend the maturity date of the loan from February 28, 2020 to May 31, 2020, which was then subsequently
extended on a number of occasions to August 31, 2020 (Note 26). The Principal Amount of the loan as well as accrued
interest are payable by the maturity date of the loan. The loan is secured by a mortgage on the Copperwood property
and a general security agreement over all the assets of the Company and includes specifically a pledge of the shares
of the following subsidiaries: Copperwood Resources Inc., Upper Peninsula Copper Holdings Inc., White Pine Copper
LLC and Keweenaw Copper Co.
During the year ended June 30, 2020, the Company made additional drawdowns on the credit facility totalling
$1,750,000, with total drawdowns on the credit facility amounting to $4,500,000 at June 30, 2020. The Company
accounted for the estimated fair value of the additional drawdowns using a discount rate of 20%. The fair value
adjustment, representing the below-market element of the loan, was recorded in contributed surplus. The fair value
adjustments and the transaction costs initially incurred and presented as a reduction of the loan are amortized over
the loan period using the effective interest rate method. The effective interest rate of the loan is 23.6%.
During the year ended June 30, 2020, the balance of the loan was adjusted by $104,870 to reflect the impact of the
modification of the maturity date of the loan, with a corresponding increase to the below-market element of the loan
recorded in contributed surplus.
The balance of the loan is determined as follows:
Balance, beginning of year
Modification adjustment
Loan, discounted at the rate of 20%
Transaction costs
Interest payable
Accretion of loan and amortization of transactions costs
Years ended June 30,
2020
$
2,495,484
(104,870)
1,691,558
-
503,178
420,792
2019
$
-
-
2,587,039
(163,083)
32,823
38,705
Balance, end of year
5,006,142
2,495,484
32 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2020 and 2019 (in US dollars)
10. 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
$575,000 owed to the Lessor. Under the terms of the amended agreement, the Company paid an amount of $135,000
on December 30, 2016 and agreed to pay the balance of $440,000 in sixteen equal quarterly principal amounts of
$27,500, plus interest accruing at the rate of 8% per annum, until December 31, 2020.
The balance of the note payable is determined as follows:
Balance, beginning of year
Reimbursements
Balance, end of year
Current liability
Non-current liability
Years ended June 30,
2020
$
165,000
(110,000)
55,000
55,000
-
55,000
2019
$
275,000
(110,000)
165,000
110,000
55,000
165,000
11. BALANCE OF PURCHASE PRICE PAYABLE
In connection with the acquisition of the Copperwood Project, the Company made a final payment of the balance of
purchase price payable to Orvana of $1,000,000 on May 28, 2019 plus a 2% penalty amount of $20,000. The interest
paid of $112,500 in 2019 (at the rate of 12% per annum until November 30, 2018 and 15% per annum subsequently)
and the penalty amount of $20,000 were added to the cost of the Copperwood Project in accordance with its
accounting policy on borrowing costs.
33 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2020 and 2019 (in US dollars)
12. PROMISSORY NOTE
On May 30, 2017, the Company issued a $16 million secured non-interest-bearing promissory note (the “Note”) to
RTX, as part of the consideration for the acquisition of the UPX Property described in Note 7. The Note provided for
the payment of $1.0 million on the first anniversary of the acquisition (payment made on May 30, 2018) and $3.0
million on each of the second, third, fourth, fifth and sixth anniversaries of the acquisition. Until May 30, 2019, the Note
had an effective interest rate of 20%. Since the Company did not make the payment of $3.0 million due on May 30,
2019, which constituted an event of default, the Note became payable on demand. Consequently, in accordance with
the provision of the Note, the amount of the Note then outstanding bears interest at an annual rate of Libor plus 8%
(a rate of 8.2% at June 30, 2020). The Note is secured by a mortgage over the acquired property and a general
security agreement over all the assets of UPX Minerals Inc.
The balance of the Note is determined as follows:
Balance, beginning of year
Accretion until May 30, 2019, included in exploration and evaluation assets
Accretion on revised estimated cash flows at May 30, 2019, included in exploration and evaluation assets
Accrued interest
Balance, end of year
Years ended June 30,
2020
$
2019
$
15,128,068
8,745,487
-
-
1,743,859
4,510,654
1,407,183
128,068
16,535,251
15,128,068
34 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2020 and 2019 (in US dollars)
13. ENVIRONMENTAL LIABILITY
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 is estimated at $314,000. The present value of
the
liability was calculated using a discount rate of 8.0% and
is reflecting payments
to be made
until 2029, inclusively.
Balance, beginning of year
Accretion expense
Balance, end of year
14. SHARE CAPITAL
Authorized and issued
Years ended June 30,
2020
$
257,004
9,147
266,151
2019
$
252,678
4,326
257,004
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.
At June 30, 2020, the Company had 472,933,689 issued and outstanding common shares (472,933,689 at June 30,
2019).
Share purchase warrants
On March 17, 2020, 1,000,000 outstanding share purchase warrants expired unexercised, resulting in no remaining
share purchase warrants outstanding as at June 30, 2020 (1,000,000 outstanding share purchase warrants at June
30, 2019 with an exercise price of C$0.15 per share).
35 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2020 and 2019 (in US dollars)
15. STOCK OPTIONS
The following table sets out the activity in stock options:
Number of options
Balance, beginning of year
Expired
Balance, end of year
Years ended June 30,
2020
2019
Average exercise
Average exercise
Number
price (C$)
Number
price (C$)
13,685,000
(5,010,000)
8,675,000
0.17
(0.20)
0.12
15,200,000
(1,515,000)
13,685,000
0.17
(0.14)
0.17
The following table reflects the stock options issued and outstanding at June 30, 2020:
Issue date
options
price
contratual life
options
options
Number of
Exercise
Remaining
exercisable
exercisable
August 28, 2017
October 26, 2017
7,925,000
750,000
8,675,000
C$
0.11
0.17
0.12
(years)
2.2
2.3
2.2
7,925,000
750,000
8,675,000
C$
0.11
0.17
0.12
Number of
Exercise
price of
16. EXPLORATION AND EVALUATION EXPENSES
The Company incurred the following exploration and evaluation expenses:
Drilling and assaying
Labour
Studies
Office, overhead and other administrative costs
Loss (gain) on sale of capital assets
Years ended June 30,
2020
$
-
181,771
391,762
212,806
1,225
787,564
2019
$
40,973
1,474,815
338,828
575,379
(19,776)
2,410,219
36 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2020 and 2019 (in US dollars)
17. MANAGEMENT AND ADMINISTRATION EXPENSES
The Company incurred the following management and administration expenses:
Administrative and general
Professional fees
Office
Investor relations and travel
Reporting issuer costs
18. FINANCE EXPENSE
The Company incurred the following finance expense:
Effective interest on credit facility from shareholders with significant influence (Note 9)
Interest on note payable (Note 10)
Interest on promissory note (Note 12)
Accretion on lease liabilities
Other
Years ended June 30,
2020
$
614,105
158,197
143,545
40,872
21,601
978,320
2019
$
946,300
191,879
107,345
85,161
28,637
1,359,322
Years ended June 30,
2020
$
952,141
9,900
2019
$
71,528
18,700
1,407,183
128,068
12,815
3,346
-
1,612
2,385,385
219,908
37 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2020 and 2019 (in US dollars)
19.
INCOME TAXES
The reconciliation of the effective tax rate is as follows:
2020
$
Years ended June 30,
2019
$
Loss before income tax
(4,371,338)
(22,155,581)
Tax using the Company’s domestic tax rate
26.58%
(1,161,985)
26.65%
(5,904,462)
Share-based compensation
Non-deductible expenses and non-taxable revenues
Effect of tax rate in foreign jurisdictions
Unrecognized tax assets
Other
Deferred income tax
(0.17%)
5.28%
(0.44%)
(38.01%)
6.76%
-
7,349
(230,801)
19,377
(0.20%)
(0.02%)
(0.85%)
44,790
3,361
188,855
1,661,543
(24.58%)
5,444,944
(295,483)
(1.00%)
222,512
-
-
-
Recognized deferred tax assets and liabilities are attributable to the following:
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
Assets
Liabilities
June 30, 2020
Net
$
$
(687,665)
(687,665)
-
687,665
(687,665)
687,665
-
-
-
-
June 30, 2019
Net
$
$
(376,623)
(376,623)
-
376,623
(376,623)
376,623
-
-
-
-
$
-
687,665
687,665
(687,665)
-
$
-
376,623
376,623
(376,623)
-
Assets
Liabilities
38 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2020 and 2019 (in US dollars)
19.
