CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2021 and 2020
In US dollars
KPMG LLP
600 de Maisonneuve Blvd. West
Suite 1500, Tour KPMG
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Canada
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Internet
(514) 840-2100
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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, 2021 and June 30, 2020;
the consolidated statements of income (loss) and comprehensive income (loss) for the years then
ended;
the consolidated statements of changes in shareholders’ equity (deficit) 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, 2021 and June 30, 2020 and its
consolidated financial performance and 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 consolidated financial statements, which indicates that Highland
Copper Company Inc. is still in the exploration stage and, as such, the Entity has not yet generated
positive cash flows from its operating activities, that no revenue has been yet been generated and
that the Entity has an accumulated deficit and a working capital deficiency as at June 30, 2021.
KPMG LLP, an Ontario limited liability partnership and member firm of the KPMG global organization of independent
member firms affiliated with KPMG International Limited, a private English company limited by guarantee. KPMG
Canada provides services to KPMG LLP.
2 As stated in Note 2 in the consolidated financial statements, these events or conditions, along with
other matters as set forth in Note 2 in the consolidated financial statements, indicate that a material
uncertainty exists that may cast significant doubt on Highland Copper Company Inc.'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 (IFRS), 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.
The engagement partner on the audit resulting in this auditors’ report is Giuseppe Funiciello.
Montréal, Canada
October 26, 2021
*CPA auditor, CA, public accountancy permit No. A122264
5
Highland Copper Company Inc.
Consolidated Statements of Financial Position
(in US dollars)
ASSETS
Current
Cash (Note 4)
Sales taxes receivable
Prepaid expenses and other
Non-current
Capital assets (Note 5)
Exploration and evaluation assets (Note 6)
TOTAL ASSETS
LIABILITIES
Current
Accounts payable and accrued liabilities
Lease liabilities (Note 7)
Credit facility, including accrued interest (Note 8)
Note payable (Note 9)
Promissory note, including accrued interest (Note 10)
Non-current
Environmental liability (Note 11)
TOTAL LIABILITIES
SHAREHOLDERS' EQUITY (DEFICIT)
Share capital (Note 12)
Contributed surplus
Deficit
Cumulative translation adjustment
TOTAL EQUITY (DEFICIT)
TOTAL LIABILITIES AND EQUITY (DEFICIT)
June 30,
June 30,
2021
$
2020
$
2,982,600
164,327
6,822
32,048
7,282
29,297
3,021,470
200,906
29,446
51,214
38,740,479
20,636,987
41,791,395
20,889,107
2,236,842
916,939
-
9,446
6,218,415
5,006,142
-
55,000
17,754,189
16,535,251
26,209,446
22,522,778
274,275
266,151
26,483,721
22,788,929
66,137,274
66,137,274
11,961,512
11,872,108
(63,970,379)
(81,650,160)
1,179,267
1,740,956
15,307,674
(1,899,822)
41,791,395
20,889,107
Going Concern (Note 2); Events after the Reporting Date (Note 24).
The accompanying notes form an integral part of these consolidated financial statements.
On behalf of the Board,
/s/ Denis Miville-Deschenes
Denis Miville-Deschenes, Director
/s/ Jo Mark Zurel
Jo Mark Zurel, Director
6
Highland Copper Company Inc.
Consolidated Statements of Income (loss) and Comprehensive Income (loss)
(in US dollars)
Expenses and other items
Exploration and evaluation (Note 14)
Management and administration (Note 15)
Share-based compensation
Depreciation and amortization (Note 5)
Reversal of write-down of exploration and evaluation assets (Note 6)
Write-down of exploration and evaluation assets (Note 6)
Accretion on environmental liability (Note 11)
Finance expense (Note 16)
Gain on disposal of exploration and evaluation assets (Note 6)
Finance income
(Gain) loss on foreign exchange
Years ended June 30,
2020
$
2021
$
590,117
1,005,129
-
21,824
(18,010,077)
197,904
8,124
787,564
978,320
27,646
81,603
-
-
9,147
2,031,082
2,385,385
(2,996,550)
(19)
(527,315)
-
(5,376)
107,049
Net income (loss) for the year
17,679,781
(4,371,338)
Other comprehensive income (loss)
Item that may be subsequently reclassified to income
Foreign currency translation adjustment
(561,689)
117,179
Comprehensive income (loss) for the year
17,118,092
(4,254,159)
Basic and diluted earnings (loss) per common share (Note 18)
0.04
(0.01)
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’ Equity (deficit)
(in US dollars)
Number of issued
and outstanding
common shares
Share
capital
$
Contributed
surplus
$
Deficit
$
Cumulative
translation
adjustment
$
Total
shareholders'
equity (deficit)
$
Balance at June 30, 2020
472,933,689
66,137,274
11,872,108
(81,650,160)
1,740,956
(1,899,822)
Below-market element of credit facility (Note 8)
Net income for the year
Foreign currency translation adjustment
-
-
-
-
-
-
89,404
-
-
-
17,679,781
-
-
-
(561,689)
89,404
17,679,781
(561,689)
Balance at June 30, 2021
472,933,689
66,137,274
11,961,512
(63,970,379)
1,179,267
15,307,674
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 8)
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)
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 income (loss) for the year
Adjustments
Share-based compensation
Depreciation and amortization
Reversal of write-down of exploration and evaluation assets
Write-down of exploration and evaluation assets
Accretion on environmental liability
Loss on sale of capital assets
Unrealized loss (gain) on foreign exchange
Finance expense
Gain on disposal of exploration and evaluation assets
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 5)
Additions to exploration and evaluation assets (Note 6)
Proceeds on disposal of exploration and evaluation assets (Note 6)
Financing activities
Repayment of lease liabilities (Note 7)
Proceeds from credit facility (Note 8)
Reimbursement of note payable (Note 9)
Years ended June 30,
2021
$
2020
$
17,679,781
(4,371,338)
-
21,824
(18,010,077)
197,904
8,124
-
(527,315)
2,029,372
(2,996,550)
(19)
19
1,145
-
1,209,450
(386,342)
-
(257,275)
3,000,000
2,742,725
(12,537)
500,000
(55,000)
432,463
27,646
81,603
-
-
9,147
1,225
107,049
2,374,891
-
(5,376)
6,495
5,053
6,838
(52,527)
(1,809,294)
5,666
(178,410)
-
(172,744)
(61,552)
1,750,000
(110,000)
1,578,448
Effect of exchange rate changes on cash held in foreign currency
29,427
(37,129)
Net change in cash
Cash, beginning of year
Cash, end of year
Supplemental cash flow information
2,818,273
164,327
2,982,600
(440,719)
605,046
164,327
Additions to exploration and evaluation assets included in accounts payable and accrued liabilities
Below-market element of credit facility in contributed surplus (Note 8)
-
89,404
87,500
163,312
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, 2021 and 2020 (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 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”) and the White Pine North copper project (the “White Pine North Project”),
with final closing of its acquisition from Copper Range Company (“CRC”), a wholly-owned subsidiary of First Quantum
Minerals Ltd.) completed on July 27, 2021 (Note 24). A mineral exploration property referred to as the UPX Property
was sold subsequent to year-end (Note 24).
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 26, 2021.
Basis of measurement
These consolidated financial statements were prepared on the historical cost basis, less any impairment, except for
the following material items:
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 3.
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, 2021 and 2020 (in US dollars)
2. GOING CONCERN
These consolidated financial statements have been prepared on the going concern basis, 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 obtain the necessary financing to complete the development of the projects, and future profitable
production from the projects or proceeds from their disposition thereof.
Management estimates that the transactions completed subsequent to year end (refer to Note 24 – Events after the
Reporting Date) provides the Company with adequate funding in order to reimburse the credit facility and accrued
interest described in Note 8, to reimburse the promissory note and accrued interest described in Note 10, to replace
the current environmental financial assurance bond related to the White Pine North Project amounting to
approximately $1.7 million, to meet all existing commitments and to provide for management and administration
expenses for the next 12 months. However, since the Company does not generate revenues, the Company will need
to obtain additional funds to pursue its operations and meet its obligations related to the development of the
Copperwood and White Pine North projects.
To date, the Company has not yet generated positive cash flows from its operating activities and is in the exploration
and development stage. The Company has a deficit of $63,970,379 at June 30, 2021 (a deficit of $81,650,160 at June
30, 2020) and has a working capital deficiency of $23,187,976 as at June 30, 2021 (a working capital deficiency of
$22,321,872 at June 30, 2020).
The conditions and uncertainties described above indicate the existence of a material uncertainty that may cast
significant doubt about the Company’s ability to continue as a going concern. If the going concern assumption was
not appropriate for these consolidated financial statements, adjustments which could be material would be necessary
to the carrying value of assets and liabilities and reported expenses.
11 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2021 and 2020 (in US dollars)
3. 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 Delaware, 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. (“UPX”), incorporated in March 2017 in the State of Michigan, USA.
b)
Foreign currency translation
The Company and its subsidiaries each determine their functional currency based on the currency of the primary
economic environment in which they operate.
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. 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 Company’s foreign operations are translated to the Company’s presentation currency, for inclusion the
consolidated financial statements. Foreign denominated assets and liabilities are translated at the exchange rate
prevailing at the reporting date. 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.
12 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2021 and 2020 (in US dollars)
3. SUMMARY OF ACCOUNTING POLICIES (continued)
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.
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, including accrued interest, is 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 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).
13 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2021 and 2020 (in US dollars)
3. SUMMARY OF ACCOUNTING POLICIES (continued)
c) Financial instruments (continued)
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 reporting 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 change 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.
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
Cash includes cash balances and highly liquid investments with original maturities of three months or less.
14 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2021 and 2020 (in US dollars)
3. SUMMARY OF ACCOUNTING POLICIES (continued)
e) Capital assets
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,
computers are 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.
15 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2021 and 2020 (in US dollars)
3. 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 mining lease payments and costs of acquiring mineral rights are capitalized as exploration and evaluation assets.
Exploration and evaluation assets are assessed for impairment indicators or the reversal of impairment indicators (not
to exceed the amount of prior impairments) 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.
16 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2021 and 2020 (in US dollars)
3. 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.
17 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2021 and 2020 (in US dollars)
3. 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.
18 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2021 and 2020 (in US dollars)
3. SUMMARY OF ACCOUNTING POLICIES (continued)
i) Leases
At inception of a contract, the Company assesses whether a contract is, or contains, a lease. A contract is, or contains,
a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for
consideration. At inception or on reassessment of a contract that contains a lease component, the Company allocates
the consideration in the contract to each lease component on the basis of their relative stand-alone prices.
The Company recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of-use
asset is initially measured at cost, which comprises the initial amount of the lease liability, plus any initial direct costs
incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or
the site on which it is located, less any lease incentives received. The right-of-use asset is subsequently depreciated
on a straight-line basis from the commencement date to the earlier of the end of the useful life of the right-of-use asset
or the end of the lease term. If the lease transfers ownership of the underlying asset to the Company by the end of
the lease term or if the cost of the right-of-use asset reflects that the Company will exercise a purchase option, the
right-of-use asset is depreciated from the commencement date to the end of the useful life of the underlying asset.
The estimated useful lives of right-of-use assets are determined on the same basis as those of capital assets. In
addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain re-
measurements of the lease liability. The lease liability is initially measured at the present value of the lease payments
that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate
cannot be readily determined, the Company’s incremental borrowing rate. The lease liability is measured at amortized
cost using the effective interest rate method and is re-measured when there is a change in future lease payments.
When the lease liability is re-measured, a corresponding adjustment is made to the carrying amount of the right-of-
use asset or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.
The Company presents right-of-use assets in capital assets, and lease liabilities under lease liabilities on the
consolidated statements of financial position. The Company has elected not to recognize right-of-use assets and lease
liabilities for short-term leases that have a lease term of 12 months of less and leases of low-value assets. The
Company recognizes the lease payments associated with these leases as an expense on a straight-line basis over
the lease term.
19 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2021 and 2020 (in US dollars)
3. SUMMARY OF ACCOUNTING POLICIES (continued)
j)
Income taxes
When applicable, income tax on the profit or loss comprises current and deferred tax. Income tax is recognized in
profit or loss except to the extent that it relates to items recognized in other comprehensive income or directly in equity,
in which case it is recognized in other comprehensive income or directly in equity.
Current tax is the expected tax payable on the taxable profit for the period, using tax rates enacted or substantively
enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax is provided using the liability method, providing for temporary differences between the carrying amounts
of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. However,
deferred tax is not provided on the initial recognition of goodwill or on the initial recognition of an asset or liability
unless the related transaction is a business combination which affects tax or accounting profit. Deferred tax on
temporary differences associated with investments in subsidiaries is not provided for if reversal of these temporary
differences can be controlled by the Company and it is probable that reversal will not occur in the foreseeable future.
The amount of deferred tax provided is based on the expected manner of realization or settlement of the carrying
amount of assets and liabilities, using tax rates enacted or substantively enacted at the financial position reporting
date and which are expected to apply when the related deferred income tax asset is realized or the deferred income
tax liability is settled. A deferred tax asset is recognized only to the extent that it is probable that future taxable income
will be available against which the asset can be utilized. Deferred tax assets and liabilities are offset only when the
Company has a legally enforceable right and intention to set off current tax assets and liabilities from the same taxation
authority.
k)
Equity
Share capital represents the amount received on the issue of shares, less issuance costs. Contributed surplus
includes changes related to share options and warrants until such equity instruments are exercised. Deficit includes
all current and prior year’s losses. Cumulative translation adjustment includes the foreign exchange impact of
converting foreign operations. 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.
20 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2021 and 2020 (in US dollars)
3. SUMMARY OF ACCOUNTING POLICIES (continued)
l)
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.
m)
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 share 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 reporting date, the amount recognized as an expense is adjusted to reflect the actual number
of share 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.
n)
Earnings (loss) per share
The Company presents basic and diluted earnings (loss) per share data for its common shares. Basic earnings (loss)
per share is calculated by dividing the earnings (loss) attributable to common shareholders of the Company by the
weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share is
determined by adjusting the earnings (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.
21 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2021 and 2020 (in US dollars)
3. SUMMARY OF ACCOUNTING POLICIES (continued)
o)
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.
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, 2021, 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, 2021.
Fair value of liabilities
The Company determined the fair value of the credit facility and the non-interest-bearing promissory note 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.
22 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2021 and 2020 (in US dollars)
3. SUMMARY OF ACCOUNTING POLICIES (continued)
o)
Significant accounting judgments and estimates (continued)
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).
p)
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, 2021. These updates are not expected to have a
significant impact on the Company and are therefore not discussed herein.
4. CASH
As at June 30, 2021, the cash position of $2,982,600 is to be disbursed pursuant to the 2021 Osisko Agreement
described in Note 6, with an amount of $1,676,149 to be used solely to replace the current environmental financial
assurance bond necessary to complete the final closing of the acquisition related to the White Pine Project (Note 24)
and the remaining amount to be disbursed pursuant to an approved budget by Osisko.
As at June 30, 2020, the cash position of $164,327 was restricted to be disbursed pursuant to an approved budget by
the lenders of the Credit Facility (Note 8).
23 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2021 and 2020 (in US dollars)
5. CAPITAL ASSETS
Computer
Right-of-use
assets and
equipment
Exploration
leasehold
Vehicles
and furniture
equipment
improvements
Total
$
$
$
$
$
Cost
Balance at June 30, 2019
25,538
97,320
180,870
35,000
338,728
Additions
Disposals
Effect of foreign exchange
Balance at June 30, 2020
Disposals
Effect of foreign exchange
Balance at June 30, 2021
Depreciation and amortization
Balance at June 30, 2019
Depreciation and amortization
Disposals
Effect of foreign exchange
Balance at June 30, 2020
Depreciation and amortization
Disposals
Effect of foreign exchange
Balance at June 30, 2021
Carrying amounts
Balance at June 30, 2020
Balance at June 30, 2021
-
-
-
25,538
(25,538)
-
-
16,339
6,216
-
-
22,555
2,983
(25,538)
-
-
-
(50,358)
6,533
53,495
-
1,717
55,212
64,667
9,993
(42,814)
6,123
37,969
6,427
-
2,800
47,196
-
-
-
58,183
-
-
58,183
(50,358)
6,533
180,870
93,183
353,086
-
(93,183)
(118,721)
3,066
183,936
154,565
5,421
-
-
159,986
593
-
1,927
162,506
-
-
4,783
239,148
21,389
59,973
-
-
81,362
11,821
256,960
81,603
(42,814)
6,123
301,872
21,824
(93,183)
(118,721)
-
-
4,727
209,702
2,983
-
15,526
8,016
20,884
21,430
11,821
-
51,214
29,446
24
Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2021 and 2020 (in US dollars)
6. EXPLORATION AND EVALUATION ASSETS
Copperwood
White Pine
UPX
Other
Project North Project
Property
properties
$
$
Balance at June 30, 2019
17,102,484
3,132,246
Acquisition
Effect of foreign exchange
Balance at June 30, 2020
Acquisition
Sale of a silver royalty to Osisko (Note 6 d)
Reversal of write-down (Note 6 e)
Write-down (Note 6 f)
Effect of foreign exchange
209,775
25,000
-
-
17,312,259
3,157,246
227,275
(1,500)
-
-
-
30,000
(1,950)
-
-
7,072
$
-
-
-
-
-
-
18,010,077
$
Total
$
151,084
20,385,814
31,135
(14,737)
265,910
(14,737)
167,482
20,636,987
-
-
-
257,275
(3,450)
18,010,077
-
-
(197,904)
(197,904)
30,422
37,494
Balance at June 30, 2021
17,538,034
3,192,368
18,010,077
-
38,740,479
25
Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2021 and 2020 (in US dollars)
6. EXPLORATION AND EVALUATION ASSETS (continued)
a) Copperwood Project, Michigan, USA
The Company acquired the Copperwood Project in June 2014.