INCOME TAXES (continued)
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, 2020
Total
$
USA
$
10,425,437
30,333,169
40,758,606
175,032
124,129
299,161
1,518,681
26,969,184
28,487,865
156,753
551,805
-
-
156,753
551,805
12,827,708
57,426,482
70,254,190
Canada
$
June 30, 2019
Total
$
USA
$
9,751,521
27,646,369
37,397,890
87,347
107,153
194,500
2,088,309
23,787,100
25,875,409
330,280
238,313
-
-
330,280
238,313
12,495,770
51,540,622
64,036,392
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.
39 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2020 and 2019 (in US dollars)
19.
INCOME TAXES (continued)
Non-capital losses expire as follows:
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
USA
$
-
-
-
-
-
-
-
-
1,256,944
7,599,667
1,101,253
4,408,457
8,638,707
4,641,341
2,686,800
Canada
$
75,746
88,297
222,747
394,990
546,225
697,749
1,005,493
70,576
833,650
1,809,201
758,773
1,576,718
1,726,846
1,432,844
1,780,545
30,333,169
13,020,400
The deferred income tax on non-capital losses has been partially recognized for an amount of $2,594,963 ($1,421,217 in 2019).
20.
LOSS PER SHARE
The calculation of basic and diluted loss per share for the year ended June 30, 2020 was based on the loss attributable
to common shareholders of $4,371,338 ($22,155,581 in 2019) and the weighted average number of common shares
outstanding of 472,933,689 (472,933,689 in 2019). Excluded from the calculation of the diluted loss per share for the
year ended June 30, 2020 are 8,675,000 stock options (1,000,000 share purchase warrants and 13,685,000 stock
options in 2019) because to include them would be anti-dilutive as they would have the effect of decreasing the loss
per share.
40 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2020 and 2019 (in US dollars)
21. RELATED PARTY TRANSACTIONS
In addition to the loan agreement described in Note 9, the detail of transactions between the Company and its related
parties is as follows:
During the year ended June 30, 2020, the Company incurred administration expenses of $77,241 from Reunion Gold
Corporation, a related party by virtue of common management and directors ($76,858 in 2019).
During the year ended June 30, 2020, the Company recovered no amount for management services to other TSXV-
listed companies, related by virtue of common key management, including Odyssey Resources Limited and Reunion
Gold Corporation ($169,753 in 2019). The services are provided at cost.
At June 30, 2020, the Company had an amount payable of $38,859 to Reunion Gold Corporation, included in accounts
payable and accrued liabilities on the consolidated statements of financial position ($33,610 at June 30, 2019).
These charges were measured at the exchange amount, which is the amount agreed upon by the transacting parties.
Remuneration of directors and key management of the Company
The remuneration awarded to directors and to senior key management, including the Executive Chairman, the
President and CEO and the CFO, is as follows:
Wages and consulting fees, included in management and administration expenses
Share-based compensation
Years ended June 30,
2020
$
497,419
12,353
509,772
2019
$
576,918
91,383
668,301
41 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2020 and 2019 (in US dollars)
22. CAPITAL MANAGEMENT
The Company defines capital that it manages as loans (including credit facility, note payable and promissory note)
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, 2020, managed
capital was $19,696,571 ($19,951,931 at June 30, 2019).
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 (Note 2). The only sources of future funds presently available to the Company are through
shareholder loans, the sale of equity capital of the Company 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 on its business performance. 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, 2020.
The Company is not subject to any externally imposed capital requirements as at June 30, 2020.
23.
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, 2020.
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, which may involve the completion of a strategic transaction as described in Note 2. The
Company generates cash flow only from its financing activities.
42 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2020 and 2019 (in US dollars)
23.
FINANCIAL RISK MANAGEMENT (continued)
Liquidity risk (continued)
The following table summarizes the contractual maturities of the Company’s financial liabilities as at June 30, 2020:
Carrying
Settlement
amount
amount
$
$
Within
1 year
$
9,446
916,939
12,500
916,939
12,500
5,006,142
5,036,630
5,036,630
55,000
56,640
56,640
16,535,251
16,535,251
16,535,251
22,522,778
22,557,960
22,557,960
Over
2 years
2 years
$
-
-
-
-
-
-
$
-
-
-
-
-
-
Accounts payable and accrued liabilities
916,939
Lease liabilities
Credit facility
Note payable
Promissory note
Credit risk
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 which are mainly held in accounts with a major
Canadian-based chartered bank.
Interest rate risk
The Company’s interest rate risk relates to cash and the promissory note. 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
and the promissory note are subject to floating interest rates. Sensitivity to a plus or minus 1% change in interest rates
would affect profit or loss by approximately $164,000.
The credit facility and note payable issued at fixed rates expose the Company to the risk of variability in fair value due
to changes in market interest rates. A 1% increase or decrease in the interest rate at the reporting date would have
the effect to either increase or decrease the fair value of these financial instruments and the equity by $50,000 as at
June 30, 2020 ($27,000 as at June 30, 2019).
43 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2020 and 2019 (in US dollars)
23.
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 does not presently enter into hedging arrangements to hedge its currency risk. All foreign currency
transactions are recorded at spot rates. The Board considers this policy appropriate, considering the consolidated
entity’s size, current stage of operations, financial position and the Board’s approach to risk management.
At June 30, 2020, financial assets and liabilities denominated in a foreign currency consisted of cash of $107,538,
accounts payable and accrued liabilities of $37,685, and credit facility of $5,006,142. The impact on profit or loss of a
10% increase or decrease in the US dollar against the Canadian dollar would be approximately $494,000.
24. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash, accounts payable and accrued liabilities, credit facility, note payable and promissory note
is considered to be a reasonable approximation of their fair value due to their immediate or short-term maturity. The
fair value of the note payable also approximates its carrying value as the effective interest rate of the note is similar
to market conditions at year-end.
44 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2020 and 2019 (in US dollars)
25. 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:
Canada
$
179,085
880
-
June 30, 2020
Total
$
200,906
51,214
USA
$
21,821
50,334
20,636,987
20,636,987
179,965
20,709,142
20,889,107
Canada
$
586,867
9,156
June 30, 2019
Total
$
654,712
81,768
USA
$
67,845
72,612
-
20,385,814
20,385,814
596,023
20,526,271
21,122,294
Current assets
Capital assets
Exploration and evaluation assets
Total assets
Current assets
Capital assets
Exploration and evaluation assets
Total assets
26. EVENT AFTER THE REPORTING DATE
Credit facility
On September 4, 2020, the lenders to the loan agreement described in Note 9 agreed to further amend some of its
terms. Under the loan agreement, Osisko has made available to the Company an additional amount of US$500,000
increasing the total indebtedness under the credit agreement to US$5,000,000 plus accrued interest. The maturity
date for the repayment of the loan was also extended to October 31, 2020.
45 HIGHLAND COPPER COMPANY INC.
MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS FOR THE
YEAR ENDED JUNE 30, 2020
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 27, 2020, covers the years ended June 30, 2020 and
2019 and should be read in conjunction with the audited consolidated financial statements and related notes at June 30, 2020
and 2019 (the “June 30, 2020 and 2019 consolidated financial statements”). The June 30, 2020 and 2019 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 US dollars unless otherwise indicated.