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.
26 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2021 and 2020 (in US dollars)
6. EXPLORATION AND EVALUATION ASSETS (continued)
b) White Pine North Project, Michigan, USA
On May 13, 2014, the Company acquired from CRC all rights, title and interest in the White Pine North Project. On
July 27, 2021 (the final closing – Note 24), in accordance with the acquisition agreement, Highland (i) deposited an
agreed amount of $1,676,149 with the Michigan Department of Environment, Great Lakes, and Energy (“EGLE”)
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. Highland assumed all of CRC’s
environmental liabilities related to the former White Pine mine site and will also be responsible for all ongoing
environmental obligations.
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, 2021, the Company has not yet estimated any proven
and probable reserves at the White Pine North 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.
c) 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 connection thereto, an amount of $575,000 was paid to the
lessor based on a schedule of payments, as described in Note 9. The lease agreement also calls for annual lease
payments of $30,000 in 2021 (payment made) and 2022, and $1,000,000 thereafter. Upon commencement of
production, Highland will have to pay to the holder of the mineral rights (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.
27 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2021 and 2020 (in US dollars)
6. EXPLORATION AND EVALUATION ASSETS (continued)
d) Royalty agreements
In accordance with an agreement entered into in December 2014 (and subsequently amended in June 2016), Osisko
Gold Royalies Ltd. (“Osisko”) held a 3.0% net smelter return royalty on all metals to be produced from the mineral
rights and leases associated with the Copperwood Project (the “Copperwood NSR”). The June 2016 amendment also
provided that upon final closing of the acquisition of the White Pine North Project, the Company would grant Osisko a
1.5% NSR royalty on all metals to be produced from the White Pine North Project, and Osisko’s royalty on the
Copperwood Project would be then reduced to 1.5%. In December 2014, the Company had also granted to Osisko
an option to purchase for $26 million a 100% NSR on future silver production from the Company’s projects (the “Silver
Option Royalty”).
On June 29, 2021, the Company entered into an agreement with Osisko (the “2021 Osisko Agreement”) pursuant to
which Osisko has exercised a portion of its Silver Option Royalty on future production from the Copperwood and White
Pine North projects. Pursuant to the 2021 Osisko Agreement, which modified the terms and conditions of the exercise
of the Silver Option Royalty (including the removal of silver from the Copperwood NSR agreement), the Company has
received an initial payment of $3 million (the “Initial Payment”) in consideration for which the Company has granted
Osisko a 3/26th NSR royalty on all future silver production from the Copperwood and White Pine North projects. Osisko
has the option to acquire the remaining 23/26th NSR royalty on all silver produced from the Copperwood and White
Pine North projects by paying an additional $23 million to Highland within 60 days following the delivery of a feasibility
study on the White Pine North Project.
The Initial Payment was accounted for as a sale of a portion of the Copperwood and White Pine North projects. The
carrying value of the exploration and evaluation assets disposed was determined taking into account silver income
relative to income from all metals to be produced at the Copperwood and White Pine North projects. The resulting
amount of $3,450 reduced the carrying amount of the Copperwood and White Pine North projects with the difference
accounted for as a gain on disposal.
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: Upper Peninsula Copper Holdings Inc., Copperwood Resources Inc., White Pine Copper LLC and
Keweenaw Copper Co.
28 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2021 and 2020 (in US dollars)
6. EXPLORATION AND EVALUATION ASSETS (continued)
e) 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 10). The Note is secured by a first priority security interest over the
UPX Property. RTX has retained a 2% NSR royalty on all mineral interests.
On August 27, 2021, the Company completed the sale of the UPX Property to a subsidiary of Orion Mine Finance
(“Orion”), a significant shareholder of the Company (Note 24) and consequently, on June 30, 2021, the Company
reversed a previous write-down of exploration and evaluation assets in the amount of $18,010,077.
f) Write-down
In December 2012, the Company had entered into a 10-year lease agreement for the exploration and development of
mineral properties located in Michigan. On April 22, 2021, the Company received a lease termination notice from the
titleholder for the non-payment of the lease amount that was due in December 2020. Consequently, the Company has
written off the amount of $197,904 in exploration and evaluation assets related to this lease.
7. LEASE LIABILITIES
The balance of the lease liabilities as at June 30, 2021 is as follows:
Balance, beginning of year
Lease liabilities on adoption of IFRS 16
Accretion expense
Repayment of liabilities
Balance, end of year
Years ended June 30,
2021
$
9,446
-
3,091
2020
$
-
58,183
12,815
(12,537)
(61,552)
-
9,446
29 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2021 and 2020 (in US dollars)
8. CREDIT FACILITY
On May 20, 2019, the Company entered into a loan agreement with Greenstone Resources II LP (“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, which
amount was disbursed in a number of tranches until 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. The maturity date of the loan agreement was extended on several occasions,
but since October 31, 2020, the loan as well as accrued interest are payable on demand. 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: Upper Peninsula Copper Holdings Inc.,
Copperwood Resources Inc., White Pine Copper LLC and Keweenaw Copper Co.
The Company accounted for the estimated fair value of the 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, 2021, the balance of the loan was adjusted by $89,404 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%
Interest payable
Accretion of loan and amortization of transactions costs
Balance, end of year
Years ended June 30,
2021
$
2020
$
5,006,142
2,495,484
(89,404)
494,670
681,785
125,222
(163,312)
1,721,829
503,178
448,963
6,218,415
5,006,142
On August 27, 2021, the Company settled all amounts due under the Credit Facility (Note 24).
30 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2021 and 2020 (in US dollars)
9. 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 6 - 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, which matured on December 31, 2020.
The balance of the note payable is determined as follows:
Balance, beginning of year
Reimbursements
Balance, end of year
Years ended June 30,
2021
$
2020
$
55,000
165,000
(55,000)
(110,000)
-
55,000
31 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2021 and 2020 (in US dollars)
10. 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 6. 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. 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 8.1% at June 30, 2021). The Note is secured
by a mortgage over the acquired property and a general security agreement over all the assets of UPX Minerals Inc
(“UPX”).
The balance of the Note is determined as follows:
Balance, beginning of year
Accrued interest
Balance, end of year
Years ended June 30,
2021
$
2020
$
16,535,251
15,128,068
1,218,938
1,407,183
17,754,189
16,535,251
On August 27, 2021, the Company sold UPX to Orion for cash of $3 million and the assumption by Orion of the amount
owing under the above promissory note (Note 24).
32 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2021 and 2020 (in US dollars)
11. ENVIRONMENTAL LIABILITY
The environmental liability consists of a provision for reclamation costs related to the White Pine North Project (Note
6). The undiscounted cash flow amount of the liability is estimated at $335,000. The present value of the liability was
calculated
using
a
discount
rate
of
8.0%
and
is
reflecting
payments
to
be made
until 2030, inclusively.
Balance, beginning of year
Accretion expense
Balance, end of year
12. SHARE CAPITAL
Authorized and issued
Years ended June 30,
2021
$
266,151
8,124
274,275
2020
$
257,004
9,147
266,151
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, 2021, the Company had 472,933,689 issued and outstanding common shares (472,933,689 at June 30,
2020).
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, 2021 and June 30, 2020.