DESCRIPTION OF BUSINESS
Highland and its subsidiaries are 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, through its subsidiaries, has assembled a number of projects located in Michigan’s Upper Peninsula region,
including Copperwood, a feasibility stage copper project, White Pine, a copper project on which a PEA was completed in
September 2019 (subject to final closing of the acquisition from Copper Range Company (“CRC”), a wholly-owned subsidiary of
First Quantum Minerals Ltd.), and a mineral exploration property referred to as the UPX Property, which was acquired in May
2017 from Kennecott Exploration Company and Rio Tinto Nickel Company (“RTX”).
Highland, a Canadian-based company, 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 and on the OTCQB Venture
Marketplace (the "OTCQB") under the symbol "HDRSF". As at October 27, 2020, the Company has 472,933,689 common
shares issued and outstanding.
Orion Resource Partners (“Orion”) and Greenstone Resources II LP (“Greenstone”) hold respectively 30.0% and 17.1% of the
Company’s issued and outstanding shares.
FINANCIAL CONDITION
At June 30, 2020, the Company had a working capital deficiency of $22,321,872, including an amount due of $5,006,142 under
a loan provided by Osisko Gold Royalties Ltd (“Osisko”) and Greenstone, and an amount of $16,535,251 due to RTX as
consideration for the acquisition of the UPX Property in May 2017.
On May 20, 2019, the Company entered into a secured loan agreement (the “Loan Agreement”) with Osisko and Greenstone
(collectively, the "Lenders"). Under the terms of the Loan Agreement, the Lenders agreed to provide the Company with a loan
of up to $4,500,000 to be disbursed in a number of tranches pursuant to an approved budget. The proceeds of the final drawdown
under the Loan Agreement were received by the Company in February 2020. On September 4, 2020, pursuant to an amendment
to the Loan Agreement, Osisko made available to the Company an additional amount of $500,000 increasing the total
indebtedness under the Loan Agreement to $5,000,000 plus accrued interest. The loan, which is secured by a mortgage on the
Management’s Discussion and Analysis
Year ended June 30, 2020
Copperwood property and a general security agreement over all the assets of the Company, bears interest at a rate of 12% per
annum. Following a number of amendments to extend the maturity date for the repayment of the loan, the principal amount of
the loan as well as accrued interest, estimated at $5.7 million as of the date of this MD&A, are payable on October 31, 2020.
The Company is looking at various options to repay the loan but there can be no assurance that the Company will have such
funds or that the Lenders will agree to further extend the maturity date of the Loan Agreement.
On May 30, 2017, the Company acquired the UPX Property for a total consideration of $18.0 million of which $2.0 million was
paid in cash at closing and $16.0 million was payable to RTX over 6 years under a non-interest bearing promissory note (the
“Note”). A payment of $1.0 million was made on the first anniversary of the acquisition. The Company did not make the payments
of $3.0 million due on each of May 30, 2019 and May 30, 2020. This constitutes an event of default and upon such occurrence
and continuance, the amount of the Note then outstanding ($15.0 million) bears interest at an annual rate of Libor plus 8% and
becomes payable on demand. The Company is in discussion with RTX to restructure the schedule of payments provided under
the secured promissory note or find another suitable resolution. There can be no assurance that RTX will agree to reschedule
the payments or to another resolution. Given the Company’s inability to pay there is a risk that RTX initiates legal proceedings
to demand the full payment of the Note and enforce its securities over the UPX Property.
The Company needs to secure funds to reimburse the loan and accrued interest due to Osisko and Greenstone, to reimburse
the Note and accrued interest due to RTX, to meet all existing commitments, to complete the acquisition of White Pine (including
an amount of approximately $1.7 million to replace the current environmental financial assurance bond) and to provide for
management and administration expenses for the next 12 months. The Company is continuing its review of various options to
secure such additional funds. This includes discussions with its major shareholders, lenders and royalty holders. Given the
Company’s significant working capital deficiency and the state of the capital markets for a company such as Highland, there is
no assurance that additional funds will be available or available on terms acceptable to the Company or that the Company will
be able to complete a strategic transaction. These conditions and uncertainties indicate the existence of a material uncertainty
that may cast a significant doubt about the Company’s ability to continue as a going concern.
All field exploration activities have been suspended since early 2019 to minimize cash requirements. Also, the number of
employees has been reduced to its minimum level to support the care and maintenance of the projects and to comply with
corporate and regulatory requirements. The payment of salaries and fees to officers and directors of the Company has been
deferred since May 2020 and will continue to be deferred until the Company can raise additional cash.
COPPERWOOD PROJECT
Copperwood is a development stage copper project located in the Upper Peninsula of Michigan, USA within the Porcupine
Mountains copper district. 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. The mineral leases are valid until the later of the 20th
anniversary of the date of the lease or the date the Company ceases to be actively engaged in development, mining, or related
operations on the property. The mineral leases may be terminated by the Company on 60 days’ notice.
A feasibility study, under the supervision of G Mining Services Inc. (“GMSI”) in collaboration with SGS Canada Inc. (Lakefield),
Lycopodium Minerals Canada Ltd, Golder Associates Ltd. and Foth Infrastructure and Environment, was completed in June
2
2018. On July 31, 2018, the Company filed on SEDAR and on its website a technical report supporting the results of the
Feasibility Study in accordance with Canadian Securities National Instrument 43-101 Standards of Disclosure for Mineral
Management’s Discussion and Analysis
Year ended June 30, 2020
Properties (“NI 43-101”).
2018 Feasibility Study Highlights
Initial capital expenditures of $275.0 million;
Life-of-mine (“LOM”) cash costs of $1.75/pound, including royalties;
• Base case using an average copper price of $3.15/lb and an average silver price of $16.00/oz;
• After-tax internal rate of return (“IRR”) of 18.0%;
• After-tax net present value (“NPV”) at 8% of $116.8 million;
•
•
• Proven and probable reserves of 25.4 million tonnes at 1.43% and 3.83 g/t Ag, containing 0.8 billion pounds of copper
and 3.1 million ounces of silver; the mineral reserves were estimated using a copper price of $3.00/lb and a silver price
of $16.00/oz;
In addition, inferred mineral resources of 49.9 million tonnes at 1.15% Cu and 3.4 g/t Ag, containing 1.3 billion pounds
of copper and 5.6.2 million ounces of silver;
•
• Mine life of 10.7 years, including one year of ramp-up, with average annual LOM payable copper production of 61.7
million pounds and 0.1 million ounces of silver.
Permitting
The Company has received all major permits required to build the Copperwood Project.
In December 2018, the Michigan Department of Environment, Great Lakes, and Energy (“EGLE”) (previously known as the
Michigan Department of Environmental Quality or MDEQ) approved the Company’s request to amend the Mining Permit
originally granted in 2012 to Copperwood Resources Inc., the Company’s 100%-owned subsidiary, under the provisions of Part
632, Nonferrous Metallic Mineral Mining, of the Natural Resources and Environmental Protection Act. The amendment was
required to allow the Company to begin construction at Copperwood in accordance with the changes to the mine plan and
facilities described in the updated feasibility study released on June 15, 2018. The amendment was approved under certain
conditions that the Company will have to meet, namely: i) provide a revised subsidence monitoring plan for the life of mine and
post closure period; ii) provide a plan to conduct confirmation baseline environmental sampling and review prior to the start of
mining operations; iii) reclaim the ore stockpile area and dispose of the geomembrane liner according to regulations; and iv)
reclaim or remove water intake and power supply infrastructure according to approved plans unless beneficial use agreements
are established with another party.
In November 2018, the Company received three permits from EGLE, those being the Part 301/303/325 Wetland Permit, the Part
55 Air Discharge Permit, and the Part 315 Dam Safety Permit-Tailing Dam. The grant of the Part 301/303/325 Wetland Permit
included the following mitigation requirements: i) the preservation of 717 acres of high-quality wetlands and 93 acres of forested
upland in the headwaters area of the wild and scenic Black River and the creation of 18.3 acres of forested and emergent
wetlands on-site at the Copperwood project; and ii) stream mitigation by creating 13,700 feet of natural stream channel on-site
at the Copperwood Project and replacing a culvert that is blocking brook trout passage in a tributary to the wild and scenic Cisco
Branch to the Ontonagon River.