33 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2021 and 2020 (in US dollars)
13. SHARE 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,
2021
2020
Average exercise
Average exercise
Number
price (C$)
Number
price (C$)
8,675,000
(1,150,000)
7,525,000
0.12
(0.11)
0.12
13,685,000
(5,010,000)
8,675,000
0.17
(0.20)
0.12
The following table reflects the share options issued and outstanding at June 30, 2021:
Number of
Exercise
price of
Issue date
options
price
contratual life
options
options
Number of
Exercise
Remaining
exercisable
exercisable
August 28, 2017
October 26, 2017
6,775,000
750,000
7,525,000
C$
0.11
0.17
0.12
(years)
1.2
1.3
1.2
6,775,000
750,000
7,525,000
C$
0.11
0.17
0.12
14. EXPLORATION AND EVALUATION EXPENSES
Labour
Studies
Contractors
Office, overhead and other administrative costs
Loss on sale of capital assets
Years ended June 30,
2021
$
90,168
91,725
207,176
201,048
-
2020
$
181,771
174,323
217,439
212,806
1,225
590,117
787,564
34 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2021 and 2020 (in US dollars)
15. MANAGEMENT AND ADMINISTRATION EXPENSES
Administrative and general
Professional fees
Office
Investor relations and travel
Reporting issuer costs
16. FINANCE EXPENSE
Interest on credit facility (Note 8)
Interest on note payable (Note 9)
Interest on promissory note (Note 10)
Accretion on lease liabilities (Note 7)
Other
Years ended June 30,
2021
$
687,727
184,333
102,730
2,111
28,228
1,005,129
2020
$
614,105
158,197
143,545
40,872
21,601
978,320
Years ended June 30,
2021
$
2020
$
807,007
952,141
1,650
9,900
1,218,938
1,407,183
3,091
396
12,815
3,346
2,031,082
2,385,385
35 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2021 and 2020 (in US dollars)
17.
INCOME TAXES
The reconciliation of the effective tax rate is as follows:
2021
$
Years ended June 30,
2020
$
Net income (loss) before income tax
17,679,781
(4,371,338)
Tax using the Company’s domestic tax rate
26.50%
4,685,142
26.58%
(1,161,985)
Share-based compensation
Non-deductible expenses and non-taxable revenues
(0.17%)
7,349
5.28%
(230,801)
Effect of tax rate in foreign jurisdictions
(0.82%)
(145,064)
(0.44%)
19,377
Unrecognized tax assets
Foreign exchange and others
Deferred income tax
(23.57%)
(4,167,355)
(38.01%)
1,661,543
(2.11%)
(372,723)
6.76%
(295,483)
-
-
-
-
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
(201,703)
(201,703)
-
201,703
June 30, 2021
Net
$
-
-
-
June 30, 2020
Net
$
$
$
(201,703)
201,703
-
(687,665)
(687,665)
-
687,665
(687,665)
687,665
-
-
-
-
$
-
201,703
201,703
(201,703)
-
$
-
687,665
687,665
(687,665)
-
Assets
Liabilities
36 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2021 and 2020 (in US dollars)
17.
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
Financing expenses and others
Non-capital loss carry-forwards
Capital assets
Exploration and evaluation assets
Share issue expenses
Financing expenses
Canada
$
USA
$
June 30, 2021
Total
$
15,001,600
30,410,552
45,412,152
256,226
1,669,887
680,362
108,335
4,264,673
1,376,170
364,561
5,934,560
2,056,532
17,608,075
36,159,730
53,767,805
Canada
$
10,425,437
175,032
1,518,681
156,753
551,805
USA
$
30,333,169
124,129
26,969,184
-
-
June 30, 2020
Total
$
40,758,606
299,161
28,487,865
156,753
551,805
12,827,708
57,426,482
70,254,190
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.
37 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2021 and 2020 (in US dollars)
17.
INCOME TAXES (continued)
Non-capital losses expire as follows:
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
USA
$
-
-
-
-
-
-
-
-
1,256,944
5,464,483
1,101,253
4,408,457
8,638,707
-
-
-
Canada
$
83,287
97,088
244,924
434,317
600,609
767,220
1,105,604
77,603
916,652
1,989,333
834,320
1,733,703
1,898,780
1,575,504
1,768,546
1,635,252
20,869,844
15,762,743
The Company also has non-capital losses available in the USA amounting to $9,540,708 with no expiry date. A deferred income tax
on non-capital losses has been recognized for an amount of $761,143 ($2,594,963 in 2020).
18.
LOSS PER SHARE
The calculation of basic and diluted earnings (loss) per share for the year ended June 30, 2021 was based on net
income attributable to common shareholders of $17,118,092 (a net loss of $4,371,338 in 2020) and the weighted
average number of common shares outstanding of 472,933,689 (472,933,689 in 2020). Excluded from the calculation
of the diluted loss per share for the year ended June 30, 2020 are 8,675,000 share options because to include them
would be anti-dilutive as they would have the effect of decreasing the loss per share.
38 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2021 and 2020 (in US dollars)
19. RELATED PARTY TRANSACTIONS
In addition to the loan agreement described in Note 8, the detail of transactions between the Company and its related
parties is as follows:
During the year ended June 30, 2021, the Company incurred administration expenses of $64,287 from Reunion Gold
Corporation, a related party by virtue of common management and directors ($77,241 in 2020).
At June 30, 2021, the Company had an amount payable of $126,051 to Reunion Gold Corporation, included in
accounts payable and accrued liabilities on the consolidated statements of financial position ($38,859 at June 30,
2020).
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,
2021
$
560,233
-
560,233
2020
$
497,419
12,353
509,772
39 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2021 and 2020 (in US dollars)
20. 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, 2021, managed
capital was $39,280,278 ($19,696,571 at June 30, 2020).
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
the sale of equity capital of the Company, the sale by the Company of an interest in any of its properties in whole or
in part, or shareholder loans. 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, 2021.
The Company is not subject to any externally imposed capital requirements as at June 30, 2021.
21.
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, 2021.
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 (Note 24). The Company generates cash flow only from its financing activities.
40 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2021 and 2020 (in US dollars)
21.
FINANCIAL RISK MANAGEMENT (continued)
Liquidity risk (continued)
The following table summarizes the contractual maturities of the Company’s financial liabilities as at June 30, 2021:
Carrying
Settlement
amount
amount
$
$
Within
1 year
$
Accounts payable and accrued liabilities
2,236,842
2,236,842
2,236,842
Credit facility
Promissory note
Credit risk
6,218,415
6,218,415
6,218,415
17,754,189
17,754,189
17,754,189
26,209,446
26,209,446
26,209,446
Over
2 years
2 years
$
-
-
-
-
$
-
-
-
-
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 is 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 $148,000.
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 by $62,000 as at June 30, 2021
($50,000 as at June 30, 2020).
41 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2021 and 2020 (in US dollars)
21.
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. 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, 2021, financial assets and liabilities denominated in a foreign currency consisted of cash of $1,274,152,
accounts payable and accrued liabilities of $315,699, and credit facility of $6,218,415. The impact on profit or loss of
a 10% increase or decrease in the US dollar against the Canadian dollar would be approximately $525,000.
22. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash, accounts payable and accrued liabilities, credit facility 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.
42 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2021 and 2020 (in US dollars)
23. SEGMENTED INFORMATION
The Company has one reportable operating segment being the acquisition and exploration of mineral properties in
Michigan, USA. Assets are located as follows:
Current assets
Capital assets
Exploration and evaluation assets
Total assets
Current assets
Capital assets
Exploration and evaluation assets
Total assets
Canada
$
June 30, 2021
USA
$
Total
$
1,335,930
1,685,540
3,021,470
-
-
29,446
29,446
38,740,479
38,740,479
1,335,930
40,455,465
41,791,395
Canada
$
179,085
880
-
June 30, 2020
USA
$
Total
$
21,821
50,334
200,906
51,214
20,636,987
20,636,987
179,965
20,709,142
20,889,107
24. EVENTS AFTER THE REPORTING DATE
Final Closing of the Acquisition of the White Pine North Project
On July 27, 2021, the Company completed the acquisition of the White Pine North Project in Michigan. As part of the
transaction with CRC (as seller), the Company agreed to assume all environmental obligations concerning the White
Pine mining facility formerly operated by CRC. In addition, the Company has provided a certificate of deposit in the
amount of $1,676,149 for the benefit of the Michigan Department of Environment, Energy and Great Lakes as financial
assurance for the performance of environmental obligations associated with the remediation and closure plan of the
historical White Pine mine site.
Sale of the UPX Project
On August 27, 2021, the Company completed the sale of all of the issued and outstanding shares of UPX to
Sweetwater Royalties (“Sweetwater”), a company owned by Orion, in exchange for a cash consideration of $3 million
and the assumption, by Sweetwater, of the promissory note in the amount of approximately $18 million in favor of
RTX (Note 10). In connection with the closing of the transaction, the Company was released from its guarantee of the
amount owing under the promissory note.
43 Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2021 and 2020 (in US dollars)
24. EVENTS AFTER THE REPORTING DATE (continued)
Private Placement
On August 27, 2021 and on September 9, 2021, the Company completed in two tranches a non-brokered private
placement (the “Offering”) resulting in gross proceeds of Can $26,342,993 (approximately $21.3 million). The Offering
consisted of the issuance of 263,429,930 units (“Units”) at a price of Can $0.10 per Unit. Each Unit consisted of one
common share of the Company and one half of one common share purchase warrant (each whole warrant, a
“Warrant”), with each Warrant exercisable to acquire one common share at Can $0.18 until August 27, 2023. In
connection with the completion of the Offering, the Company paid cash finder’s fees in the aggregate amount of Can
$104,500.
Certain insiders of the Company acquired Units in the Offering, including Orion who acquired 62,310,000 Units for an
amount of Can $6,231,000 (approximately $5.0 million) and Greenstone who acquired 36,635,620 Units for an amount
of Can $3,663,562 (approximately $2.9 million).
Settlement of Credit Facility
On closing of the Offering, the Company settled all amounts due to Osisko and Greenstone pursuant to the loan
agreement described in Note 8 (including accrued interest), for a total amount of $6,337,704.
44 HIGHLAND COPPER COMPANY INC.
MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS FOR THE
YEAR ENDED JUNE 30, 2021
The following management’s discussion and analysis (“MD&A”) of the operations, results, and financial position of Highland
Copper Company Inc. (“Highland” or the “Company”), dated October 26, 2021, covers the years ended June 30, 2021 and
2020 and should be read in conjunction with the audited consolidated financial statements and related notes at June 30, 2021
and 2020 (the “June 30, 2021 and 2020 consolidated financial statements”). The June 30, 2021 and 2020 consolidated
financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”).
In this MD&A, reference to “the Company” is to Highland and its subsidiaries. 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
assets are Copperwood, a feasibility stage copper project, and White Pine North, an advance-stage copper project, both
located in the Upper Peninsula region of the State of Michigan, USA.
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 26, 2021, the Company has 736,363,619 common
shares issued and outstanding. Orion Resource Partners (“Orion”), Condire Investors LLC (“Condire”) and Greenstone
Resources II LP (“Greenstone”) hold respectively 27.7%, 16.2% and 15.9% of the Company’s issued and outstanding common
shares.
HIGHLIGHTS
Subsequent to the June 30, 2021 year-end
• On August 27, 2021 and September 9, 2021, the Company completed a non-brokered private placement (the
“Offering”) for total gross proceeds of Can $26,342,993.
• On August 27, 2021, the Company settled an amount of $6,337,704 due to Osisko Gold Royalties Ltd (“Osisko”) and
Greenstone pursuant to a May 2019 secured loan agreement and amendments (the “Credit Facility”).
• On August 27, 2021, the Company completed the sale of its mineral exploration project referred to as the UPX Property,
acquired in May 2017 from Kennecott Exploration Company and Rio Tinto Nickel Company (“RTX”), through the sale
of all of the issued and outstanding shares of UPX Minerals Inc. (“UPX Minerals”), an indirect wholly-owned subsidiary
of Highland, to Sweetwater Royalties (“Sweetwater”), an entity owned by Orion, in exchange for a cash consideration
of $3 million and the assumption by Sweetwater of the remaining amount due under a promissory note in favor of RTX.
• On August 27, 2021, concurrently with the transactions described above, long-time director David Fennell has stepped
down in his executive role but remains as chairman of the board of directors of the Company (the “Board” or the “Board
of Directors”) until the next annual general meeting of the Company to be held in December 2021.
Management’s Discussion and Analysis
Year ended June 30, 2021
• On July 27, 2021, the Company completed the acquisition of the White Pine North Project in Michigan from Copper
Range Company (“CRC”), a wholly-owned subsidiary of First Quantum Minerals Inc. As part of the transaction with
CRC, the Company has assumed environmental liabilities and obligations related to the former White Pine mine site.
To that end, the Company has provided a certificate of deposit in the amount of $1,676,149 for the benefit of the
Michigan Department of Environment, Great Lakes and Energy (“EGLE”) as financial assurance for the performance
of environmental obligations associated with the remediation and closure plan of the former White Pine mine site.
During the financial year ended June 30, 2021
• On June 29, 2021, Osisko exercised a portion of its option to purchase a 100% net smelter return (“NSR”) royalty on
future silver production from the Company’s projects and paid an initial amount of $3 million to the Company. As
consideration, the Company granted to Osisko a 3/26th NSR royalty on future silver production from the Copperwood
and White Pine North projects.
• On September 4, 2020, an additional amount of $500,000 was made available to the Company under the Credit Facility.
•
The Company realized net income of $17.7 million in 2021 ($0.04 per share) compared to a net loss of $4.4 million in
2020 ($0.01 per share); net income in 2021 includes the reversal of a previous write-down of exploration and evaluation
assets related to the UPX Property in the amount of $18.0 million and a gain of $2.996 million related to Osisko’s partial
exercise of its option to purchase a 100% NSR royalty on future silver production from the Company’s projects.
All projects were on care and maintenance during the financial year 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; no salaries and fees were paid to officers and directors of the Company during the last
completed financial year.
OUTLOOK
Following the completion of the Offering and transactions described in the Highlights section above, the Company is debt free
and has a working capital of approximately $15.0 million at the date of this MD&A.
The Company has initiated an update of the feasibility study on its Copperwood Project which was completed in 2018 taking into
account various factors including current market prices for metals, for the purchase of equipment, supplies and consumables
and for labor rates. The Company has retained the services of G Mining Services Inc. (“GMSI”), a Canadian mining consultancy
firm, targeting to complete the updated feasibility study by April 2022. The Company is aiming to initiate construction activities
at the Copperwood Project during the summer of 2022 but its ability to do so will depend in part on the results of the updated
feasibility study, the price of and demand for copper, the state of the capital market to finance the construction costs, global
market conditions in general, availability of personnel, and other factors described in the Other Risks and Uncertainties section.
At the White Pine North Project, the Company plans to initiate baseline environmental studies over the coming months.
The Company estimates that the current working capital will be sufficient: (i) to complete the update of the 2018 Copperwood
Feasibility Study, (ii) to initiate baseline environmental studies at the White Pine North Project and (iii) to provide for management
and administration expenses for at least the next 12 months.
2
Management’s Discussion and Analysis
Year ended June 30, 2021
PRIVATE PLACEMENT
The Company completed the Offering in two tranches, on August 27 and September 9, 2021, resulting in total gross proceeds
of Can $26,342,993. The Offering consisted of the issuance of 263,429,930 units (“Units”) at a price of Can $0.10 per Unit. Each
Unit consisted of one common share of the Company and one half of one common share purchase warrant (each whole warrant,
a “Warrant”), with each Warrant exercisable to acquire one common share of the Company at Can $0.18 per common share
until August 27, 2023. In connection with the completion of the Offering, the Company paid finder’s fees in the aggregate amount
of Can $104,500.
Certain insiders of the Company acquired Units in the Offering, including Orion who acquired 62,310,000 Units and Greenstone
who acquired 36,635,620 Units, after which they respectively own approximately 27.7% and 15.9% of the common shares of
the Company.
SETTLEMENT OF LOAN FROM OSISKO AND GREENSTONE
On May 20, 2019, the Company entered into a Credit Facility with Osisko and Greenstone (collectively, the "Lenders"). Under
the terms of the Credit Facility, the Lenders agreed to provide the Company with a loan of up to $4,500,000, which amount was
disbursed in a number of tranches until February 2020. On September 4, 2020, pursuant to an amendment to the Credit Facility,
Osisko made available to the Company an additional amount of $500,000 increasing the total indebtedness under the Credit
Facility to $5,000,000 plus accrued interest. The loan, which was secured by a mortgage on the Copperwood property and a
general security agreement over all the assets of the Company, bore interest at a rate of 12% per annum. The maturity date of
the loan was extended on several occasions, but after October 31, 2020, the loan as well as accrued interest were payable on
demand.
The amount of the loan and accrued interest for a total amount of $6,337,704 were settled on August 27, 2021 using a portion
of the proceeds of the Offering described in the Private Placement section and the mortgage and other securities were
discharged.
ACQUISITION OF THE WHITE PINE NORTH PROJECT
On May 13, 2014 (the interim closing date), the Company acquired from CRC all rights, title and interest (including mineral rights
and real properties) comprising the White Pine North Project. 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 was subject to several conditions including releasing CRC from
environmental obligations associated with the remediation and closure plan of the former White Pine mine site and replacing the
related environmental bond.
On July 27, 2021, the Company completed the acquisition of the White Pine North Project. As part of the transaction with CRC
(as seller), White Pine Copper LLC (“WPC”), a wholly-owned subsidiary of Highland, has assumed the environmental obligations
concerning the White Pine mining facility formerly operated by CRC. In addition, WPC has provided a certificate of deposit in
3
Management’s Discussion and Analysis
Year ended June 30, 2021
the amount of $1,676,149 for the benefit of EGLE as financial assurance for the performance of environmental obligations
associated with the remediation and closure plan of the former White Pine mine site.