The application to obtain a Lake Superior water intake permit from the US Army Corps of Engineers (COE) (required to operate)
is outstanding and a final decision is expected shortly.
3
Management’s Discussion and Analysis
Year ended June 30, 2020
Contingencies and royalties related to the Copperwood Project
As part of the consideration for the acquisition of the Copperwood Project, the Company will have to pay to Orvana Minerals
Corp (“Orvana”), an amount of $1.25 million 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 $4.25/lb; and an
additional payment of $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 $4.50/lb.
Quarterly NSR royalty payments ranging from 2% to 4% on a sliding scale based on inflation-adjusted copper prices will be
payable under the mineral leases. In addition, a 3.0% NSR royalty on all metals produced from the Copperwood Project will be
payable to Osisko. As described further in the Osisko Royalty and Silver Option section, on closing of the acquisition of the White
Pine Project, the Company will grant to Osisko a 1.5% NSR royalty on all metals produced from the White Pine North Project,
and Osisko’s 3.0% NSR royalty on the Copperwood Project will be reduced to 1.5%.
WHITE PINE NORTH PROJECT
The White Pine North Project is located in the historical copper range district of the Upper Peninsula of Michigan, U.S.A. In May
2014, Highland completed the interim closing of the acquisition of the White Pine North Project from CRC. As consideration, 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 $0.005 (one half of one cent)
per pound for the first one billion pounds of proven and probable reserves of copper and $0.0025 (one quarter of one cent) for
each additional pound of proven and probable reserves of copper. The final closing of the acquisition is subject to several
conditions including releasing CRC from certain environmental obligations associated with the remediation and closure plan of
the historical White Pine mine site and replacing the related environmental bond for an amount expected to be approximately
$1.7 million. The deadline to complete the acquisition of the White Pine North Project from CRC has been extended to December
31, 2020.
CRC had 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 1.04% copper, for
approximately 2.5 billion pounds of contained copper.
In June 2019, the Company undertook to prepare a preliminary economic assessment ("PEA") and a mineral resource estimate
for the White Pine North Project (the “Project”). The PEA and mineral resource estimate were prepared by GMSI. The results
of the PEA, which considers White Pine North as a stand-alone project and utilizes existing infrastructure to minimize initial
capital expenditures, were released on September 23, 2019. The technical report supporting the results of the PEA in
accordance with NI 43-101 is available on the Company’s website.
4
2019 PEA Highlights
Management’s Discussion and Analysis
Year ended June 30, 2020
• Base case using a copper price of $3.00/lb and a silver price of $16.00/oz
• After-tax internal rate of return (“IRR”) of 16.8%
• After-tax net present value (“NPV”) at 8% of $416 million
•
•
•
Initial capital expenditures of $457 million, net of pre-production revenue of $56 million
Life-of-mine (“LOM”) cash costs of $1.40/pound, including royalties
Indicated mineral resource of 133.4 M tonnes at 1.07% Cu and 14.9 g/t Ag, containing 3.2 billion pounds of copper and
63.8 million ounces of silver.
Inferred mineral resources of 97.2 M tonnes at 1.03% Cu and 8.7 g/t Ag, containing 2.2 billion pounds of copper and
27.2 million ounces of silver
•
• Mineral resources included in the mine plan of 121.4 M tonnes @ 0.98% Cu and 11.80 g/t Ag, containing 2.6 billion
pounds of copper and 46.1 million ounces of silver
• Mine life of 25 years, including one year of ramp-up, with average annual LOM payable copper production of 89 million
pounds and 1.3 million ounces of silver
The reader is advised that a PEA is preliminary in nature and is intended to provide only an initial, high-level review of the project
potential and design options. The PEA mine plan and economic model include numerous assumptions and the use of Inferred
resources. Inferred resources are too speculative geologically to have the economic considerations applied to them that would
enable them to be categorized as mineral reserves and to be used in an economic analysis except as allowed for in PEA studies.
There is no guarantee that Inferred resources can be converted to Indicated or Measured resources, and as such, there is no
guarantee the Project economics described herein will be achieved.
Environmental liabilities
The former White Pine mine ceased operation in 1995 and has been the subject of an extensive remediation program outlined
in judicial Consent Decree and Remedial Action Plan agreements between CRC, Michigan’s Attorney General and the Michigan
Department of EGLE. The entire surface area overlying the underground mine along with the associated surface component
area and tailings impoundments are listed as a “facility” under Part 201, Environmental Remediation, of Michigan’s Public Act
451 of 1994 as Amended, the Natural Resource and Environmental Protection Act.
Pending final closing of the acquisition, the Company began mineral exploration and baseline environmental surveys under an
access agreement with CRC. Historical environmental data for the former White Pine mine site operated by CRC was reviewed
and compared with the Company’s initial project plans and Michigan’s Part 632 regulatory requirements. CRC had compiled
extensive information on surface water, ground water and near-surface soils at the project site. Biological monitoring data in the
project area was mostly limited to very brief descriptions, e.g. the Remedial Investigation Report of 1999, or the more thorough
description of the 1978 Baker report that is now over 40 years old. Data from limited nearby stream monitoring completed by the
State of Michigan in 1999 and earlier is also available.
Upon completion of the final closing of the acquisition of the mineral and surface rights from CRC, the Company will assume all
environmental liabilities related to the Consent Decree and on-going environmental obligations.
MINERAL 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 under which the Company was required to make payments of $225,000 on closing, and
$425,000 and $150,000 on the first and second anniversary of closing. On December 30, 2016, the Company entered into an
5
Management’s Discussion and Analysis
Year ended June 30, 2020
amended agreement with the lessor to revise the payment schedule of the remaining amount of $575,000 owed by the Company
to the Lessor. Under the terms of the amended agreement, the Company paid an amount of $135,000 on December 30, 2016
and agreed to pay the balance of $440,000 in sixteen equal quarterly principal amounts of $27,500, plus interest accruing at the
rate of 8% per annum until December 2020. The mineral lease is for 20 years, with an option for an additional five years. Annual
lease payments are $25,000 for the first five years, $30,000 for the sixth and seventh years and $1,000,000 thereafter.
UPX PROPERTY
In May 2017, UPX Minerals Inc., a wholly owned subsidiary of Highland, acquired from RTX, a mineral property located in central
Upper Peninsula of Michigan. See Financial Condition section for additional information.
The UPX Property is comprised of non-contiguous mineral rights covering approximately 1,800 square kilometers (448,000
acres). The property covers several Precambrian geological domains with known potential for nickel-copper massive sulphide
deposits, gold deposits, and sediment-hosted base metal deposits. For each of these geological domains, the Company’s
exploration team has carried out a systematic compilation of significant historical data obtained with the acquisition of the UPX
Property to better understand the potential of the property and has identified exploration targets using ongoing geological
mapping, rock and soil sampling programs, and interpretation of high-resolution magnetic data covering the full extent of the
UPX Property.
On May 30, 2017, the Company acquired the UPX Property for a total consideration of $18.0 million of which $2.0 million was
paid in cash at closing. The Company also issued a 6-year $16 million non-interest bearing Note to RTX, as part of the
consideration for the acquisition of the UPX Property. The Note provided for the payment of $1.0 million on the first anniversary
of the acquisition (payment made on May 30, 2018) and $3.0 million on each of the second, third, fourth, fifth and sixth
anniversaries of the acquisition. The Company did not make the payments of $3.0 million due on each of May 30, 2020 and May
30, 2019. In accordance with the provisions of the Note, the failure to make these payments, constitutes an event of default and
upon such occurrence and continuance, the amount of the Note then outstanding ($15.0 million) bears interest at an annual rate
of Libor plus 8% and becomes payable on demand. The Note is secured by a mortgage over the acquired property and a general
security agreement over all the assets of UPX Minerals Inc., a wholly-owned subsidiary of the Company. The Company is in
discussion with RTX to restructure the schedule of payments provided under the Note or find another suitable resolution. There
can be no assurance that RTX will agree to reschedule the payments or to another resolution. Given the Company’s inability to
pay there is a risk that RTX initiates legal proceedings to demand the full payment of the Note and enforce its securities over
the UPX Property.
OSISKO ROYALTY AND SILVER OPTION
On December 15, 2014, the Company and Osisko had entered into a Governance and Financing Agreement setting out the
terms and conditions under which Osisko was making a C$10.0 million refundable deposit on a 3.0% sliding-scale NSR royalty
on all metals from the White Pine North Project. On June 30, 2016, the Governance and Financing Agreement was amended
and restated and the C$10.0 million deposit was converted into a 3.0% NSR royalty on all metals produced from the mineral
rights and leases associated with the Copperwood Project. The amendment also provided that upon final closing of the
acquisition of the White Pine Project, the Company will grant to Osisko a 1.5% NSR royalty on all metals produced from the
White Pine North Project, and Osisko’s 3.0% NSR royalty on the Copperwood Project will be reduced to 1.5%. To secure the
6
Management’s Discussion and Analysis
Year ended June 30, 2020
future payment of the NSR royalty, Osisko has a mortgage on the Copperwood property and a general security agreement over
all the assets of the Company and includes specifically a pledge of the shares of the following subsidiaries: Copperwood
Resources Inc., Upper Peninsula Copper Holdings Inc., White Pine Copper LLC and Keweenaw Copper Co.
As part of the original transaction with Osisko in December 2014, the Company granted to Osisko an option to purchase for $26
million a 100% NSR on any future silver production (the “Silver Option”) from certain projects of the Company, namely,
Copperwood, White Pine and Keweenaw (this last project was dropped in 2019).The option to purchase the silver production is
valid for a period of 60 days from the delivery by the Company to Osisko of a feasibility study on these projects. Following receipt
of the Copperwood feasibility study, Osisko did not exercise the option to acquire the silver production from the Copperwood
Project.
In connection with the September 4, 2020 amendment of the Loan Agreement described in the Financial Condition section
above, Osisko and the Company have agreed on the terms and conditions pursuant to which Osisko would exercise the Silver
Option on the White Pine North Project. Subject to the completion of due diligence and the execution of definitive documentation,
Osisko would pay to Highland an initial tranche of $3 million on closing and the remaining amount of $23 million would be paid
within 60 days from the publication of a feasibility study on the White Pine North Project. There can be no assurance that this
transaction will be completed as proposed or at all.
As part of the original transaction, Osisko also obtained a right of first refusal on any royalty, streaming and project financing by
the Company and is entitled to nominate one director to the board of directors of the Company. Upon exercise of the Silver
Royalty, Osisko will be entitled to nominate a second director on the board of directors. As of the date of this MD&A, Osisko has
no representative on the board of directors of the Company.
QUALIFIED PERSON
The technical information included in this MD&A has been reviewed and approved by Mr. Denis Miville-Deschênes, P. Eng.,
President and CEO of the Company and a qualified person under NI 43-101.
CORPORATE ACTIVITIES
Rights of Certain Shareholders
Following their participation in the Company’s non-brokered private placement of units completed in early 2017, Greenstone
received nomination rights for the sale of Highland’s production pro-rata to its shareholding in the Company 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. So long as they hold not less than 10% of the issued and outstanding number of shares of the Company,
Greenstone and Orion each have participation rights to maintain their equity ownership level in future equity financings.
7
SELECTED CONSOLIDATED FINANCIAL INFORMATION (1)
The following selected financial information should be read in conjunction with the Company’s June 30, 2020 and 2019
Management’s Discussion and Analysis
Year ended June 30, 2020
consolidated financial statements.
Financial Position
Cash
Exploration and evaluation assets
Total assets
Credit Facility from Osisko and Greenstone, due on October 31, 2020
Note payable, due until December 31, 2020
Promissory note to RTX, including accrued interest, on demand
Shareholders' (deficit) equity
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,
2020
$
2019
$
164,327
605,046
20,636,987
20,385,814
20,889,107
21,122,294
5,006,142
2,495,484
55,000
165,000
16,535,251
15,128,068
(1,899,822)
2,163,379
Year ended
Year ended
June 30,
June 30,
Year ended
June 30,
2020
$
2019
$
2018
$
(4,371,338)
(22,155,581)
(11,571,693)
(0.01)
(0.05)
(0.02)
(1,809,294)
(4,029,635)
(10,668,437)
(172,744)
(323,373)
(366,772)
1,578,448
1,476,917
249,628
1) The Selected Consolidated Financial Information was derived from the Company’s June 30, 2020 and 2019 consolidated financial
statements, prepared in accordance with IFRS.
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.
Below is a discussion of the major items impacting the Company’s financial results for the years ended June 30, 2020 and 2019.
8
Exploration and evaluation expenses
Amounts invested in exploration and evaluation assets and capitalized in accordance with the Company’s accounting policy on
exploration and evaluation expenses, are as follows:
Management’s Discussion and Analysis
Year ended June 30, 2020
Copperwood
White Pine
UPX
Other
Project
Project
Property
properties
$
$
$
$
Total
$
Balance at June 30, 2018
16,801,384
3,107,246
11,756,257
130,945
31,795,832
Property payments in cash
Finance expense
Write-down
Effect of foreign exchange
168,600
132,500
-
-
Balance at June 30, 2019
17,102,484
3,132,246
Property payments in cash
Effect of foreign exchange
209,775
-
25,000
-
Balance at June 30, 2020
17,312,259
3,157,246
25,000
-
26,652
220,252
-
-
-
6,254,513
(18,010,770)
-
-
-
-
-
-
-
6,387,013
(18,010,770)
(6,513)
(6,513)
151,084
20,385,814
31,135
(14,737)
265,910
(14,737)
167,482
20,636,987
The amounts capitalized during the year ended June 30, 2020 consisted mostly of lease payments of $209,775 related to the
Copperwood Project and $25,000 related to the White Pine North Project.
During the year ended June 30, 2019, the Company capitalized lease payments of $220,252 and finance expense of $6,387,013.
At June 30, 2019, the Company also wrote-down the full amount capitalized on the UPX Property of $18,010,770, as it did not
plan to conduct any work on this property in the near future. Capitalized finance expenses included $132,500 related to the final
amount due of $1,000,000 to Orvana for the acquisition of the Copperwood Project, which were paid in May 2019. The Company
also recorded an accretion of $6,254,513 of the non-interest-bearing promissory note in favor of RTX to its face value of $15.0
million following the default of the Company for non-payment of the amount of $3.0 million which was due on May 30, 2019.
Following the occurrence and continuance of the event of default, the full amount of the promissory note in favor of RTX became
payable on demand.
Exploration and evaluation expenses charged to the statements of comprehensive loss during the years ended June 30, 2020
and 2019 are detailed below.
Labour
Studies
Assaying
Copperwood
White Pine
UPX
June 30, 2020 June 30, 2019
Project
Project
Project
Total
Total
Year ended
Year ended
$
$
$
$
$
98,756
79,952
3,063
181,771
1,474,815
20,102
371,660
-
-
-
-
391,762
338,828
-
40,973
Office, overhead and other administrative costs
46,468
142,697
24,866
214,031
555,603
165,326
594,309
27,929
787,564
2,410,219
9
Management’s Discussion and Analysis
Year ended June 30, 2020
Results for the year ended June 30, 2020 compared to year ended June 30, 2019
The Company incurred a net loss of $4,371,338 ($0.01 per share) during the year ended June 30, 2020 (“FY 2020”) compared
to a net loss of $22,155,581 ($0.05 per share) during the year ended June 30, 2019 (“FY 2019”). As part of the net loss during
FY 2020, the Company recorded finance expense of $2,385,385 ($219,908 in FY 2019) composed mostly of interest of
$1,407,183 on the Note due to RTX ($128,068 in FY 2019) and the effective interest expense of $952,141 on the Loan due to
Osisko and Greenstone ($71,528 in FY 2019). Other significant items included exploration and evaluation expenses of $787,564
($2,410,219 in FY 2019), management and administration expenses of $978,320 ($1,359,322 in FY 2019) and an unrealized
loss on foreign exchange of $107,049 (an unrealized gain on foreign exchange of $46,823 in FY 2019) mostly due to the
conversion of the Loan to Canadian dollars. In FY 2019, the Company had recorded an impairment of the UPX Property in the
amount of $18,010,770. Given the Company’s financial condition as more fully described in the Financial Condition section, the
Company does not plan to conduct any work on this property in the near future and as result has written-down to nil at June 30,
2019 the value of the UPX Property. The amount of $18,010,770 represents the cost of the property acquired in 2017 from RTX.