SALE OF THE UPX PROPERTY
On May 30, 2017, UPX Minerals had acquired from RTX, mineral properties located in central Upper Peninsula of Michigan (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,
May 30, 2020 and May 30, 2021. At June 30, 2021, the unpaid portion of the Note totaled $15,000,000 plus accrued interest at
the default rate of Libor plus 8% for an additional amount due of $2,754,189.
On August 27, 2021, the Company completed the sale of all of the issued and outstanding shares of UPX Minerals to Sweetwater
for a cash consideration of $3.0 million and the assumption by Sweetwater of the $15 million principal amount and accrued
interest owing under the Note. Highland was also released from its guarantee to repay amounts owing under the Note. As a
result of this transaction, and in accordance with IFRS, the Company has reversed a previous write-off of exploration and
evaluation assets related to the UPX Property in the amount of approximately $18.0 million, as reflected in its June 30, 2021
and 2020 consolidated financial statements.
ROYALTY AGREEMENTS WITH OSISKO
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 (other than silver) produced
from the mineral rights and leases associated with the Copperwood Project (the “Copperwood NSR Royalty”). The June 2016
amendment also provided that upon final closing of the acquisition of the White Pine North Project, the Company would grant
Osisko a 1.5% NSR royalty on all metals to be produced from the White Pine North Project (the “WP NSR Royalty”), and the
Copperwood NSR Royalty would be then reduced to 1.5%. In December 2014, the Company had also granted to Osisko an
option to purchase for $26 million a 100% NSR on future silver production from the Company’s projects (the “Silver Option
Royalty”).
On June 29, 2021, the Company entered into an agreement with Osisko (the “2021 Osisko Agreement”) which modified the
terms and conditions of the exercise of the Silver Option Royalty. Pursuant to the 2021 Osisko Agreement, Osisko has exercised
a portion of its Silver Option Royalty on future production from the Copperwood and White Pine North projects and paid the
Company an initial amount of $3 million (the “Initial Payment”). The Company has granted Osisko, as consideration for the
Initial Payment, a 3/26th NSR royalty on future silver production from the Copperwood Project. Following the acquisition of the
White Pine North Project on July 27, 2021, the Company granted to Osisko a 3/26th NSR royalty on future silver production from
the White Pine North Project. Osisko has the option to acquire the remaining 23/26th NSR royalty on all silver produced from the
Copperwood and White Pine North projects by paying an additional $23 million to Highland within 60 days following the delivery
of a feasibility study on the White Pine North Project.
4
Management’s Discussion and Analysis
Year ended June 30, 2021
To secure the payment of future royalties, 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 Highland’s subsidiaries. A mortgage will
also be recorded on the White Pine North properties.
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 as part of the 2021 Osisko Agreement, Osisko is entitled to nominate up to two individuals as directors of the
Company. The second nominee may be nominated by Osisko following the payment of the remaining $23 million from the Silver
Option Royalty.
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 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 GMSI was completed in June 2018 and 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 Properties (“NI 43-101”).
2018 Feasibility Study Highlights
•
•
•
•
•
•
•
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;
Initial capital expenditures of $275.0 million;
Life-of-mine (“LOM”) cash costs of $1.75/pound, including royalties;
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 5.5 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, including an amendment to the Mining
Permit originally granted in 2012, approved by EGLE in December 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.
5
Management’s Discussion and Analysis
Year ended June 30, 2021
In November 2018, the Company received from EGLE 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.
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 1.5% NSR royalty on all metals produced (other than silver) and a 3/26th NSR
royalty on silver production from the Copperwood Project are payable to Osisko, as described further in the Royalty Agreements
with Osisko section.
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. CRC
had acquired the original White Pine mine in 1937. 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.
In June 2019, the Company retained the services of GMSI to prepare a preliminary economic assessment ("PEA") and a
mineral resource estimate for the White Pine North Project. The mineral resource estimate and results of the PEA were released
on September 23, 2019. The technical report supporting the results was prepared pursuant to NI 43-101 and is available on
SEDAR and on the Company’s website.
6
2019 PEA Highlights
Management’s Discussion and Analysis
Year ended June 30, 2021
• 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.
MINERAL LEASE AGREEMENT, WHITE PINE, MICHIGAN
In April 2015, the Company entered into an a 20-year lease agreement, with an option for an additional five years, for certain
mineral rights located in White Pine, Michigan. In connection thereto, an amount of $575,000 was paid to the lessor over a period
of four years until December 31, 2020. The lease agreement also calls for annual lease payments of $30,000 in 2021 (payment
made) and 2022. From 2023 and thereafter, annual lease payments of $1,000,000 will be due as advance royalty payments.
The base NSR royalty payable on production from the leased mineral rights are 2% for copper and 2.5% for silver.
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.
7
Management’s Discussion and Analysis
Year ended June 30, 2021
CORPORATE ACTIVITIES
Planned restructuring of the Board and Management
The Company, following the completion of the first tranche of the private placement and the sale of UPX to Sweetwater, has
agreed with Orion, its most significant shareholder, to add qualified independent directors to its Board of Directors. The Company
anticipates ultimately increasing its Board to seven members, of whom a majority are expected to be independent. In addition,
the Company anticipates expanding its management team to address increased activity levels at the Copperwood and White
Pine North projects.
On August 27, 2021, concurrently with the completion of the first tranche of the private placement and the sale of UPX, long-
time director David Fennell agreed to step down as Executive Chairman and to remain on the Board as an outside director until
the next annual general meeting of the Company to be held on December 15, 2021. Jean Desrosiers and John Johnson will
also not stand for re-election. Osisko intends to exercise its right to nominate one individual to stand for election as director. The
Company has initiated a search for additional directors to strengthen and diversify the Company's Board of Directors.
Rights of Certain Shareholders
Following their participation in the Company’s non-brokered private placement of units completed in 2017, Greenstone received
nomination rights for the sale of the Company’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 interest in future equity financings.
8
SELECTED CONSOLIDATED FINANCIAL INFORMATION (1)
The following selected financial information should be read in conjunction with the Company’s June 30, 2021 and 2020
consolidated financial statements.
Management’s Discussion and Analysis
Year ended June 30, 2021
Financial Position
Cash
Exploration and evaluation assets
Total assets
Credit Facility, including accrued interest
Note payable
Promissory Note, including accrued interest
Shareholders' equity (deficit)
Comprehensive Income (Loss)
Net income (loss) for the year
Basic and diluted earnings (loss) per share
Cash Flows
Operating activities
Investing activities
Financing activities
June 30,
June 30,
2021
$
2020
$
2,982,600
164,327
38,740,479
20,636,987
41,791,395
20,889,107
6,218,415
5,006,142
-
55,000
17,754,189
16,535,251
15,307,674
(1,899,822)
Year ended
Year ended
June 30,
June 30,
Year ended
June 30,
2021
$
2020
$
2019
$
17,679,781
(4,371,338)
(22,155,581)
0.04
(0.01)
(0.05)
(386,342)
(1,809,294)
(4,029,635)
2,742,725
(172,744)
(323,373)
432,463
1,578,448
1,476,917
1) The Selected Consolidated Financial Information was derived from the Company’s June 30, 2021 and 2020 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, 2021 and 2020.
9
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, 2021
Balance at June 30, 2019
Property payments in cash
Effect of foreign exchange
Balance at June 30, 2020
Property payments in cash
Sale of a silver royalty
Reversal of write-down
Write-down
Effect of foreign exchange
Balance at June 30, 2021
Copperwood
White Pine
UPX
Other
Project
North Project
Property
properties
$
$
17,102,484
3,132,246
209,775
25,000
-
-
17,312,259
3,157,246
227,275
(1,500)
-
-
-
30,000
(1,950)
-
-
7,072
$
-
-
-
-
-
-
18,010,077
$
Total
$
151,084
20,385,814
31,135
265,910
(14,737)
(14,737)
167,482
20,636,987
-
-
-
257,275
(3,450)
18,010,077
-
-
(197,904)
(197,904)
30,422
37,494
17,538,034
3,192,368
18,010,077
-
38,740,479
The amounts capitalized during the year ended June 30, 2021 consisted of lease payments of $227,275 related to the
Copperwood Project and $30,000 related to the White Pine North Project. In accordance with the 2021 Osisko Agreement
described in the Royalty Agreements with Osisko section, the Company received on June 29, 2021 an initial payment of
$3,000,000 from Osisko. This payment was accounted for as a sale of a portion of the Copperwood and White Pine North
projects and as such, an amount of $3,450 reduced the carrying amounts of the Copperwood and White Pine North projects
with the difference accounted for as a gain on disposal of exploration and evaluation assets. As a result of the sale of the UPX
Property (described in the Sale of UPX Property section), the Company reversed a previous write-down of exploration and
evaluation assets related to the UPX Property, in the amount of $18,010,077. On April 22, 2021, the Company received a lease
termination notice for the non-payment of the December 2020 rental fee, related to an exploration property located in the Upper
Peninsula, Michigan, on which the Company had conducted minimal work in the past. Consequently, the Company has written
off the amount of $197,904 in exploration and evaluation assets related to this mineral lease.