The Company incurred exploration and evaluation expenses of $787,564 in FY 2020 compared to $2,410,219 in FY 2019. In FY
2020, expenses consisted mostly of fees related to the completion of the PEA on the White Pine Project and maintaining the
tailings facilities at the former White Pine site. In FY 2019, a total amount of $1,272,275 was spent at Copperwood with efforts
focused on ensuring that all amendment requests, renewals and new applications concerning the grant of permits were
completed and filed in a timely manner; an amount of $436,168 was spent at the White Pine Project, mostly related to maintaining
the tailings facilities at the former White Pine site; and an amount of $701,776 was spent at the UPX Property as it continued its
systematic review and compilation of significant historical data obtained with the acquisition of the UPX Property in 2017.
Management and administration expenses of $978,320 in FY 2020 compared to $1,359,322 in FY 2019 reflect lower wages and
fees to consultants following the reduction in wages of certain officers and the reduction of personnel at the corporate office
(wages and fees of $614,105 in FY 2020 compared to $946,300 in FY 2019), lower professional fees due mostly to reduced
legal fees ($158,197 in FY 2020 compared to $191,879 in FY 2019), higher office costs due to increased insurance premiums
($143,545 during FY 2020 compared to $107,345 in 2019), reduced investor relations and travel expenses mostly due to
negative market conditions for copper projects and taking into account the Company’s financial condition ($40,872 in FY 2020
compared to $85,161 in FY 2019) and lower reporting issuer costs ($21,601 in FY 2020 compared to $28,637 in FY 2019).
Share-based compensation totaled $27,646 in FY 2020 ($168,612 in FY 2019) as the Company has not granted any stock
options since May 2018.
4th quarter ended June 30, 2020 compared to the 4th quarter ended June 30, 2019
During the 4th quarter ended June 30, 2020, the Company incurred a net loss of $647,037 (nil per share) compared to a net loss
of $18,581,306 ($0.04 per share) during the 4th quarter ended June 30, 2019, which amount included an impairment charge of
the UPX Property in the amount of $18,070,770.
As part of the net loss during the 4th quarter ended June 30, 2020, the Company recorded finance expense of $561,504 ($84,162
during the comparative period in 2019) on the Note due to RTX and the Loan due to Greenstone and Osisko. Other significant
items included lower exploration and evaluation expenses of $107,340 ($324,053 in 2019) following the suspension of all
10
activities in Michigan in mid-year 2019, management and administration expenses of $186,951 ($185,517 in 2019) and an
unrealized gain on foreign exchange of $232,130 (an unrealized gain on foreign exchange of $58,311 in FY 2019) due to the
Management’s Discussion and Analysis
Year ended June 30, 2020
conversion of the Loan to Canadian dollars.
Selected Quarterly Financial Information
The following is a summary of the Company’s financial results for the past eight quarters:
Revenues
Net loss
per share
Basic and
diluted loss
$
-
847
1,526
3,061
1,697
625
3,929
12,754
$
647,037
1,386,660
1,042,933
1,294,708
18,581,306
877,703
1,037,350
1,659,222
$
(0.00)
(0.00)
(0.00)
(0.00)
(0.04)
(0.00)
(0.00)
(0.00)
Period ended
June 30, 2020 (a)
March 31, 2020 (b)
December 31, 2019 (c)
September 30, 2019 (d)
June 30, 2019 (e)
March 31, 2019
December 31, 2018
September 30, 2018
(a) Includes exploration expenses of $107,340 and finance expenses of $561,504
(b) Includes exploration expenses of $109,031 and finance expenses of $604,905
(c) Includes exploration expenses of $188,545 and finance expenses of $612,804
(d) Includes exploration expenses of $382,647 and finance expenses of $561,504
(e) Includes an impairment of $18,010,770 of the UPX Property
Liquidity and Capital Resources
At June 30, 2020, the Company had a working capital deficiency of $22,321,872 compared to a working capital deficiency of
$17,992,199 at June 30, 2019. The increase in the working capital deficiency during the year ended June 30, 2020 is mainly
attributable to i) exploration and evaluation expenses of $787,564 ; ii) management and administration expenses of $978,320;
iii) lease payments of $265,910 related to the Copperwood Project and other mineral leases held; iv) the recording of accrued
interest of $1,407,183 on the promissory note of $15,000,000 million in favour of RTX and accrued interest and loan accretion
of $952,141 on the $4.500,000 Loan Agreement described below.
On May 20, 2019, the Company entered into a Loan Agreement with two of its then shareholders, Greenstone and Osisko
(collectively, the "Lenders"), which are deemed to have significant influence over the Company. Under the terms of the Loan
Agreement, the Lenders agreed to provide the Company with a loan of up to $4,500,000 (the “Principal Amount”). The proceeds
of the final drawdown under the Loan Agreement were received by the Company in February 2020. On September 4, 2020,
pursuant to an amendment to the Loan Agreement, Osisko made available to the Company an additional amount of $500,000
increasing the total indebtedness under the Loan Agreement to $5,000,000 plus accrued interest. The loan bears interest at a
rate of 12% per annum and following a number of amendments to this effect, now has a maturity date of October 31, 2020 (the
“Maturity Date”). The funds under the Loan Agreement were disbursed in a number of tranches pursuant to an approved budget,
11
Management’s Discussion and Analysis
Year ended June 30, 2020
including the settlement of certain outstanding liabilities, expenses to conduct a scoping study on the White Pine North Project
and expenses to conduct a strategic review process. The Principal Amount of the loan as well as accrued interest are payable
at the latest on the Maturity Date of the loan.
On May 28, 2018, the Company and Orvana amended the repayment terms of the final amount due of $1,250,000 and as such,
a payment of $250,000 was made on June 17, 2018 and the remaining amount of $1,000,000 with interest of $112,500 and
penalty of $20,000 were paid on May 28, 2019.
The Company requires additional funds to reimburse the loan to the Lenders, to meet all existing commitments (including the
Note of $16.5 million due to RTX), to complete the acquisition of White Pine (including an amount of approximately $1.7 million
to replace the current environmental financial assurance bond), to pay all its service providers and employees, and to provide
for management and administration expenses for the next 12 months.
In July 2019, the Company engaged BMO Nesbitt Burns Inc. to act as financial advisor to the Company to review all funding
options available to it, including the sale of assets, the issuance of securities, a merger or other type of arrangement or a
combination of assets or entities. However, given the state of the capital markets for exploration and development companies
such as Highland, there is no assurance that additional funds will be available or available on terms acceptable to the Company
or that the Company will be able to complete a strategic transaction.
Capital Management
The Company defines capital that it manages as loans (including credit facility, note payable and promissory note) 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, 2020, managed capital was $19,696,571 ($19,951,931 at June 30, 2019).
There were no changes in the Company’s approach to capital management during the year ended June 30, 2020. The Company
is not subject to any externally imposed capital requirements as at June 30, 2020.
Off-Balance Sheet Arrangements
As at June 30, 2020, the Company has no off-balance sheet arrangements.
Transactions with Related Parties
In addition to the Loan Agreement with two of the then Company’s shareholders described in the Liquidity and Capital Resources
section, during the year ended June 30, 2020, the Company incurred administration expenses of $77,241 from Reunion Gold
Corporation (“Reunion”), a related party by virtue of common key management and director ($76,858 in 2019).
During the year ended June 30, 2020, the Company recovered an amount of nil for management services provided to other
TSXV-listed companies, related by virtue of common key management, including Odyssey Resources Limited and Reunion
($169,753 in 2019). The services are provided at cost.
12
Management’s Discussion and Analysis
Year ended June 30, 2020
As at June 30, 2020, the Company had an amount payable of $38,859 to Reunion ($33,610 at June 30, 2019).
Remuneration to directors and key management of the Company, including the Executive Chairman, the President and CEO
and the CFO, totaled $509,772 during the year ended June 30, 2020 ($668,301 in 2019), as more fully detailed in Note 21 to
the June 30, 2020 and 2019 consolidated financial statements filed on SEDAR.
Outstanding Share Data
As at October 27, 2020, the Company has 472,933,689 common shares issued and outstanding and 8,675,000 stock options
outstanding with an average exercise price of $0.12, expiring at various dates until October 2022.
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 adoption of IFRS 16, Leases and
IFRIC 23, Uncertainty Over Income Tax Treatments, described below. The significant accounting policies of Highland are
presented in Note 4 to the June 30, 2020 and 2019 consolidated financial statements filed on SEDAR.
Changes in accounting policies
Adoption of IFRS 16, Leases
On July 1, 2019, the Company adopted IFRS 16, Leases (“IFRS 16”) using the modified retrospective approach for transition.
As a result, comparative information has not been restated. IFRS 16 replaces IAS 17, Leases (“IAS 17”), and related
interpretations. IFRS 16 eliminates the classification of leases as either operating leases or finance leases as was required by
IAS 17 and, instead, introduces a single lessee accounting model. All leases result in the lessee obtaining the right to use an
asset at the start of the lease and incurring a financing obligation corresponding to the lease payments to be made over time.
The main impact of IFRS 16 to the Company’s consolidated financial statements relates to office and warehouse space leases.
As at July 1, 2019, the Company recognized a right-of-use assets of $58,183 included in capital assets with a corresponding
amount to lease liabilities, measured at the Company’s incremental borrowing rate of 20%. Each lease payment is allocated
between the liability and finance cost. The finance cost is charged to profit or loss over the lease period. The right-of-use assets
are amortized over the shorter of the asset’s useful life and the lease term on a straight-line basis.
Adoption of IFRIC 23, Uncertainty Over Income Tax Treatments
On July 1, 2019, the Company adopted IFRIC 23, Uncertainty Over Income Tax Treatments (“IFRIC 23”). IFRIC 23 explains
how to recognize and measure deferred and current income tax assets and liabilities where there is uncertainty over a tax
treatment. In particular, it discusses the following issues: that each uncertain tax treatment should be considered separately or
together as a group, depending on which approach better predicts the resolution of the uncertainty; that the entity should assume
a tax authority will examine the uncertain tax treatments and have full knowledge of all related information; that the entity should
reflect the effect of the uncertainty in its income tax accounting when it is not probable that the tax authorities will accept the
13
Management’s Discussion and Analysis
Year ended June 30, 2020
treatment; that the impact of the uncertainty should be measured using either the most likely amount or the expected value
method, depending on which method better predicts the resolution of the uncertainty; and that the judgments and estimates
made must be reassessed whenever circumstances have changed or there is new information that affects the judgments. The
adoption of IFRIC 23 had no impact on the consolidated financial statements for the year ended June 30, 2020.
Significant accounting judgments 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 of the significant accounting judgments and estimates are presented in Note 4 to the June 30, 2020 and
2019 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 has no
history of earnings and has limited financial resources. The Company does not expect to receive revenues from operations in
the foreseeable future, if at all. 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 or sale of assets.
The following table summarizes the contractual maturities of the Company’s financial liabilities at June 30, 2020:
Accounts payable and accrued liabilities
Lease liabilities
Credit facility
Note payable
Promissory note
Carrying
Settlement
amount
amount
$
916,939
9,446
$
916,939
12,500
Within
1 year
$
916,939
12,500
5,006,142
5,036,630
5,036,630
55,000
56,640
56,640
16,535.251
16,535,251
16,535,251
22,522,778
22,557,960
22,557,960
Over
2 years
2 years
$
-
-
-
-
-
-
$
-
-
-
-
-
-
14
Credit risk
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 and cash equivalents which are mainly held in accounts with a major
Management’s Discussion and Analysis
Year ended June 30, 2020
Canadian-based chartered bank.
Interest Rate Risk
The Company’s interest rate risk relates to cash and the promissory note due to RTX. 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 and the promissory
note are subject to floating interest rates. Sensitivity to a plus or minus 1% change in interest rates would affect profit or loss by
approximately $164,000.
The loan from Osisko and Greenstone and the note payable to the lessor of certain mineral rights located in White Pine,
Michigan, issued at fixed rates, expose the Company to the risk of variability in fair value due to changes in market interest rates.
A 1% increase or decrease in the interest rate at the reporting date would have the effect to either increase or decrease the fair
value of these financial instruments and the equity by $50,000 as at June 30, 2020 ($27,000 as at June 30, 2019).
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 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, 2020, financial assets and liabilities denominated in a foreign currency consisted of cash of $107,538, accounts
payable and accrued liabilities of $37,685, and credit facility of $5,006,142. The impact on profit or loss of a 10% increase or
decrease in the US dollar against the Canadian dollar would be approximately $494,000.
OTHER RISKS AND UNCERTAINTIES
Highland is subject to a number of significant risks and uncertainties due to the nature of its business which includes the
acquisition, exploration and development of mineral projects. Failure to successfully address such risks and uncertainties could
have a significant negative impact on Highland’s overall operations and financial condition and could materially affect the value
of Highland’s assets and impact its future operating results and business plans. Therefore, an investment in the securities of
Highland involves significant risks and should be considered speculative. The risks and uncertainties described below are not
necessarily the only ones that Highland could be facing. Additional risks or uncertainties not presently known to Highland or that
Highland currently considers immaterial may also impair its business operations. Highland cannot give assurance that it will
successfully address these risks. Readers should carefully consider these risks and uncertainties.
15
Management’s Discussion and Analysis
Year ended June 30, 2020
Requirement for additional capital
The ability of Highland to achieve its plans and objectives is dependent on its ability to raise sufficient amounts of capital through
equity financings, debt financings, joint venture, sale of projects and / or other means.
Highland requires substantial amount of funds to continue its activities including funds: a) to repay the loan to Osisko and
Greenstone ($5,006,142 due in capital and interest as at June 30, 2020), b) for the development of its Copperwood Project and
to place it into commercial production; if adequate financing is not available, the construction of the Copperwood mine and the
commencement of production may be delayed indefinitely; c) to complete the acquisition of the White Pine Project, Highland
requires funds to replace an environmental bond posted by CRC in relation with the remediation and closure plan of the historical
White Pine mine site; if adequate financing is not available, the acquisition of the White Pine Project may be delayed or not be
completed; d) to repay the outstanding secured promissory note and to conduct exploration programs on its UPX Property; if
adequate financing is not available, RTX may demand payment of the $15.0 million plus interest due under the Note and given
the Company’s inability to pay such amount, RTX may initiate legal proceedings to demand the full payment of the Note and
enforce its securities over the UPX Property; and e) for general and administrative expenses.
Highland’s ability to raise the necessary funds depends in part upon the market’s perception of its mineral projects including the
results of the Copperwood Feasibility Study and of the White Pine PEA, the price of and demand for copper and other metals,
the state of the capital market to finance resource projects and global market conditions in general. No assurance can be given
that additional capital will be available at all or available on terms acceptable to Highland.
COVID-19
The extent to which the COVID-19 pandemic impacts the Company’s business will depend on future developments which are
highly uncertain and cannot be predicted at this time. In addition to the potentially adverse impact on the Company’s ability to
raise additional the funds to continue its planned activities, the continued spread of the COVID-19 globally could also have an
impact on employees health, the availability of personnel, the execution of field programs and other impacts beyond the
Company’s control, all of which may have a material and adverse effect on the Company’s business, financial condition and
results of operations.