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.
10
Exploration and evaluation expenses charged to the statements of comprehensive loss during the years ended June 30, 2021
and 2020 are detailed below.
Management’s Discussion and Analysis
Year ended June 30, 2021
Labour
Studies
Contractors
Copperwood
White Pine
Other
June 30, 2021 June 30, 2020
Project North Project
projects
Total
Total
Year ended
Year ended
$
$
$
$
$
35,874
58,804
(4,510)
90,168
181,771
7,393
84,332
-
207,176
-
-
91,725
174,323
207,176
217,439
Office, overhead and other administrative costs
54,742
94,680
51,626
201,048
212,806
Loss on sale of capital assets
-
-
-
-
1,225
98,009
444,992
47,116
590,117
787,564
Results for the year ended June 30, 2021 compared to year ended June 30, 2020
The Company realized net income of $17,679,781 ($0.04 per share) during the year ended June 30, 2021 (“FY 2021”) compared
to a net loss of $4,371,338 ($0.01 per share) during the year ended June 30, 2020 (“FY 2020”). Net income in FY 2021 included
the reversal of a previous write-down of exploration and evaluation assets related to the UPX Property in the amount of
$18,010,077 and a gain of $2,996,550 on the partial disposal of exploration and evaluation assets related to the Copperwood
and White Pine North projects, following Osisko’s exercise of a portion of its option to purchase a 100% NSR on future silver
production from these projects. As part of net income during FY 2021, the Company recorded finance expense of $2,031,082
($2,385,385 in FY 2020) composed mostly of interest of $1,218,938 on the Note due to RTX ($1,407,183 in FY 2020) and the
interest expense of $807,007 on the loan due to Osisko and Greenstone under the Credit Facility ($952,141 in FY 2020). Other
significant items included exploration and evaluation expenses of $590,117 ($787,564 in FY 2020), management and
administration expenses of $1,005,129 ($978,320 in FY 2020) and a gain on foreign exchange of $527,315 (a loss on foreign
exchange of $107,049 in FY 2020) mostly due to the conversion of the loan due to Osisko and Greenstone to Canadian dollars.
The Company incurred exploration and evaluation expenses of $590,117 in FY 2021 compared to $787,564 in FY 2020. In FY
2021, expenses consisted mostly of fees related to the completion of an environmental site assessment relating to the final
closing of the White Pine North acquisition and maintenance costs related to the former White Pine mine site. In FY 2020,
expenses consisted mostly of fees related to the completion of the PEA on the White Pine North Project and the maintenance
costs at the former White Pine mine site.
Management and administration expenses of $1,005,129 in FY 2021 compared to $978,320 in FY 2020 reflect mostly additional
fees of $52,000 to independent directors of the Company for services performed as members of a special committee put in place
to review potential strategic transactions in 2019 and 2020 (wages and fees of $687,727 in FY 2021 compared to $614,105 in
FY 2020), higher professional fees due mostly to higher legal fees resulting from the completion of the 2021 Osisko Agreement,
and the advancement of work required to complete the final closing of the acquisition of the White Pine North Project and the
sale of UPX ($184,333 in FY 2021 compared to $158,197 in FY 2020), lower office costs due to reduced office rental charges
($102,730 during FY 2021 compared to $143,545 in 2019), reduced investor relations and travel expenses mostly due to travel
restrictions resulting from the COVID-19 pandemic and the Company’s financial condition ($2,111 in FY 2021 compared to
$40,872 in FY 2020) and higher reporting issuer costs ($28,228 in FY 2021 compared to $21,601 in FY 2020).
11
Management’s Discussion and Analysis
Year ended June 30, 2021
Share-based compensation totaled nil in FY 2021 ($27,646 in FY 2020) as the Company has not granted any stock options
since May 2018.
On April 22, 2021, the Company received a lease termination notice for the non-payment of the rental amount that was due in
December 2020 on a mineral property under lease since December 2012; consequently, the Company wrote-off the full amount
of $197,904 in exploration and evaluation assets that had been capitalized for this mineral property.
4th quarter ended June 30, 2021 compared to the 4th quarter ended June 30, 2020
During the 4th quarter ended June 30, 2021, the Company realized net income of $20,160,998 ($0.04 per share) compared to a
net loss of $647,037 (nil per share) during the 4th quarter ended June 30, 2020. Net income during the 4th quarter ended June
30, 2021 included the reversal of a previous write-down of exploration and evaluation assets related to the UPX Property in the
amount of $18,010,077. Also, in June 2021, Osisko exercised a portion of its option to purchase a 100% NSR on future silver
production from the Company’s projects and paid at that time an amount of $3,000,000. This payment was accounted for as a
sale of a portion of the Copperwood and White Pine North projects and as such, an amount of $3,450 reduced the carrying
amount of these projects with the difference of $2,996,550 accounted for as a gain on disposal of exploration and evaluation
assets.
During the 4th quarter ended June 30, 2021, the Company also recorded finance expenses of $375,518 ($561,504 during the
comparative period in 2020) on the Note due to RTX and the loan due to Greenstone and Osisko. Other significant items included
exploration and evaluation expenses of $92,130 ($107,341 in 2020), management and administration expenses of $268,585
($186,951 in 2020) and a gain on foreign exchange of $91,852 (a gain on foreign exchange of $232,130 in FY 2020) mostly due
to the conversion of the loan due to Osisko and Greenstone to Canadian dollars.
Selected Quarterly Financial Information
The following is a summary of the Company’s financial results for the past eight quarters:
Period ended
June 30, 2021 (a)
March 31, 2021 (b)
December 31, 2020 (c)
September 30, 2020 (d)
June 30, 2020 (e)
March 31, 2020 (f)
December 31, 2019 (g)
September 30, 2019 (h)
Basic and
Net income
diluted earnings
Revenues
(loss)
(loss) per share
$
-
-
-
-
-
847
1,526
3,061
$
20,160,998
(844,542)
(717,757)
(918,918)
(647,037)
(1,386,660)
(1,042,933)
(1,294,708)
$
0.01
(0.00)
(0.00)
(0.00)
(0.00)
(0.00)
(0.00)
(0.00)
12
(a) Includes the reversal of a previous write-down of exploration and evaluation assets related to the UPX Property in the amount of $18,010,077,
a gain on disposal of exploration and evaluation assets related to the Copperwood and White Pine North projects of $2,996,550, exploration
expenses of $92,130 and finance expenses of $375,517.
Management’s Discussion and Analysis
Year ended June 30, 2021
(b) Includes exploration expenses of $115,376 and finance expenses of $534,094
(c) Includes exploration expenses of $201,298 and finance expenses of $571,046
(d) Includes exploration expenses of $181,31 and finance expenses of $550,425
(e) Includes exploration expenses of $107,341 and finance expenses of $561,504
(f) Includes exploration expenses of $109,031 and finance expenses of $604,905
(g) Includes exploration expenses of $188,545 and finance expenses of $612,804
(h) Includes exploration expenses of $382,647 and finance expenses of $561,504
Liquidity and Capital Resources
At June 30, 2021, the Company had a working capital deficiency of $23,187,976 compared to a working capital deficiency of
$22,321,872 at June 30, 2020. The increase in the working capital deficiency during the year ended June 30, 2021 is mainly
attributable to i) exploration and evaluation expenses of $590,117; ii) management and administration expenses of $1,005,129;
iii) lease payments of $257,275 related to the Copperwood and White Pine North projects; iv) the recording of accrued interest
of $1,218,938 on the Note of $15,000,000 million in favour of RTX and accrued interest and loan accretion of $807,007 on the
$5,000,000 Credit Facility described below; partially offset by the proceeds of $3,000,000 received from Osisko in June 2021
following the partial exercise by Osisko of its option to purchase a 100% NSR on future silver production from the Company’s
projects.
On May 20, 2019, the Company entered into a Credit Facility with Greenstone and Osisko (collectively, the "Lenders"). Under
the terms of the Credit Facility, 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 Credit Facility were received by the Company in February 2020. On
September 4, 2020, pursuant to an amendment to the Credit Facility, Osisko made available to the Company an additional
amount of $500,000 increasing the total indebtedness under the Credit Facility to $5,000,000 plus accrued interest. The loan
bears interest at a rate of 12% per annum and since October 31, 2020, the loan as well as accrued interest were payable on
demand.