Other Company Specific Risks
•
The mineral resources and/or mineral reserves of the Copperwood and White Pine North deposits are estimates and
depend upon geological interpretation and statistical inferences drawn from drilling and sampling analysis, which may
prove to be inaccurate. Actual recoveries of copper and silver from a deposit may be lower than those indicated by test
work. Any material change in the quantity of mineralization, grade or stripping ratio may affect the economic viability of
those projects. In addition, there can be no assurance that metal recoveries in small-scale laboratory tests will be
duplicated in larger scale tests under on-site conditions or during production. Mineral resources that are not mineral
reserves do not have demonstrated economic viability.
•
The market price of Highland’s common shares, the Copperwood resource and reserve estimates, the assumptions
used in the Copperwood feasibility study and in the White Pine PEA, and Highland’s ability to complete a financing may
be significantly and adversely affected by various factors including a decline in the price of copper. Copper prices are
16
Management’s Discussion and Analysis
Year ended June 30, 2020
volatile and can be affected by many factors beyond the control of Highland, including, amongst others: changes in
supply and demand, speculative activities, international economic conditions, political conflicts and wars. The price of
copper has fluctuated widely in the past.
• Putting a mining project into production requires substantial planning and expenditures and, while several members of
the Company’s management have mine construction and operating experience, as a corporation, Highland does not
have any experience in taking a mining project to production; as a result, Highland’s future success is more uncertain
than if it had a proven history of mine construction and operation.
•
In Michigan, mineral rights are property rights that can be sold, transferred or leased. Highland has taken steps to verify
title with respect to its most material mineral properties. Although Highland believes that title to its mineral properties
are in good standing there is no guarantee that title to such properties will not be challenged or impugned.
• Highland’s operations are subject to various laws and regulations governing the protection of the environment,
exploration, development, production, occupational health, waste disposal, safety and other matters. Environmental
legislation provides for restrictions and prohibitions on spills, releases or emissions of various substances produced in
association with certain mining operations which would result in environmental pollution. A breach of such legislation
by Highland may result in the imposition of fines and penalties which can be substantial.
•
The Company is subject to environmental risks and most particularly as it relates to the White Pine property which is
subject to a consent decree; 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 which Highland may be
unable or choose not to insure.
•
The executive officers, directors, and several shareholders of the Company (including Orion and Greenstone) and their
affiliated entities together beneficially own a majority of the Company’s outstanding common shares. As a result, these
shareholders, if they act together or in a block, could have significant influence over most matters that require approval
by our shareholders, including the election of directors and approval of significant corporate transactions, even if other
shareholders oppose them. This concentration of ownership might also have the effect of delaying or preventing a
change of control of Highland that other shareholders may view as beneficial.
•
It may be difficult for Highland to find and hire qualified people in the mining industry currently residing in Michigan or
to obtain all of the necessary services or expertise to conduct operations in Michigan. If qualified people and services
or expertise cannot be obtained in Michigan, Highland may need to seek and obtain those services from people located
outside of these areas, which will require work permits and compliance with applicable laws and could result in delays
and higher costs.
•
The Company faces substantial competition within the mining industry from other mineral companies with much greater
financial and technical resources.
•
Future issuance of common shares into the public market may result in dilution to the existing shareholders.
• 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.
17
Management’s Discussion and Analysis
Year ended June 30, 2020
• Development projects are uncertain and actual capital and operating costs and economic returns may differ significantly
from those estimated for a project prior to production. The economic feasibility of development projects is based on
many factors such as: estimation of mineral reserves, anticipated metallurgical recoveries, environmental
considerations and permitting, future metals prices, and anticipated capital and operating costs of these projects. Any
of the following events, among others, could affect the profitability or economic feasibility of a project: unanticipated
changes in grade and tonnes of ore to be mined and processed, unanticipated adverse geological conditions,
unanticipated metallurgical recovery problems, incorrect data on which engineering assumptions are made, availability
and costs of labour, costs of processing and refining facilities, availability of economic sources of power, adequacy of
water supply, availability of surface on which to locate processing and refining facilities, adequate access to the site,
unanticipated transportation costs, government regulations (including regulations with respect to royalties, duties,
taxes, permitting, restrictions on production, quotas on exportation of minerals, and the environment), fluctuations in
metals prices, and accidents, labour actions and force-majeure events. It is not unusual in new mining operations to
experience unexpected problems during the start-up phase, and delays can often occur at the start of production. It is
likely that actual results for a project will differ from estimates and assumptions, and these differences may be material.
In addition, experience from actual mining or processing operations may identify new or unexpected conditions that
could reduce production below, or increase capital or operating costs above, estimates.
•
Title to mineral rights and surface rights may be disputed.
• Environmental legislation is evolving in the direction of stricter standards and enforcement, higher fines and penalties
for non-compliance, more stringent environmental assessments of proposed projects and a heightened degree of
responsibility for companies and their directors, officers and employees. Compliance with changing environmental laws
and regulations may require significant capital outlays, including obtaining additional permits, and may cause material
changes or delays in, or the cancellation of, operations.
• 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 in the mining sector.
• 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 Canadian securities legislation and “forward-looking
statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995 (collectively, “forward-
looking statements”). These forward-looking statements are made as of the date of this MD&A and the Company does not intend,
and does not assume any obligation, to update these forward-looking statements, except as required under applicable securities
legislation. Forward-looking statements relate to future events or future performance and reflect our expectations or beliefs
regarding future events. Forward-looking statements include, but are not limited to: statements with respect to: the result of the
strategic review process and the funding requirement; the Company’s ability to repay its debts; the estimation of mineral
resources and mineral reserves; the timing and cost of the construction of the mine; the timing and amount of estimated future
production, costs of production and capital expenditures; and statements with respect to the acquisition of the White Pine Project,
the result of the discussion with RTX with respect to the Note; and the Company’s plans and objectives. In certain cases, forward-
looking statements can be identified by the use of words such as “plans”, “expects”, “budget”, “scheduled”, “estimates”,
“forecasts”, “intends”, “anticipates”, “believes” or variations of such words and phrases, or statements that certain actions, events
or results “may”, “could”, “would”, “might” or “will be taken”, “occur” or “be achieved” or the negative of these terms or comparable
18
Management’s Discussion and Analysis
Year ended June 30, 2020
terminology. In this document certain forward-looking statements are identified by words including “anticipation”, “plan” and
“expected”.
By their very nature, forward-looking statements involve known and unknown risks, uncertainties and other factors that may
cause our actual results, performance or achievements to be materially different from any future results, performance or
achievements expressed or implied by the forward-looking statements. Such factors include, but are not limited to, the
Company’s ability to raise capital, risks inherent to future prices of copper and other metals, the accuracy of mineral resource
and mineral reserve estimates, increased operating and capital costs, changes to governmental regulations, compliance with
governmental regulations and environmental laws and regulations, reliance on approvals and permits from governmental
authorities, uncertainties and risks related to the acquisition of the White Pine Project, challenges to title to the Company’s
mineral properties, maintaining social license to operate, dependence on key management personnel, competition in the mining
industry, and other risks of the mining industry as well as those factors detailed from time to time in the Company’s interim and
annual financial statements and MD&A, all of which are filed and available for review under the Company’s profile on SEDAR at
www.sedar.com. Although the Company has attempted to identify important factors that could cause our actual results,
performance or achievements to differ materially from those described in our forward-looking statements, there may be other
factors that cause our results, performance or achievements not to be as anticipated, estimated or intended.
There can be no assurance that our forward-looking statements will prove to be accurate, as our actual results, performance or
achievements could differ materially from those anticipated in such statements. Accordingly, readers should not place undue
reliance on our forward-looking statements.
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.
ADDIITIONAL INFORMATION AND CONTINOUS DISCLOSURE
This MD&A has been prepared as at October 27, 2020. 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).
19