Subsequent to June 30, 2021, the Company completed a non-brokered private placement for total gross proceeds of Can $26.3
million, completed the sale of UPX Minerals to Sweetwater for a cash consideration of $3 million and the assumption by
Sweetwater of the $15 million principal amount plus accrued interest owing to RTX, and settled the amount of $6.3 million due
to Osisko and Greenstone under the Credit Facility, resulting in the Company being debt-free with a working capital of
approximately $15.0 million as of the date of this MD&A.
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 mineral projects, adding value to these projects and ultimately taking them to production or obtaining
sufficient proceeds from their disposal. As at June 30, 2021, managed capital was $39,280,278 ($19,696,571 at June 30, 2020).
13
There were no changes in the Company’s approach to capital management during the year ended June 30, 2021. The Company
is not subject to any externally imposed capital requirements as at June 30, 2021.
Management’s Discussion and Analysis
Year ended June 30, 2021
Off-Balance Sheet Arrangements
As at June 30, 2021, the Company has no off-balance sheet arrangements.
Transactions with Related Parties
In addition to the Credit Facility with two of the then Company’s shareholders described in the Liquidity and Capital Resources
section, during the year ended June 30, 2021, the Company incurred administration expenses of $64,287 from Reunion Gold
Corporation (“Reunion”), a related party by virtue of common key management and director ($77,241 in 2020). As at June 30,
2021, the Company had an amount payable of $126,051 to Reunion ($38,859 at June 30, 2020).
Remuneration to directors and key management of the Company, including the Executive Chairman, the President and CEO
and the CFO, totaled $560,233 during the year ended June 30, 2021 ($509,772 in 2020), as more fully detailed in Note 19 to
the June 30, 2021 and 2020 consolidated financial statements filed on SEDAR.
The sale of UPX Minerals to Sweetwater, an affiliate of Orion, as described in the Sale of the UPX Property section and the
participation of insiders in the Offering as described in the Private Placement section are related party transactions that occurred
after the year ended June 30, 2021.
Outstanding Share Data
As at October 26, 2021, the Company has 736,363,619 common shares issued and outstanding, 131,714,965 share purchase
warrants exercisable at a price of Can $0.18 per share until August 27, 2023 and 7,525,000 stock options outstanding with an
average exercise price of Can $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. The significant accounting policies of Highland
are presented in Note 3 to the June 30, 2021 and 2020 consolidated financial statements filed on SEDAR.
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
14
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 and going concern. Details of
the significant accounting judgments and estimates are presented in Note 3 to the June 30, 2021 and 2020 consolidated financial
Management’s Discussion and Analysis
Year ended June 30, 2021
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, credit risk, interest rate risk and currency 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’s ability to continue as a going concern is dependent on
management’s ability to raise the funds required for its continued operations.
The following table summarizes the contractual maturities of the Company’s financial liabilities at June 30, 2021:
Accounts payable and accrued liabilities
Credit facility (a)
Promissory note (b)
Carrying
Settlement
amount
amount
$
$
Within
1 year
$
2,236,842
6,218,415
2,236,842
2,236,842
6,218,415
6,218,415
17,754,189
17,754,189
17,754,189
26,209,446
26,209,446
26,209,446
Over
2 years
2 years
$
-
-
-
-
$
-
-
-
-
(a) This amount was settled on August 27, 2021 concurrent with the closing of the private placement described in the Private Placement section.
(b) As described in the Sale of UPX Property section, the Note was assumed by Sweetwater as part of the sale of UPX Minerals to Sweetwater
on August 27, 2021.
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 is 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 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
15
Management’s Discussion and Analysis
Year ended June 30, 2021
subject to floating interest rates. Sensitivity to a plus or minus 1% change in interest rates would affect profit or loss by
approximately $148,000.
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 $62,000 as at June 30, 2021 ($50,000 as at June 30, 2020).
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 dollars. The consolidated entity does not presently enter
into hedging arrangements to hedge its currency risk. 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, 2021, financial assets and liabilities denominated in a foreign currency consisted of cash of $1,274,152, accounts
payable and accrued liabilities of $315,699, and credit facility of $6,218,415. The impact on profit or loss of a 10% increase or
decrease in the US dollar against the Canadian dollar would be approximately $525,000.
OTHER RISKS AND UNCERTAINTIES
The Company 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 the Company’s overall operations and financial condition and could materially affect the
value of the Company’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 the Company could be facing. Additional risks or uncertainties not presently known
to the Company or that the Company currently considers immaterial may also impair its business operations. The Company
cannot give assurance that it will successfully address these risks. Readers should carefully consider these risks and
uncertainties.
Requirement for additional capital
The ability of the Company to achieve its plans and objectives is dependent on its ability to raise sufficient amount of capital
through equity financings, debt financings, joint venture, sale of projects and / or other means. The Company will need substantial
amount of funds to develop its Copperwood and White Pine North Projects and to place them into commercial production. If
adequate financing is not available, the construction of a mine and the commencement of production may be delayed indefinitely.
The Company’s ability to raise additional funds will depend on a number of factors including the market’s perception of its mineral
projects, the results of the studies and work programs on the projects, the price of and demand for copper and other metals, the
state of the capital market to finance mineral resource projects and global market conditions in general, social acceptability for
16
Management’s Discussion and Analysis
Year ended June 30, 2021
the development of the projects and regulatory approvals. No assurance can be given that additional capital will be available at
all or available on terms acceptable to The Company.
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
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 members of the
Company’s management have mine construction and operating experience, as a corporation, the Company does not
have any experience in taking a mining project to production; as a result, the Company’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. The Company has taken steps
to verify title with respect to its most material mineral properties. Although the Company believes that titles are in good
standing there is no guarantee that title to such mineral properties will not be challenged or impugned.
•
The Company’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 the Company 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 North Project which
is subject to a consent decree; as part of the acquisition of the White Pine North Project, the Company has assumed
17
Management’s Discussion and Analysis
Year ended June 30, 2021
environmental responsibilities and risks related to the former White Pine mine site which Highland may be unable or
choose not to insure.
• Necessary permits to operate may not be granted or may be granted later than anticipated.
•
The executive officers, directors, and several shareholders of Highland (including Orion, Condire and Greenstone) and
their affiliated entities together beneficially own a majority of Highland’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
shareholder approval, 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 the Company 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. The Company may need to
obtain the services of qualified people located outside of the USA which would 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.
• 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.
• 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
18
Management’s Discussion and Analysis
Year ended June 30, 2021
and regulations may require significant capital outlays, including obtaining additional permits, and may cause material
changes or delays in, or the cancellation of, operations.
• 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 expectations or beliefs
of the Company’s management regarding future events. Forward-looking statements include but are not limited to statements
with respect to: funding requirements to explore and develop the Copperwood and White Pine North projects; the estimation of
mineral resources and mineral reserves; the timing and cost of the construction of the Copperwood Project; the timing and
amount of estimated future production, costs of production and capital expenditures; 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 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 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, 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 actual results, performance or achievements to differ materially from those described in these forward-
looking statements, there may be other factors that cause results, performance or achievements not to be as anticipated,
estimated or intended.
There can be no assurance that these forward-looking statements will prove to be accurate, as actual results, performance or
achievements could differ materially from those anticipated in such statements. Accordingly, readers should not place undue
reliance on these forward-looking statements.
19
Management’s Discussion and Analysis
Year ended June 30, 2021
CAUTIONARY NOTE TO U.S. INVESTORS CONCERNING RESOURCE ESTIMATES
The resource estimates in this MD&A were prepared in accordance with NI 43-101 adopted by the Canadian Securities
Administrators and it contains the terms “measured”, “indicated” and “inferred” resources. Although these terms are recognized
and required in Canada, the U.S. Securities and Exchange Commission ("SEC") does not recognize them. The SEC permits US
mining companies, in their filings with the SEC, to disclose only those mineral deposits that constitute “reserves”. Under United
States standards, mineralization may not be classified as a reserve unless the determination has been made that the
mineralization could be economically and legally extracted at the time the determination is made. United States investors should
not assume that all or any portion of a measured or indicated resource will ever be converted into “reserves”. Further, “inferred
resources” have a great amount of uncertainty as to their existence and whether they can be mined economically or legally, and
United States investors should not assume that “inferred resources” exist or can be legally or economically mined, or that they
will ever be upgraded to a higher category.
ADDITIONAL INFORMATION AND CONTINUOUS DISCLOSURE
This MD&A has been prepared as at October 26, 2021. 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).
20